TransCanada hits headwinds

Company takes C$2.9 billion write-down for Keystone XL; more layoffs in store; proposal for Energy East faces stiff opposition

GARY PARK

For Petroleum News

The cost of TransCanada’s unyielding battle to notch victory in a decade-long effort to fend of opponents to Keystone XL resulted in a C$2.9 billion write-down in the final quarter of 2015 when the big energy pipeline company posted a C$2.5 billion loss.

And there’s more pain on the horizon with TransCanada issuing notice that another round of layoffs are in store for its employees on top of November’s cuts which financial disclosure documents released earlier in February showed reduced the payroll by 547 to 5,512.

Chief Financial Officer Don Marchand told analysts that some of the deepest cuts involved management positions, including vice presidents and directors.

“I wouldn’t say we’re done at this point,” he said, referring to a search for more duplication across its business.

However, the non-cash charge related to Keystone XL did not prevent TransCanada from approving its 16th consecutive annual dividend increase.

“Although 2015 was a very challenging year for the energy industry, our C$64 billion portfolio of high-quality energy infrastructure assets performed well,” said Chief Executive Officer Russ Girling.

Setting aside the write-down, TransCanada had earnings of C$453 million, off C$58 million from a year earlier, mainly reflecting low returns from its Canadian power and pipeline divisions.

Girling said many of the assets are underpinned by regulated businesses or long-term contracts that generate predictable cash flows at minimal risk.

“In addition, we are proceeding with C$13 billion of near-term growth opportunities that are expected to be in-service by 2018,” he said.

Those include the Prince Rupert Gas Transmission pipeline, the Coastal GasLink project and the Merrick line, all in British Columbia and dependent on final investment decisions in a shaky LNG sector.

Beyond the near term is the Energy East crude pipeline from the Alberta oil sands to Canada’s Atlantic Coast, targeting offshore exports from its design capacity of 1.1 million barrels per day, which faces relentless opposition, especially from provincial and municipal governments in Quebec, First Nations and environmental activists.

John Soini, the head of Energy East, is waging a quiet lobbying mission in Quebec at a time when the province is establishing itself as a global leader on climate change.

Energy East has also become an issue of national unity in Quebec, where separatists and nationalists openly argue the province should not allow English Canada to win approval for a pipeline to carry “dirty” crude from the oil sands.

The Alberta and Saskatchewan governments are working hard to convince Quebec Premier Philippe Couillard to replace imports into Eastern Canada of 84,000 barrels per day from Saudi Arabia with Canadian crude.

But Couillard is more focused on reducing Quebec’s greenhouse gas emissions by 37.5 percent from 1990 levels by 2030 by relying on hydroelectricity.

He boasted at the United Nations conference on climate change in December that Quebec is “now recognized as a high-level player - of international caliber - on the issue of climate change.”

Couillard and his allies noted that the Alberta-based Pembina Institute has calculated Energy East would contribute another 30 million metric tons a year of carbon to Canada’s emissions, undercutting the federal government’s goal of reducing emissions by 30 percent from 2005 levels by 2030.

Steven Guilbeault, of Montreal-based environmental group Equiterre said the pipeline would account for about two-thirds of Canada’s allowable emissions under the Paris accord.

“That would leave one-third for the rest of the economy,” he said. “I can’t see how this would fly.”