Analyst Actions: Credit Suisse on TransCanada Keystone XL Pipeline Project Delay
The State Department strikes. "The US Department of State (DOS) announced a delay for the Presidential Permit decision for the proposed TransCanada Keystone XL pipeline project to as early as Q1 2013. The Department of State commented that 'it needs to undertake an in-depth assessment of potential alternative routes in Nebraska.' TRP's press release stated an intention to work with the DOS on new route options for the project. TRP stated, 'we remain confident Keystone XL will ultimately be approved.' The company stated that 14 different routes were studied for Keystone XL, 8 impacted the state of Nebraska and one alternative avoided the Sandhills region. TRP "hopes this work will serve as a starting point for the additional review and help expedite the review process."
Potential positioning. "We view the delay of the Keystone XL pipeline much more positively than an outright rejection of the line. In our view, a series of reasonable accommodations are likely to be made regarding routing, at least, for political appearances. The underlying rationale for the Keystone XL line remains sound and contractually supported. Project delay may actually lead to improved economics as a greater amount of volumes may run through the line. Obviously, a denial of the XL project would open TRP to a large scale write-down of the roughly C$1.9bn spent to date at the end of Q3 2011."
Industry's approach: "By the end of this decade, we continue to believe a broader and more robust pipeline network will exist across North America. In our view, that network will be necessary for the ongoing development of the upstream industry ranging from continued oil sands project development to growing volumes of crude and other hydrocarbons from a variety of basins across the continent. Clearly, timing can be an issue with large scale capital projects that have a lasting and meaningful impact. Yet, over a period of time, delays and deferrals of several quarters or years are not overly meaningful in the context of asset life. Ultimately, we believe a variety of solutions will be required for the benefit of the industry, including selected reversals (Line 9, ENB), Keystone XL ( TRP ), Gateway ( ENB ), and, Wrangler (EPD and ENB)."
Selected stock themes: "Several stock themes come from this infrastructure theme, including the industry's delicate balance of production, pipeline capacity and downstream needs; the need for additional pipeline capacity for oil sands crudes with broader market access (ENB, EPD, KMI, KMP, TRP); the impact on crude oil pricing dynamics affecting both upstream producers and downstream refiners; some of the challenges in building selected types of infrastructure; the locational value of selected existing energy infrastructure in some cases; and the potential re-emergence of a political campaign against a heavier crude slate."