TransCanada's (TRP) Mexican Projects Face Hurdles and Delays

TransCanada Corporation 's TRP two natural gas pipeline projects recently took a hit in central Mexico. The total cost of the projects is more than $1 billion. Social and legal hurdles are the main reasons behind the construction halts at the Tuxpan-Tula Pipeline and Tula-Villa de Reyes Pipeline projects, per the Mexican unit of TransCanada.

About the Projects

In November 2015, TransCanada was awarded with a $500-million contract for the 163-mile Tuxpan-Tula Pipeline project. It was followed by another contract award worth $550 million for the Tula-Villa de Reyes Pipeline project in April 2016. The purpose of the pipelines is to transport around 886 million cubic feet of natural gas per day from South Texas to the inner part of Mexico. The pipelines were earlier expected to come online in 2018 but the dates have been pushed back. Now, the Tuxpan-Tula Pipeline is expected to be in service in the second half of 2020 while Tula-Villa de Reyes is likely to come online in second-half 2019.

Projects' Hurdles

TransCanada claims that illegal requests from social groups in the state of Hidalgo have brought about the situation, which makes it uncomfortable to further invest in the projects. Moreover, strong opposition from indigenous groups has attributed to the uncertainty of the projects. Legal barriers, crafted by landowner right issues along with environmental safety, from the indigenous tribes and local farmers pose obstruction to the developments. Additionally, the company now expects the projects' costs to increase due to more than estimated expenses for permits from different municipalities.

Notably, three more pipeline projects from different makers in the country are facing similar problems, which add to the woes of Mexico's natural gas network.

However, the company reported that the significant delays in the projects, stemming from the above-mentioned hurdles, are not affecting it financially. Moreover, the deal with the Mexican government allowed TransCanada to collect revenues from the former since first-quarter 2018, as the delays are not caused by the company itself. Presently, TransCanada is looking for other route options for the Hidalgo stretch.

Price Performance

TransCanada has lost 7.7% in the past year compared with 19.5% collective fall of the industry it belongs to.

Zacks Rank and Stocks to Consider

Currently, TransCanada has a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks given below:

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New York, NY-based Hess Corporation HES has a Zacks Rank #2 (Buy). Its earnings for 2018 are expected to surge around 100% from the 2017 level.

El Dorado, AR-based Murphy Oil Corporation MUR carries a Zacks Rank #2. The company's sales for 2018 are expected to grow nearly 20% from 2017.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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