TransCanada set to boost Keystone pipeline

Turns up the heat on rival Enbridge as it aims to add oils sands link to key U.S. hub

DAVID EBNER
Globe and Mail
31-Jan-2007

CALGARY -- TransCanada Corp. increased the intensity of its competition with archrival Enbridge Inc. yesterday, saying it is ready to spend $700-million (U.S.) more on a proposed oil sands pipeline to expand and extend a project that is already budgeted at $2.1-billion.

TransCanada's Keystone pipeline would be a 3,000-kilometre link connecting Alberta with southern Illinois. The firm yesterday said it is ready to see whether oil producers want to support an added link to a key hub at Cushing, Okla., as well as back total capacity of 590,000 barrels a day, up from 435,000.

Last week, Enbridge said it had "industry support" to spend $2-billion for a new pipeline to move an additional 450,000 barrels to carry increasing output from the oil sands in northern Alberta. It would be on the same route that Enbridge's mainline follows, Canada's largest oil export connection that can carry almost two million barrels a day from Alberta to the U.S. border with a link to Chicago.

TransCanada, Canada's biggest natural gas pipeline company with significant power generation assets, is headquartered across the street in downtown Calgary from Enbridge, an oil pipeline company with some gas pipeline assets. Both are fighting to build the first big new line to handle anticipated oil sands production.

If the Keystone expansion and extension is successful, as much as 200,000 barrels a day of the total 590,000 could move to Oklahoma, with a further potential connection to Texas, TransCanada said on a conference call that discussed quarterly earnings.

"We've had very strong interest from the [oil] shipping community out of Alberta to get more of Keystone down to the Cushing hub and from there down to the Gulf Coast," TransCanada chief executive officer Hal Kvisle said on the call.

Canadian oil first started moving to the hub of Cushing last year when Enbridge's Spearhead connection with a capacity of 125,000 barrels a day linked the city with Chicago. The line immediately had a market impact, increasing prices for lower-grade oil from Canada -- typical of the country's output -- as the product was dispersed to more markets.

Cushing is the physical delivery point of crude oil for contracts of light, sweet crude -- also known as West Texas intermediate -- traded on the New Your Mercantile Exchange.

TransCanada said that if the expansion and extension of Keystone are not successful, it still plans to forge ahead with the original 435,000-barrel-a-day Keystone plan, which is supported by long-term shipping deals of 340,000 barrels a day, led by ConocoPhillips Co.

In the fourth quarter, TransCanada profit fell 23 per cent to $269-million (Canadian) or 55 cents a share from $350-million or 72 cents a year earlier. Excluding a one-time gain in 2005's fourth quarter for the sale of assets, profit in 2006's fourth quarter was up 14 per cent from $235-million or 48 cents.

In all of 2006, excluding the gain from asset sales, profit was $1.05-billion or $2.12 a share, up from $852-million or $1.75.

Stock of TransCanada rose to $39.22, up 16 cents or 0.4 per cent, and is near an all-time intraday high of $41.35 reached early this month.

In a presentation with its conference call, TransCanada said it has produced a total shareholder return, including stock gains and dividends, of 15 per cent in the past year and 20 per cent annually over the past five years.