Sarah Palin-TransCanada Pipeline to Somewhere

Last Updated Sep 26, 2008 3:43 AM EDT

  • Transcanada_logoThe Company: TransCanada, an energy infrastructure company.
  • The Filing: September 10, 2008 Project Update Presentation.
  • The Finding: On September 3, TransCanada said it acquired the Bison Pipeline project from Northern Border Pipeline Co in order to attract US Rockies producers who are interested in moving their growing natural gas production to US Midwest markets. Left unsaid, however, was the visibility this transaction provides in demonstrating the company's experience in building and operating pipelines, which will be critical to winning ultimate federal approval to operate the gas-lines on the much-delayed Alaskan North Slope natural gas project.
The Upshot: BP and ConocoPhillips had tried unsuccessfully to solicit the other significant leaseholder, Exxon Mobil, to join their pipeline venture known as Denali to compete with TransCanada. The license battle ended on August 29 when Alaska Governor Sarah Palin signed a bill authorizing the state to award the Alaskan Pipeline contract exclusively to TransCanada.

TransCanada's Alaskan Pipeline Plan Although the gas-line license does not guarantee commencement of construction, it does mean TransCanada can move forward on federal permit applications, including environmental and safety reviews. In my opinion, a walk-though of TransCanada's more than 36,500 miles of North American pipeline should provide sufficient evidence of the company's ability to safely build and operate the North Slope pipeline.

BP and Conoco are moving forward on a separate proposal for a similar gas pipeline that was not vying for a state license (and $500 million in matching state funds to offset initial costs of obtaining regulatory approvals).

The natural gas pipeline, which will connect a new gas treatment plant at Prudhoe Bay on Alaska's North Slope to a major hub in Alberta, is expected to cost more than $26 billion to construct. These monies are exclusive of estimated capital expenditures of more than $16 billion on other pipeline and energy projects planned between 2008 and 2012. The company predicts $3 billion available per annum in cash flow will be available to fund expansion plans; asset monetization, such as pipeline spinoffs, is another source of potential funding, according to recent management presentations to Wall Street analysts.

In addition, TransCanada will need to secure shipping commitments from the aforementioned energy producers (which control most of the North Slope gas resources).

TransCanada is targeting to have its pipeline in service by September 2018. Until then, the pipeline exists only on the drawing board, with the natural gas still stuck in the frozen ground.

The Questions: Would it make more economic sense for BP-Conoco and TransCanada to 'make nice' and merge their pipeline operations on this deal? Can a Sarah Palin in the White House accelerate a project still frozen in time?

  • David Phillips

    David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.