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TransCanada still banking on Keystone XL approval

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TransCanada still banking on Keystone XL approval

Despite a resounding "no" from the ObamaAdministration, US$2.4 billion in written-off costs, and a pending NAFTA appealand court challenge, TransCanadaCorp.'s C$8 billion Keystone XL oil pipeline remains in the company'slong-term plans.

Shipping contracts remain in place, most of the landowneragreements that are needed have been obtained and miles of pipe awaiting burialsits in fields in Montana, CEO Russell Girling said April 29 at the company'sannual meeting in Calgary, Alberta. Girling did not say what it would take torevive the regulatory process for the oil-sands-to-U.S. Midwest conduit, but itis still on TransCanada's radar.

"In addition to our near-term projects, we continue toadvance [C]$45 billion of longer-term projects," Girling told thecompany's annual stockholder gathering. The project slate "includes theEnergy East and Keystone XL crude oil pipelines, which together could provide 2million barrels per day of much-needed long-haul capacity."

U.S. Secretary of State John Kerry brought the Keystone XLplan to a grinding halt in November 2015 after seven years ofconsideration, nixing a needed Presidential Permit for the cross-border lineamid concern that its construction would exacerbate emissions from Alberta'soil sands region. Girling expressed optimism that changes in governments andclimate policy at both the provincial and federal levels in Canada might swaythe Obama administration's view of the project. The company C$6 million in Keystone XL costsin the first quarter.

As Girling spoke to shareholders who gathered at aconference facility in Canada Olympic Park, a key venue for the 1988 WinterOlympics on the outskirts of TransCanada's hometown, Alberta Premier RachelNotley was making the rounds in Washington and other Eastern U.S. cities topitch the province's climate strategy, which includes an emissions cap on oilsands developments and a far-reaching carbon tax. Her visit, almost one yearafter her socialist New Democratic Party ousted the right-leaning party thatruled the province for more than four decades, comes on the heels of a visit byPrime Minister Justin Trudeau, who was also in the U.S. to promote hisgovernment's environmental credentials.

"Certainly we believe that things are shifting from apolicy perspective," Girling said. "The government has been changed,[as has] the government's position with respect to climate change. Certainly onthe Alberta level, again we see the change in government. They have initiatedpolicy here in the province, putting in place a cap on the emissions from theoil sands and putting in place a carbon tax. Certainly the kind of things that,at least at the time were perceived to be problems — those were the words theyused at the time of denial — [the province] seems to be working hard to shoreup its reputation in those places. I would hope that down the road there wouldbe an opportunity to have a conversation about bringing this important projectback."

The line remains important for Alberta oil sands producers,whose product has been stung harder by the drop in commodities prices thanlighter crudes because of North American pipeline bottlenecks and a lack ofaccess to markets outside of the U.S., he said.

"Keystone XL remains, I think, a very critical andneeded piece of infrastructure for North America," Girling said."What we know is that Canadian oil sands production will continue to grow,just with the projects that they have underway right now that they're alreadycommitted to, we'll see about 500,000 bbl/d by the end of the decade. Themost-critical issue for them at this time is getting market access, and thesingle-biggest refining market in the world is the U.S. Gulf Coast."

Keystone XL would provide a short cut to TransCanada'sexisting Keystone network, taking crude across Montana, South Dakota andNebraska to a hub in Steele City, Neb. From there it could be shipped to theMidwest or down an existing link that ends on the Gulf Coast.

At a press conference after the meeting, Girling contrastedthe cost of overcoming regulatory hurdles in Canada and the U.S. with Mexico.TransCanada recently won a contract to build a US$550 million gas pipelineproject with the Mexican government. Last week, Canada's national energyregulator issued anexpanded review period for the company's proposed C$15.7 billion Energy Eastpipeline, into which Girling estimated the company has sunk C$700 million sofar.

"Clearly what we've found is the risk that we need totake in Mexico to participate in a large-scale infrastructure investment is farless than it is in the United States" and Canada, Girling said. "InMexico it costs us something like [C]$5 million to put together a bid and makeour bid. If we win, we get our permits, we work with landowners and we startconstruction right away. So our capital at risk, if you will, is [C]$5 million,if we lose, we're out [C]$5 million. In the case of Keystone XL, we spentsomewhere around US$2.5 billion to finally determine whether or not we couldeven get a permit. And when you look at Energy East we're into that project[C]$700 million and we don't even know whether or not we'll get a permit."

Despite regulatory problems on some of its projects,TransCanada's acquisition of Columbia Pipeline Group for about US$13billion including debt is moving smoothly toward an expected closing in thesecond half. Columbia filed its draft proxy statement with the Securities andExchange Commission and mailed it after receiving no comment, Girling said.TransCanada has not received any feedback on its foreign investment review orHart-Scott-Rodino Act filings.

"Things are going well with the closing, we've made ourfilings," Girling said. "We haven't seen any major stumbling blocks.I think one of the keys again for this acquisition for us was it was in aregion where we weren't a major player, and therefore I think we have limitedcompetition issues. From a transaction perspective it's an all-cash offer, wetried to create a situation where it was a very compelling value for both theirshareholders and our shareholders."