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UPDATE: Canadian government to buy Trans Mountain pipeline, expansion for C$4.5B

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UPDATE: Canadian government to buy Trans Mountain pipeline, expansion for C$4.5B

The Canadian government agreed to acquire the Trans Mountain pipeline system and expansion project from Kinder Morgan Canada Ltd. for C$4.5 billion, two days before the company's deadline for a regulatory accord on the stalled project.

The government will also coordinate with the Kinder Morgan Inc. subsidiary's board in finding a third-party buyer for the pipeline and the expansion project through July 22, according to a May 29 news release.

The federal government agreed to fund planning and construction work for the oil sands pipeline expansion project through a guarantee of its expenditures under a recourse credit facility until deal closing, which is scheduled for the third or fourth quarter.

The Houston-based Kinder Morgan expects proceeds of US$2 billion from the sale, according to a separate news release, while Kinder Morgan Canada expects proceeds of C$1.25 billion.

Trans Mountain, operated by Kinder Morgan Canada, carries about 300,000 barrels of petroleum products per day between terminals in Edmonton, Alberta, and Burnaby, British Columbia. The expansion project, estimated to cost C$7.4 billion, would boost the system's capacity to 890,000 bbl/d.

The expansion has been the subject of a regulatory battle among the British Columbia and Alberta provincial governments, the Kinder Morgan companies, and the federal government. The project is federally approved, but the left-leaning coalition led by Premier John Horgan in British Columbia has challenged Trans Mountain, including a proposed regulation limiting the amount of diluted bitumen that can be transported to the province. Alberta, meanwhile, passed a bill that could curtail fuel shipments to British Columbia, its western neighbor.

Horgan's coalition opposes increased shipments of the oil sands product through a port in the populous Lower Mainland. Kinder Morgan had wanted to start construction in the summer so it can finish the project in time to meet contractual commitments to shippers.

Amid the back and forth, Kinder Morgan decided in April to give the federal and provincial governments a May 31 deadline to come to a resolution on the expansion project before it would commit more money to the development, setting the stage for the agreement announced May 29. Canadian Finance Minister Bill Morneau on May 16 said the federal government was prepared to "to indemnify the project against any financial loss derived from Premier Horgan's attempts to delay or obstruct the project."

Kinder Morgan shares were up more than 2% in morning trading, while Kinder Morgan Canada shares were up more than 3% after opening the day with a bigger jump.

TD Securities is financial adviser to Kinder Morgan Canada on the deal.