North American pipeline operator, TransCanada Corp (TRP - Free Report) recently announced that it will arrive at a decision on the investment in the controversial Keystone XL pipeline by Dec 2017. The company will assess the interest of energy companies in the pipeline that will pay for using the same.
The construction of the Canada to Texas pipeline, which was halted by former president Barack Obama in late 2015, was approved by President Donald Trump, following his energy oriented promises in Mar 2017. TransCanada along with its strong earnings announcement for the second quarter stated that its decision on the Keystone XL pipeline will depend primarily on shipping demand and the regulatory outcome of the Nebraska case, which is opposing the project.
The company has already launched an open season, which will end in Sep 28, to find new clients for the pipeline as it has already witnessed huge support from existing exporters.
About Keystone XL
The $7 billion pipeline with 830,000 barrels' capacity was primarily designed to improve oil extraction from Alberta’s oil sands and the Bakken region in the US. These have witnessed huge production growth over the last decade. The absence of Keystone put pressure on railroads and other pipelines nearby.
TransCanada expects that once the project receives approval from the board, it will take six to nine months for preparing the construction crew and fulfilling other requirements, followed by a construction period of two years.
The pipeline has also won votes of confidence from the CEOs of oil producing companies like Cenovus Energy Inc. (CVE - Free Report) and Suncor Energy Inc. (SU - Free Report) , as they think the Canadian energy industry requires additional pipeline capacity. Due to increased demand for oil in Asia, exporters are looking for avenues to move oil to the West Coast.
We would like to remind investors that production at Suncor’s Fort Hills oil-sands project will start in 2017 and Canadian Natural Resources Limited (CNQ - Free Report) will also finish another phase of expansion in its Horizon mine. This will increase the demand for the Keystone XL pipeline considerably. The pipeline will connect Hardisty, Alberta, with Steele City near the Nebraska-Kansas state line, where it will join an existing pipeline network to transport heavy crude to the refineries along the Texas Gulf Coast.
TransCanada believes that once the pipeline comes online, it will increase the company's dividend growth outlook, as it is planning to raise its annual dividend at the upper end of 8% - 10% range through 2020.
We would also like investors to know that the company is spending $1.6 billion to expand its natural gas pipeline network in Western Canada. The upgrade of TransCanada's Nova Gas system involves installing 275 kilometers of extra pipeline with additional metering stations and compression.
About the Company
TransCanada is a North American energy company, focused on natural gas transmission and power services. Its pipeline transports the majority of Western Canada's natural gas production to growing markets in Canada and the United States.
The company reported earnings of 56 cents per share in the second quarter of 2017, beating the Zacks Consensus Estimate of 50 cents per share by 12%.
TransCanada sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
TransCanada shares have successfully outperformed the industry to which it belongs to in the past six months. During this time period, the company’s shares have gained 8.3% compared with the industry’s gain of 2%.
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