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Is Canada Eyeing Kinder Morgan's Trans Mountain Project?

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Per sources, Kinder Morgan Inc’s (KMI - Free Report) Trans Mountain oil pipeline along with its expansion project is likely to be bought by Canada. The government intends to ride out the uncertainties over the construction of the pipeline. The project is owned by the company’s subsidiary — Kinder Morgan Canada Ltd.

No details were disclosed by the respective parties due to the confidential nature of the discussions. An email from the company stated that it will not divulge any details unless two of its objectives were met. The first objective includes permission to undertake construction through British Columbia. The second target comprises insurance of the company’s shareholders.

It is likely that Canada will buy the pipeline outright, which is currently the most feasible option. The value of the deal will be announced today during prime minister Justin Trudeau’s expected cabinet meeting.

Initially, Canada offered to cover the expenses for the expansion project but is now contemplating on buying it. Post the takeover, the government intends to sell the project to complete the construction. There is no clarity on whether other Kinder Morgan assets will be included in the sale.

In April, Kinder Morgan stated that it planned to defer bulk of work on its C$7.4-billion ($5.8 billion) Trans Mountain pipeline expansion and is likely to abandon the project if Canada’s provincial and federal governments cannot reach an agreement by May 31.

The pipeline expansion continues to face criticism from various provincial governments of British Columbia as well as municipalities, native groups and environmental activists. This factor indicates the uncertainty over key energy projects in Canada.

The shortage of pipelines and rail transportations has disrupted the production schedule of the companies in Western Canada. The companies had to slow activities due to obstruction in crude transportation. In view of this, Alberta's provincial government supports the project that has also received approval from Canada's federal government.

Details related to the deal are expected to be announced by May 29, 2018.

Price Performance

Kinder Morgan’s shares have lost 1.9% in the past three months, against the industry’s 1.2% growth.


Zacks Rank & Key Picks

Kinder Morgan carries a Zacks Rank #3 (Hold).

A few better-ranked players in the same sector are Nine Energy Service, Inc (NINE - Free Report) , Equinor ASA (EQNR - Free Report) and CVR Refining, LP . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nine Energy Service is engaged in delivering onshore completion and production services to unconventional oil and gas resource development. The company pulled off a positive earnings surprise of 28.57% in the preceding quarter.

Equinor, based in Norway, is a major international integrated oil and gas company. It witnessed an average positive earnings surprise of 11.53% in the last four quarters.

Sugar Land, TX-based CVR Refining is an independent downstream energy partnership with refining and associated logistics properties in the Midcontinent United States. The company delivered an average positive earnings surprise of 7.05% in the last four quarters.

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