TransCanada Slumps on Keystone XL Delay - Analyst Blog

Pipeline operator TransCanada Corp.'s TRP controversial Keystone XL pipeline witnessed another setback on the U.S. Department of State's (DOS) announcement of a further delay in the decision on the project.

The effect of the news was evident as shares fell 3.65% to close at $44.87 on Apr 21. A sudden increase in the traded volume also gives an overview of the disturbed investor sentiment.   

The DOS stated on Apr 18 that the federal agencies assessing the project will get additional time to submit their views following the uncertainty created by the pending Nebraska Supreme Court decision on the pipeline's route through the state. The agencies would also look into the large number of public comments submitted on the issue.

TransCanada management expressed its disappointment and frustration over the matter stating that it is another missed opportunity for Americans. The company added that its appeal to stay the Nebraska Supreme Court decision is still valid and should not have an impact on the Keystone XL pipeline decision. However, DOS thinks otherwise as the ‘additional time' does not have a deadline, making it an indefinite delay, for the time being, and an expensive one for TransCanada.
 
The Keystone XL pipeline, if approved, would connect the oil sands of Alberta to the U.S. Gulf. It would run up to 1,179 miles and carry up to 830,000 barrels of oil per day. The pipeline project would not only create jobs but would also be an economic driver for the nation, reducing dependence on foreign oil.

The company said that first phase of the Keystone pipeline, which started operating in 2010, took only 21 months from the appraisal to the approval stage. However Keystone XL, even after 6 years of assessment, is still nowhere near finalization.

Management believes that as oil production is on the rise in North America, not building the pipeline would be a big loss for the nation. Oil will definitely flow into the nation, if not through pipelines, then by accident-prone rail routes.

While the Calgary-based company has already invested around $2 billion in the pipeline project, it is waiting on for the final nod from the Obama Administration. As the impasse over Keystone XL deepens, we remain concerned about its effects on TransCanada. The Keystone project was originally partnered between TransCanada and ConocoPhillips COP, however, in 2009, TransCanada purchased its partners' stake, making it the sole owner.

TransCanada currently has a Zacks Rank #3 (Hold). Meanwhile, one can consider better-ranked players from the broader energy sector like Helmerich & Payne, Inc. HP and Range Resources Corp. RRC, both of which sport a Zacks Rank #1 (Strong Buy).