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Inventory Backlog Reaches $40 Billion and Counting

*Note: All figures in Canadian dollars unless said otherwise

The Obama administration’s rejection of the Keystone XL pipeline on November 6, 2015, was not a huge surprise to the public majority following the issue that has dragged on for the better part of a decade. The timing, however, was critiqued by pro-industry siders, who grumbled Obama may have rejected the project to put a proverbial feather in his cap prior to the United Nations Climate Change Conference at the end of the month.

The timing was also significant for TransCanada, who hosted its 2015 Investor Day in Toronto on November 17. The company was also able to slightly shift its attention to its considerable inventory of other projects, and mentioned the KXL just four times in its 2015 presentation compared to 14 times in each of 2014 and 2013 presentations.

TransCanada Corporation (ticker: TRP), in the eyes of the casual consumer, may be hard-linked to the Keystone XL and its painstaking process. However, the casual consumer may overlook the fact that TRP predominantly transports natural gas and has built continent-wide network of pipelines that expands more than 44,500 miles (about 95% focused on gas) and stores 368 Bcf.

Keystone Pipeline Map“Keystone has attracted a lot of headlines over the last five years: the last couple of weeks, a couple of thousand news stories,” said Russ Girling, Chief Executive Officer of TransCanada, at the meeting. “There’s a lot of other things going on in the company and we’ve made quiet progress on a number of those fronts.”

On the sixth page of the 92-page presentation, bright green letters on the bottom of the slide read “More to the TransCanada Story than Keystone XL.”

While you were waiting…

The Keystone XL extension was first proposed in 2008 and approved by the National Energy Board of Canada in 2010 – the same year the project was met with opposition from the Environmental Protection Agency. While the KXL has garnered media attention and fueled environmental debate for the past five years, TransCanada has placed $20 billion of assets into service and secured $40 billion of new commercial projects. The company reported total asset value of $66 billion at the time of its release, up from $47 billion in 2010.

As the Keystone XL approval was delayed countless times prior to its disapproval in the Oval Office, TRP built up $13 billion of short-term projects with $35 billion of commercially secured long-term projects (including the KXL, which commands $8 billion of the portfolio). Such assets are imperative to TRP’s cash flow, as 90% of its 2015 estimated EBITDA will be sourced from regulated or long-term contracts. Its short-term outlook is headlined by the NOVA Gas Transmission Ltd. expansion in Alberta, which calls for a total of $5.5 billion in capital costs through 2018.

trp-fullThe backlog has locked in annual dividend growth of 8% to 10% through 2020, an increase of its previous compound annual growth of 5% from 2010 through 2015. “With our strong and growing cash flows as well as our industry– leading dividend coverage ratios, we’re well positioned to grow that dividend,” said Girling.

North America’s New Energy Frontier

Mexico’s energy reform has attracted plenty of interest from oil and gas companies, but TransCanada has been involved in the region for roughly 20 years. The company secured a US$500 million project on November 11 – just days after Obama’s KXL announcement, and now has an asset base set to increase to $3.1 billion by year-end 2017. The West Coast LNG project is also waiting in the wings, even though it faces opposition from the newly elected Canadian government.

Advancements on future large-scale projects will be approached with caution, said Alex Pourbaix, Chief Operating Officer, in order to defend TRP’s liquidity. “While Keystone and projects like it remain critical to serving North America’s future energy needs, we will only advance them if we can minimize the risks our shareholders experience in the event they don’t proceed,” he said.

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