No Keystone Pipeline; No Problem for TransCanada

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Failing to get approval from the U.S. State Department put an end to TransCanada Corp.’s (NYSE: TRP) plan to build the 1,200 mile Keystone XL crude oil pipeline from Hardesty, Alberta, to Steele City, Neb., so the company thought big and announced on Thursday that it would acquire a natural gas pipeline system with more than 10 times the pipeline miles.

The announced $10 billion acquisition of Columbia Pipeline Group Inc. (NYSE: CPGX) gives TransCanada a solid foothold in the natural gas-producing Marcellus and Utica shale plays, as well as a line from the Gulf Coast to the U.S. Midwest. Including the assumption of Columbia’s debt, the total value of the deal is $13 billion. TransCanada is paying $25.50 per share in cash, a premium of 8.5% to Thursday’s closing price.

Natural gas pipelines are not nearly as controversial as crude oil pipelines, especially when they are already in the ground and transporting gas. TransCanada had a pending proposal to reverse the flow on an existing pipeline to move 1.1 million barrels a day of western Canadian crude oil to Canada’s east coast port that ran into a snag in Quebec when the provincial government filed for an injunction seeking further environmental impact reviews.

A similar problem has also struck Enbridge Inc. (NYSE: ENB), which has begun operating its reversed 300,000 barrel-per-day Line 9 pipeline to transport crude from Sarnia, Ontario, to Montreal. A lawsuit brought by the Chippewas of the Thames First Nation claims the first nation was not consulted properly over the pipeline that runs through its territory.

The acquisition of Columbia is expected to close in the second half of 2016, at which time TransCanada will own the general partner of Columbia Pipeline Partners L.P. (NYSE: CPPL), all of the partnership’s incentive distribution rights and subordinated units representing 46.5% of the limited partner interest in Columbia Pipeline Partners. The partnership will continue to trade separately once the deal closes.

Shares of Columbia traded up about 5.7% Friday morning, at $24.85 in a 52-week range of $15.39 to $33.00.

TransCanada’s shares traded down 1.3%, at $37.57 in a 52-week range of $28.40 to $48.10.