VANCOUVER -- TransCanada Corp. TRP-T pulled off another huge equity offering yesterday, attracting $1.6-billion from investors to buy full control over the Keystone oil sands pipeline and to help finance its completion.
The Calgary pipeline company will pay ConocoPhillips Co. $550-million (U.S.) for its 20.1-per-cent stake in Keystone, take on $200-million of debt from Conoco, and assume an additional $1.7-billion in building costs through 2012. The $12-billion project will connect Alberta with Texas, with additional links to St. Louis and in Oklahoma.
Houston-based Conoco originally signed on as a major oil shipper with TransCanada in 2005 and became a 50-50 equity partner during development to link its oil sands projects in Alberta with its refineries in the United States. The project was TransCanada's foray into oil pipelines against rival Enbridge Inc., diversifying its gas pipeline holdings.
Conoco sold 29.9 per cent of Keystone to TransCanada last year and now wants to free up cash for other projects, company spokesman Bill Stephens said.
TransCanada said it makes sense for a pipeline company to own all of the project. "Any time you can own 100 per cent of a project, it allows you total flexibility," said Russ Girling, the company's pipeline president.
The total capacity of Keystone is 1.1 million barrels a day, most of it raw bitumen, to be upgraded to synthetic oil at U.S. refineries where it will be made into gasoline and other projects. Of the total, 590,000 barrels a day of capacity is set for St. Louis and Oklahoma. The rest, 500,000 barrels a day, would go to the Gulf Coast in Texas.
Oil on the first link is set to move later this year. Of the 1.1 million barrels, TransCanada has long-term shipping contracts for 910,000 barrels - and might add another 400,000 barrels a day to the total if more demand from oil producers emerges.
TransCanada has attracted significant attention from investors. Last November, in the depths of the credit crisis and the bear market, TransCanada raised $1-billion (Canadian) in equity. The company has a market capitalization of about $20-billion and has a dividend yield of 4.5 per cent, valued by some investors especially in a difficult market.
Steven Paget, an analyst at FirstEnergy Capital Corp., said the company has marketed itself more aggressively to investors in the past two years, with regular presentations in Toronto and New York.
"There's a track record of dividend growth," Mr. Paget said. "And Keystone is very much a success. The Gulf Coast is where producers want to ship oil."
The sale of stock is being done in a bought deal, led by RBC Dominion Securities, BMO Nesbitt Burns and TD Securities, which indicates the investment bankers are confident they can sell 50.8 million TransCanada shares at a price of $31.50 to investors.
TRANSCANADA (TRP)
Close: $33.06, down 58¢
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