Kinder Morgan shares drop as investors fret about permit delays for Trans Mountain Expansion

Kinder Morgan loses $75 million revenue for every month delay to Trans Mountain Expansion project

Kinder Morgan Canada shares fell on Tuesday after the company reported its $7.4 billion Trans Mountain Expansion project could miss its expected September 2019 start date.

Kinder Morgan released its Financial Expectations for 2018, which pushes back start of construction to next Sept. because of delays securing permits from provincial and local governments in British Columbia.

The company says that to “prudently manage shareholder capital” it is spending on permitting instead of funding full construction levels until management has “greater clarity on key permits, approvals and judicial reviews.”

“With respect to the Trans Mountain Expansion Project, we made some progress during 2017 on permitting, regulatory condition satisfaction and land access,” said Steve Kean, chairman and CEO of parent company Kinder Morgan Limited.

“Unfortunately, the scope and pace of the permits and approvals received does not allow for significant additional construction to begin at this time.”

By 12:49 p.m. EST Tuesday, Kinder Morgan Canada shares were down 3.81 per cent to C$16.40.

Potential mitigation measures require obtaining greater clarity early in 2018 for key permits, approvals and judicial reviews and continued planning with TMEP contractors to assess options to start or accelerate work in certain areas, according to the press release.

“KML must have a clear line of sight on the timely conclusion of the permitting and approvals processes before we will commit to full construction spending,” said Ian Anderson, president of Kinder Morgan Canada.

“To that end, we have filed motions with the National Energy Board (NEB) to resolve existing delays as they relate to the City of Burnaby, and to establish an open NEB process that will backstop provincial and municipal processes in a fair, transparent and expedited fashion.”

Analysts reacted negatively to the permitting problems, which the governments blame on Kinder Morgan. George Heyman, BC environment and climate change strategy minister, says Kinder Morgan needs about 1,200 permits from provincial authorities, but only 66 have been issued thus far.

“I find it a very odd and sad situation that we have this sort of conflict going on once you’ve got federal approval and previous provincial approval,” Chris King, vice president and portfolio manager at Morgan Meighen & Associates, told Reuters.

Kinder Morgan says construction delays increased costs on the 525,000 b/d pipeline project due to a variety of factors that included extended personnel, equipment and facilities charges, storage charges for unused material and equipment, extended debt service, and inflation.

Because those costs are highly uncertain at this stage of the project and the extent of a delay, if any, is currently unknown, Trans Mountain is not updating its cost estimate at this time, according to the company.

The company says that each month of change in the in-service date costs it about $75 million of earnings and it does not expect to earn full annual revenue of $900 million until 2021.

Kinder Morgan said in its Nov. 14 motion to the NEB that if TMEP continues to be “faced with unreasonable regulatory risks due to a lack of clear processes to secure necessary permits . . . it may become untenable for Trans Mountain’s shareholders . . .  to proceed.”