Transmountain Kinder Morgan pipeline May 29 10:20 am eastern

This morning’s news about the pipeline nationalization was to me a pleasant surprise. Not a shock since the idea had been floated but a surprise. I think the alternative would have been that Kinder Morgan Canada would have announced it could not proceed.

The implications of the deal should become more clear as investors and analysts digest the news today and going forward.

It seems obvious that this is positive for Canadian oil producers and for the Alberta economy in general.

I see CN Rail’s price is down a little on the news (or possibly related to other factors) and that makes sense. But it’s only down a little as there is likely still lots of bitumen to be transported by rail.

I thought the Canadian dollar might have risen on the news but it is down marginally.

Regarding Bill Morneau: This should have been a moment to shine. Instead I thought he completely embarrassed himself by refusing to answer the simple question about how much it will cost to complete the pipeline. I agree with him that the investment should pay off for Canada. But it is still a fair question to ask the total size of the investment and get an answer. I’d be inclined to support Morneau on this. But I can’t trust anyone who who side-steps a simple question. At the least he should have said something like “We are not prepared to release that figure”.

But I certainly view this nationalization as a positive move. It’s unfortunate, but it had to be done.

I own a few Kinder Morgan Canada Limited shares. These are up 2.6% at the moment. At a quick look, I have not seen the price at which these are to bought out. So I will hang tight on these for the moment. The small gain perhaps indicates that Canada has not over-paid for the assets. UPDATE: I saw a few minutes after I posted this that Kinder Morgan Canada has other assets and will continue in operations. So it is simply unclear what the value of the KMI shares is. They are receiving cash for a large part of their assets but they give up the expected future profits on those assets. We may or may not see a large special dividends followed by a much lower share price. Kinder Morgan Canada has a U.S. parent that may prefer the cash be paid out rather than reinvested in more Canadian assets.