Keystone report seen lifting TransCanada, producer shares

Sun Mar 3, 2013 4:26pm EST
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* TransCanada, Canadian Natural, Cenovus among expected
    * State Dept said project won't fuel oil sands development
    * Impact statement far from final step in approval process

    By Jeffrey Jones
    CALGARY, Alberta, March 3 (Reuters) - TransCanada Corp
 shares are expected to get a boost on Monday from a
positive U.S. report on the company's contentious Keystone XL
pipeline, as are those of Canadian energy producers under
pressure from deeply discounted heavy oil prices.
    The U.S. State Department, in its long-awaited draft
supplemental environmental impact statement, said on Friday that
the proposed $5.3 billion oil pipeline to Texas refineries from
Alberta would not likely accelerate Canadian oil sands
production, and by extension, fuel a spike in greenhouse gas
    The report, widely criticized by environmental groups
opposed to the project, is far from the final step in the
Keystone XL approval process, which has now dragged on for 4-1/2
years. The Obama administration rejected the proposal and
invited TransCanada to reapply last year.
    A final decision is not expected until July or August, but
analysts and investors welcomed the development on the heels of
increasingly forceful comments by President Barack Obama and new
Secretary of State John Kerry about the need to fight climate
    "I think it's a step in the right direction in regards to
removing a material risk overhanging the Canadian oil sector
that has been sold to near financial-crisis lows while the rest
of the stock market is reaching new all-time highs," Martin
Pelletier, managing director and portfolio manager of TriVest
Wealth Counsel, said on Sunday.
    "While certain oil stocks may rally tomorrow, I believe that
the sector will continue to trade near current levels until the
Keystone is actually approved by the Obama administration."
    Weak heavy oil prices, largely due to limited pipeline
capacity to ship the surging supplies from the Alberta oil sands
to export markets, and long-depressed natural gas markets have
combined to hamper energy-producer stocks in Canada.
    The Toronto Stock Exchange's energy group is down 13 percent
in the past year, compared with a 0.39 percent gain in the broad
TSX composite index.
    Keystone XL is seen as one of the leading proposals to help
lessen the Canadian oil discount, as the crude could reach a
market that would pay more for the supplies in large volumes.
     Eventual approval or rejection of Keystone XL will be
subject to politics, and not just the conclusions in the
environmental report, which is now subject to a 45-day public
comment period, BMO Capital Markets analyst Carl Kirst said.
    "Keep in mind this SEIS does not conclude with a suggested
ruling, but it should greatly inform 'the facts' that Sec. Kerry
has vowed to base the decision on," Kirst wrote in a research
    Shares in TransCanada, the country's largest pipeline
company, ended 23 Canadian cents lower at C$47.81 on the Toronto
Stock Exchange on Friday, though details within the State
Department's 2,000 page report were coming to light as the
market was closing.
    FirstEnergy Capital Corp analyst Steven Paget said he
believes the pipeline will be approved by September 1, but
cautioned that further delay could cost the company $750
million-$800 million in annual operating earnings starting in
2015, the target in-service date.
    Despite uncertainty over Keystone XL, the stock has
performed well recently hitting an all-time high, due to the
stability of earnings from its established pipeline and power
generation businesses across North America, and its steadily
climbing dividend. The stock has climbed 9
percent in the past year.
    Analysts and investors pointed to several producer stocks
that could also log gains on Monday, not least of which being
Canadian Natural Resources Ltd, the country's largest
independent oil explorer and producer.
    Canadian Natural, a major heavy crude producer, has
committed to shipping 120,000 barrels a day on Keystone XL. At a
Friday close of C$32.05, the stock is down 14 percent in the
past 12 months.
    Other heavy crude producers expected to gain on Monday
include Cenovus Energy Inc, which ended 2 percent lower
Friday at C$32.74, MEG Energy Corp, down 1 percent at
C$33, Baytex Energy Corp, up 1 percent at C$43.46,
Blackpearl Resources Inc, down 1.2 percent at C$2.48,
and Southern Pacific Resource Corp, down 9.7 percent at
93 Canadian cents.

 (Reporting by Jeffrey Jones; editing by Sofina Mirza-Reid)