April 27, 2012 / 1:47 PM / in 6 years

TransCanada profit falls; eyes new oil pipeline

CALGARY, Alberta (Reuters) - TransCanada Corp reported a 14 percent drop in quarterly profit on Friday as the natural gas-transport segment of the country’s biggest pipeline company was hurt by the depressed state of North America’s gas industry.

Chief Executive Russ Girling said the company is looking at several regulatory and operational measures to deal with pressures on its Canadian gas mainline after an unusually warm winter slashed demand for the fuel, cutting volume on the system to less than half its roughly 6 billion cubic foot a day capacity.

The measures include studying the possibility of taking one of the pipelines on the 14,101 km (8,762 mile) system and changing it into an oil pipeline to transport crude to refineries in Eastern Canada, which now pay a premium for imported crude, Girling said.

TransCanada, which decided recently to chop its Canada-Texas Keystone XL oil pipeline into two pieces to get the controversial project started, made the switch to oil from gas for the Canadian portion of the initial Keystone line, which started up in 2010.

“Early days, but the refineries that import crude oil today in Canada are the refiners that are inquiring,” he told reporters after the company’s annual meeting. “I‘m not sure you could touch them all with a new-build pipeline, but certainly there’s nothing excluded from the analysis at the current time.”

He said the company does not have a timetable or even a potential size for a new oil route to Eastern Canada, saying different pipe diameters would mean flow rates of as low as 300,000 barrels a day or as high as 800,000.

“It’s way too early to talk about timing,” Girling said. “Obviously there’s technical feasibility, there’s regulatory process, there’s right-of-way, there’s a whole host of things that are way too early for me to predict.”

TransCanada’s rival, Enbridge Inc, is also trying to advance plans to get Western Canadian crude to refineries in the East, by reversing the flow of a pipeline between Montreal and Sarnia, Ontario. It has met with resistance from environmental groups.

TransCanada has been struggling since the middle of the last decade with falling volumes on its gas mainline, which was the foundation of the company when it was established in the 1950s.

In June, the National Energy Board will hold a hearing on the company’s application to change the system’s business structure to reflect shifts in the gas industry that have followed the development of vast shale gas supplies throughout the continent. The hearing will also address tolling for this year and next with gas prices hovering around 10-year lows.

TransCanada shares rose 6 Canadian cents to C$43.19 on the Toronto Stock Exchange on Friday. They had climbed 7 percent in the past year.

In the first quarter, TransCanada’s net income fell to C$352 million ($357.7 million), or 50 Canadian cents a share, from C$411 million, or 59 Canadian cents a share, a year earlier.

Comparable earnings, which exclude most one-time items, fell to C$363 million, or 52 Canadian cents a share, from C$423 million, or 61 Canadian cents a share.

That lagged an average estimate among analysts by 2 Canadian cents a share, according to Thomson Reuters I/B/E/S.

The lower-than-expected profit was due to weakness in all of the company’s natural gas-related segments, UBS analyst Chad Friess said in a research note.

Overall revenue rose 2 percent to C$1.91 billion.

TransCanada said the contribution of the mainline gas pipeline to its profits shrank in the quarter due to weaker regulated returns. Its U.S. pipelines also generated lower earnings.

Offsetting weakness in natural gas transport was Keystone I, a portion of which had higher fixed tolls.

In February, after the U.S. government rejected the full $7.6 billion Keystone XL project, saying it could not work toward a tight timeline set by Congress, TransCanada said it would build the portion between Cushing, Oklahoma, and Gulf Coast refineries first.

The company expects the Gulf Coast project to be in service in mid to late 2013.

Girling said a refiling of TransCanada’s application to the U.S. State Department to build the cross-border portion of Keystone XL is “imminent”, and that the company hopes to have the full project running by late 2014 or early 2015.

($1=$0.98 Canadian)

Additional reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Peter Galloway

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