CALGARY, Alberta/TORONTO (Reuters) - British Columbia could become a minefield for Kinder Morgan Inc, with provincial election results expected to complicate the U.S. company’s Trans Mountain pipeline expansion and plans for a Canadian initial public offering.
The Canadian province’s pro-energy Liberal Party won the May 9 election but lost its majority in the legislature. This has forced it to woo the environmentalist Green Party to govern, raising potential for concessions. In the worst scenario for the Liberals, the Greens could form their own majority government with the second-place New Democrats, who like the Greens oppose Trans Mountain.
While final electoral results can change with the compiling of absentee votes and recounts by May 24, a provincial government unfriendly to development could mean major obstacles to Trans Mountain, even though the federal government has approved it. The expansion of the crude pipeline from oil-producing Alberta to the B.C. coast nearly triples its capacity.
The election is expected to cast a shadow on Kinder Morgan’s proposed $1.3 billion IPO for its Canadian unit, set to be the nation’s fourth-biggest, filed one day after the election.
“The really close B.C. election vote puts pressure on the Kinder Morgan IPO,” said Colin Cieszynski, chief market strategist at CMC Markets. “You run the danger of the whole thing getting stalled for years or going into limbo.”
The Trans Mountain project said in a statement on Tuesday that the expansion continues to advance. Kinder Morgan has said in IPO filings that changes in government could disrupt or delay projects such as Trans Mountain, causing “significant” increased costs.
“While the provincial government cannot undo the federal authorization to construct and operate the Trans Mountain pipeline, they could create some potential issues at a local and provincial level,” said Alan Ross, managing partner of law firm Borden Ladner Gervais LLP’s Calgary office.
“To the extent not done so already, any Kinder Morgan Canada IPO would need to price in political risk related to the B.C. election,” he said.
Given those political risks, Kinder Morgan may have to offer a more attractive dividend yield, said Ian Nakamoto, equity specialist at wealth manager MacDougall, MacDougall & MacTier, a division of Raymond James.
Based on IPO documents, Kinder Morgan Canada’s dividend yield would work out to 3.1-3.4 percent. That compares with 3.8 percent at Hydro One, which filed Canada’s third-biggest IPO in 2015.
Even if recounts grant Liberals a majority, it would be slim, making it hard for them to unilaterally get their way as before. Liberal leader and incumbent Premier Christy Clark said she will collaborate with rivals and work across party lines.
Green leader Andrew Weaver said on Wednesday the regulatory approval process for Trans Mountain was “rigged” and that his opposition to the project was “on the table” in talks with Liberals. The New Democratic Party (NDP) reiterated a commitment to use “every tool” against the project.
STRATEGY COULD INVOLVE DELAYS
Neither party has specified in detail how the British Columbia government would oppose Trans Mountain. Any pushback would have to overcome the federal approval already granted, which constitutionally trumps provincial opposition.
The province could delay Trans Mountain and wear down the will of Kinder Morgan’s investors, said University of British Columbia law professor Jocelyn Stacey.
British Columbia can revoke the environmental assessment certificate it granted, decide not to contest a current legal challenge against it or deny routine construction permits, resulting in years-long court battles with the federal government, she said.
A less energy-friendly British Columbia will also embolden activists, many of whom voted Green or NDP, with Greenpeace expecting more protesters and possibly holding more civil disobedience workshops, said Keith Stewart, who heads the organization’s Canadian climate and energy campaign.
“We have people coming to us every day saying, ‘How do I lie down in front of the bulldozers?’”
Additional reporting by Nicole Mordant in Vancouver; Editing by Leslie Adler and Cynthia Osterman
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