Sunday, September 21, 2008

TransCanada Financials

TransCanada’s high debt to equity ratio and exposure to Lehman’s meltdown prompted me to examine TransCanada in comparison with industry peer Enbridge, Denali Pipeline partners ConocoPhillips and BP, and North Slope producer ExxonMobil. (click to enlarge)

It looks like TransCanada is highly leveraged and not very profitable. What’s not clear to me is exactly how TransCanada would swing the funding for the $40B Alaska Gas Pipeline. Without a successful open season what would they borrow against? If interest rates go up (and they will) will TransCanada plan still turn a profit?

1 comment:

Anonymous said...

If you truly did your research, you would know that TransCanada released its third quarter results October 28th, posting a 20 per cent increase in profits and exceeded analysts expectations. Since 1999, earnings per share have increased each year by an average of nine per cent, and cash flow has climbed an average of 12 per cent during that time to $2.6 billion in 2007.

The 'funding crunch' you highlight is, in fact, Conoco Phillips decreasing its 50/50 share in the Keystone pipeline from Canada to Houston down to 20 per cent, and TransCanada picking up the 30 per cent difference to the tune of $3 billion.

The pipeline is currently being built through North Dakota, and is on schedule to start streaming oil to Illinois and Oklahoma in 2009. The second leg of Keystone, running to Houston, will be operational in 2012.

Both lines have secured 18-year contracts from shippers for 910,000 barrels per day - 83 per cent of total capacity - and the $12 billion capital cost is fully funded.

Alaska would be funded as any pipeline has been funded in the United States or Canada over the last 50 years - you get secured, long-term contracts; then gain your financing, and build the line.