TransCanada's C$1.4B Montney Pipeline Project Wins NEB Nod

TransCanada Corporation’s (TO:TRP) C$1.4 billion North Montney Mainline Pipeline Project recently got greenlit by the National Energy Board (NEB). The pipeline will be developed by TransCanada’s wholly-owned subsidiary, NOVA Gas Transmission Limited (NGTL).

The Montney Pipeline project was originally expected to deliver natural gas to the Prince Rupert Gas Pipeline, which would have supplied to the Pacific Northwest LNG (PNW) project — C$36 billion natural gas liquefaction and export facility. In 2015, the Montney Pipeline project had been granted preliminary federal and provincial approvals, subject to positive financial investment decision for the proposed PNW LNG Project.

However, in March 2017, NGTL filed a variance application with the National Energy Board to proceed with the construction of the pipeline project ahead of schedule or prior to the investment decision on the PNW project.

Meanwhile in July 2017, Malaysia’s integrated-energy player, Petronas scrapped the PNW LNG project, as low commodity prices had made the economics of the project (announced in 2013) less profitable. Though the Montney Pipeline project was tied to PNW LNG project that got cancelled, NGTL still intended to proceed with the former.

The variance application filed sought the approval to construct pre-LNG pipeline and operate facilities consisting of 206-kilometer network of natural gas pipelines. With the grant of the NEB approval, the project moves a step closer to its construction. Next, subject to federal cabinet approval, the construction of the Montney Pipeline project is likely to commence from the third quarter this year and will become operational over a two-year period by mid-2019.

The project is backed by 20-year commercial contracts with 11 shippers for about 1.5 billion cubic feet per day of service. The project is expected to boost the economy of the country and lead to the creation of additional 2,000 jobs. Investment in the North Montney Mainline Project will help create a key natural gas infrastructure in British Columbia and support further upstream investments, as well as provide economic benefits to the government

Nevertheless, various producers and pipeline companies are not quite happy with the approval, as it will add to the natural gas glut, further affecting the prices at the marketing hub in Alberta. Further, they are also concerned with the tolling structure. Though NEB has approved the project, yet it considers the tolling method inappropriate. The Board has directed some provisional measures regarding the tolling principles, until an appropriate new methodology is developed and consented upon.

Headquartered in Canada, TransCanada is engaged in the natural gas transmission and power services. The company's pipeline transports the majority of Western Canada's natural gas to the growing markets in Canada and the United States.

The company reported positive earnings surprise in the last reported quarter on solid project execution. It completed various projects in the quarter that will boost its earnings growth, going forward. Further, it has also restored its backlog by adding other new expansionary projects. Early this month, U.S. pipeline safety regulators also withdrew pressure restrictions on it’s major Keystone project. With a good line up of projects in its kitty including Keystone, GasLink, Bruce Power among others, the company’s growth and dividend momentum is likely to remain strong in the near future.

Zacks Rank and Key Picks

TransCanada currently carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are Bonanza Creek Energy, Inc. (NYSE:BCEI) , Eclipse Resources Corporation (NYSE:ECR) and Geopark Ltd. (NYSE:GPRK) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bonanza Creek delivered an average positive earnings surprise of 215.36% in the last four quarters.

Eclipse Resources delivered an average positive earnings surprise of 133.33% in the trailing four quarters.

Geopark’s 2018 earnings are expected to grow 745.516% year over year.

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