CALGARY – A deal for Houston-based gas pipeline operator Columbia Pipeline Group Inc. will give TransCanada Corp. use of high-growth U.S. shale plays, analysts said Thursday.
TransCanada, the Calgary-based pipeline company whose Keystone XL oil pipeline project was rejected late this past year, issued an argument confirming it had been in talks with a “third party” in regards to a “potential transaction.”
“While we are in discussions regarding a potential transaction having a third party, no agreement continues to be reached and there’s no assurance these discussions continues or that any transaction will be agreed upon,” TransCanada said.
The company did not provide a name for that 3rd party, but a report in The Wall Street Journal named Columbia Pipeline Group because the target inside a deal that may be worth about US$12 billion.
“I think it makes sense strategically, but all things have a cost,” FirstEnergy Capital Corp. analyst Steven Paget said.
Paget said that TransCanada is well-positioned in high-growth shale gas formations in northeastern Alberta and northwestern British Columbia with its existing gas pipeline network. Columbia’s gas pipeline system in Pennsylvania and the northeastern U.S. will give TransCanada contact with another high-growth shale gas formation called the Marcellus.
Paget added that Columbia Pipeline can use additional capital to develop its pipeline network, something TransCanada can offer.
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Spun from NiSource Inc. in an dpo in 2015, Columbia Pipeline operates a 24,000-kilometre natural gas pipeline network that analysts say would fit well with TransCanada’s existing gas pipelines.
Columbia Pipeline’s New York-traded shares jumped as much as 15 per cent on the reports before settling back, ending on that day at US$21.43, up 8.5 percent or US$1.68. TransCanada shares were halted briefly and ended your day at $47.63, down 3.2 percent or $1.57.
Columbia Pipeline includes a market capitalization of US$9.4 billion and carries US$3 billion in debt, meaning that a potential transaction could be valued above US$12 billion.
Columbia Pipeline spokesperson James Yardley said his company’s policy is not to discuss market rumours.
He also declined to comment on whether Columbia had gone through a strategic review recently, or if the company have been considering sales.
TransCanada spokesman James Millar also said his company wouldn’t discuss “rumours and speculation” but did comment on the company’s overall method of acquisitions.
“As we have said previously, TransCanada remains centered on opportunities that might be consistent with our strategy and grow shareholder value,” Millar said.
RBC Capital Markets analyst Robert Kwan said in a research note that Columbia’s “assets are in a strategically attractive a part of North America where TransCanada doesn’t have a footprint.”
He also said those Columbia assets “are generally adjacent to some of TransCanada’s larger gas assets.”
On TransCanada’s most recent earnings call, chief operating officer Alex Pourbaix signalled that the company was weighing its options and cautiously taking a look at potential targets.
“For much of the past decade we simply haven’t seen the values on asset acquisitions or corporate acquisitions,” Pourbaix said.
“We are going to look for transactions which are accretive that suit our strategy, but we all do think we are inside a pretty good opportunity phase right here from that perspective,” he said.
Over the course of 2015, TransCanada purchased several power plants in Ontario and the United States, but grew its pipeline network internally rather than through corporate acquisitions.
gmorgan@nationalpost.com
Twitter.com/geoffreymorgan
