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Bankers for Kinder Morgan Canada Ltd. said the pipeline expansion project will still be profitable, even if the costs rise by 25 per cent – to more than $9-billion – and the completion is delayed by a year.

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In a shareholders' circular released on Tuesday, the company includes a “fairness report” from TD Securities Inc. on the $4.5-billion deal in which the federal government will purchase the existing Trans Mountain pipeline from Alberta and Vancouver, as well as the expansion project.

In the circular posted by the U.S. Securities and Exchange Commission, TD noted that Kinder Morgan had a project outlook in January that forecast the capital cost at $7.4-billion, up from the company’s original estimate of $4.1-billion. However, given the uncertainty around British Columbia’s efforts to block the pipeline and the company’s effort to offload it, it provided no more recent update.

In assessing the outlook for the project, the bankers looked at three scenarios: cancellation; an increase in capital costs to $8.4-billion with a completion date of December, 2020; and an increase to $9.3-billion with a delay of one more year to December, 2021. In both cases in which the expansion is built, the additional capacity generates roughly $1-billion a year in cash flow.

Kinder Morgan Canada also noted the shareholder vote on the sale will be held in Calgary on Aug. 30.

Facing intense environmental and political opposition, Kinder Morgan’s U.S. parent company threatened early this year to walk away from the project. The firm’s ultimatum pushed Ottawa to agree to purchase the existing Trans Mountain pipeline and the expansion project.

The federal government argues that building a major pipeline to sell oil to global markets beyond the United States is critical for weaning the country off its reliance on the American market and getting better prices for its crude. A significant portion of the oil that comes from Alberta’s oil sands sells at a discount to other North American blends – right now, a barrel of oil from Texas might be worth as much as US$70; a barrel from Canada sells for closer to US$40. Due in part to congested pipelines, that spread is at a five-year high.

However, the Trans Mountain expansion project still faces First Nation legal challenges, as well as opposition from the NDP-led government in B.C. that says increased oil-tanker traffic could result in a major spill.

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Federal officials have acknowledged in background discussions that Kinder Morgan’s January estimate of $7.4-billion capital cost would almost certainly have to increase and insist that Ottawa took that into account when it struck the purchase agreement.

Matt Barnes, a spokesman for Finance Minister Bill Morneau, said the government did its due diligence: "The Government of Canada made the decision to make sure this project is built only after completing a detailed analysis, and with the full understanding of the project’s economics and future benefits to Canadians,” he said.

Cheryl Oates, a spokeswoman for Premier Rachel Notley, said the Alberta government is expecting an official update on the project costs and timing in coming weeks, “once the sale is final.”

When Ottawa announced its plan to purchase the pipeline in April, Alberta said it was also willing to provide support in the form of a backstop of up to $2-billion that would be called upon in “unforeseen circumstances.” If Alberta’s financing is needed, the province will receive equity in the completed project.

Ms. Oates noted that an increase in the price tag for the expansion project could be one scenario that would trigger the Alberta contribution. “It’s general indemnity funding. There is a threshold it would be triggered at that hasn’t been disclosed yet and won’t be until the sale is final,” Ms. Oates said in an e-mail.

Richard Masson, a fellow at the University of Calgary School of Public Policy and the former head of the Alberta Petroleum Marketing Commission, said that the way the expansion project is structured, the owner of the pipeline is on the hook for about three-quarters of any increase in costs, depending on the type of costs responsible for the increase.

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But he said that even with a higher price tag, it’s best that the expansion project be completed. The existing pipeline has been full since 2009, he noted, and there is more demand for shipping than is available. Rail is the fallback for oil producers that can’t find another way to move their product.

“This pipeline, even though it looks more expensive, you have to look at in the context of what are the options?” Mr. Masson said.

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