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Kinder Morgan sells shares to help fund Trans Mountain pipeline plan

Kinder Morgan Trans Mountain Expansion Project's oil storage tank farm is seen in Burnaby, B.C.


Kinder Morgan Canada Ltd. is selling $200-million in shares even as the company dials back spending and warns of additional delays to its marquee Trans Mountain pipeline expansion.

The unit of Houston-based Kinder Morgan Inc. said Wednesday that it is selling eight million preferred units at $25 each in a bought deal to major banks, with proceeds earmarked to help finance the $7.4-billion pipeline expansion to Canada's West Coast.

The offering comes despite warnings the 590,000-barrel-a-day expansion project could see oil shipments commence nine months later than originally planned. This week, the company said delays could extend beyond September, 2020, further driving up costs.

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Chairman and chief executive officer Steve Kean reiterated Wednesday that the company won't accelerate spending unless it gets clarity on permitting for the project. At full construction the company would spend up to $300-million a month, compared with around $30-million today.

"We're not going to do that unless we're clear that we can finish what we start," he told an investor conference in New York.

Kinder Morgan has sought clarity on obtaining local approvals from the National Energy Board after the company complained the Vancouver suburb of Burnaby, B.C., was blocking the project by refusing to issue four permits – a charge the city has denied.

The company has also asked the regulator to set up a standing panel to resolve future permitting disputes quickly. Ottawa has supported that request, drawing the ire of British Columbia's environment minister who accused the federal Liberals of meddling in a provincial affair.

Trans Mountain, the lone outlet for Canada's oil to Pacific markets, is seen as critical for the oil industry and its provincial backers in Alberta, which has been battered by the three-year rout in crude prices. It currently has capacity of 300,000 barrels a day.

Alberta NDP Premier Rachel Notley is under pressure from United Conservative Party Leader Jason Kenney to demonstrate some payoff for toughened environmental standards, including a carbon tax and a cap on climate-warming greenhouse gases from the energy sector.

The prospect of further delays comes as a series of major oil sands expansions gear up, threatening to exacerbate already tight export capacity and drive down prices for the extra-heavy crude.

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Prices for Western Canada Select crude have weakened considerably in recent months, pressured by climbing production and new restrictions on TransCanada Corp.'s Keystone pipeline system following a 5,000-barrel spill last month in South Dakota.

Kinder Morgan Canada shares fell sharply earlier this week after the company said the startup for the Trans Mountain project could be pushed back even further to an unspecified date.

Such delays are likely to add to the project's already hefty price tag, although the company did not formally raise its cost estimate. Still, the market is likely to anticipate higher costs, Royal Bank of Canada analyst Robert Kwan said in an earlier note.

The company is the latest major pipeline operator to tap markets in recent weeks following big share issues by Pembina Pipeline Corp., Keyera Corp. and industry giant Enbridge Inc.

Kinder Morgan Canada's Toronto-listed shares were flat in midafternoon trading on Wednesday. The bought deal is led by Canadian Imperial Bank of Commerce, Bank of Nova Scotia, Royal Bank of Canada and Toronto-Dominion Bank.

Mr. Kean on Wednesday struck an optimistic tone, even though the company has warned it could scrap Trans Mountain if it faces undue delays. He insisted it can prevail, despite entrenched opposition on the B.C. coast and ongoing legal challenges.

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"It's an extremely necessary project and we're making some progress on the permitting front," he said. "It's just that we need to be able to see more clarity on the ability to finish what we start."

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