TransCanada Corp. would snap up a big chunk of the natural gas business that's given it the most troublesome competition if it completes a speculated U.S. takeover worth more than $9-billion (U.S.).
TransCanada said on Thursday that it was in talks with a third party, but did not name it or provide any guarantees that it would clinch a deal.
The company is in talks with Houston-based Columbia Pipeline Group Inc., according to the Wall Street Journal, which cited anonymous sources. Columbia is best known for its extensive pipeline network in the Marcellus and Utica natural gas regions in the U.S. Northeast.
TransCanada shares were temporarily halted on the Toronto Stock Exchange after the report. They were off 2.5 per cent at $47.95 (Canadian) after trading resumed.
"While we are in discussions regarding a potential transaction with a third party, no agreement has been reached and there is no assurance that these discussions will continue or that any transaction will be agreed upon," the company said in a statement.
Columbia stock was up nearly 17 per cent at $23.02 (U.S.) in New York, giving the company a market capitalization of $9.2-billion. A spokesman for Columbia declined to comment on the report.
TransCanada's oil-transport hopes have attracted more headlines than its traditional natural gas business in recent years. It is the proponent of the Keystone XL oil pipeline rejected by Washington last year, and has also proposed the $15.7-billion (Canadian) Energy East pipeline to transport Canadian oil to the Atlantic Coast.
Still, its West-to-east Canadian gas franchise has been threatened by rapid growth in the the Marcellus shale formation over the past decade, and Columbia's operations would give it a significant position in that region.
Rapid production growth in the Marcellus has undercut TransCanada's share of the lucrative U.S. Northeast export market. The region now produces in excess of 15 billion cubic feet per day, more than all of the gas produced in Western Canada.
Shipper contracts for export service to the region on the TransCanada system have been cut in half, falling to 700 million cubic feet a day. They are projected to decline to as little as 200 million cubic feet a day in coming years, according to the company's projections.
It is one reason TransCanada has proposed switching a portion of the west-east system to carry crude oil under its Energy East proposal "I think if you put the projects they're having difficulty with aside and just look at the core business of TransCanada, they move gas, and there's a new area that has come up and is bigger than Western Canada," said Dirk Lever, analyst at AltaCorp Capital Inc. in Calgary.
"They must be looking at it going, 'well, we want a piece of that,' and this is how they would go about it."
In total, Columbia operates 24,000 kilometres of pipeline from the U.S. Gulf Coast to the Northeast. Last year, its operations were split from NiSource Inc.
Steven Paget, an analyst at FirstEnergy Capital Corp., said Columbia's pipeline operations in the Marcellus have similar role to TransCanada's extensive Alberta system – gathering and transporting natural gas from a concentrated supply region.
"The Marcellus is cutting off pipeline flows from Canada eastward," Mr. Paget said.
An acquisition would be "strategically attractive" for TransCanada as it does not currently have a position in the important region, RBC Dominion Securities said. However, because it is unclear if a deal will result, it said it is not able to estimate a financial impact on TransCanada.