TransCanada Keystone Resumes Service, Worries Loom Large

North American pipeline operator, TransCanada Corporation (TO:TRP) resumed operations of its Keystone Pipeline on Nov 28. Services of the pipeline operator were stalled on Nov 16 following a spill of around 5,000 barrels in Marshall County, SD. The repair and resumption plans of the pipeline had been evaluated by the Pipeline and Hazardous Materials Safety Administration. Per the review guidelines, the pipeline will now run at a reduced pressure at around 80% capacity, ensuring a safe and controlled operation.

This is the third time, since it has started operations in 2010, that the project has been booked for causing oil spill. Federal investigators believe that constructional fault is the most likely reason for the oil spill. Preliminary investigations suggest that the spill is due to the mechanical fault and a coating associated with the weight installed when the pipeline was built in 2008. This has raised concerns among South Dakota regulators regarding the future operations and potential risks associated with the pipeline.

TransCanada has been instructed to prepare a detailed report analyzing the root cause of the damage along with a remedial course of action to treat it. In this regard, the company now plans to run an inspection device on the Keystone to gauge the risks related to the other sections of the pipeline.

TransCanada’s Keystone extension project is also facing considerable censure from environmentalists. The company recently cleared a major regulatory hurdle when Nebraska commissioners approved the project, but on an alternative route instead of the company’s proposed route. This has resulted in new set of problems for the company.

The alternate route will likely balloon costs and delay the disputed pipeline project further. The alternate route calls for a 63-mile detour and attempts to add 5 miles of pipeline along with additional transmission lines and pumping stations. This will be done avoid regions that are ecologically critical. However, it is unclear as of now whether the alternate path will require any additional approvals.

The company is currently evaluating Nebraska’s decision to examine the economics of the project. It will thereby take an official call sometime in December regarding construction and completion of the pipeline after carefully reevaluating the project’s viability and schedule.

Despite the uncertainty and criticism that surrounds TransCanada’s major pipeline project, the company reaffirmed the forecasts of its profits and earnings growth on the Investor Day observed on Nov 28.

The company expects EBITDA to grow at an average annual rate of about 10% between 2015 and 2020. Further the Calgary-based company has raised the upper end of its dividend forecasts from 8% to 10%, and extended that outlook by an additional year through 2021. TransCanada currently carries a Zacks Rank #3 (Hold).

TransCanada Corporation Price

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Some better-ranked players in the energy space are Denbury Resources, Inc. (NYSE:DNR) , Northern Oil and Gas, Inc. (NYSE:NOG) and Bill Barrett Corporation (NYSE:BBG) . While Denbury Resources and Northern Oil and Gas sport a Zacks Rank #1 (Strong Buy), Bill Barrett carries a Zacks Rank#2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Denbury Resources delivered an average positive earnings surprise of 125% in the trailing four quarters.

Northern Oil and Gas delivered an average positive earnings surprise of 175% in the trailing four quarters.

Bill Barrett delivered an average positive earnings surprise of 19.41% in the trailing four quarters.

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