Pipeline Debt Rolls On for Canada Energy as Producers Wait
(Bloomberg) -- Pipelines will lead the charge in Canadian energy companies in debt issuance this year amid signs the recovery in the industry is solidifying.
Bank of Montreal sees C$5.5 billion ($4.2 billion) in issuance from oil and gas pipeline companies like TransCanada Corp. in 2017, up from C$3.8 billion last year, as they fund ongoing projects. With oil below $60 a barrel, it’s still too early for companies most closely tied to commodity prices to start spending again. Exploration and production companies are expected to issue about C$1 billion to C$2 billion, largely to refinance existing maturities.
“A lot of the issuance does come from the pipeline names because of the type of infrastructure they’re building,” Manmit Pandori, an analyst who covers energy companies for Bank of Montreal’s BMO Capital Markets unit, said by phone from Toronto. The explorers and producers are “more in maintenance mode than they are in a broad growth in capital spending.”
The Canadian energy industry is stabilizing after being roiled by a plummet in oil prices from more than $100 a barrel in New York in June 2014 to $26 in February. Crude is now trading around $54, with forecasters in a Bloomberg survey seeing it holding between $55 to $60 through 2019. As oil rose, the cost of borrowing for Canadian energy companies dropped relative to government debt. Investors now accept a yield spread of around 160 basis points, or 1.6 percentage points, compared with more than 270 in February.
Best Performance
That improving picture helped drive highly rated Canadian energy companies to the best performance on the Bank of America Merrill Lynch Canada Corporate Index last year, returning 6.5 percent to investors. The index average was 3.6 percent.
Infrastructure companies are expected to tap the debt markets this year whereas last year they may have issued more equity, relied on credit facilities, or delayed a project or investment, Pandori said. Enbridge Inc.’s Line 3 pipeline replacement, TransCanada’s NGTL gas-pipeline system, and North West Redwater’s refinery construction are some of the projects with big spending, he said.
“It’s obviously a sigh of relief when you’re seeing some of the bigger guys with the balance sheets starting to spend again,” said Chris Kresic, portfolio manager in Toronto at Jarislowsky Fraser Ltd., which has C$6.5 billion in fixed-income assets. “That’s obviously a sign of confidence in the industry.”
Taking Steps
Some high-grade producers did tap the bond markets in the second half of last year, but those were for maintenance and refinancing, as opposed to new growth, Pandori said. Select Canadian large energy companies began announcing expansion projects at the end of last year.
“They’ve taken a lot of steps, to the industry’s credit, to make sure that their balance sheets are in order, they’re not getting downgraded below investment grade,” he said. Producers were taking advance of borrowing costs that had narrowed significantly since February.
TransCanada spokesman Mark Cooper declined by e-mail to comment.
Enbridge spokeswoman Suzanne Wilton declined by e-mail to speak specifically to Line 3, but noted that the project was part of a growth program that still had outstanding capital requirements that will be funded with debt and equity. Cost of capital is a “significant determinant” in when and where Enbridge chooses to fund from, she said.
Doug Bertsch, North West Redwater’s vice president of regulatory and stakeholder affairs, confirmed through a spokeswoman that the partnership expects to issue Canadian-dollar debt this year, and monitors for market conditions that may affect timing and amount issued.
‘Cheap Overall’
Surer signs of health in the energy industry would see explorers and producers ramping up along with the infrastructure companies, which will need to fill their pipes with something. It’s still too early to see much spending beyond the healthy, investment-grade producers, Jarislowsky Fraser’s Kresic said.
“Even if the price goes back to $60 a barrel, it’ll be tough for the amount of financing that was done before to reach those levels again any time soon,” he said.
12
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- ExxonMobil Racks Up Discoveries in Guyana Block Eyed by Chevron
- Oil Market Sentiment Has Improved Significantly
- EU, US Eye Collaboration on Nuclear Materials
- EU Electricity Export to Ukraine Up 94 Percent in Two Years
- China Coal Output Falls for First Time since Government Ordered More
- USA Driving Activity to Increase to All-Time Highs
- BP Pulse Buys One of Europe's Largest Truck Stops
- UK CCUS Plans Outdated: Think Tank
- TC Energy to Sell Prince Rupert Gas Pipeline Project to First Nation
- I Squared Eyes Full Ownership of Europe Gas Storage Firm
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- EIA Drops 2024 Henry Hub Gas Price Forecast
- EIA and Standard Chartered Offer Up Latest Oil Price Predictions
- Red Sea Region Sees Another Watershed Incident
- Chevron Oil Project in Kazakhstan to Cost $48.5B
- OPEC Voices Encouragement after IEA Affirms Support for Oil Security
- Biden Govt Bares Strategy for Freight Charging, Hydrogen Fueling Infra
- Ukraine Hits Third Russian Refinery In Escalating Drone Strikes
- Rystad Looks at the Buzz Around White Hydrogen
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Is Peak Oil Demand Close?
- Vessel Sinks in Red Sea After Missile Strike
- JP Morgan, Standard Chartered Reveal Latest Oil Price Forecasts
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Rystad Forecasts Net Production of Top Permian Producers in 2024
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension