KML selects contractors
Kinder Morgan Canada Limited, Kinder Morgan’s (KMI) Canadian unit, announced on September 6, 2017, the selection of contractors for its Trans Mountain expansion project. Construction on the project is expected to begin this month. The project is expected to be in-service by the end of 2019.
“Getting the construction contractors on board represents a significant milestone for Trans Mountain and demonstrates our commitment to delivering the Project in a timely, cost-effective manner,” said Ian Anderson, president of Kinder Morgan Canada Limited, in a press release.
Trans Mountain expansion project costs
The expansion project is expected to cost $6.1 billion including capitalized finance charges. 24% of the project’s costs are uncapped. Any increase in these costs will result in increased tolls for shippers. So, such increases will have a less direct impact on Kinder Morgan.
Uncapped costs include the cost of steel for making the pipe, the cost of construction of certain difficult sections of the pipeline, land acquisition costs between Langley and Burnaby, consultation and accommodation costs for communities, and cost of the Burnaby Tunnel. For increases in the uncapped costs, the company’s benchmark toll changes by $0.07 Canadian dollars per barrel for every 100 million Canadian dollars of capital cost change.
All other costs are capped, which means any overruns on these will be borne by Kinder Morgan. As we can see, the costs identified as uncapped are both higher risk, meaning they are more uncertain and have a likelihood of overrun, and are largely out of the company’s control.
Learn more about controversial pipeline projects including KMI’s Trans Mountain expansion in Controversy in the Pipeline: The Top 5 Hot-Button Projects.
In the next part, we’ll discuss Wall Street analysts’ recommendations for Kinder Morgan stock.