TransCanada Corporation (USA) (NYSE:TRP) is selling these assets in order to increase investment in infrastructure expansion. After this deal, TC PipeLines will see an increase in its stake of Gas Transmission Northwest and Bison, from 25% to 70%. Gas Transmission Northwest is valued at $1.05 billion, which includes its debt of around $146 million, and the deal will close in July 2013. Thus, TransCanada will have ownership rights of 30% in Gas Transmission Northwest and Bison, as well as its 33% stake in TC PipeLines. This will reduce TransCanada’s debt and increase its available cash by $904 million. Moreover, the annual Earnings Before Interest, Taxes Dividends and Amortization (EBITDA) will increase by 1.9%, year-over-year, amounting to $90 million from the current fiscal year.
To increase its transport and warehouse capacity, the company will construct the Heartland Pipeline and TC Terminal. Collectively, the company estimates these projects to cost around $900 million. The Heartland Pipeline, just under 125 miles, will run between Edmonton and Hardist, in Alberta. The pipeline will increase TransCanada Corporation (USA) (NYSE:TRP)’s transport capacity by around 900,000 barrels of crude oil per day and the terminal will have a warehousing capacity of around 1.9 million barrels of crude oil.
Crude oil production in Alberta, Canada is expected to increase by 3 million bpd for the next 15 years. With this expected rise, the company is planning to increase transport and warehouse capacity. It already has the Keystone pipeline to transport crude oil in the Alberta region; the existing pipeline is about 2,175 miles, with a capacity to transport 400 million barrels of crude oil from Alberta to the U.S.
These expansions will help the company to post total revenue of $9.57 billion in this fiscal year, in comparison to $7.93 billion last year. Also, it generated a total cash of $451.48 million in the first quarter of 2013. This rising revenue, along with increased cash flow for the company will help TransCanada Corporation (USA) (NYSE:TRP) to continue paying higher dividend in the upcoming quarters.
A new extension totaling over 1,700 miles of the Keystone pipeline, also known as the Keystone XL pipeline is further planned. This would expand the reach of the pipeline by adding a segment from Oklahoma to the Gulf Coast of Texas, and would also create a new route from Alberta to Nebraska. However, environmentalists fear that, if this pipeline is built — it will significantly expand the market for crude oil, and will add to the risk of global climate change. President Obama recently outlined in his speech that, this project will be rejected, unless its clear that it won’t lead to global warming.
He said:
“Allowing the Keystone pipeline to be built requires a finding that doing so would be in our nation’s interests,” the President said, adding “our national interest would be served only if this project does not significantly exacerbate the problem of carbon pollution.”
Source: keystonepipeline–xl.state.gov
Bottom line
Kinder Morgan Energy Partners LP (NYSE:KMP) has cancelled its plan to construct the Freedom Pipeline, and will transport its crude oil through railroad, which will cut down infrastructure cost. It has also expanded its capacity by acquiring EI Paso Natural Gas and El Paso Midstream assets.
Enbridge Inc (USA) (NYSE:ENB), under Surmont Phase Two, plans to expand its infrastructure at Cheecham Terminal, which will enhance its production capacity. Further, the company is doubling its Seaway pipeline. These expansions will boost Enbridge’s earnings.
TransCanada Corporation (USA) (NYSE:TRP) has plans to construct the Heartland Pipeline and TC Terminal to meet Albertan requirements. Moreover, it has reduced its debt and increased its cash available by selling its stake in Gas Transmission Northwest and Bison Pipeline.
All three of these stocks are a “buy.”
The article Don’t Avoid These 3 Companies With High Payout Ratios originally appeared on Fool.com and is written by Madhu Dube.
Madhu Dube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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