Earlier this month, TC Energy published their third quarter results for 2021. In it, they provided an update on the Keystone XL project.
As I pointed out nearly 2 years ago, the Alberta government announced in early 2020 that they planned to spend $1.5 billion on shares in the TC Energy subsidiary building the Keystone XL pipeline. They also announced $6 billion in loan guarantees.
That pipeline was cancelled after US president, Joe Biden, kept his campaign promise to revoke the presidential permit issued under his predecessor that allowed the pipeline to be built.
That put the Alberta government on the hook for a lot of money.
For example, the 2021–2022 provincial budget outlined Alberta’s financial commitment fares as a result of the shutdown of the pipeline construction:
| Equity payment | $0.384 billion |
| Estimate of loan guarantee | $0.892 billion |
| Total forecasted exposure | $1.276 billion |
Furthermore, the budget said the following:
The Government of Alberta is working with TC Energy to explore all options to advance the project and is strongly encouraging the Government of Canada to do the same. If KXL does not proceed, the Alberta government will explore all options to recoup the investment. Budget 2021 does not include any provisions for expense which may be incurred in that pursuit.
According to TC Energy’s third quarter report, however, it looks like even after the Government of Alberta “explored all options” with the company, the pipeline still ended up being cancelled.
Officially, the company terminated the Keystone XL pipeline project on 9 June 2021. After evaluating their investment in the project—as well as other related projects, such as Heartland Pipeline, TC Terminals, and Keystone Hardisty Terminal—the company realized that there was no way they could recover the the carrying amount of the projects assets.
There was also a $2.854 billion asset impairment charge for the first 9 months of the year. That charge was “based on the excess of the carrying value of $3,301 million over the estimated fair value of $175 million.”
Yikes!
The report claimed that the estimated fair value of the “plant and equipment” was only $175 million. That’s the price “expected to be received from selling these assets in their current condition”.
However, the carrying value was much higher. Here, let me show you.
| Estimated fair value | Carrying value | |
|---|---|---|
| Plant & equipment | $175 | $412 |
| Related development capital costs | — | $230 |
| Other capitalized costs | — | $2,158 |
| Capitalized interest | — | $326 |
| Contractual recoveries | n/a | -$697 |
| Obligated termination costs | n/a | $425 |
| Total | $175 | $2,854 |
As I mentioned in an article back in March, TC Energy repurchased $633 million worth of Class A interests in the project from the Alberta government on 8 January 2021. They purchased them by drawing funds from the “credit facility” that was fully guaranteed by the Government of Alberta.
A credit facility is a type of loan that allows a borrower—usually a business—to take out money over an extended period rather than having to reapply for a loan each time they need money.
When it was originally guaranteed, the credit facility was worth US$4.1 billion. According to the quarterly report, that amount was reduced to US$1.6 billion, which TC Energy had drawn C$1.028 billion from.
About 6 months after TC Energy repurchased those interests, in June 2021, the Alberta government repaid everything that was still outstanding on the credit facility, which came to about $1.028 billion, the same amount that TC Energy had drawn from the credit facility.
In response, TC Energy purchased all remaining Class A interests from the Alberta government, for what appeared to be $394 million. Combine that with the $633 million in Class A interests they purchased in January, and we get roughly $1.028 billion, the same amount the government had to pay for the outstanding amount on the credit facility.
TC Energy also issued $91 million in Class C interested to the Alberta government in Keystone XL subsidiaries, which will allow the government to benefit from future proceeds if any assets are liquidated from the Keystone XL project.
The Government of Alberta provided no additional information on their involvement in the failed project when they released their first quarter fiscal update back in August.
So, after all that, we’re left with the ability to maybe get something if components of the project are ever sold.
