Kinder Morgan Canada Limited (TSE:KML) B.C. At It Again

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Kinder Morgan Canada Limited (TSE:KML) B.C. At It Again

Our Conclusion

The announcement of new rules from the B.C. Government seemingly limiting any increase in diluted bitumen (dilbit) transportation is only an incremental headline risk to KML shares. We reiterate our Outperformer rating and $23 price target.

Implications

Yesterday, B.C. announced that additional measures are being developed to protect its environment from potential spills. Notably, these include restrictions on the increase of dilbit transportation until the behaviour of spilled bitumen can be better understood and there is certainty regarding the ability to adequately mitigate spills.

We take this as a tactic in the B.C. Government’s ongoing opposition to the Trans Mountain Expansion Project (TMEP). At the risk of being dismissive, as the project is critical to our investment thesis, the announcement does not alter our view that it is a project under federal jurisdiction. As such, we continue to take the view that the doctrine of federal paramountcy continues to apply, as was recently re-affirmed by the NEB. We also believe the recently approved NEB backstop process for provincial and municipal permits and authorizations will continue to apply.

TMEP has a B.C. Environmental Assessment Certificate, albeit one issued by the previous government. The certificate already includes conditions related to spill containment, emergency preparedness, emergency response and “Fate and Behaviour of Bitumen Research”.

The judicial reviews of the Environmental Certificate and of Federal approval remain the most important risk factors, with decisions potentially by mid-year