TransCanada To Buy Another Pipeline Company (NY To Mexico Route); China To Corner Supertanker-Iron Ore Market -- March 11, 2016

Updates

November 20, 2017: FERC approves Columbia pipeline in West Virginia / Virginia.

March 17, 2016: the deal is announced -- TransCanada will buy Columbia for $10.2 billion. It looks like Warren Buffett missed a deal.

March 12, 2016: from The New York Times --

Like many American peers, Columbia has been under pressure as investors worry about whether the companies that produce the gas that goes into its pipes will stay afloat. Even if it has to renegotiate some contracts, though, its financial position looks sound. Columbia ended 2015 with $2.9 billion of liquidity after tapping investors for $1.4 billion of equity in December. Shares of the company and a related master limited partnership have held up well since then, suggesting that shareholders are confident that executives can keep increasing dividends while investing $1.4 billion to $1.6 billion in various projects this year.

Whether or not TransCanada and Columbia can consummate a deal, that they are talking at all suggests that spirits may be reviving. If the 40 percent rally in crude oil prices in recent weeks holds, it could coax other energy survivors out of their hiding places.

TransCanada’s Keystone XL pipeline plan was denied by the Obama administration last year. Another big project intended to ferry oil from Alberta and Saskatchewan to Canada’s east coast has also become snarled in problems. These developments may have led executives to decide that the company would be better off trying to buy pipelines in addition to building them. Still, steady revenue from the company’s sprawling network of regulated energy infrastructure puts it in a relatively good position in the recent industry slump.

I am getting tired of pipeline operators, oil companies, port terminals, etc., etc., thinking they can get anything done in the Pacific Northwest, New England, or even Nebraska, and to some extent Minnesota and Iowa, where all those CAVE dwellers live.  There are plenty of existing pipelines to maximize efficiency; there are plenty of places to build more export terminals in Gulf Coast along Texas and Louisiana. Everyone is wasting their time in the Pacific Northwest.

Original Post

 

What do you do when folks won't let you build a new pipeline? Buy another pipeline company.  From The Wall Street Journal:

TransCanada Corp. , the company behind the controversial Keystone XL oil pipeline project, is in takeover talks with Columbia Pipeline Group Inc., a U.S. natural-gas pipeline operator with a market value of about $9 billion.

The companies could reach a deal in the coming weeks, according to people familiar with the matter. Details of the possible deal—including the role of Columbia Pipeline Partners LP, a publicly traded affiliate of Columbia Pipeline Group—couldn’t be learned. The negotiations could still break down, the people cautioned.

With a typical takeover premium, a deal could value Columbia Pipeline Group at about $10 billion. The company also carries a debt load of nearly $3 billion.

Background:

Houston-based Columbia Pipeline Group owns about 15,000 miles of gas pipelines from New York to the Gulf of Mexico, together with one of the country’s biggest underground storage systems and related gathering and processing assets.

Most of its assets overlay the Marcellus and Utica shale formations in Pennsylvania, West Virginia and Ohio.

It had profit of $307.1 million last year, up about 15%. Revenue declined slightly to $1.33 billion.

The company was spun off from NiSource Inc., a natural-gas utility operating in seven Eastern states, in the middle of last year. Shares of both Columbia Pipeline Group and Columbia Pipeline Partners have fallen sharply since then as the slump in energy prices undercut oil and gas output and thus demand for pipeline capacity.

I guess this is why Hillary Clinton is going to ban fracking: to destroy the natural gas industry in Pennsylvania, West Virgnia, and Ohio. I guess she plans on going back to coal. LOL. 

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Day Rates -- I Thought There Was A Law Against Gouging
I Guess The Anti-Gouging Law Only Applies To Gas Stations After A Hurricane
What do you do to protect yourself from being gouged?

What do you do to protect yourself from $200,000/day rates for supertankers? You buy your own supertankers. Look at the "range of day rates on supertankers, from $200,000 day (then) to $3,000 / day (now). From The Wall Street Journal:

“At the peak of the market in 2007 and 2008 we used to pay daily freight rates in excess of $200,000  for a Capesize vessel,” an executive at one of the Chinese Valemax buyers said. “We are taking steps for this not to happen again when the market recovers.”

Daily rates for Capesize ships currently hover below $3,000.

So, what to do?

Chinese shipping majors Cosco Group, China Merchants Group and ICBC Financial Leasing Co. have placed orders for 30 giant Valemax vessels worth a combined $2.5 billion.

The move will tighten Beijing’s grip on iron-ore shipments from Brazil over the next decade and increase pressure on Western shipowners struggling to find cargo in one of the industry’s longest ever downturns.

The ship orders will also boost Chinese shipyards suffering from a slump in demand, and in the long run will help control costs for Chinese steelmakers by stabilizing freight rates.

Be sure to read the comments. Apparently the Chinese banned these supertankers from their ports; led to the bankruptcy of Valemax; supertankers sold cheaply; now back in Chinese ports. At least that's what some are saying. I don't know the whole story. Maybe the supertankers were safe but not the operators. If true, sounds like the Jones Act in the US. 

This reminds me of Amazon.com buying its own air freight aircraft.

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A Note For The Granddaughters

For Those Who Thought Cactus Was Only In The Southwest

Here's a nice story about taking a baby for a walk during the spring in North Dakota, another person's story, not mine. A nippet:

And, it turns out, cactus. Of course cactus. Because here in Western North Dakota if it isn’t the cold it’s the mosquitoes. And if it isn’t the snow it’s the damn cactus.

As I type this I have a few little wounds on my hands as a reminder. Because as peaceful and angelic as this little scene might look from the still capture of the camera, it turns out ...

A great read today. As usual.