TC Energy (TRP) Files $15B Suit Against U.S. Over Keystone XL

TC Energy Corporation TRP — sponsor of the canceled Keystone XL pipeline — has sought a compensation of $15 billion under the North American Free Trade Agreement (NAFTA) provision from the United States for nixing a permit for the border-crossing oil conduit.

In January, in keeping with his campaign promise, President Joe Biden cancelled the contentious project that would have transported crude from the oil sands region of Canada to the American markets. Designed to carry 830,000 barrels of crude a day from Alberta’s oil sands to U.S. Gulf Coast refineries, the 1,947-kilometer pipeline was seen as a solution to the takeaway constraints in Canada.

The $8-billion development was TC Energy’s flagship project and its cancelation undoubtedly hurt the Calgary, Alberta-based midstream company’s long-term outlook. With the project’s construction already starting last year (after the Alberta government took an equity interest of $1.1 billion), the executive order meant that TRP had to let go in excess of 1,000 workers. In June, the company formally terminated the undertaking, following a comprehensive survey of its options in cooperation with the Alberta government and partners.

The long-delayed pipeline — first announced in 2008 and approved by Canada’s National Energy Board in March 2010 — encountered significant regulatory, legal and environmental setbacks over the year. It was strongly opposed by environmentalists and politicians, owing to the risk of emitting greenhouse gases in transporting bitumen and crude to the United States.

TC Energy (then TransCanada) filed the first application in January 2012 for a permit to build and operate the massive pipeline that was denied by the then-U.S. president Barack Obama, prompting the Canadian firm to put forth a new route plan and application with the U.S. State Department. In November 2015, President Obama again rejected TRP's application to construct the Keystone XL pipeline on fears that it would weaken United States’ position in international climate change negotiations. However, in 2017, the project was cleared by President Trump as he had signed an executive order for it to be completed.

TC Energy lodged an arbitration request last week as per a NAFTA rule — the investor-state dispute settlement provision under Chapter 11 — that allows companies to recoup money for lost investment. The official submission of paperwork follows the Canadian firm’s filing of a notice of intent in July to start a legacy NAFTA claim accusing the United States of breaching free trade obligations. It must be noted that the legal challenge was not mounted under the new U.S.-Mexico-Canada agreement but under its predecessor NAFTA, which was the trade agreement in place at the time of the project’s initiation.

TC Energy believes that Biden’s move to rescind the Keystone XL permit even after the project was well underway for months on the U.S. as well as the Canada side was “unfair and inequitable.” The developer of the pipeline stressed that it had all the requisite permissions and pursued the project under three U.S. presidents for a very long period of time. The Biden administration’s decision to end the pipiline has also been blamed for causing mass layoffs of thousands of union workers, apart from putting an unfair loan burden of $1.3 billion on Alberta taxpayers and billions in debt guarantee.

The quantum of damage that the company is seeking is the largest claim for a Canadian organization against the U.S. government and one of the biggest ever. Considering the massive compensation amount, the case has profound implications.  

Industry observers say that instances of a foreign company challenging U.S. policy decisions are extremely rare and America has emerged victorius in most of them. At the same time, there are firms that have won international disputes of a similar kind. While the tribunal lacks the jurisdiction to force a nation to amend its laws over a dispute, or, in this case, compel the United States to green light the pipeline, it could award recovery of the destroyed value of investment by TC Energy.

Meanwhile, TC Energy maintained that it is not looking to breathe new life into the project irrespective of its success in getting back the multibillion-dollars it shelled out in trying to develop Keystone XL.

Zacks Rank & Stock Pick

TC Energy currently carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are ConocoPhillips COP, EOG Resources EOG and Suncor Energy SU. All the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ConocoPhillips has a projected earnings growth rate of 710.3% for the current year. The Zacks Consensus Estimate for COP’s current-year earnings has been revised 21.8% upward over the last 60 days.

ConocoPhillips beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 13%. COP shares have gained around 86.4% in a year.

EOG Resources has a projected earnings growth rate of 495.2% for the current year. EOG's consensus estimate for the current year has been revised 15.9% upward over the last 60 days.

EOG Resources beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 29.8%. EOG has rallied around 93.1% in a year.

Suncor Energy has an expected earnings growth rate of 318.2% for the current year. The Zacks Consensus Estimate for SU's current-year earnings has been revised 27% upward over the last 60 days.

Suncor Energy beat the Zacks Consensus Estimate for earnings in two of the last four quarters but missed twice. It has a trailing four-quarter earnings surprise of roughly 7.5%, on average. SU has rallied around 56.8% in a year.

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