TSX Commentary

TransCanada Corp. (TRP) – $34.17 – Alaska Pipeline Project Files Open Season Plan
Outperform, Average Risk, Price Target: $41.00
TransCanada and ExxonMobil filed an open season plan for the Alaska Pipeline project with the FERC. TransCanada and ExxonMobil have proposed two projects: (1) a 4.5 Bcf/day pipeline from the North Slope to the Alaska-Yukon border, where it will connect with a Canadian line into Alberta; and (2) a 3.0 Bcf/day line from the North Slope to Valdez for liquefaction and export. Both projects could be in-service by 2020, although only one project is likely to move forward. The estimate for the pipeline from the North Slope to Alberta is in the range of US$32 billion to US$41 billion (in 2009 dollars). For the pipeline to Valdez, the estimated cost is US$20 billion to US$26 billion (not including the liquefaction facility). Both estimates include a new gas treatment plant to be built in Prudhoe Bay. The open season plan filed with the Federal Energy Regulatory Commission (FERC) envisions a 90-day open season starting at the end of April and ending in July 2010. There will be a concurrent, but separate, open season process for the Canadian portion of the project. The open season is in line with the requirements under the Alaska Gasline Inducement Act (AGIA). RBC CM believes that the success of the project hinges on the producers and the government coming to an agreement on various financial issues (e.g. royalties). From a TransCanada standpoint, the project to Alberta is much better for shareholders as it has the added benefit of increasing supply for the existing pipeline system. RBC CM is maintaining its current valuation, due to the uncertainty regarding the project, as well as the long potential in-service date. The target price for TransCanada remains $41.00, based on a forward P/E of 16.5x.