The Canadian oil and gas sector says it is pleased the Canadian government has stepped up to resolve the festering political and constitutional dispute surrounding the Trans Mountain Expansion pipeline, but warns that the purchase of Kinder Morgan Canada’s pipeline and related infrastructure doesn’t actually resolve any of the outstanding issues. News of Ottawa’s intention to find a private buyer for the assets within a reasonable timeframe was also welcomed by trade associations and industry insiders.

“We are pleased the pipeline will be built. It has full regulatory, legislative, financial and political backing of the highest level of government, and will ultimately be returned to the private sector where it belongs,” said Tim McMillan, CEO of the Canadian Association of Petroleum Producers.

The federal government will buy the company's existing 300,000 barrels per day (bbl/d) Trans Mountain pipeline, Westridge Terminal (located in Burnaby, B.C.), and the 590,000 bbl/d Trans Mountain Expansion Project for C$4.5 billion (US$3.46 billion). The transaction is expected to close in August 2018.

Finance Minister Bill Morneau said in a speech that the “investment represents a fair price for Canadians and for shareholders of the company, and will allow the project to proceed under the ownership of a crown corporation. The core assets required to build the Trans Mountain Expansion project have significant commercial value, and this transaction represents a sound investment opportunity.”

While industry players universally applauded the deal, they also made it clear they are not happy about how the project became so precarious that the national government had to ride to its rescue. The Canadian Energy Pipeline Association said it is “deeply concerned” that the Liberal government “needed to purchase the project for it to be built and to assert federal jurisdiction,” according to CEO Chris Bloomer. Trans Mountain Expansion has been opposed by a coalition of First Nations, municipalities and environmental groups, but it was the B.C. NDP government led by Premier John Horgan that has said it will use “every tool in the toolbox” to expand provincial jurisdiction for environmental protection in order to “protect the coast” from the planned increase in oil tanker transit.

“A very bittersweet outcome. Yes, the country is better off with this pipeline being built,” former pipeline executive Dennis McConaghy said in an email. “But a country where its regulatory approvals are not sufficient for the private sector to accept completion risk is really dysfunctional.”

And that worries Bloomer, who adds that the sale of Kinder Morgan assets bodes poorly for the government’s financial intervention in future pipeline projects. James Coleman, professor of energy law at the Dedman School of Law, Southern Methodist University, agrees. “Does it reassure investors that they will be paid for their investment, one way or another? Or does it tell companies that even if their project is approved, someone else will reap the benefit?” he said in an interview.

Investor confidence, both domestic and international, has become an important sub-narrative to the Trans Mountain Expansion story. The B.C. government’s legal maneuvering coupled with First Nations legal challenges and fierce opposition from Metro Vancouver mayors became too much for Kinder Morgan, which suspended non-essential spending on April 8 and gave the governments in question until the end of May to sort out their issues. That brought the issue of investor confidence to a head.

Morneau tried to reassure investors May 29 that Canada is still open for business. “To investors who are considering Canada as a place to build big, important, transformational projects like the Trans Mountain Expansion—know that you have a partner in Ottawa. One who not only respects the rule of law, but who understands the challenges you’re up against, and who will work with you to find solutions that work for everyone.”

Unfortunately for the Finance Minister and the Prime Minister, industry isn’t yet convinced. “We do not believe that this outcome will instill investor confidence in Canada,” Bloomer said.

The Alberta government will support the new crown corporation, providing up to a $2 billion “backstop” in the event of “unforeseen circumstances,” payable upon completion of the pipeline, which would earn it equity. One of the province’s conditions, said Premier Rachel Notley, is that the project resume construction immediately.

“We are pleased to have worked with the federal government to ensure construction resumes, certainty is increased and Albertans and all Canadians enjoy the many benefits of having this project go forward. There is more work to do, but we will not stop until the job is done,” she said at a press conference.

While Kinder Morgan Canada board of directors have agreed to the deal, the parent company’s board has yet to sign off, and regulatory approvals are also required. “We are pleased that KML and the government were able to reach agreement on a transaction that benefits the people of Canada, TMEP shippers and both KMI and KML shareholders,” Steve Kean, CEO, Kinder Morgan Inc., said. Sidley Austin LLP served as U.S. Counsel to the Canada Development Investment Corporation, Borden Ladner Gervais LLP served as counsel for Canada on the Canadian side, while Blake, Cassells & Graydon (Canada) and Weil Gotshal (U.S.) represented Kinder Morgan.

The only blemish on the day for Morneau and Notley, whose governments have come under increasing pressure to find a way to save Trans Mountain Expansion, was the continued pugnaciousness of B.C. In his public comments about the pipeline sale, Horgan refused to back down.

"It does not matter who owns the pipeline. What matters is defending our coast—and our lands, rivers and streams—from the impact of a dilbit [diluted bitumen] spill. Our government is determined to defend British Columbia's interests within the rule of law and in the courts. We will continue our reference case, to determine our rights within our provincial jurisdiction."

The B.C. Premier’s words were a reminder that all of the constitutional and political issues that led to the purchase of Kinder Morgan Canada’s pipeline assets are still outstanding, with no obvious way to resolve them.

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