As widely expected, the Republicans notched a strong win in the midterm elections over the Democrats to take control of the U.S. Senate. Republicans have won a majority in both chambers of Congress for the first time since 2006. Held at the mid-point of a president’s four-year tenure, this midterm election result shifts much of the power away from President Barack Obama.
What the Republican Takeover Means
In particular, the Republican victory is seen to help clear many of the bills, including one on the controversial Keystone XL pipeline that awaits connection between Canadian oil sands and Gulf of Mexico. TransCanada Corp. (TRP) – the company building the conduit – has already seen share price gains on optimism that a Republican-controlled Congress would mean better chances for a vote on the pipeline that has witnessed several bottlenecks.
The Republicans, along with a cross section of Democrats, had been pushing for approval of the pipeline which they feel would pump the U.S. economy with multi-millions in revenues. They also advocated that the pipeline would drag down U.S. energy costs and trim the energy import bill.
About the Keystone Pipeline
The Keystone XL pipeline, if approved, would connect the oil sands of Alberta to the U.S. Gulf. It would run up to 1,179 miles and carry up to 830,000 barrels of oil per day. The $5.4 billion pipeline project would not only create jobs but would also be an economic driver for the nation, reducing dependence on foreign oil.
Setbacks to the Project
The first three phases of the Keystone pipeline have been built already. But while the network started operating in 2010, the Keystone XL portion of the system – that runs 800 miles through Montana, South Dakota and Nebraska, and requires U.S. approval – is still nowhere near finalization even after 6 years of assessment amid oil-versus-environment debate.
The latest setback was in April this year when the U.S. Department of State (DOS) announced a further delay in the decision on the project. The DOS stated on Apr 18 that the federal agencies assessing the project will get additional time to submit their views following the uncertainty created by the pending Nebraska Supreme Court decision on the pipeline’s route through the state.
The agencies would also look into the large number of public comments submitted on the issue. This basically means an indefinite delay, for the time being, and an expensive one for Calgary-based TransCanada.
TransCanada’s Fortunes Tied to Keystone Approval
Management believes that as oil production is on the rise in North America, not building the pipeline would be a big loss for the nation. Oil will definitely flow into the country, if not through pipelines, then by accident-prone rail routes.
While the Calgary-based company has already invested around $2 billion in the pipeline project, it is waiting on for the final nod from the Obama Administration. As the impasse over Keystone XL deepens, we remain concerned about its effects on TransCanada. The Keystone project was originally partnered between TransCanada and ConocoPhillips (COP), however, in 2009, TransCanada purchased its partners’ stake, making it the sole owner.
Therefore, any positive ruling on the pipeline could help TransCanada score better than the Zacks Rank #5 (Strong Sell) it currently sits at. Meanwhile, one can look at better-ranked players in the same industry like Oiltanking Partners L.P. (OILT) and MPLX L.P. (MPLX). Both these stocks sport a Zacks Rank #2 (Buy).
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