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Keystone XL on the backburner ahead of TransCanada Investor Day

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Keystone XL does not mean the same to TransCanada (TRP-T) now as it did just two years ago, according to Credit Suisse.

The now more than five-year-old transnational oil artery proposal may be the first thought that comes to mind when thinking of the Calgary-based pipeline builder, but investors are expected to have other matters on their minds when they gather in Toronto on Tuesday starting at 8 a.m. ET.

“They should be pushed hard on why they are not considering a writedown on the cost base of the mainline system,” suggested one Calgary-based analyst who does not cover the stock and asked not to be identified. “It is the only way the mainline can compete go-forward.”

TransCanada is planning to convert part of its namesake natural gas mainline to oil service through its proposed Energy East project. The line, which is capable of sending up to six billion cubic feet of natural gas from Alberta to Ontario each day, has been running at roughly one third capacity for years with volumes competing with the massive growth in shale gas production from the northeastern United States.

The company is expected to file a formal regulatory application for the $12-billion, 1.1 million barrel per day Energy East conversion, which would reduce the mainline's gas capacity to about four billion cubic feet per day, sometime next year.

In the meantime, another analyst is hoping TransCanada will supercharge its dividend to stay competitive with its closest rival; fellow Calgary-based pipeline builder Enbridge Inc.

“If TransCanada's $38-billion order book of secured projects is bigger than Enbridge's $26-billion order book, why can Enbridge grow its annual dividend at over 10 percent, and see years of maintaining this growth rate, while TransCanada only grows its dividend at 5 percent per year?” asked Steven Paget, who covers the stock on behalf of FirstEnergy Capital.

Paget notes TransCanada's current dividend growth (yield now at 4 percent) is generally in-line with the S&P Utilities Index, but is well below not only that of Enbridge but other competitors as well, including Kinder Morgan and Williams Energy. Beyond the dividend, Paget is looking for an update on TransCanada's power growth plans and yes, an update on Keystone XL as well.

Yet if management says anything at all about Keystone XL, aside from continuing to expect a decision by early 2014 and startup of the project's southern leg to commence any moment, it will most likely be to downplay the project's importance to the company's overall financial health. Simply put: Keystone XL does not mean the same to TransCanada today as it did just two years ago. Not even close.

Credit Suisse put out a report on Monday arguing Keystone XL has gone from a 'need to have' project for the company to a 'nice to have'. Major new projects such as the $12-billion Energy East plan and a $5-billion contract for pipelines to supply liquified natural gas exports from the British Columbia coast have pushed TransCanada's backlog of projects past a total value of $38-billion. Of that figure, Keystone XL is just $5.3-billion or roughly 15 percent. In November 2011, two months before U.S. President Barack Obama rejected TransCanada's initial application, Keystone XL represented fully 80 percent of its total project backlog.

Much has changed for TransCanada this year, even if the debate surrounding its Keystone XL proposal has stayed more or less the same.

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