TransCanada Corp. is confident it can overcome the latest obstacle to its Keystone XL oil pipeline after a Nebraska judge ruled the project’s route illegal, setting up the potential for costly delays.

“This is a solvable problem and we are undeterred,” TransCanada chief executive officer Russ Girling said Feb. 20 on an earnings conference call. “We will work to minimize any potential impact on the project’s schedule.”

A judge ruled Feb. 19 that Nebraska’s governor didn’t have authority to approve a revised pipeline route, a decision that may delay the project as long as a year. TransCanada is awaiting a U.S. permit to build the northern leg of Keystone XL, which would supply U.S. Gulf Coast refineries with crude from Alberta’s oil sands.

Nebraska’s attorney general has filed a notice to appeal the state court’s decision.

Keystone XL, which can be built in two years once it receives all required approvals, will cost more than the estimated $5.4 billion due to delays, the company said Feb. 20. TransCanada won’t update its cost estimate until it gets a decision from President Barack Obama, who must approve the pipeline because it crosses an international border.

“The Obama administration is unlikely to feel compelled to decide on the presidential permit for the project until the legal issue in Nebraska is cleared up, which could take the rest of this year,” Philip Adams, an analyst at Gimme Credit LLC in Chicago, said in a note Feb. 20.

Lightning Rod

The pipeline became snarled in politics after the project turned into a lightning rod for oil-sands development, a focal point in the debate about climate change for environmentalists, including billionaire pipeline opponent Tom Steyer.

TransCanada’s target for completing the 1,179-mile (1,897- kilometer) pipeline before the Nebraska judge’s ruling was 2016 and the company hasn’t provided a new estimate. Keystone XL was proposed in 2008 and the company originally scheduled startup of the line in 2012.

Girling said the U.S. State Department’s review of the pipeline shouldn’t be affected by the Nebraska ruling.

“We don’t know what the impact on the process will be,” Girling said on the call. “Our view would be that there’s no reason that we can think of as to why the process would have to slow down.”

Review Process

The State Department released a Jan. 31 report finding Keystone XL wouldn’t dramatically increase carbon-dioxide emissions because the oil sands would be developed even without the pipeline. The report started a 90-day review of whether Keystone XL is in the U.S. national interest, before a decision from Obama.

Judge Stephanie Stacy in Lincoln yesterday invalidated legislation that let Nebraska’s Republican Governor Dave Heineman approve the route and bypass the state Public Service Commission. TransCanada will now need commission approval, a process that by state law can take seven months.

The Nebraska ruling may hinder TransCanada’s ability to secure access to land along the pipeline’s path through the state. The company has agreements from 75 percent of the landowners along the route in Nebraska and may now require approval from the Public Service Commission to determine fair rates it can pay the remaining property owners, Girling said.

Stacy’s ruling comes in a case pressed by three Nebraska property owners who sued to block the proposed path. Her decision prohibits the governor or the state’s Department of Environmental Quality from taking any further action on the pipeline project.

“To me it seems off that individual landowners now can essentially say no to a pipeline,” Michael Formuziewich, a money manager at Leon Frazer & Associates Inc. in Toronto who owns TransCanada shares, said Feb. 20 by phone. “I can’t see it standing, but it’s definitely another delay in the Keystone process.”