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Financial Post (Canada): PIPELINE IN ‘NATION’S INTEREST’: Prentice reacts to oil industry naysayers

BY JON HARDING in Calgary
AND PAUL VIEIRA in Ottawa
Financial Post [email protected]

CALGARY: It is in the nation’s interest that the cost-challenged Mackenzie Gas Project gets built, but by whom remains to be determined, Jim Prentice, Canada’s Minister of Indian Affairs and Northern Development, said yesterday.

If the companies proposing the 1,200-kilometre link between gas fields in the Mackenzie Delta and the continental gas grid in Alberta believe the project is uneconomic, then those project proponents “will have to consider the alternatives.”

The minister was responding to comments made a day earlier in Dallas by Exxon Mobil Corp. chief executive Rex Tillerson, who sent a strong signal that the oil giant does not want to carry out the Mackenzie project because costs, which have doubled to $16.2-billion, are too high.

“The extension of pipeline infrastructure up into the Mackenzie Valley is important to this country and is in our interest as a nation,” Mr. Prentice said outside the House of Commons.

“How it happens, when it happens, by whom, and what the rate of return will be on that pipeline all need to be determined. … It will have to achieve private- sector rates of return and make sense on free-market principles.

“So I await to see if that is the case or not and if it isn’t, the proponents will have to consider the alternatives.”

Two weeks ago Mr. Prentice denied the project was dead or that the federal government is considering getting involved financially to save it.

Exxon Mobil holds the largest reserves in the Delta and it is the parent of project operator Imperial Oil Ltd., whose other partners include Royal Dutch Shell PLC, Conoco Phillips and the Aboriginal Pipeline Group (APG), an aboriginal enterprise with a one-third interest.

Mr. Tillerson said the project is uneconomic in today’s cost environment. “It’s not economical at this point,” he said on Wednesday after Exxon’s annual meeting.

The National Post reported two weeks ago that Ottawa is exploring ways to take control of the project to salvage it, possibly by buying out the oil company consortium.

Sources say another plan being considered involves TransCanada Corp., Canada’s largest pipeline company, owning the pipeline along with the APG, which TransCanada has financed thus far. Ottawa would come up with a way to back the project financially, perhaps with loan guarantees.

Mr. Tillerson’s pessimistic view of the project’s status is supported by Clive Mather, the outgoing chief executive of Shell Canada Ltd., who is retiring from the company next week in the wake of Royal Dutch Shell turning Shell Canada private by buying out minority shareholders.

“We continue to believe there is a project there to be done, but right now it’s hard to see how it’s going to get to a level where the economics go round,” Mr. Mather said in an interview.

He said talks about a government role are taking place.

“Government involvement in this project has always been important and will always be important,” Mr. Mather said.

“We’ve got to find the configuration between the cost of the project, and the economics of the return and the involvement of government, which gets this to a point where we can all go ahead. And those conversations will continue. Frankly, that’s where we are.”

1 Comment on “Financial Post (Canada): PIPELINE IN ‘NATION’S INTEREST’: Prentice reacts to oil industry naysayers”

  1. #1 saga
    on Jun 1st, 2007 at 13:59

    With the same gross sales, Exxon’s profits were 4x WalMarts.

    I think there is some wiggle room there!

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