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National Post (Canada): Mackenzie partners see Ottawa aid But No Financial Pledge

Jon Harding, Financial Post 
Published: Wednesday, December 19, 2007

CALGARY – Partners in the Mackenzie Gas Project have asked Ottawa to treat their stalled megaproject like Newfoundland’s Hibernia project or the Syncrude Canada Ltd. oilsands mine in Alberta, both of which got federal support.

But Hal Kvisle, CEO of TransCanada Corp., one of the Mackenzie project’s participants, said financial terms given to Jim Prentice, federal Industry Minister, on Friday do not overstep what Ottawa has said it would be willing to consider.

“Generally, yes, there would be government involvement in the project, but in a manner absolutely consistent with the principles Mr. Prentice laid out,” Mr. Kvisle said in an interview. “We’ve proposed something consistent with what the minister recommended.”

After meeting in Calgary last week with the project’s key participants, Mr. Prentice would not detail their fiscal scheme, other than saying the proposal would be reviewed and analyzed as expeditiously as possible.

He did reiterate points made in June: that the Government of Canada has no interest in owning any portion of the project or in subsidizing petroleum companies; and that the project must be a private-sector investment, driven by commercial considerations.

What Mr. Prentice also said in the summer, however –and what it appears the Mackenzie partners are seizing on after back-and-forth negotiations — is Ottawa is mindful of the gains from royalties collected from natural gas produced from the project’s three anchor fields in the Mackenzie Delta, and from new discoveries after the pipeline’s construction spurs exploration.

With those benefits in mind, Mr. Prentice said Ottawa was willing to discuss the government accepting royalties in kind, a royalty regime consistent with a basin-opening project, the reduction of volume risk via shippingcommitments, and “other forms of support.”

Mr. Kvisle, who annually schedules one-on-one interviews with reporters around Christmas time to talk about TransCanada’s emerging strategies, said there are plenty of examples throughout Canada’s history of the federal government giving industrial mega-projects a helpful push, and ultimately benefiting.

He cited Hibernia, in which Ottawa still owns an 8.5% interest, the Syncrude oilsands mine and the original Trans-Canada natural gas link between Alberta and Winnipeg, a 34-inch pipeline that at the time represented 100% of TransCanada’s total pipeline capacity but today represents 4% and is flanked by six other major lines.

“These do not waste government money — at the end of the day, the government has done very well by them,” Mr. Kvisle said.

Ian Doig, publisher of the oil and gas newsletter Doig’s Digest, believes Mr. Kvisle’s comments suggest the project will not be doable without an injection of political capital.

“He’s saying it’s gotta take some moves by Ottawa and if it’s monetary, it’ll take political capital, in a budget. In a minority government, how much will they be willing to put into this when it only had one federal seat [in the Northwest Territories] attached to it?”

Regulatory hearings are complete on the $16.2-billion project, which includes a 1,220-kilometres anchor line, natural gas processing facilities and a gathering system from the three anchor fields, but approval from the national Energy Board isn’t expected until mid-2009.

TransCanada joined the partnership four years ago when it was invited by project leader Imperial Oil Ltd. to offer technical support and finance development costs for the Aboriginal Pipeline Group, another partner.

Conoco Phillps, Royal Dutch Shell PLC and Exxon Mobil Corp. are also part of the joint-venture.

TransCanada has so far spent $135-million funding the APG and Mr. Kvisle said the company would be willing to build and operate the 1,220-kilometre link between Inuvik and Alberta should Imperial step aside.

But he emphasized no such change of control has taken place, and said none would before the proponents hear back from Ottawa.

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