January 07, 2002 --- Vol. 8, No. 3January 2002

Mackenzie Delta gas development moves to regulatory phase

Canada's Arctic gas producers and aboriginals have taken their boldest step yet, announcing today that they will proceed with regulatory applications to develop onshore Mackenzie Delta gas and build a C$4 billion (US$2.5 billion) pipeline.

The Mackenzie Delta Producers Group and the Mackenzie Valley Aboriginal Pipeline Corp. said they will now embark on a C$250 million project definition phase involving technical, environmental and commercial work required for regulatory applications covering field, gas-gathering and pipeline facilities.

K.C. Williams, senior vice-president of Imperial Oil Ltd. - the lead partner at 50 percent in the producers' consortium that includes Conoco Canada Resources Ltd., 25 percent; Shell Canada Ltd., 17 percent; and ExxonMobil Canada, 8 percent - said the decisions "demonstrates confidence ... that development of Mackenzie Delta gas, including a Mackenzie Valley pipeline, is potentially commercial and can be beneficial to the people of the North and too all resource developers.

"While we are optimistic, the ultimate decision to build the pipeline can only be made after obtaining regulatory approval, and will be a function of many factors, including natural gas markets, construction costs and regulatory and fiscal certainty," he said.

No target dates to start construction or gas deliveries were announced.

Combined initial production rates from the key gas fields are expected to be between 800 million and 1 billion cubic feet per day.

The pipeline would be anchored by 5.8 trillion cubic feet of established gas reserves at the Taglu, Parsons Lake and Niglintak fields, but would be accessible to other gas discoveries in the Mackenzie Delta and Mackenzie Valley.

Nellie Cournoyea, chair of the aboriginal pipeline group, said the announcement is a "significant step" towards a pipeline. Under a business partnership negotiated with the producers, aboriginals would be entitled to one-third participation and ownership, provided they are able to attract 400 million to 500 million cubic feet per day of production in addition to the producers' output.

Pre-filed bills would establish public gas corporation, extend royalty relief

Four oil and gas related bills were pre-filed Jan. 4 for the second session of the 22nd Alaska Legislature.

House Bill 302, pre-filed by state Rep. Jim Whitaker, R-Fairbanks, would establish a public corporation, the Alaska Gas Corp., to develop "a project plan to evaluate whether construction and operation of a natural gas transmission pipeline project by the corporation is feasible."

The project would include the gas pipeline and related property and facilities from Prudhoe Bay to the Interior and from there either along the Alaska Highway through Canada or to tidewater on Prince William Sound or both.

The Joint Committee on Natural Gas Pipelines of the 22nd Legislature would report no later than the first day of the 23rd Alaska Legislature on whether project construction by a public corporation is feasible.

Rep. Whitaker also pre-filed HB 311, limiting the ability of the Department of Natural Resources to issue or extend oil and gas leases containing natural gas capable of being produced in paying quantities unless the lessee agrees to an amendment requiring it "to contract to sell the gas that is produced from the lease?"

The bill also provides that if there is more than one "qualified bona fide purchaser ? the commissioner shall issue or extend the lease only if the lessee enters into an agreement with the qualified bona fide purchaser that, in the judgment of the commissioner, provides the greatest long-term return to the state."

Small oil producers would be exempt from the requirement to sell gas from their leases.

Rep. Hugh Fate, R-Fairbanks, pre-filed HB 307, extending to 2007 existing exploration incentive credits for hydrocarbon exploration geophysical work or drilling of a stratigraphic test well or an exploratory well, and HB 308, extending discovery royalty credits now limited to the Cook Inlet sedimentary basin to oil or gas discoveries in the Tanana River drainage basin. The Cook Inlet royalty credit is for leases before 1997; the Tanana River drainage royalty credits would be for leases predating the effective date of the statute.

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