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Ready to build Mackenzie line TransCanada CEO says Arctic project half size of Keystone oil sands line, but ownership less critical than clearing reg logjam, reducing risk Gary Park For Petroleum News
While insisting his attentions are focused elsewhere, TransCanada CEO Hal Kvisle leaves no doubt his company is ready to take the lead role in completing the mainline of the Mackenzie Gas Project.
In a conference call Jan. 29, he made a special point of noting that TransCanada’s Keystone pipeline from the Alberta oil sands to the U.S. Midwest is double the size and distance of a pipeline from the Mackenzie Delta to northern Alberta.
(The US$5.2 billion Keystone project, with ConocoPhillips as a 50 percent stakeholder, covers 2,148 miles and is due to deliver 590,000 barrels per day to Wood River and Patoka, Ill., by late 2009 and to Cushing, Okla., by late 2010.)
“TransCanada is ready to contribute in whatever way we can,” he said. “This is the kind of project we do. This is what our company does. And we’ve extended an offer that we’d be prepared to do that on the Mackenzie project.”
But Kvisle would not be drawn into speculation that the latest proposal to the Canadian government involves a change in the makeup of the partnership that would see TransCanada and the Aboriginal Pipeline Group split pipeline ownership 60 percent to 40 percent, respectively.
“Those are not issues that are important to any of us right now,” he said.
He said TransCanada is “very much in this project” along with the producers and any change in the current structure or the way the producers interact with the APG “can be worked out. It’s not really material to the regulatory process.”
Economic model necessary Topping the to-do list for the producers (Imperial Oil, Royal Dutch Shell, ConocoPhillips and ExxonMobil), the APG and “I believe” the government of Canada, is to figure out an economic model that allows the project to go ahead.
Thus the emphasis is on “risk reduction and cost management,” he said, adding: “Once we get through those we’ll figure out how to implement the project.”
Kvisle conveyed the sense that his greatest concern revolved around a speedy resolution of the regulatory process.
“We’re hopeful we can make some progress in the next few months to the point of knowing whether or not we should persist,” he said. “We’re interested in seeing some breakthrough in the next six months.”
Kvisle said he believes “some pretty good ideas” are now before the federal government to settle the fiscal terms.
Meanwhile, he is counting on the National Energy Board and Joint Review Panel completing their work in another 12 to 15 months.
Main line pegged at C$8 billion Kvisle said it is “reasonable” to estimate the cost of the main line at about C$8 billion — roughly half the total cost of the project.
“But if we experience another three years delay and that happens to be during a very inflationary period that will have a dramatic impact on the costs,” he said.
Otherwise, “it’s the kind of project we know how to execute and we’re reasonably confident we can do it within the C$8 billion figure,” he said.
Although Kvisle was candid in handling questions on the MGP, lead partner Imperial has refused to be drawn on rumors it could hand over control of the main pipeline to concentrate on the upstream portion.
There was nothing to be gleaned from Imperial’s final-quarter and full-year earnings report for 2007, when Chairman and Chief Executive Officer Tim Hearn made no reference to the MGP in the category labeled “highlights/items of interest.” Unlike other CEOs of Calgary-based companies, Hearn does not hold a conference call to field questions on Imperial’s earnings reports.
However, Imperial did note that along with co-venturer and sister company ExxonMobil it acquired exploration rights last year for more than 500,000 acres in the Beaufort Sea.
It said the 50 percent share of the proposed exploration spending would be about C$293 million, with a minimum commitment of C$73 million.
The company, reiterating its earlier position, described the parcel as a major addition to its “undeveloped acreage position. Although the Arctic remains a high-potential, technology intensive frontier area, this presents a potential to add to the company’s resource base in the Beaufort Sea and is consistent with its continued interest in energy development in Canada.”
TransCanada expansion in works A key peripheral aspect of the Mackenzie project involves an application now before the Alberta Energy Conservation Board for a North Central Corridor pipeline expansion of TransCanada’s Alberta network.
The proposed 42-inch line carries an estimated cost of C$983 million and would span 180 miles from northwest Alberta to the province’s Athabasca oil sands region.
Subject to regulatory approval, it is scheduled for completion in two stages and to be fully on-stream by mid-2010.
The design capacity is 1.3 billion to 1.5 billion cubic feet per day.
TransCanada said the pipeline is planned to link increasing gas supply in the northwest region with declining supply in the northeast and address growing intra-Alberta markets resulting largely from oil sands development and reduced delivery capacity to interconnecting pipelines at the Alberta-Saskatchewan border.
Some observers see the project as a logical extension of a Mackenzie pipeline, allowing Arctic gas to be shipped to the oil sands region, where the four MGP producers all have major projects both operating and in the development stages.
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