Providing coverage of Alaska and northern Canada's oil and gas industry
March 2007

Vol. 12, No. 10 Week of March 11, 2007

Northern premiers crack whip

NWT, Nunavut call for time limits to develop Arctic gas; want control of land, resources

By Gary Park

For Petroleum News

Northwest Territories Premier Joe Handley is turning up the heat on the Canadian government and playing Newfoundland Premier Danny Williams’ “use-it-or-lose-it” card in a bid to get development Canada’s northern natural gas moving forward.

Weary of a quarter-century of unresolved negotiations with Ottawa over jurisdictional control of the NWT’s natural resources, he told the senior government the time has come to “fish or cut bait.”

At the same time, he called for a “sunset clause” that would require construction to start within two years of when the Mackenzie Gas Project partners receive regulatory approval.

Echoing the frustrations expressed over the last year by Williams over his inability to force the hand of partners in the Hebron-Ben Nevis oil project, Handley told reporters at a Calgary symposium on Arctic gas he is concerned that the Mackenzie consortium (Imperial Oil, ConocoPhillips Canada, Shell Canada and ExxonMobil Canada) could, after receiving Mackenzie pipeline certification, divert their money to other worldwide assets.

That would allow them to effectively prevent anybody else from developing northern gas.

He expressed some satisfaction with the National Energy Board’s draft approval conditions that would set a deadline on any certificates issued by the federal regulator for the Mackenzie project, but added he would have “serious concerns about any company that would be issued a certificate and then not proceed with the project or sit on it.”

On the issue of jurisdiction, Handley said the current fiscal arrangements “create neither incentives to promote development nor the fiscal capacity for our territory to reinvest in the economy or facilitate development of our resources.”

Handley calls for NWT resource management

He described the current federal control over resource development and the disbursement of taxes and royalties as “not sustainable” and called for a broad devolution and revenue-sharing deal that would put resource management in the hands of the NWT government.

Canada’s 10 provinces own and regulate the development of their natural resources, collecting royalties and taxes, while the Canadian government controls most land and resources within the NWT and is the major source of revenue for the territorial government.

Handley warned that unless the NWT receives greater certainty from Ottawa over the sharing of royalties from northern resource development there is no assurance his government will agree to fiscal terms for the proposed Mackenzie Valley pipeline.

He said there is “significant risk” that public backing for the Mackenzie Gas Project and northern resource development depends heavily on a new fiscal arrangement.

Nunavut backs NWT

Handley got solid backing from Nunavut Premier Paul Okalik, who urged the Canadian government to speed up the devolution of resource powers, saying he expects Ottawa to move in that direction in the “near future.”

Okalik said the residents of Nunavut “want responsibilities that will let us stand on our own two feet. It’s time we started getting serious about our future and removing the obstacles that are in the way.”

Like Handley, Okalik agreed energy companies should be pressured to start developing the resource prospects they hold.

He said northern licenses appear on paper to be worth “hundreds of millions of dollars,” but unless there is the real prospect of development occurring they are “worthless.”

If those companies that are merely sitting on their licenses “decide that it’s not economical or practical to move forward, let them sell to someone who’s prepared to act,” Okalik said.

He said orders to drill would “prompt significant market consolidation and turn potential assets into real opportunities.”

Okalik said the current federal regime for managing his territory’s resources has resulted in “more than two decades of paralysis” for Nunavut’s oil and gas.

He said the existing federal policy allows companies to obtain Significant Discovery Licenses, which carry the right to sit indefinitely on prospects.

“We want to see an open market, where companies have the opportunity to make real money with a proved resource,” he said.

Okalik suggested the federal administration of Prime Minister Stephen Harper is either interested in maintaining control over Nunavut’s resources, or doubts the ability of the Inuit government to assume the responsibilities of resource management.

Election won’t derail Mackenzie work

The cost of the Mackenzie Gas Project may now have rocketed 58 percent from its most recent formal estimate to C$12 billion, speakers at the Canadian Institute’s Arctic Gas symposium suggested.

The prospect of a runaway budget that could scuttle the project is a major source of anxiety among those counting heavily on the project serving as the springboard for a new Canadian oil and gas basin.

Compounding those fears of delay is the imminent prospect of a Canadian election and what a federal campaign or a change of government could do to development of Mackenzie Delta gas.

Indian Affairs and Northern Development Minister Jim Prentice offered some words of comfort, telling reporters at the symposium there is no reason why negotiations on “fiscal enhancements” for the project should get shunted aside by an election.

He said the government has “really good people” involved and they should be able to continue their work during a campaign.

Meanwhile, the government is waiting for the updated budget estimates, expected later in March, which will allow the Imperial Oil-led partnership to lay out the fiscal terms it requires.

Prentice emphasized the government wants the project to proceed provided it is economically viable and “makes business sense.”

He said Ottawa is already making a substantial contribution including a C$500 million socio-economic fund to cushion the project’s impact on the Northwest Territories as well as trying to resolve aboriginal land claims and regulatory matters.

—Gary Park

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