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Vol. 13, No. 29 Week of July 20, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Alaskans looking for gas pipeline jobs

Denali’s president says work now with contractors; legislators say constituents reacting to ads, want to know where to apply

Kristen Nelson

Petroleum News

It has a big advertising campaign, but is it real? Where can people apply for work on the project? Can the project get rights of way through Canada? Can the producers do a better job than they did building the trans-Alaska oil pipeline? Will there be open access to this pipeline for new gas as it is discovered? Will the owners commit to the 20 must haves in the Alaska Gasline Inducement Act?

Those were among the questions Bud Fackrell, president of Denali — the Alaska Gas Pipeline, got from legislators in Juneau July 10.

The issue of whether Denali, the BP-ConocoPhillips gas pipeline project from the North Slope to Lower 48 markets, announced in early April, is a real project topped the list.

A parent trying to find summer work for his son concluded Denali is merely a sham after he was unable to connect his son with a job on the project. He wrote Sen. Hollis French, D-Anchorage, about his experience; French asked Fackrell.

French wasn’t the only legislator with questions about jobs on the project.

Rep. Carl Gatto, R-Palmer, said he wanted to see information in the company’s ads about where people can apply for work.

Legislators wanted to be able to tell constituents where they could walk in and drop off an application.

Fackrell referred legislators to information on the company’s Web site, and said Denali has moved out of BP into temporary office space in Anchorage, and is in the process of contracting for 28,000 square feet of office space, with an announcement on the space expected by September.

At this point work is with contractors in the field, he said, although as the project moves along the company itself will expand; but that ramping up will occur over time.

Only a fraud?

Rep. Mike Hawker, R-Anchorage, said he’s heard it alleged that Denali is nothing more than a fraud intended to mislead Alaskans and legislators — just a political ploy. Is it or is it not a fraud, he asked Fackrell.

Fackrell said he believes it is real. He said he’s been in the business for more than 30 years and can work anywhere, but took this job. There are 75 people in the field and the organization is being staffed. The goal is a successful open season, he said.

“I’m not asking you to trust us; I’ve been asking you to watch us,” he said.

In addition to beginning summer field work, the company has pre-filed with the Federal Energy Regulatory Commission, is taking the FERC chairman to the North Slope later in July and meeting with Drue Pearce, the federal coordinator for Alaska gas pipeline projects.

It would severely damage the owners if we suddenly pulled back on the project, he said.

As to how real the company is, Fackrell said in response to questions from Sen. Bill Wielechowski, D-Anchorage, that the company was formed by two of the state’s major producers and will spend $40 million this summer, and $600 million to get to a successful open season. The organization is real, he said, and will employ 150 people by the end of the year, close to 300 by the end of next year.

Gas vs. rights of way

Your owners have the gas, but TransCanada Corp. has the rights of way through Canada, said Sen. Con Bunde, R-Anchorage: How does Denali propose to get rights of way through Canada?

Fackrell said permitting a pipeline is problematic and difficult, but both BP and Conoco have large companies operating in Canada and the companies think they have the people and expertise in Canada to help with Canadian issues.

Rep. Mike Doogan, D-Anchorage, said the experience with the producers owning and building the trans-Alaska oil pipeline didn’t give him much comfort and asked about the companies’ ability to build a major project at anything like the initial cost estimates.

Fackrell said the companies learned a lot from building the trans-Alaska oil pipeline, are in the business of building projects, have experts in project management and will use contractors with experience. Another advantage BP and ConocoPhillips have is that they know how to operate on the North Slope and have an Alaska workforce.

He acknowledged that a trans-Alaska gas pipeline won’t be an easy project: It if was an easy project it would have been done already, Fackrell said.

Doogan asked what projects BP has done that would compare to a trans-Alaska gas pipeline and Fackrell cited pipelines in the Caspian and the Gulf of Mexico.

Access a concern

Rep. Reggie Joule, D-Kotzebue, asked Fackrell for assurances that explorers — companies without gas to nominate at an initial open season — would have reasonable access to a producer-owned line. Joule said he was concerned about 30 years of monopoly on the trans-Alaska oil pipeline.

Fackrell said the gas pipeline will be open access, open to all parties who wish to nominate gas, with FERC controlling access.

He said Denali wants to fill the pipeline and doesn’t want just two companies to nominate gas. Denali envisions that every two years after FERC approval the pipeline will solicit interest in expansion, and thinks the line will open up the North Slope for gas exploration, Fackrell said.

Rep. Les Gara, D-Anchorage, asked if Denali would commit to the rolled-in rates for expansions included in the Alaska Gasline Inducement Act.

Fackrell said the pipeline needs initial customers because there will be no pipeline without them, but also wants to be able to expand. A balance is needed, he said, and if you burden initial shippers with rolled-in rates you don’t have initial shippers. He said the assumption of rolled-in rates means that initial shippers would subsidize expansion shippers.

Gara also asked Fackrell if he would guarantee that the Denali owners wouldn’t ask for more than $500 million in tax breaks, referring to the $500 million in state matching funds offered in AGIA.

Fackrell said the pipeline company won’t be asking for conditions, but expects customers will want to have fiscal terms settled before they sign up to take firm transportation commitments. He noted that in TransCanada’s application it said it would rely on the state to take actions on fiscal terms.

The AGIA must haves

Sen. Charlie Huggins, R-Wasilla, who has chaired most of the AGIA hearings for the Legislature, asked Fackrell which of the 20 must haves under AGIA Denali would comply with or support.

Fackrell said the Denali proposal addresses a lot of the 20. The line will be open access; there will be distance-sensitive tariffs for in-state gas; there will be at least five Alaska offtake points including Fairbanks; the design will provide for efficient expandability; and the pipeline expects to have an expansion solicitation every two years.

Fackrell said he would reply in writing to the entire list of 20.

Asked by Sen. Lyman Hoffman, D-Bethel, if Denali had a specific debt-to-equity ratio for the financing, Fackrell said Denali was not committing to the debt-equity ratio specified in AGIA (70-30). The company would be going to the financial community to see what the best financing would be, he said, noting that the biggest element in the tariff is the cost of the pipeline, not the debt-equity proportion.

French asked when a determination would be made on the debt-equity ratio.

Fackrell said Denali will work with the financial markets to get the lowest tariff. The tariff and financing proposal would have to be determined in order to have a successful open season, a process which Fackrell said would begin by year-end 2010.

Detailed information in Fackrell’s slide presentation showed a plan to apply for approval of an open season bid package by year-end 2010, followed by 60 days of public comments and 30 days for FERC approval of the bid package.

The open season would last 90 days. Signing agreements with shippers and posting results of the open season would occur over the next one to two months. Copies of the agreements would then be filed with FERC and the pipeline would begin to secure financing.

Based on beginning the open-season process by year-end 2010, the process to secure financing would begin in the third quarter of 2011.

How LLC would operate

Sen. Gene Therriault, R-North Pole, noted that the Denali limited liability company was formed under Delaware laws. The difference between Delaware LLC law and Alaska LLC law was a concern during the Stranded Gas Development Act contract discussions, he said, because under Delaware law the owners of the LLC can act in their own interests, even if those interests are adverse to those of the pipeline company. Alaska LLC law has a higher standard, he said, arguing that a parent company could block an expansion. He asked Fackrell if the LLC agreement was available; Fackrell said he would check and see if it was a public document.

Rep. Harry Crawford, D-Anchorage, asked Fackrell why, on a list of Denali terms of service in his presentation, the word “plans” was used for soliciting interest in expansion every two years, as opposed to the word “will” in front of open access pipeline, distance-sensitive rates and project design for efficient expandability?

Fackrell said he was not wedded to the word “plan”; it is the plan now to have solicitation every two years, he said, and is not a stretch to go to the word “will.”

Sen. Kim Elton, D-Juneau, asked Fackrell if when he responded to the company’s commitment to the 20 AGIA must haves, he would also try to give an idea of the depth of commitment. Plans evolve, Elton said, and he was concerned that commitments can devolve as plans evolve.

The state is contracting with TransCanada Elton said, and while Denali isn’t seeking a contract, perhaps the company could commit to incorporating what it commits to into its advertising campaign.

Fackrell said he would clarify Denali’s terms in relation to the 20 must haves — what’s in the Denali plan and what isn’t.

The pipeline competition

Bunde asked if approval of AGIA would hurt Denali, or hurt the chances of Alaska getting a gas pipeline.

Fackrell said that no matter what the Legislature decides on the TransCanada application, Denali is moving forward, focused on having a successful open season.

He said he was concerned about a level playing field: Both projects will need applications, he said, and if Denali’s are slowed down in favor of TransCanada’s applications that would not be fair.

The other thing that could slow Denali down is fiscal concerns: We need to have customers and they need to have fiscal terms, Fackrell said.

Rep. Paul Seaton, R-Homer, asked how much of the $600 million proposed to get to an open season would be spent in Canada, and Fackrell said while he didn’t have a breakdown, and they were starting in Alaska, a good percentage would be spent in Canada. As for exactly how much, he said once the Denali leadership team was in place they would make that determination.

AGIA requires expansions in reasonable engineering increments, Seaton said, and asked Fackrell if Denali would commit to go forward with voluntary expansions and not require mandatory expansions through FERC.

Fackrell said Denali wouldn’t commit to go ahead to an expansion the pipeline doesn’t know is viable, but will solicit for expansion interest every two years. He said the pipeline’s owners will have to decide on expansions because capital investment will be required for expansion. The pipeline would evaluate expansion requests and take recommendations to the owners.



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