February 21, 2003 --- Vol. 9, No. 21February 2003

Production incentives included in upcoming MMS Beaufort Sea sale

The Minerals Management Service is including incentives in its upcoming Beaufort Sea oil and gas lease sale. Royalties will not be charged on the first 10 million to 45 million barrels of production from leases at the agency's upcoming Beaufort Sea lease sale, depending on the size of the lease and the distance from infrastructure, the agency said Feb. 20.

The royalty suspensions for Beaufort Sea sale 186 are for oil and condensate — natural gas is not included — and are subject to price thresholds. For a lease size of 770 hectares or less (approximately 1,900 acres) in zone A royalty payments would be suspended for the first 10 million barrels; the royalty suspension is 15 million barrels for zone B, farther from infrastructure.

Zone A includes tracts close to shore — and North Slope infrastructure — from Harrison Bay to Point Thomson. The vast majority of tracts offered in the sale are in zone B.

For leases from 771 to 1,540 hectares (about 1,900 to 3,800 acres), 20 million barrels in zone A would be royalty free, 30 million barrels in zone B.

For leases of 1,541 hectares or larger (more than 3,800 acres), 30 million barrels in zone A would be royalty free, 45 million barrels in zone B.

TransCanada, aboriginals reported to have Mackenzie agreements

It’s a deal — almost.

Canadian newspapers have been abuzz this week with reports that a tentative pact was reached over the weekend by TransCanada PipeLines Ltd. and the Aboriginal Pipeline Group to raise hopes for the proposed Mackenzie Valley gas pipeline.

A number of Native leaders in the Northwest Territories say the basis of a deal is in place, although the final terms are still being negotiated. A formal announcement is expected within a month.

Frank T’seleie, chief of the K’ahsho Got’ine in Fort Good Hope told the Globe and Mail newspaper that TransCanada will cover the APG’s requirement to pay C$70 million share of the preliminary engineering and regulatory work for the pipeline.

He said that in return for paying the preconstruction costs, TransCanada will build the pipeline and, under certain conditions, acquire a 4 percent to 5 percent equity stake from the producers who would supply the volumes to fill the APG’s one-third stake.

APG chairman Fred Carmichael issued a statement confirming a preliminary agreement, although it has yet to be confirmed that the arrangement is consistent with last year’s memorandum of understanding (MOU) between the APG and the Mackenzie Delta Producers Group.

Carmichael told the Calgary Herald that, in addition to the C$70 million, another C$300 million in financing has been secured to pay for the APG’s overall investment in the pipeline.

Carmichael confirmed earlier this week that the deal would not involve the APG reducing its one-third equity position, a prospect that had caused some disquiet within the producers’ group if it meant the APG would sell part of its equity stake to another party.

TransCanada and the producers have refused to comment on confidential negotiations until the pieces are in place that will allow a formal announcement.

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