Vol. 14, No. 4 Week of January 25, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Mackenzie gets boost

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Canadian government makes formal fiscal offer; MGM makes gas find

Gary Park

For Petroleum News

The Mackenzie Gas Project is alive and kicking again, brought to life by word that the Canadian government has made a formal offer of financial support and is eager to work with the Obama administration on a joint strategy for developing Arctic gas in Alaska and Canada.

Just when hopes for the MGP seemed to be crumbling, Environment Minister Jim Prentice, the cabinet minister responsible for northern pipeline development, issued a statement Jan. 19 that a proposal has been delivered to the MGP proponents.

He said it includes a federal contribution to infrastructure and pre-construction costs and a “sharing of risks and returns.”

The government has previously rejected the idea of a public ownership stake in a Mackenzie Valley pipeline, or direct subsidies.

The MGP is a “key priority of the government’s Northern Strategy and is central to realizing the full economic and social potential of Canada’s North,” Prentice said.

He told reporters Jan. 20 that the offer is a “responsible” one to break the regulatory logjam and proceed with a project that is “very important to our country and the North, for our energy future and energy security.”

“It’s important that it be brought onstream in a way that is acceptable to the government of Canada as the owner of the resource. … It does relate to our sovereignty in the North and to our economic plans for the North,” he said.

Without getting into the details, he said the government wants to “see the fiscal framework issues resolved.”

Arctic development on agenda

It is now expected the joint Arctic development concept will be on the agenda when President Barack Obama meets Prime Minister Stephen Harper in either late February or early March.

Prentice and other cabinet ministers before him have all endorsed the idea of a pipeline from Alaska’s North Slope crossing Canada on its way to the Lower 48, but they have insisted the MGP must be completed first to avoid making impossible demands on construction labor and materials.

Pius Rolheiser, a spokesman for Imperial Oil, would not discuss the details of the offer, which he indicated is the result of discussions that have been “going on for some time.”

He said the MGP proponents — Imperial, Shell Canada, ConocoPhillips Canada, ExxonMobil Canada and the Aboriginal Pipeline Group (which has rights to a one-third equity stake in any pipeline on behalf of Native communities along the 700-mile route) — now “look forward to continuing a constructive dialogue with the government on a commercial and fiscal structure that will enable the project to move forward.”

Rolheiser said the partners have “been encouraged so far by the interest the government has shown in the potential economics of the project.”

Bob Reid, president of the Aboriginal group, told the Calgary Herald the offer is a “positive step forward,” given that the proponents have not had a response from the government for more than a year.

He said the proposal is “fairly involved, so we need time to study it,” but declined to say whether it meets expectations.

Benoit Beauchamp, with the University of Calgary’s Arctic Institute, said a lot of hope is attached to the MGP as a “first step towards achieving economic independence (for the Northwest Territories) through the building of a resource-based economy.

“Without that pipeline, people are afraid the natural gas will be stranded for years,” he said.

MGM finds gas

The MGP received another nudge Jan. 20 when junior explorer MGM Energy announced it had encountered a number of gas bearing zones during the drilling of its Ellice J-27 well on the Taglu formation.

The first of MGM’s planned three winter wells struck net gas-bearing sandstones of about 187 feet in four zones and testing will now be completed on two of those zones, the company said.

MGM President Henry Sykes said in a statement that “additional work remains to be done to confirm the size of this discovery, but we are very excited by the initial results of the first well in this year’s program.”

The company had previously estimated that each of its winter prospects might have unrisked potential of 80 billion to 100 billion cubic feet.

It expects the testing will be sufficient to obtain regulatory approval of a Significant Discovery License which would grant it unlimited tenure of the discovery.

MGM expects to spud its second well, using the Akita-Equitak 64 rig, no later than Feb. 1.

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