Pipeline hunting for shippers, fending off credit agency

Maritimes & Northeast Pipeline on Moody’s credit watch at same time it invites shippers to tell it how much space they might want on an expanded line to New England

Gary Park

Petroleum News Calgary Correspondent

Buffeted with warnings that its credit rating may be downgraded, Maritimes & Northeast Pipeline is hoping to expand its pipeline from offshore Nova Scotia to New England by capitalizing on new liquefied natural gas terminals in Atlantic Canada.

Maritimes & Northeast launched a binding open season Feb. 15 that it believes could more than triple its current capacity of 650 million cubic feet per day by 2007 or 2008.

But its optimism was broadsided Feb. 18 when Moody’s Investors Services of New York advised investors that the company had been put on a credit watch because of slumping reserves in Nova Scotia’s Sable gas field, the sole source of supply for Maritimes & Northeast.

Moody’s said the review reflects its concern about several years of significant downward revisions in Sable reserve estimates, which the agency said are now close to only 50 percent of the calculated 3.7 trillion cubic feet when the pipeline started operations in 1999.

The downgrade could affect C$260 million in bonds issued by Maritimes & Northeast to finance the C$1 billion pipeline six years ago.

“The magnitude of the Sable field decline within such a relatively short period of time reduces the magnitude of the margin against possible reserve depletion prior to the 2019 maturity date of the bonds,” Moody’s said.

A spokesman for Maritimes & Northeast said it is normal for a credit agency to conduct such a review, but conceded that a lower credit rating would make borrowing money for any future expansions more expensive.

He said Maritimes & Northeast is “among the highest-rated pipeline companies in terms of credit in North America” and does not expect Moody’s review will have any material impact on business.

Maritimes & Northeast owners are Duke Energy 77.53 percent, Emera 12.92 percent and ExxonMobil Canada 9.55 percent.

ExxonMobil holds 50.8 percent of the Sable field, in partnership with Shell Canada 31.3 percent, Imperial Oil 9 percent, Pengrowth 8.4 percent and Mosbacher Operating 0.5 percent.

Shell has been the most aggressive in slashing its share of Sable reserves over recent years, taking three bites out of the resource, while, a year ago, Pengrowth chopped the projected “economic” operating life of Sable in half to 10 years.

Sable struggling to keep output up

Moody’s agreed that if Maritimes & Northeast is successful in landing contracts to transport gas from the LNG projects and other sources that “might lessen concerns” about Sable, “although it could also lead to changes in the credit quality of the shippers. (But) this plan has not yet advanced to a stage at which there is a clear credit impact.”

Maritimes & Northeast has given potential shippers in Canada and the United States until March 31 to submit detailed requests for service on the 850-mile pipeline, which it believes could be accommodated through additional compression and looping.

It needs to submit regulatory applications before year’s end to achieve an in-service date of 2007 or 2008 to deliver new supplies to eastern Canada and the northeastern United States.

Topping the list of LNG terminals that could fed the pipeline are proposals by Irving Oil for its Canaport facility at Saint John, New Brunswick, Anadarko’s Bear Head facility in Nova Scotia, Keltic Petrochemicals’ complex in Nova Scotia and a Quebec joint venture by TransCanada and Petro-Canada.

Still hanging in the uncertain category is EnCana’s Deep Panuke project near Sable that has been on the shelf for two years, but could be a source of 400 million cubic feet per day if a deal can be struck to share the Sable infrastructure.