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Mackenzie Pipeline Project Moves Forward into Formal Hearing Phase

Canada's Arctic natural gas development is back up and running again after securing new support from the Northwest Territories government and three of four aboriginal communities that straddle the route of the proposed Mackenzie Valley Pipeline.

The C$7 billion (US$5.6 billion) Mackenzie Gas Project called on the National Energy Board (NEB) to schedule northern pipeline hearings early in 2006. The request followed eight months of intensive negotiations with territorial, federal and aboriginal authorities since the project suspended field operations in the spring due to financial and regulatory confusion.

Senior partner Imperial Oil told the NEB the MGP is prepared to proceed to public hearings in "the expectation that recently negotiated benefits and access agreement terms with northern aboriginal groups will be fully ratified and executed in December 2005."

"Sufficient progress has been made in all key areas -- namely clarity of the regulatory process, the negotiation of benefits and access agreements with northern aboriginal groups, and fiscal framework discussions with governments -- for us to proceed to public hearings," said Imperial Senior Vice President Randy Broiles. "The letter of November 18 from the Deputy Prime Minister provides us with sufficient confidence that outstanding matters will be addressed (see Daily GPI, Nov. 18). We are pleased with the commitment and support from governments and from Aboriginal communities and leaders in the North, and we look forward to finalizing these agreements.

"In addition," said Broiles, "benefits and access agreement negotiations for the Deh Cho territory continue." The Deh Cho, whose territory straddles the southern-most 40% of the 760-mile route of the proposed Mackenzie Valley Pipeline, indicated a few days ago it still was not ready to endorse the pipeline without more discussion (see Daily GPI, Nov. 22).

The project is "optimistic" the deals will be signed, sealed and delivered by the end of the year with the Inuvialuit on the Mackenzie Delta, the Gwich'in in the northern Mackenzie Valley and the Sahtu in the central Mackenzie Valley. Efforts will continue on negotiating an agreement with the last and large holdout, the Deh Cho who s

The Northwest Territories government, meanwhile, issued official assurances that its share in the project's regulatory and financial affairs will be favorable. The pledges were laid out in a letter by territorial Premier Joe Handley and Finance Minister Floyd Roland to the presidents of the project's principal sponsors including Imperial, ConocoPhillips Canada, Shell Canada, the Aboriginal Pipeline Group and TransCanada PipeLines.

The document assured the MGP that it will co-operate with favorable financial terms offered last week by the federal government. Those include a potential C$1.6-billion loan guarantee to the aboriginal pipeline consortium to cover its one-third ownership in the Mackenzie Valley line, and especially a pledge of up to C$1.2 billion in support for the industry partners in the project.

Territorial co-operation is critical to the key item in long-range aid under discussion, which would be an incentive royalty system akin to Alberta's oilsands regime. Rates would be limited a nominal level -- one percent is the Alberta standard -- until construction costs are recovered.

The territorial government is expected to gain a large share in northern gas royalties, or perhaps take them over entirely, as a result of "devolution" negotiations under way with federal authorities.

The main condition for territorial co-operation with federal and industry plans is that northern authorities are kept involved in the formulation of the gas development fiscal regime, Handley said.

"We want to be kept in the loop," the territorial premier said in an interview. An incentive deal is in the cards. "We will honor that as long as we're part of the discussions." Handley emphasized the territorial government continues to have a keen interest in encouraging resource development: "We're going to be reasonable. We want to have a good environment for industry to operate in."

MGP spokesman Pius Rolheiser said the project hopes the NEB and the parallel environmental Joint Review Panel of federal, territorial and aboriginal agencies will start up the hearings early in 2006. The regulatory review is expected to take about a year.

A decision to construct the project will only be made after the sponsors know the conditions of the regulatory approval, Rolheiser said. The state of gas markets, final terms of land access and benefits agreements and environmental approval conditions will also be determining factors. "We're one step closer than we were before, but we're not there yet," Rolheiser said.

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