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Tidelands Expects Permit for Mexico's First Storage Field in 3Q2007

Tidelands Oil & Gas Corp. said it expects a final permit for development of the 50 Bcf Brazil field, which would be Mexico's first natural gas storage field, sometime between July and November 2007. Consultants employed by Mexico's Comision Reguladora de Energia de Mexico (CRE) are expected to complete a technical review of the company's plan by January.

The Brazil field is a key component of Tideland's Burgos Hub Export/Import Project, which also includes two pipelines capable of transporting 1.2 Bcf/d gas between Texas and northeastern Mexico, and a potential offshore LNG import terminal.

Tidelands subsidiary Terranova Energia was awarded a permit by the CRE in June to build the 1.2 Bcf/d Terranova Occidente and Oriente pipeline portions of the project (see Daily GPI, June 7). The permit covered construction of about 294 miles of 30-inch and 36-inch diameter bidirectional pipeline that would transport gas across the U.S.-Mexico border to markets in both countries.

Meanwhile, Tidelands appears to have delayed the proposed LNG import terminal because of competition for global LNG supply.

The storage project, which was filed with the CRE in August 2005, is slowly making its way through the regulatory process, but Mexico has never allowed a foreign company to own the rights to a natural gas field. The CRE accepted the project for full review on Oct. 14. 2005 but contracted outside advisors to evaluate the storage permit. The results of that review are expected to arrive soon, the company said in a year-end outlook on Wednesday.

"We also expect the Mexican authorities to firmly engage in making decisions on the permit for the use of the depleted reservoir, now that the presidential election is over and the new administration has been established," the company said. "It is clear in our discussions with the CRE commissioners that the final form for legal use of the reservoir will be determined via input and approval from several Mexican agencies.

"In light of the fact that the new chief of staff and President Calderon himself have meaningful energy experience within the Mexican government, management expects a very informed and well crafted response from the various agencies involved in the review and determination of final conditions for the issuance of the storage facility permit," Tidelands said. "Management now expects the storage permit application will be presented for decision after consideration by the various agencies and the CRE commissioners between July and November of 2007."

Tideland said it has been discussing the commercial aspects of the storage and pipeline projects with the largest industrial consumers in the Monterrey metro area, as well as with the local distribution companies and electricity utilities in the area. "We expect that the institutional change to the Calderon administration -- with its stated emphasis on infrastructure building -- will likely assist in the convergence of these two tracks we have engaged: getting the necessary permits from the corresponding agencies and attaining the commercial viability of the project through capacity reservation from interested parties," the company said.

Tidelands said it already has received two commitments from customers for capacity on the pipeline system and expects additional letters of intent from industrial users and LDC's. The commitments will enable to the company to demonstrate a commercial need for the project to federal regulators. Tidelands said it will negotiate with some large customers to allow them to hold ownership in a portion of the project.

It also said that it is negotiating with other potential project partners, including an unnamed "U.S.-based master limited partnership, a commodity-oriented private equity fund, a private equity fund with a Latin America focus in energy projects, and a European financial institution with private equity, commodity and debt financing capabilities."

Tidelands expects to file for a FERC certificate for both U.S. pipeline segments in January 2007 (see Daily GPI, Aug. 9, 2005; May 27, 2005; March 30, 2005).

The cross-border pipeline, storage and LNG project is designed to serve residential, industrial and commercial customers in northeastern Mexico and in Texas. Eventually it could facilitate cross-border natural gas transportation and trading.

The Occidente pipeline section in Mexico will be a 30-inch diameter, 201-mile pipeline from the proposed storage field to Nuevo Progreso, Mexico, with a proposed international pipeline crossing into South Texas from Mexico at the Donna Station, which will provide the opportunity for interconnects into Texas with Texas Eastern, Tennessee Gas and Texas Gas Services. The pipeline also will include a section that will stretch from the Brazil storage field to Station 19 and up to Arguelles where another proposed international pipeline will cross into South Texas with interconnects with Houston PipeLine, Calpine and Kinder Morgan.

The Oriente Pipeline will be a 36-inch diameter, 93-mile system running from the proposed offshore LNG regasification terminal to Norte Puerto Mezquital and then to the Brazil storage field. Both Terranova pipelines are designed to flow natural gas bidirectionally between Texas and Mexico at a rate of 1.2 Bcf/d.

The company has hired CenterPoint Energy Pipeline Services to provide consulting services for construction of the integrated gas pipelines, storage facility and LNG regasification terminal. Netherland Sewell & Associates and Geostock Group will do the engineering work and geological services for the underground storage facility and related surface equipment. And HSBC Securities (USA) Inc. will arrange the financing for the US$1 billion project.

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