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White Knight Expected to Ride in Pan Alberta Deal

White Knight Expected to Ride in Pan Alberta Deal

The next round of restructuring is about to unfold in Canada's natural-gas community as a white knight buyer prepares to step forward for the country's second-biggest supply aggregator, Pan-Alberta Gas Ltd. In fact, a team of rescuers has emerged. Senior Canadian industry sources say a producer consortium has come up with a winning bid that will both keep the mammoth dealer in home-grown hands and heal the worst remaining sore spot in the community.

The sources, who requested anonymity, would not reveal names in advance of an announcement described as likely to come any time. But it is rated as well-educated guessing to bet that the buyer group will come from within Pan-Alberta's supply pool. That includes a who's-who of Canadian producers.

With sales topping 1.6 Bcf/d that fetched C$1.6 billion (US$1.1 billion) in 1997 for 425 producers that have 5 Tcf of reserves in the supply pool, Pan-Alberta stands out as a Canadian industry fixture. It ranks second only to TransCanada Gas Services and its sales of 5 Bcf/d on behalf of more than 700 producers dedicating reserves of 13 Tcf, many of whom also belong to the Pan-Alberta pool.

Pan-Alberta is said to have attracted strong interest from major, international-scale marketers based in the United States such as Duke Energy. But the sale, first announced by owner Nova Corp. before its merger deal with TransCanada PipeLines last winter, has been complicated by severe conflicts within the Pan-Alberta family. Producers and the aggregator have been locked in a marathon lawsuit over alleged misuse of supplies, which has escalated into a class-action case involving every corner of the supply pool.

The course for Pan-Alberta was charted by the Canadian industry's April "framework" agreement on a gas industry version of the Queensbury rules. Besides guidelines for rivalry over additions to the transportation grid that ended months of no-blows-barred strife over Alliance Pipeline Project, the pact laid out a command structure for aggregators with TransCanada Gas as the prototype. It closely follows producer demands in the Pan-Alberta case.

The model makes members of supply pools co-pilots of their marketing representatives. In TransCanada's case, the structure includes a "netback steering committee" with strong producer representation. This group appoints audit and restructuring subcommittees. The mandate for aggregator overhaul includes analysis of performance, potentially dating back to the dawn of deregulation in the mid-1980s, with "an historical audit.conducted by independent auditors."

With results of the post-mortem in hand, producer and TransCanada representatives will have a mandate to hold "good-faith discussions aimed at restructuring the netback pool to provide improved pricing and delivery options." The gas pact includes an overall commitment "to undertake a process that will include review, and possible modification, of existing codes of conduct."

The Pan Alberta case includes damage claims that have escalated well into the nine-digit range and demands for tighter control by the producer pool over marketing. The wrangle began with disputes over relationships between Pan-Alberta and Nova's 26% owned NGC Corp. (now Dynegy Inc.) at a time when their marketing operations were closely linked. Nova and NGC broke up their Canadian marketing relationship but the lawsuit continued. A takeover by a producer consortium is expected to include a resolution of the feud. Such a deal is also rated as likely to include some restructuring to make Pan-Alberta more like the producer-owned co-operative that markets output from British Columbia, CanWest Gas Supply.

Gordon Jaremko, Calgary

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