The next round of restructuring is about to unfold in Canada’snatural-gas community as a white knight buyer prepares to stepforward 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 comeup with a winning bid that will both keep the mammoth dealer inhome-grown hands and heal the worst remaining sore spot in thecommunity.

The sources, who requested anonymity, would not reveal names inadvance of an announcement described as likely to come any time. But it is rated as well-educated guessing to bet that the buyergroup will come from within Pan-Alberta’s supply pool. Thatincludes a who’s-who of Canadian producers.

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

Pan-Alberta is said to have attracted strong interest frommajor, international-scale marketers based in the United Statessuch as Duke Energy. But the sale, first announced by owner NovaCorp. before its merger deal with TransCanada PipeLines lastwinter, has been complicated by severe conflicts within thePan-Alberta family. Producers and the aggregator have been lockedin a marathon lawsuit over alleged misuse of supplies, which hasescalated into a class-action case involving every corner of thesupply pool.

The course for Pan-Alberta was charted by the Canadianindustry’s April “framework” agreement on a gas industry version ofthe Queensbury rules. Besides guidelines for rivalry over additionsto the transportation grid that ended months of no-blows-barredstrife over Alliance Pipeline Project, the pact laid out a commandstructure for aggregators with TransCanada Gas as the prototype. Itclosely follows producer demands in the Pan-Alberta case.

The model makes members of supply pools co-pilots of theirmarketing representatives. In TransCanada’s case, the structureincludes a “netback steering committee” with strong producerrepresentation. This group appoints audit and restructuringsubcommittees. The mandate for aggregator overhaul includesanalysis of performance, potentially dating back to the dawn ofderegulation in the mid-1980s, with “an historical audit.conductedby independent auditors.”

With results of the post-mortem in hand, producer andTransCanada representatives will have a mandate to hold “good-faithdiscussions aimed at restructuring the netback pool to provideimproved pricing and delivery options.” The gas pact includes anoverall commitment “to undertake a process that will includereview, and possible modification, of existing codes of conduct.”

The Pan Alberta case includes damage claims that have escalatedwell into the nine-digit range and demands for tighter control bythe producer pool over marketing. The wrangle began with disputesover relationships between Pan-Alberta and Nova’s 26% owned NGCCorp. (now Dynegy Inc.) at a time when their marketing operationswere closely linked. Nova and NGC broke up their Canadian marketingrelationship but the lawsuit continued. A takeover by a producerconsortium is expected to include a resolution of the feud. Such adeal is also rated as likely to include some restructuring to makePan-Alberta more like the producer-owned co-operative that marketsoutput from British Columbia, CanWest Gas Supply.

Gordon Jaremko, Calgary

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