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Producer-Owned Pan Alberta Opens for Business

Producer-Owned Pan Alberta Opens for Business

After months of negotiations and two years of wrangling in Canadian courts, Pan-Alberta Gas Ltd. has been taken over by the producers in its supply pool.

TransCanada PipeLines quietly and gladly parted with Pan-Alberta as an unwanted part of the acquisitions that came from merging with Nova Corp.

The previously-announced deal to transfer ownership closed after the participants also settled a marathon lawsuit in Alberta Court of Queen's Bench. Nine leading gas producers had alleged that Pan-Alberta under the previous ownership of Nova, in bygone relationships involving the predecessor of Dynegy (NGC Corp.) strayed from commitments to obtain the highest possible prices for the supply pool as a result of other corporate interests. Damage claims reached C$150 million (US$105 million). Reports were that in addition to taking over the marketing company which had sales of $1.6 billion in 1997, producers were to receive a payment of $18 million.

Under the new ownership structure, which was approved by 339 production companies with 97% of the gas under contract to Pan-Alberta, the supply pool will elect Pan-Alberta's board of directors to make sure management heeds their interests above all. President Rod Pocza described the deal as "an industry solution" for what had become a sore spot in the gas community. "It is a template for the potential growth opportunities of the marketing and aggregation business for producers."

The deal also brings Pan-Alberta, with sales exceeding 1.6 Bcf/d from contracted reserves of about 5 Tcf, into line with other major Canadian supply aggregators. ProGas Ltd.'s name stands for producers' gas and it is owned by producers. CanWest Gas Supply, an aggregator and marketer of production from British Columbia, is a co-operative owned by producers with B.C. wells. TransCanada's own aggregator TransCanada Gas Services, selling about 5 Bcf/d from about 13 Tcf of reserves contracted with 700 producers remains outside the tradition but is committed by a spring pact with the production community to ensure it has more say in marketing strategy.

"Pan-Alberta now can provide new services to the producers while simplifying the business processes for them," Pocza said. "All profits and costs flow directly to producers." Pocza sees the emergence of the producer-owned and controlled marketing company as a trend, although it is one U.S. companies have trouble following because of antitrust laws. It provides economies of scale which producers cannot achieve marketing their own gas.

Pocza said the deal had cleared the Canadian Competition Bureau. The Pan-Alberta pool has 435 producers under contract including very small producers and part of the production of larger companies who are looking to achieve diversity of sales.

Pan-Alberta holds 750 MMcf/d or half of the existing space on Northern Border. It also sends gas in through Sumas and Kingsgate to Northwest Pipeline and PGT. Questioned, Pocza said he did not believe Canadian producers can fill all the new export pipeline capacity currently going into service on Northern Border and TransCanada: "It's a challenge to producers to come up with the supply. They will have to do a lot more drilling."

Gordon Jaremko, Calgary, Ellen Beswick, Washington

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