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Financial Post – Canada: Pipeline needs federal help

Pipeline needs federal help: oil executive: Talks being held: Mackenzie project economically 'thin,' says Imperial V-P
Mar 07, 2006
CALGARY – The $7-billion Mackenzie Gas Project will not move ahead without federal government help to improve its “slim” economics,” a top Imperial Oil Ltd. executive said yesterday.
Senior vice-president Randy Broiles said project proponents and a federal government team are in talks over financial terms, the broad principles of which were established last fall by the last government.
At the time, Deputy Prime Minister Anne McLellan said Imperial and partners ConocoPhillips, Shell Canada Ltd., ExxonMobil Corp. and the Aboriginal Pipeline Group (APG) asked for $1.2-billion in breaks from Ottawa.
“The fiscal terms are very, very important,” Mr. Broiles told reporters at an Arctic gas conference organized by the Canadian Institute. “The project is slim by any measure, and if we are unable to get the help from the federal government that we are going to have to have … through mutual risk sharing, that would be a deal killer.”
In his speech, Mr. Broiles said the project would have to be competitive with imported liquefied natural gas, which is expected to dominate supply growth in North America.
Mr. Broiles said he hopes to reach a deal with Ottawa in the next three or four months.
“It's very clear that the Mackenzie project is a high priority for the new administration.”
Mr. Broiles confirmed that the Liberal government proposed taking an equity stake in the project, but the idea was rejected.
“It was quickly thrown aside because it doesn't solve the problem,” he said. “We still have a thin project.”
In October, Ms. McLellan, who was defeated in the January federal election, denied a National Post report that Ottawa had made an offer to take an equity stake in the then-stalled project.
Mr. Broiles said the federal government may be a shipper on the pipeline if it agrees to take royalties in kind, instead of cash.
Initially, the federal government would not move a significant amount, since royalty payments tend to be low until a project reaches payout.
“That is one of the alternatives that we are talking to the federal government about in terms of sharing risk, ” he said.
Meanwhile, Bob Reid, president of the APG, the aboriginal organization that has the right to earn a third stake in the pipeline, said the Deh Cho First Nations have until June 30 to join the group — or lose their option of take part.
The APG has reserved a 34% stake for the Deh Cho, which have used their refusal to support the pipeline as a lever in their negotiations for a land claim agreement with the federal government.
Mr. Reid said the APG has imposed the deadline because it needs to get on with negotiations with lenders to pay for its $1.3-billion share of construction costs.

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