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18 May 2007

Feds to buy into Mackenzie pipeline

The Government of Canada may buy an interest in the stalled Mackenzie Valley pipeline project in an effort to restart the venture, the National Post is reporting.
Oil companies backing the project said in March that the 1,222-kilometre pipeline linking gas fields in the Mackenzie Delta to Alberta's natural gas pipeline grid would cost $16.2-billion, up from $7.5-billion only two years ago, thanks to inflationary pressures that have beset energy projects around the world.

The consortium then asked Ottawa for huge tax concessions, but at a May 2 meeting in Calgary [Indian affairs and northern development minister Jim] Prentice slammed the door on the idea of subsidizing the oil companies. Imperial then said it would shut down the project, sources said.

Since then, Ottawa has not only resurrected a proposal to be a partner in the project, but is exploring taking control away from Imperial. The massive venture would provide a new source of natural gas for North America and be a springboard for development of the North. It would also open the prospective frontier to gas exploration.

Under the plan under consideration, Ottawa would buy out Imperial and its partners, Houston-based ConocoPhillips and international conglomerate Royal Dutch Shell PLC, by reimbursing them for costs already incurred on the project plus interest.

Imperial, Conoco and Shell are now formulating a plan to let the government into the project. A deal is expected to take several months to be finalized, sources said.
As Bond Papers noted last October in an article on a possible Lower Churchill loan guarantee, the federal government favours taking equity in projects rather than providing loan guarantees. Specifically, the October article linked to a Globe and Mail story on the possibility of the feds taking equity in the pipeline project.

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