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R. L. (Randy) Broiles, senior vice-president and director, Imperial Oil
Limited, presentation to the Peters & Co. Limited, Energy Conference
| | Chateau Lake Louise, Alberta |
January 27, 2006
| Download Randy
Broiles presentation in Adobe PDF format.
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Good morning. It's a pleasure for me to be part of this panel, and I want to
thank Peters & Company for providing Imperial and the Mackenzie Gas project
co-venturers this opportunity.
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What I want do over the next few minutes is provide you with an overview of
the Mackenzie Gas Project, update you on our progress and offer some
perspectives on what lies ahead in the coming months.
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I’d like to begin by positioning the Mackenzie project within the overall
North American gas market.
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North American gas demand currently stands at roughly 70 BCFD and is expected
to grow to more than 80 BCFD over the next 10 years.
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Traditional production areas in the US and Canada will be hard-pressed to both
offset decline and meet this growing demand.
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As a result, new sources of supply will be required – either new pipeline
connections or increased LNG imports.
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While Mackenzie would be an important source of supply, LNG imports are
expected to dominate the new growth wedge.
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Each LNG terminal is typically sized between 1 and 2 BCFD and there are nearly
60 new terminals or expansions under consideration in North America.
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Simply put, if new gas pipeline projects like Mackenzie are not competitive
with LNG imports, they will not be built.
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Some people assume that since the Mackenzie project is an onshore, North
American pipeline project, it isn’t as large or complex as an LNG development.
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That’s not the case – Mackenzie is a major undertaking on par with any of the
proposed North American.
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Our focus for the Mackenzie project is ensuring we have a viable project that
can compete head-to-head with LNG in the long term.
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This chart summarizes the concept being pursued by the project co-venturers:
Imperial, ConocoPhillips, Shell Canada, ExxonMobil Canada and the Aboriginal
Pipeline Group.
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Imperial is the project lead and operator for the gas-gathering system and the
Mackenzie Valley Pipeline.
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This project is focused on development of Canadian onshore gas resources
discovered in the Mackenzie Delta in the early 1970s. The three onshore anchor
fields are Taglu, Parsons Lake and Niglintgak.
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Taglu, with recoverable reserves of 3 TCF (trillion cubic feet), was
discovered by Imperial in 1971. Taglu is 100 percent owned and operated by
Imperial, and accounts for 50 percent of the onshore discovered gas.
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Parsons Lake: 2.3 TCF -- discovered by Gulf in 1972 is 75 percent owned by
ConocoPhillips Canada, and 25 percent by ExxonMobil Canada.
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Niglintgak: 1 TCF -- discovered by Shell in 1973 and 100 percent owned by
Shell.
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Looking at the map on the right, gas produced at the anchor fields will be
transported through a gas-gathering system. This system includes a total of
190 kilometres of buried pipeline terminating at a common processing facility
located near Inuvik.
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In the Inuvik-area facility, the gas will be separated from the NGLs and
compressed before being sent south in a new 1,194 kilometre gas pipeline down
the Mackenzie Valley.
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This line will include three compressor stations and a heater station, as the
gas will be chilled to protect the perm-frost, and will connect with existing
gas pipeline systems in Alberta.
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Natural gas liquids will be transported in a separate, buried 457 kilometre
line to Norman Wells and connect with the existing Enbridge oil pipeline.
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This concept utilizes proven technologies and includes specialized measures to
mitigate environmental impacts, such as the gas chilling I mentioned earlier
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The development would cross four Aboriginal settlement regions. I’ll speak
more about this aspect of the project later on.
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Now, let me provide you with some numbers to give you a sense of the size and
scope of this potential development.
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In total, we’re looking at building more than 1,800 kilometres of pipeline,
ranging in diameter from 10 to 30 inches.
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1,400 kilometres of this will be in new right-of-way, which will be cleared
and trenched.
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To carry out the construction work required, we will need three million cubic
metres of water, which we plan to draw from some 200 different water sources.
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The pipeline system itself will cross more than 600 watercourses.
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We’ll be using 6.8 million cubic metres of gravel from over 120 different
sources during construction.
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To accomplish this, we’ll need up to 12,000 workers housed in 2500 trailers
spread across 22 different camp sites.
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Now let’s look a little more closely on the proposed pipeline system.
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The pipeline system for the Mackenzie project is sized for the anticipated
volumes from the three anchor fields with flexibility to accommodate future
volumes from other gas resources.
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We sized both the gathering system and the main pipeline system based on
expressions of interest received during an “open season” process for pipeline
capacity in 2002.
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We received expressions of interest from shippers in the Mackenzie Delta, the
Mackenzie Valley and the Yukon that provided a range of ultimate capacity from
1.5 to 2.0 BCFD.
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So our design basis for our regulatory applications was for a system to
accommodate 1.2 BCFD initially, or about 30% more than required for the three
anchor fields.
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This could be further expanded through line looping and compression to an
ultimate capacity of 1.8 BCFD.
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Now, let’s turn to some of the commercial aspects of the pipeline project.
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The breakdown of pipeline ownership during the project definition phase is
two-thirds ownership by the producer group and up to one-third ownership by
the Aboriginal Pipeline Group.
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The ultimate level of APG ownership during operations would be determined by
third-party shipping commitments, and could range anywhere from two percent to
33%.
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The APG’s ownership position will be funded by borrowing, which has the
potential to take several forms.
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As you may recall, the producers, the APG and TransCanada Pipelines,
negotiated an agreement under which TransCanada agreed to lend funds to the
APG for its share of project definition phase costs.
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This loan would be paid out from APG's share of pipeline revenues.
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There are numerous other financing options available to the APG to fund the
potential construction and operating phase of the pipeline, including backstop
financing from the producers.
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The gathering system, which includes basically everything from Inuvik north,
as well as the NGL line from Inuvik to Norman Wells, is 100-percent owned by
the producers.
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The spare capacity built into our design is available on a fee-for-service
basis, with regulated tolls based on established industry principles.
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And as I noted earlier, the system could be expanded if sufficient
firm-service transportation requests support it.
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Now, let me spend a minute on Imperial’s Taglu field.
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As I mentioned earlier, it’s the largest of the three anchor fields,
accounting for half of the discovered resource associated with the Mackenzie
Gas Project.
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The Taglu field is a high-quality, well-defined resource about 32 square
kilometres in area.
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The discovery well was drilled by Imperial in 1971, with other delineation
wells following.
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This was followed by one of the largest 3-D seismic programs ever done in
Canada – seismic shot by Imperial over Taglu in 1988.
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The reservoirs are about 2,600 metres below the surface.
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Our development plan for the Taglu resource calls for 10-15 producing wells,
directionally drilled from one centrally located drilling and facilities pad
to minimize the footprint.
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Our production plan calls for a sustained production rate of 400 million cubic
feet per day, and suggests that we would add compression about five years
after start-up.
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Now, let me turn to a brief review of the activities and progress that have
brought the project to where we are today – beginning with the project
coventurers.
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Amongst us, we currently have more than 200 people working full-time on the
project. Since we launched our feasibility study in 2000, we’ve spent a total
of more than $400 million.
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We have spent countless hours in northern communities -- meeting the people
and talking about the project. We’ve established project offices in a number
of northern communities and have held more than 1,000 formal, documented
meetings – to say nothing of the informal meetings.
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Working with Aboriginal leaders in the North, we signed the historic 2001
Memorandum of Understanding, providing for the Aboriginal people to become
one-third owners of one of the largest projects ever undertaken in Canada.
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We stated from the outset that without Aboriginal support, this project simply
could not and would not proceed. The involvement of these Northern leaders has
been a critical factor in bringing the project to where we are today.
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Governments, too, have played a critical role in our progress, and their
efforts are listed here. Their commitment to the project has been instrumental
in removing roadblocks and suggesting new, positive directions forward.
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Now, let me tell you a bit about where we are today, by updating you on some
recent milestones.
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Let me start with safety performance. Through nearly six years of project
development and field work, involving more than three million work hours, we
have not had a single lost-time incident, and we’ve had only two recordable
injuries.
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With regard to the government’s commitment, you may recall the announcement by
the federal government in 2005 of $500 million over the next 10 years to
address certain social and economic project impacts. The Government of the
Northwest Territories is helping to define the specifics of this fund.
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As a result of extensive discussions with the Northern communities, I’m
pleased to say we have reached agreements in principle with four of five
Aboriginal groups along the pipeline route. And we’re continuing to progress
discussions with the Deh Cho.
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Last November, months of discussions with the federal government came to
fruition in a letter of assurance between the government and the coventurers
on a fiscal framework for the project. That letter was a demonstration of the
government’s recognition not only of the benefits of the project, but also of
its unique attributes and challenges.
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We continue to meet with explorers and exploration lease-holders in the North
and we are nearing agreements on potential firm shipping commitments.
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And finally, all of these milestones have combined sufficient progress and
momentum to give the coventurers the confidence needed to proceed to public
hearings on the project. Those hearings, as you know, began this week in
Inuvik, and are designed to offer maximum opportunity for input from all
stakeholders.
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To illustrate that point, this next chart provides the schedule of the public
hearings planned for northern communities by the National Energy Board and
Joint Review Panel.
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If this chart looks busy, that’s because it is!
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The public hearing and review process for the Mackenzie project really is
unprecedented in Canada in terms of breadth and complexity.
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The process began in Inuvik earlier this week, and is scheduled to conclude
back in Inuvik next December. Along the way -- through the dead of winter and
the heat and bugs of summer, through 24-hour daylight and 24-hour darkness --
hearings will take place in some 30 communities across the North. Tuktoyaktuk
to Trout lake and from Whitehorse to Holman – an area of more than 1.5 million
square kilometres.
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In total, there will be approximately 140 days of hearings.
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It’s a process that we are committed to and that we’re looking forward to.
It’s the culmination of years of hard work. We believe we have a tremendous
project here, and we look forward to a full, open review of the proposed
project.
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So, with the main regulatory applications filed and the formal regulatory
review process underway, let me briefly review the overall timeline for the
project.
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The process leading to an ultimate development has four major phases -- the
feasibility study phase, the project definition phase, the design and
construction phase, and ultimately the operating phase -- with escalating
capital requirements for each phase.
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We concluded the feasibility study in early 2002 and announced our decision to
proceed with Phase 2, Project Definition. This is where we are today, and this
phase includes engineering studies, environmental field work, and extensive
public consultation. During this phase, regulatory applications were prepared
and filed. We anticipate that a regulatory decision would come in 2007.
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Assuming the project is approved and is economically viable, then we would
commence Phase 3 involving detailed design and construction, including
detailed facilities design, the drilling of wells, the procurement of goods
and services, and construction.
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Phase 4 is, of course, operation and gas sales. By this point, other
discoveries and development activity may justify a potential
expansion/pipeline extension.
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In reality, there's a fifth phase -- abandonment and restoration. Our work
isn't done until this happens.
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So, assuming the regulators conclude that the Mackenzie Gas project is in the
public interest and should be allowed to proceed, would this approval be a
go-ahead for the project? Not necessarily...
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Obviously, we need regulatory approval before we can make a firm decision to
construct, but there is much more that goes into a decision to construct.
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A final decision to proceed with construction will also be dependent on a
number of other factors, such as benefits and access agreement terms, final
terms of agreement on fiscal matters, natural gas markets, project costs, and
level of shipping commitments.
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Assuming a decision to construct in 2007, we anticipate we could begin
infrastructure site development in 2008, with major pipeline right-of-way
clearing and pipeline installation beginning in the winter of 2008-2009.
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Barring unforeseen major obstacles to our projected schedule, gas from the
Delta could be flowing to market by 2011.
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To wrap up, let me re-state a couple of key points for you.
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The Mackenzie Gas Project has the potential to provide natural gas to the
market with significant benefits to northerners and Canadians (jobs, business
opportunities, income, additional supply of natural gas); governments (taxes,
royalties) and resource developers (access to new transportation system and
infrastructure).
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The project is being reviewed before both the National Energy Board and a
Joint Review Panel. The panel's assessment of the Project's environmental and
socio-economic impacts is the most rigorous level of scrutiny a development
can undergo in Canada.
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The project developers are committed to continuing to work with organizations
and communities in the Mackenzie Delta and Mackenzie Valley to continue
development and finalization of access and benefits agreements that emphasize
education, training, employment and business opportunities.
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From the outset we have said our project is potentially commercial. Typically,
investments of this type, which open up development in a new region or basin,
are marginally economic. This is a capital intensive, long-term undertaking
that is subject to many factors.
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But with that qualifier, let me conclude my remarks by stating that we are
tremendously proud, not only of how far we’ve come and the momentum we’ve
built, but more importantly the manner in which that progress and momentum has
been built.
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We’ve worked with numerous different parties and interests and we’ve built
consensus. We’ve worked extensively with Northern Aboriginal leaders and we’re
proud of the support and commitment they’ve demonstrated.
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And we’re confident we will go forward with this amazing opportunity.
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Thank you for listening. I’d be happy to entertain your questions.
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