| Notes for remarks by J. Michael Yeager, Director & Senior Vice-President, Imperial Oil Limited, to the North American Gas Strategies Conference
| | Calgary, AB | November 9, 2004
| CHART #1 -- Title Page
Good morning. It's a pleasure for me to be part of this panel, and to 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 months to come.
I'm not sure how familiar you are with the Mackenzie Gas Project, but just to ensure that we're all on the same page, let me start with some broad background.
CHART #2 - Development Concept Overview
This chart summarizes the concept being pursued by the project co-venturers -- Imperial, ConocoPhillips, Shell Canada, ExxonMobil Canada and the Aboriginal Pipeline Group. As well, under a funding agreement signed last year, TransCanada Pipelines plays a very important role in funding the Aboriginal Pipeline Group during the permitting phase, and they have an option to obtain an interest in the pipeline. Imperial is the project lead and operator for the gas-gathering system and the Mackenzie Valley Pipeline.
This project is focused on development of Canadian onshore gas resources discovered in the Mackenzie Delta region of Canada's Far North in the early 1970s. At present, we have no offshore gas as part of the scope of the project. As many of you know, development of this resource has been the subject of much discussion over the past couple of decades.
The three anchor fields on-shore are Taglu, Parsons Lake and Niglintgak (ni-glin-tak).
- 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. For reference, Taglu is also equivalent to twice Imperial's current proved gas reserves.
- Parsons Lake - 2.3 TCF -- discovered by Gulf in 1972.
75 percent owned by ConocoPhillips Canada, and 25 percent by ExxonMobil Canada. - Niglintgak - 1 TCF -- discovered by Shell in 1973. 100 percent owned by Shell.
Looking at the map on the right, gas produced will be transported through a gas-gathering system to a common facility located near Inuvik.
In the common facility, the gas will be separated from the NGLs and compressed before being sent south in a buried pipeline through Imperial's operations at Norman Wells and ultimately connect with existing gas pipeline systems in Alberta. Natural gas liquids will be transported in a separate, buried NGL line to Norman Wells and connect with the existing Enbridge oil pipeline.
This concept utilizes proven technologies and includes specialized measures to mitigate environmental impacts.
The pipeline will be open to other potential shippers and takes advantage of spare capacity in existing pipeline systems.
We don’t know how to make it any simpler, or how to make any smaller footprint, but we will continue to test.
CHART #3 - Development Concept Overview - cont'd
On the left, you see outlined our projected initial costs for the various components of the project. Costs are stated in Q1 - 2003 Canadian dollars, rounded to the nearest $100 million.
Fields - $1,600
Gas gathering system - $1,600
Mackenzie Valley Pipeline - $3,800
MGP TOTAL - $7,000
Let me add a word about this cost estimate, as there has been some reporting that this $7-billion estimate represents a “cost increase” of cost estimates that were previously stated.
The project we have described in our regulatory applications is a different project than the one we originally envisioned. The scope of the project has changed considerably from a single pipeline that carries both natural gas and liquids together to two individual pipes that carry gas and liquids separately. This provides for more overall capacity -- transmission pipeline capacity is now 50 percent greater -- and is expandable.
CHART #4 - Mackenzie Valley Pipeline Flexibility
Let me illustrate the range of capacity possible with our design for the Mackenzie Valley Pipeline itself.
In 2002, the Mackenzie Gas Project group issued an open season call for non-binding shipping nominations from all companies. We were pleased with the response -- we received responses representing 20 companies.
Based on the results of this process, we based our engineering and impact assessment work on a pipeline sized to initially handle
1.2 billion cubic feet per day (BCFD) -- or about 50 percent greater than the 830 million cubic feet per day required for the three anchor fields. This is illustrated in the centre portion of the chart, and is the basis of our filing.
Based on this capacity, we would install a 30-inch gas line and a 10-inch NGL line.
As you can see from the expanded case shown on the right, capacity in the gas line could be increased up to 1.9 billion cubic feet per day with the addition of compression.
CHART #5 - Mackenzie Gas Project - Phased Approach
As many of you know, the process leading to an ultimate development has four major phases, shown here.
The first phase, the Feasibility Study Phase, included very important work, as listed, and gave us confidence to go forward.
We concluded the Feasibility Study Phase in January 2002 and we are currently proceeding with the Project Definition Phase.
The Project Definition Phase includes engineering studies, environmental field work, regulatory review and continued public consultation, including development of Northern benefits plans.
During this segment, regulatory applications were prepared, and as you’re no doubt aware, were filed in early October. These applications are being reviewed by the regulatory agencies and we expect to begin hearings in the spring of next year. I’ll talk further about this in a minute.
We anticipate this Project Definition Phase will take 3-4 years, and last 18-24 months from today.
Following a decision to construct, which cannot be made until regulatory approval is received, the Design and Construction Phase could begin, and would last another 3-4 years.
The Operations Phase is where we hope to be at the end of this, and the benefits will then last 25-plus years.
My next chart will provide more detail on where we are today in the project definition phase, and some significant milestones.
CHART #6 - Project Definition - Milestones
This chart notes some significant achievements that have brought us to where we are today.
Let me start with safety performance. Through more than two years of project development and field work, more than 1.8 million work hours, we have not had a single recordable injury.
We have refined and further developed our field development plans, pipeline routing, cost estimates and schedules.
Geotechnical work was completed last winter in the Gwich'in region and the K'hasho Got'ine (cash-oh go-ta-nee) district in the Sahtu region, and further work is planned for the coming winter season.
Following our initial open season offering, which I mentioned earlier, we are seeking progressively firmer shipping commitments.
We are working with elders in a number of northern communities, gathering traditional knowledge data to supplement the technical environmental data we've already acquired in preparation for project applications. We have listened to the traditional knowledge, and made some project design adjustments.
Aboriginal leaders encouraged us to make ourselves and the project more available and accessible to the people of the North, wherever possible, in their native language. We've opened regional offices in the communities of Inuvik, Norman Wells and Fort Simpson, staffed by people hired in the North. We've also hired community representatives in other communities along the proposed pipeline corridor. We took more than two dozen Aboriginal leaders, elders and youth to visit an active pipeline construction operation in northern Alberta -- to show them that construction techniques are safe, and that the land and wildlife are respected.
We have negotiated a number of short-term agreements for Project Definition work. We are currently negotiating agreements with two regions for the main project. We hope to begin initial negotiations with remaining regions soon.
CHART #7 - Project Definition - Current Activities
So, with the main regulatory applications filed and the formal regulatory review process underway, I want to highlight our four near-term key areas of focus.
The formal regulatory process is obviously an area of major focus. In early 2005, we intend to file the Project Permit Applications, which cover the specific approvals required for actual field work -- land-use permits, water licences and quarry permits, for example.
In the Commercial area, we are continuing to progress precedent agreements with shippers, seeking progressively firmer shipping commitments.
Precedent agreements for 830 million cubic feet a day from the three anchor fields have been signed. We are in discussions with several other companies for additional gas volumes. We hope to make further progress on these soon, and intend to meet them tomorrow.
As I mentioned, based on these discussions and the non-binding expressions of interest received from potential shippers, we have based engineering and impact assessment work on a pipeline with an initial design capacity of 1.2 billion cubic feet a day (Bcf/d) expandable to 1.9 Bcf/d by adding compression facilities. We are hopeful that we will conclude precedent agreements with additional shippers during the regulatory process. A final decision on pipeline capacity will match the precedent agreements in place.
We continue to finalize commercial terms among the project proponents. This is a complex arrangement, and is progressing very well.
The successful conclusion of benefits and access agreements is essential to the project proceeding, and completion of these agreements is targeted for the next few months. Some regulatory approvals are conditional upon obtaining land access. Also, the start of some regulatory reviews may also be conditional on obtaining land access.
We will be attempting to work benefits and access agreements in all four settlement regions.
And finally, we continue to progress engineering work, field development plans, routing, cost estimates and schedules, to put us in the position for appropriation decisions following the regulatory process.
CHART #8 - Project Definition - Regulatory Applications
There is a considerable amount of comprehensive detail on the regulatory applications that we have already filed for the Mackenzie Gas Project, as well as the Project Permit Applications we intend to file early next year.
The main regulatory applications for the Mackenzie Gas Project are:
- the three Development Plan Applications for Parsons Lake, Taglu, and Niglintgak,
- the Application for Approval to Construct the Mackenzie gathering system, and
- the Application for a Certificate of Public Convenience and Necessity (CPCN) for the Mackenzie Valley Pipeline
Supporting these applications are the Environmental Impact Statement and the Public Consultation Report, which address the impacts of the proposed project.
Project permit applications, or PPAs, are permits, licences and authorizations required before actual field work can commence. These include Land Use Permits, Water Licences, Quarry Permits, Fisheries authorizations, etc. It’s estimated that in excess of 6,000 individual permits, licences and authorizations will be required for the project.
Applications for groups of permits will begin to be filed in early 2005, and we are currently in the process of consulting with the public on these permits.
CHART #9 - Project Definition - Regulatory Process
This chart provides some further detail on the formal regulatory process.
You probably know that the process to proceed from filing to approvals is laid out in the Cooperation Plan and the Joint Review Panel (JRP) agreement.
Once the applications are filed, the JRP and the NEB will conduct their formal evaluations of the applications received in accordance with their respective mandates. They may request additional information from us, and when they are satisfied that the information received from the co-venturers is sufficient to proceed, both the JRP and the NEB will conduct public hearings to consider the EIS and the applications respectively.
We anticipate that the hearings, which provide ample opportunity for public participation, will begin in early 2005. The NEB and the JRP will determine the location and timing of the hearings, and the Northern Gas Project Secretariat is coordinating this work.
We anticipate that, after the JRP report is issued, the NEB could then issue its findings starting in 2006, as will the northern regulatory agencies.
The MGP project co-venturers have provided funding to members of communities and non-government organizations invited to participate in the EIS preparation process through scheduled workshops.
The federal government has also committed to providing up to about $1.5 million to qualified recipients to facilitate their participation in the environmental assessment of the Mackenzie Gas Project.
CHART #10 - What Lies Ahead - Construction Overview
As I stated earlier, the filing of regulatory applications is NOT a decision to construct. A final decision to proceed with construction can only be made after obtaining the necessary regulatory approvals and assessing any conditions attached to those approvals.
A decision to proceed will also be dependent on a number of other factors, such as benefits and access agreements, natural gas markets, project costs and fiscal terms, including certainty. These factors are essential to development of a firm project schedule and will be critical to a final construction decision.
With that important caveat, I want to outline quickly what the design and construction phase of the project would look like. This chart provides some detail on that stage.
As you can see, we are looking at two to three winter construction seasons for the major facilities and installations -- beginning with preliminary work in the summer of 2006, and continuing through to removal of camps and other temporary facilities in 2009 and 2010.
You can appreciate some of the unique challenges posed by weather, transportation logistics and the remoteness of the location.
- major staging in the summer
- short season to work each winter
- rapid mobilization of a large workforce
- never steady-state work
CHART #11 - What Lies Ahead - Near-term Challenges
My final chart reviews some of our near-term challenges and focus areas as we progress our work.
As I’ve outlined, we are continuing to progress work in four key areas:
- the regulatory process
- commercial agreements and terms
- benefits and access agreements, and
- project design, cost and schedule.
As we progress work in these areas, we continue to seek and, we think, maintain Aboriginal and northern community support, as we have from the outset of this initiative.
We are committed to an ongoing dialogue with Aboriginal leaders and communities. This includes all four regions. Our resolve is firmer than ever that development of Mackenzie Delta gas and a Mackenzie Valley Pipeline can proceed in a way that benefits the Aboriginal and non-Aboriginal peoples of the North, other Canadians, governments and resource developers.
We have over 100 employees working full-time to progress this opportunity. We remain confident there is a workable, valuable solution to get this done.
That concludes my formal remarks. Thank you.
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