March 2009 Update

In the news...

• TransCanada Challenged on Alaska Pipeline License (3/14/2009) In light of current economic conditions, two Alaskan state legislators have called for a review of TransCanada Corp.'s license to build a $26-billion natural gas pipeline. Representative Jay Ramras (R-Fairbanks) and Craig Johnson (R-Anchorage) introduced the resolution in the Alaska House because of concerns about the project’s financing given the current global recession. If passed the motion would require Gov. Sarah Palin and the attorney general to review the application and present their findings within six months. TransCanada has secured approximately $4 billion (U.S.) for the project and maintains low commodity prices will not affect the project. "A change in the natural gas market price over the last six months does not swing whether or not this project is viable," said Tony Palmer, head of TransCanada's Alaska project. "In the best case, we will be in service in the fall of 2018, and then we will be in-service for 25 to 50 years beyond that. It's the price of natural gas at that time that is critical, not today's price." Last year TransCanada received an exclusive license for the proposed 2,761-kilometer pipeline system that will transport an estimated 35 trillion cubic feet of gas from Alaska's North Slope. The license includes $500 million in Alaska state tax incentives for the company. [More here]

• Alaska Legislature Considers Uncoupling Oil and Natural Gas Taxes to Boost State Revenue (3/13/2009) Alaskan Senator Bert Stedman (R-Sitka and co-chair of the Senate Finance Commitee) wants to decouple taxes on gas production and oil production. “The end goal is to protect the state revenue stream and to offer stability and predictability to the industry, and encourage development and production,” Stedman said. Alaska uses a progressive tax structure for oil with higher oil prices netting a higher tax burden. Currently, oil and gas taxes are combined so when producers earn large profits from oil, they can use profit on gas (which is usually less profitable by volume than oil) to reduce the total amount of taxes paid to the state. Stedman argues that under certain market conditions tax revenues will be diluted creating an unstable tax environment. However, Alaskan State Department of Revenue Commissioner, Pat Galvin, disagrees. “Our analysis indicates that no changes are needed, that the taxes are appropriate both for the state and for the producers. Part of that profitability is that they (producers) are reducing the tax burden on oil.” He warned that changing the current tax laws could open a Pandora's box with the state losing out in the end. Changes to the tax structure could be made as soon as the start of the 2010 legislative session and in time for open season later in the year. [More here]

• ConocoPhillips: Alaska Gas Pipeline to be in Service by 2019 (3/11/2009) The Denali pipeline, proposed by ConocoPhillips and BP, can be brought into service by 2019 said a ConocoPhillips executive during a recent analyst meeting. The estimated $30 billion, 2,000-mile pipeline is expected to start accepting bids for gas transportation next year. The pipeline could transport 2 billion cubic feet of gas a day or around 7 percent of the total U.S. daily consumption. The companies are also considering the construction of a 1,500-pipeline from Alberta, Canada to Chicago, Illinois. [More here]

• GE: Sticks with That Old Energy Religion (2/27/2009) ...... General Electric has announced it will invest $276 million in U.S.-based oil and gas projects. The total includes $126 million in funds for Regency Energy Partners to complete the Haynesville natural gas pipeline in North Louisiana. “This project will improve the overall energy security and independence of the United States by alleviating a transportation bottleneck experienced by many producers in the Haynesville area,” said Dan Castagnola, managing director at GE Energy Financial Services. The remaining $150 million will be used to fund the operation of a floating oil and gas rig located in the Gulf of Mexico. The rig will be operated in partnership with ATP Oil & Gas Corporation. [More here]

• TransCanada Pleased with NEB Decision to Federally Regulate Alberta System (2/26/2009) The National Energy Board (NEB) of Canada has approved TransCanada's application for the federal regulation of its Alberta System pipeline. The decision gives the company more flexibility to transport natural gas to North American markets and draw new gas supplies. "The decision is good news for our customers, Alberta System stakeholders and our company," said Hal Kvisle, TransCanada president and CEO. "Having the Alberta System federally regulated means TransCanada can extend the pipeline across provincial borders, allowing us to provide potential customers a direct connection to the pipeline network, and provide attractive service options and rates to producers in British Columbia (B.C.) and the Northwest Territories." The regulatory oversight change increases the chance that B.C. and Northern gas will directly integrate with the Alberta hub -- North America's largest trading point. Kvisle said TransCanada expects to file additional applications seeking approval to expand the Alberta System into northeastern B.C. If approved, a 77-kilometer (Groundbirch) pipeline for the Montney, B.C. area could be operational by the fourth quarter of 2010 and a 155-kilometer Horn River line could transport gas by the first half of 2011. [More here]

• Epsilon Energy Commences Construction of the Highway 706 Pipeline (2/25/2009) Epsilon Energy Ltd. has begun the construction of a natural gas pipeline and related production infrastructure within its Highway 706 project in Pennsylvania. The U.S. Department of Environmental Protection has given the company an ESCGP-1 permit to begin build-out of a compression facility and gathering system to bring natural gas production to a sales point on the Tennessee Gas pipeline. So far, Epsilon has obtained more than 25 miles of right-of-way for pipeline construction and expects to start natural gas production at the end of June 2009. [More here]

• Willbros Announces New Project Awards (2/25/2009) ...... The Willbros Group Inc. as bean awarded two new projects valued at approximately $181 million. The first contract awarded to Willbros U.S. Construction division is for the construction of the Texas Independence Pipeline by Energy Transfer Fuel, L.P. - a subsidiary of Energy Transfer. The project involves building a 143-mile, 42-inch pipeline from Minden in Rusk County, Texas to a location near Maypearl in Ellis County, Texas. Work is scheduled to begin in March 2009 and be finished in time for a third quarter 2009 in-service date. In addition Willbro's Downstream segment, InServ, has been given verbal commitment from the National Cooperative Refinery Association (NCRA) for the extension through September 30, 2011 of its current contract for Program Management Services associated with part of a planned Heavy Crude Expansion Project (HCEP). Willbros President and CEO Randy Harl said, "We are pleased to announce these two awards which demonstrate our potential market opportunities. Both Energy Transfer and NCRA are valued customers for which we have performed multiple successful projects. We appreciate their confidence in our execution abilities and look forward to completing two more important projects on their behalf." [More here]

• Gas Pipeline Expansion Put on Hold (2/24/2009) ........... Georgia-based Colonial Pipeline spokesman Sam Whitehead said a proposed 460-mile petroleum products pipeline has been put on hold indefinitely. The expansion, announced in 2006 and scheduled for completion in 2012, would have added a third pipeline between Baton Rouge, Louisana and Atlanta, Georgia. "The urgency of doing this now is not as clear as it was in 2006," Colonial President and CEO Tim Felt said in a press release. The original cost estimate for construction of the pipeline was $3 billion. Despite the poor economic climate, the company continues to seek permits for construction of the pipeline. When asked if delaying the expansion would create supply problems in the future, Whitehead said, "It's too early to tell. It certainly could if things come back as quickly as they went down-hill."... [More here]

• Pipeline Could Bring $750 Million and 2,000 People to West River, South Dakota (2/19/2009) The TransCanada Keystone XL pipeline project is expected to bring up to 2,000 crude oil pipeline workers, their families and $750 million of investment into northwestern South Dakota over the next two years. The 2,000-mile, 36-inch diameter steel pipeline will link to an existing pipeline in Kansas and transport oil from Alberta, Canada to the Gulf Coast of Mexico refineries. When completed by 2012 or 2013, at an estimated cost of $7 billion, the pipeline could be the longest in North America. [More here]

• Stealth Energy Announces Pipeline Completion Phase (2/18/2009) Stealth Energy Inc. has redeployed it crews to finish construction of its gas pipeline project in Stillwater County, Montana. The company had to halt construction of the last two miles of the pipeline for three months due to adverse winter conditions. When completed the pipeline will be used to transport and sell gas from three shut in commercial wells: Hailstone 1-23, 2-23 and Copulous 1-18. It will eventually connect to further wells. [More here]