Imperial Oil Narrows E&C Short List for $6.1 Billion Mackenzie Gas Project

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Researched by Industrial Info Resources (Sugar Land, Texas). Imperial Oil, Limited (AMEX:IMO)(Toronto, Canada), the consortium leader for the Mackenzie Gas Project (MPG), has narrowed the engineering, procurement and construction (E+P+C) short list down to three possible vendors for the $6.15 billion natural gas project. The three leading candidates are WorleyParsons (Calgary, Alberta), Bechtel (San Francisco, California), and Fluor (Irving, Texas). Imperial Oil expects to make its selection from this short list by July 2007.

During the mean time, Imperial Oil is tendering the detailed design contract and expects to select a vendor in the early second quarter of 2007. In addition to the detailed design contract, Imperial Oil will also be letting four separate packages for project management. Imperial Oil expects to begin detailed engineering in 2008.

As it stands now, Imperial Oil is still trying to get the MPG project through permitting and has many issues to address, but if the MPG project is to gain its permits, Imperial Oil expects to receive these permits in the late forth quarter of 2007 or in early 2008. From a monetary view point, one of the most important issues is the rise in cost estimates for the MGP that have risen roughly 40% from approximately $3.4 billion to a staggering $6.15 billion. It is said that Imperial Oil has already invested $213 million in the project and should receive a new and firmer capital estimate of the over all project cost in April from Colt Engineering (Calgary, Alberta), which was recently acquired by WorleyParsons.

The MGP is a proposed 1,220-kilometer, 30-inch diameter natural gas pipeline originating above the Arctic Circle in the Mackenzie River Delta and travels in a South/Southeast direction and terminates with an interconnect with the existing gas pipeline system just across the Alberta border. The proposed capacity of the pipeline is 1.2 billion cubic feet per day. The three anchor fields located in the vicinity of Inuvik Northwest Territories will supply natural gas to the project. The anchor fields are Niglintgak, Taglu and Parsons Lake. Taglu Field, discovered in 1971 and owned by Imperial Oil, is the largest of the Anchor fields with 3 Tcf of natural gas in place. The second largest was discovered in 1792 is the Parsons Lake Field with 1.8 Tcf, which is owned 75% by ConocoPhillips (NYSE:COP) (Houston Texas) and 25% by ExxonMobil (NYSE:XOM)(Irving, Texas). Third is the Niglintgak Field discovered in 1973 with a reserve of 1 Tcf and owned by Shell Canada, Limited (TSE:SHC)(Calgary, Alberta). Each field will need onsite power generation of between 4-10 megawatts a piece due to the remote region the project lies in. Field compression will require between 15,000–30,000 horsepower of turbine driven compression per field.

All three fields are within 120 kilometers of Inuvik and will be tied to a central processing and compression facility there. At Inuvik, depending on the case chosen, there would be 12,000, 20,000 or 34,000 barrels per day of NGL separated and pumped through a new 480-kilometer, 10-inch diameter pipeline from Inuvik to Norman Wells. From there it will interconnect with an existing pipeline owned by Enbridge, Incorporated (NYSE:ENB) (Calgary, Alberta). In the base and reduced cases, the pump units will be located at the Inuvik facility, but in the expanded case there is the need for three new pump stations.

The amount of compression, as with most other facilities, would again vary depending on the final size design of the pipeline. As it stands now, there will be five turbine-driven compressor packages rated at 25 megawatts each located at four main compression facilities to support the MPG. Two compressor units will be located at the Inuvic facility and one compressor unit will be located at Loon River North, Tulita, and River Between Two Mountains compressor stations.

If Imperial Oil can obtain the regulatory permits and funding for the project, construction could begin as early as 2009, with completion of the project scheduled for 2012. If the MGP is placed into service, it will be able to take advantage of the Athabasca region’s growing demand for natural gas, which is the world’s fastest growing market for natural gas due to the need for natural gas in the production and processing of bitumen for the region’s vast oil sands reserves.

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