ExxonMobil CEO: Mackenzie Pipeline Costs Could Top C$16.2 Bln

COMMENT: ExxonMobil has been pretty clear all along with the Mackenzie Gas Pipeline project: it isn't going to get built without a significant federal subsidy. That's assuming the regulatory process ever ends.

Hyun Young Lee
Wall Street Journal
September 8, 2007

CALGARY (Dow Jones)--Costs for the troubled Mackenzie gas pipeline could top the last cost estimate of C$16.2 billion, ExxonMobil Corp.'s (XOM) chief executive warned Friday.

Speaking to reporters at a Calgary industry event, Rex Tillerson said the length of the regulatory process made cost estimates for the pipeline little more than guesses based on other projects.

"It could be C$16 billion or C$14 billion or C$20 billion," Tillerson said. "All we can say is that it's large, it's larger than we previously thought."

Meanwhile, rapid cost inflation has been hiking up project costs while the pipeline has been in regulatory limbo, he added.

"We're seeing what happens on other projects...(there's) a bit of extrapolation from those more detailed cost estimates," he said.

The project, first discussed in the 1970s, aims to bring gas from the Mackenzie delta at the northern tip of the Northwest Territories to Alberta, where it would connect to existing pipelines. The push to revive the project started gathering support in 2004, but public hearings only began in January 2006, while the startup date has been pushed back three years to 2014.

Imperial Oil (IMO) is the project operator, and the other partners are Royal Dutch Shell PLC (RDSB.LN), ConocoPhillips (COP) and the Aboriginal Pipeline Group.

The proposed route crosses several First Nations territories, and complaints from several groups that they haven't been consulted properly have also slowed proceedings.

Tillerson has been one of the more vocal critics of the project's costs - which were previously estimated around C$7.5 billion - questioning the pipeline's viability without some sort of federal intervention.

After the regulatory proceedings, the Mackenzie consortium will have to do a "thorough update" of costs and "see how we are from an economic standpoint," he said.

He denied, however, that ExxonMobil was shelving the project.

The company is also involved in a US$25 billion pipeline project to bring 4.5 billion cubic feet a day of natural gas from Alaska to the lower 48 states.

Tillerson said: "You tell me what [the cost] might be today but it's not US$25 billion anymore."

-By Hyun Young Lee, Dow Jones Newswires; 613-237-0669; hyunyoung.lee@dowjones.com