ExxonMobil also has considerable financial and technical expertise, which will now be combined with TransCanada's pipeline capabilities and its existing gas pipeline network in Canada.

The current arrangement between the two companies is referred to as a "joint partnership agreement," where engineering and cost studies for the 48-inch pipeline and a large gas conditioning plant in Prudhoe Bay would be done jointly.

TransCanada Vice President Tony Palmer said in briefings June 11 that he will be the chairman of the management committee for the project and a senior ExxonMobil manager will be in charge of day-to-day actions.

ExxonMobil will take the lead on the gas treatment plant work, while TransCanada leads on the pipeline portion of the project, Palmer said.

Contractors already hired by TransCanada to work on gas treatment plant engineering - URS Corp. and Alaska-based ASRC Energy Services - will stay on the job, but under ExxonMobil's direction, Palmer said.

The work plan is to have engineering and cost estimates completed in time for an open season that TransCanada plans to hold in early 2010, concluding in July of that year.

Marty Massey, ExxonMobil's U.S. joint interest manager, said a decision on whether the company would sign contracts to ship its gas through the pipeline would be made separately and after the cost estimates are finished.

As a producer, ExxonMobil would weigh the advantages of shipping through TransCanada's pipeline or through the project proposed by the rival Denali group. Still, it would make sense for the company to favor a project in which it has an ownership interest, Massey said.

While ExxonMobil is not now an actual pipeline co-owner with TransCanada, it hopes to become a full partner eventually, Massey said. When that happens, ExxonMobil also will become a joint-holder with TransCanada of the Alaska Gasline Inducement Act license issued by the state to the pipeline company.

That change will require state approval, Deputy Commissioner of Natural Resources Marty Rutherford said.

ExxonMobil's acceptance, and even endorsement, of the state's AGIA licensing procedure is a surprising turn of events. Previously, the company said it opposed AGIA and the terms the license imposed on license holder, TransCanada.

In the briefing, Massey said ExxonMobil had concluded that signing on with TransCanada and the state, with its AGIA requirements, represents the best way to successfully develop the project because of the framework in AGIA that allows for producers to get special fiscal terms.

"Predictable fiscal terms are needed for this project and we have come to understand that AGIA is the best vehicle to achieve this. This is why we made the decision to align with TransCanada," Massey said.

"It also represents the best chance to bring all the parties together," on one project, he said. This would include BP and ConocoPhillips, who are still pursuing their own project, and who still object to the terms of the AGIA license.

Massey said ExxonMobil hasn't changed its opinion of the AGIA requirements but said it has accepted working with TransCanada under the framework of the state requirements, while hoping that changes to make requirements more acceptable could eventually be worked out.

State officials in a June 12 briefing gave credit to AGIA for helping bring TransCanada and ExxonMobil together.

"This alignment happened because of the process set in motion by AGIA. AGIA is working as designed," state Revenue Commissioner Pat Galvin said. "TransCanada's obligations are unchanged, and the project schedule remains unchanged. The Alaska gas pipeline is fundamentally a private sector arrangement. AGIA assures us that as private parties align, the state's interests are protected. We're satisfied with this arrangement."

Tom Irwin, state commissioner of Natural Resources, agreed with Galvin's assessment.

"This demonstrates exactly the commercial alignment AGIA was intended for," he said. "ExxonMobil has come to believe that working with TransCanada is the best opportunity to move the project forward. There's no doubt that they bring world-class engineering expertise to the project," particularly with the design of the gas treatment plant.

Palmer said ExxonMobil would be a minority partner in the joint partnership agreement; TransCanada will continue to own at least 51 percent. He would not divulge the exact percentages of each party in the partnership.

The interim agreement is separate from the AGIA license, which is held by the two TransCanada subsidiaries, TC Alaska Inc. and Foothills Pipe Line Co.

"If the project is successful, ExxonMobil will become a full partner in the license," Palmer said.

Rutherford, of the Department of Natural Resources, said the state's permission is not needed with the present partnership to do work, but would be needed once ExxonMobil actually takes an equity interest in TransCanada's subsidiaries and accepts the responsibilities of the AGIA license held by those companies.

At that point, only administrative approval is needed, not legislative action, Rutherford said.

"Any project modification (such as a change in the ownership of the license) must have a positive effect on the state. I'm sure there will be a public discussion," she said.

Rutherford said there were no negotiations on changes in taxes or royalties in relation to the project.

"All parties agree there will have to be some changes in fiscal terms, and we believe the path for that is through AGIA. The parties will have to show that changes are necessary to move the project forward. Any change in fiscal terms will require legislative approval," Rutherford said.

Galvin said there are two parts to any discussion on fiscal terms, one being the amount of "state take," or revenues, going to the state government, and the second being "fiscal stability," or the freezing of existing tax rates for a period of time.

"On state take, the administration's position is still that the project is profitable now and there is no need to alter the fiscal situation. But we have always made the opportunity available for people to provide us with information that changes are needed," Galvin said. "On fiscal stability, this is already provided for under AGIA, which allows for 10 years of fixed terms for production taxes for gas committed to an AGIA-licensed project."

Rutherford said that opportunity for fixed tax rates, as well as special terms for royalty administration is one of the real values that AGIA brings.

Palmer said, "The state has adopted AGIA as a framework. We understand and accept that, and we believe it is the best way to move forward."

He said TransCanada made the state aware of its discussions with ExxonMobil last January and provided materials to the state on the pending agreement under a confidentiality agreement in May.