Backers of the $7-billion Mackenzie gas pipeline are on the verge of making deals with Ottawa and aboriginal communities, paving the way for key public hearings to begin on the massive venture.

After months of negotiations, a consortium of oil companies headed by Imperial Oil Ltd. weas close yesterday to finalizing a so-called "letter of comfort" with the federal government that would lay out fiscal terms for the project in broad terms, sources said.

The government is also expected to give the companies assurances that the terms would not change if there is a federal election.

"The proponents will have a comfort that if the existing government returns, it will be picking up where it's left off," one senior source said.

Three aboriginal communities along the pipeline route were scheduled to hold meetings last night and today to ratify access and benefits agreements.

"I am very optimistic that things seem to be coming together," said Brendan Bell, Energy Minister for the Northwest Territories, after meeting with Cabinet ministers in Ottawa yesterday. "We are very hopeful that Imperial will come out with a very strong positive announcement in the coming days and weeks."

Imperial, and partners Shell Canada Ltd., ConocoPhillips and the Aboriginal Pipeline Group, an aboriginal enterprise, wanted to secure the deals before moving forward with lengthy public hearings that would bring the stalled project back on track.

Negotiators have been working frantically so the agreements could be in place tomorrow, allowing Imperial to meet a deadline imposed by the National Energy Board. The federal regulator asked project backers to let it know by Nov. 18 whether they were ready to move forward, so it could hold pre-hearing conferences before Christmas. Eight to 10 months of hearings would then start in the new year in dozens of locations across the Northwest Territories and in Calgary. Regulators would then rule on whether the project can proceded .

The 1,220-kilometre pipeline would move to market by the turn of the decade badly needed natural gas stranded in the Mackenzie Delta and fuel oil and gas in Canada's Arctic, a region seen as rich in hydrocarbons.

Proponents halted work on the project last April because of frustration over escalating aboriginal demands and government red tape.

The oil companies aren't expected to get everything from Ottawa they were asking for -- such as reduced royalties and taxes said to be in the $1.2-billion to $2-billion range.

"The actual response [to be contained in the comfort letter] is going to be a recognition of the concerns that they had, and an indication that a number of those concerns can be met," the source said. "It's going to put things in a contextual framework that they hope is going to get the job done and provide the basis for a number of ideas."

The letter would "set the picture" but many of the details are expected to be worked out over the next few months, another source said.

The federal government is expected to keep the door open to becoming an equity partner that would pay its share of costs and participate in any benefits, just as the State of Alaska wants to be an owner in the rival Alaska natural gas pipeline.

It wants to avoid perceptions that it's subsidizing profitable oil companies while at the same time doing its part to get the project off the ground.

"They are going to put it forward as an investment ... in the future of the North," a source said. "They are there to aid and abet the proponents in windfall profits and if things go south, they are there to pick up the tab. It has to be business."

The idea of government ownership in the pipeline has been controversial because project backers have said they're not interested in having the government as a partner.

Anne McLellan, the Deputy Prime Minister and the minister responsible for the pipeline file, denied two weeks ago that an equity offer has been made. She said the federal government has no intention of re-entering the megaproject business and emphasized that a "private-sector" solution is required when it comes to Mackenzie.

Meanwhile, three Sahtu communities -- Tulita, Fort Good Hope and Deline -- have reached agreements with Imperial on allowing the oil companies access to their lands in exchange for benefits. Negotiations are continuing with other groups affected by the project -- the Inuvialuit, Gwich'in and Deh Cho.

Pius Rolheiser, spokesman for Imperial, said it was premature to say whether backers would move forward with public hearings without having all aboriginal agreements in place.

"Our intent would be to have benefits and access agreements in place or a clear path forward to achieving them," he said. "We are in discussions with all communities and we are working as hard as we can."

Claudia Cattaneo - Financial Post