Canada’s First Nations are boosting profits in oil sector

Oil Stock Markets

Canada’s First Nations are boosting investments and leveraging their clout with regulators to gain stakes in oil and gas projects as they seek greater returns on energy produced or transported across their territory. 

Aboriginal groups in Canada have traditionally played a more passive role in the energy industry, collecting royalties from oil and gas output.

That model is changing as some indigenous groups buy oil wells and negotiate ownership stakes in proposed pipelines and storage projects. 

First Nations, also called bands, play a pivotal role in Canada’s oil industry because governments and companies have a legal duty to consult and accommodate them before proceeding with resource projects affecting their territories. 

Some aboriginal groups have used that leverage to stop or delay oil projects, as when Enbridge Inc’s proposed Northern Gateway pipeline was rejected by Prime Minister Justin Trudeau in 2016 after bands raised environmental concerns. 

Other indigenous groups, however, are increasingly using the same power to negotiate ownership stakes in projects. 

A bigger financial role for First Nations in the sector could help unlock oil and gas reserves in Canada, the world’s fifth largest producer, that might otherwise stay in the ground because of objections from environmental or aboriginal rights groups. 

Their experience parallels that of Native American tribes, who are also deeply split on whether and how to develop the vast resources on tribal lands. 

Indigenous Canadians make up about 5 percent of the nation’s population and face higher levels of poverty and violence, giving bands a powerful incentive to maximize energy revenues to raise living standards. 

Aboriginal groups have a legal say in projects on their lands, which are held in trust by the Canadian government for band members, and also those that might impact them indirectly. 

First Nations’ support gives energy firms better odds of overcoming any concerns from other aboriginal groups. 

Ottawa on Feb. 8 unveiled draft legislation for resource projects that places greater emphasis on considering their impact on aboriginal communities. 

Under the rules for assessing major projects, to take effect next year, such concerns will be heard by the new Canadian Energy Regulator and Impact Assessment Agency of Canada. 

 

BUYING AND FINANCING  

 

Examples of First Nations taking bigger roles in energy projects are mounting. 

RBC Capital Markets’ North American head of project finance Mark Saar said the bank is seeing more pipeline and storage companies seeking financial partnerships with aboriginals. 

RBC in December completed a C$545 million bond issue for the Fort McKay and Mikisew Cree bands - the largest ever private investment by a First Nation - allowing them to buy a 49 percent stake in a Suncor Energy storage facility. 

Bridging Finance last year financed an unnamed First Nation’s C$11 million purchase of stakes in producing oil wells and is working on four more similar deals, Sharpe said. 

Investment bank AltaCorp Capital is raising funds for a C$16 billion ($12.85 billion) oil pipeline, proposed to run from Alberta to the northern British Columbia coast. 

The project has modest financial backing from one of Canada’s richest families, the Aquilini Group, and support from 35 First Nations to use their land. 

In exchange for allowing that access, the bands will own at least 35 percent of the pipeline and a corresponding share of the profits. 

If built, Eagle Spirit would be a crucial second outlet to the Pacific Ocean for crude from the oil sands, which currently sells at a steep discount because of transportation constraints. 

Eagle Spirit Energy Holdings’ proposed oil pipeline has strong interest from energy companies and investors, said Eagle Spirit president and chairman Calvin Helin, who is aboriginal. 

The firm’s main roadblock is a proposed government moratorium against oil tankers along the ecologically sensitive northern B.C. coast. 

Two other private investor groups, A2A and G7G - with the political support of some First Nations - are proposing to build railways running from Alberta’s oil sands to Alaska, avoiding the coastline of British Columbia because of the pipeline opposition there. 

Matt Vickers, head of G7G, declined to detail the investors’ financial arrangements with the bands.

New railways could provide an alternative to Kinder Morgan Canada’s Trans Mountain pipeline expansion from Alberta to British Columbia, which has been delayed by one year due to the environmental concerns of the B.C. government, some aboriginals and municipalities.

 

‘A REAL AWAKENING’  

 

When Chief Isaac Laboucan-Avirom became leader of Alberta’s Woodland Cree Nation in 2013, he was struck by the contrast between his band’s precarious finances and the hydrocarbon wealth surrounding its territory. 

Three years later, Laboucan-Avirom signed an agreement allowing Baytex Energy Corp to drill in exchange for modest royalties and jobs. 

Now, the Woodland Cree are granting permission for Eagle Spirit pipeline to use its land - in exchange for an undisclosed ownership stake.

Such opportunities have won over some groups trying to balance economic prosperity with environmental protection.