Canada's First Nationsare boosting investments and leveraging their clout withregulators to gain stakes in oil and gas projects as they seekgreater returns on energy produced or transported across theirterritory.
Aboriginal groups in Canada have traditionally played a morepassive role in the energy industry, collecting royalties fromoil and gas output. That model is changing as some indigenousgroups buy oil wells and negotiate ownership stakes in proposedpipelines and storage projects.
"It's assets that create cash flow," said Joe Dion, ChiefExecutive of First Nations-owned Frog Lake Energy ResourcesCorp, which produces 2,000 barrels of oil per day. "We get apiece of the action."
First Nations, also called bands, play a pivotal role inCanada's oil industry because governments and companies have alegal duty to consult and accommodate them before proceedingwith resource projects affecting their territories. The lawgives bands "pretty close to an effective veto," said Universityof Saskatchewan professor Ken Coates.
Some aboriginal groups have used that leverage to stop ordelay oil projects, as when
Enbridge Inc's proposedNorthern Gateway pipeline was rejected by Prime Minister JustinTrudeau in 2016 after bands raised environmental concerns. Otherindigenous groups, however, are increasingly using the samepower to negotiate ownership stakes in projects.
A bigger financial role for First Nations in the sectorcould help unlock oil and gas reserves in Canada, the world'sfifth largest producer, that might otherwise stay in the groundbecause of objections from environmental or aboriginal rightsgroups.
Their experience parallels that of Native American tribes,who are also deeply split on whether and how to develop the vastresources on tribal lands. Indigenous Canadians make up about 5percent of the nation's population and face higher levels ofpoverty and violence, giving bands a powerful incentive tomaximize energy revenues to raise living standards.
"It's so polarized," said Stephen Buffalo, chief executiveof the advocacy group Indian Resource Council. "Some want to seethe benefit, others think it's going to kill the earth."
Frog Lake, a firm owned by Alberta's Frog Lake First Nation,is looking to buy more oil-producing properties outside of itsterritory along with stakes in tank farms and pipelines, saidDion, who is a member of the neighboring Kehewin Cree Nation.
Dion said aboriginal groups have traditionally settled for"the smaller stuff" – royalties from outside energy firms.
"The revenue-sharing piece is here now," Dion said. "That iswhere we have to go."
Aboriginal groups have a legal say in projects on theirlands, which are held in trust by the Canadian government forband members, and also those that might impact them indirectly.First Nations' support gives energy firms better odds ofovercoming any concerns from other aboriginal groups.
Ottawa on Feb. 8 unveiled draft legislation for resourceprojects that places greater emphasis on considering theirimpact on aboriginal communities. Under the rules for assessingmajor projects, to take effect next year, such concerns will beheard by the new Canadian Energy Regulator and Impact AssessmentAgency of Canada.
BUYING AND FINANCING
Examples of First Nations taking bigger roles in energyprojects are mounting.
RBC Capital Markets' North American head of projectfinance Mark Saar said the bank is seeing more pipeline andstorage companies seeking financial partnerships withaboriginals.
RBC in December completed a C$545 million bond issue for theFort McKay and Mikisew Cree bands – the largest ever privateinvestment by a First Nation – allowing them to buy a 49 percentstake in a
Suncor Energy storage facility.
"The deal was oversubscribed," Saar said. "We think therewould be appetite for further similar deals."
Some investors find aboriginals' involvement in energyprojects appealing given that their support is often criticalfor regulatory approvals, Saar said. Others, however, worryabout being tied to First Nations' finances because of historicmismanagement by some bands.
Investors and lenders are displaying "greater acceptance ofFirst Nations as players," said David Sharpe, a Mohawkaboriginal and Chief Executive of Toronto-based debt firmBridging Finance, referring to RBC's bond issue.
Bridging Finance last year financed an unnamed FirstNation's C$11 million purchase of stakes in producing oil wellsand is working on four more similar deals, Sharpe said.
Investment bank AltaCorp Capital is raising funds for a C$16billion ($12.85 billion) oil pipeline, proposed to run fromAlberta to the northern British Columbia coast.
The project has modest financial backing from one ofCanada's richest families, the Aquilini Group, and support from35 First Nations to use their land. In exchange for allowingthat access, the bands will own at least 35 percent of thepipeline and a corresponding share of the profits.
If built, Eagle Spirit would be a crucial second outlet tothe Pacific Ocean for crude from the oil sands, which currentlysells at a steep discount because of transportation constraints.
Eagle Spirit Energy Holdings' proposed oil pipeline hasstrong interest from energy companies and investors, said EagleSpirit president and chairman Calvin Helin, who is aboriginal.
The firm's main roadblock is a proposed governmentmoratorium against oil tankers along the ecologically sensitivenorthern B.C. coast.
Two other private investor groups, A2A and G7G – with thepolitical support of some First Nations – are proposing to buildrailways running from Alberta's oil sands to Alaska, avoidingthe coastline of British Columbia because of the pipelineopposition there. Matt Vickers, head of G7G, declined to detailthe investors' financial arrangements with the bands.
New railways could provide an alternative to Kinder MorganCanada's Trans Mountain pipeline expansion fromAlberta to British Columbia, which has been delayed by one yeardue to the environmental concerns of the B.C. government, someaboriginals and municipalities.
'A REAL AWAKENING'
When Chief Isaac Laboucan-Avirom became leader of Alberta'sWoodland Cree Nation in 2013, he was struck by the contrastbetween his band's precarious finances and the hydrocarbonwealth surrounding its territory.
Three years later, Laboucan-Avirom signed an agreementallowing
Baytex Energy Corp to drill in exchange formodest royalties and jobs. Now, the Woodland Cree are grantingpermission for Eagle Spirit pipeline to use its land – inexchange for an undisclosed ownership stake.
Such opportunities have won over some groups trying tobalance economic prosperity with environmental protection.
"There's been a real awakening," said Laboucan-Avirom, whois looking for further investment in oil and gas assets."Everything in our world is touched by oil and gas, whether welike it or not."
(Additional reporting by Valerie Volcovici in Washington;Editing by Simon Webb and Brian Thevenot)