Letters to the Editor

August 21, 2019 · by Admin2017 · 0

Economic development in a First Nations community

Part II: Reserve petroleum

(Brian Pitcairn worked for Loon River, among several other First Nations, over a 40-plus-year career in north central Alberta in a variety of roles. This is the second of a series of three letters to the editor by him on the subject of economic development, based on his experience in Loon River.)

To the Editor:

Loon River First Nation made the decision to market its known oil resource on reserve when the land transfer was implemented by Alberta. It was seen as a key step to build on the energy resources gained by the treaty land settlement reached in 1998.

The aim was to create resource-based revenue to support governance and infrastructure maintenance in the community.

The services of a senior petroleum engineer were engaged to advise the First Nation on the technical terms of the proposed resource agreement and its attached federal exploration permits. It was decided that the best way to make the land sale deal attractive to the resource industry was to rest the proposal on two basic terms.

First, the entire land base available for resource work was to be offered for development. The estimated size of the permit would be about 38,000 acres.

Second, with this being the biggest land sale ever in the Red Earth area, it would also offer a five-year period to do the work with a monopoly to do so; no competition allowed regarding oil and gas. The deal was approved by the community by way of a plebiscite.

Prior to the Treaty 8 land claim settlement, the resource company working in the area was Star Oil and Gas of Calgary. Although the First Nation company had done a fair amount of work with them, Star Oil should have shown interest in a long-term deal, so we thought, but did not. As a result, we went shopping for another suitor. Two other oil companies showed interest. The one that accepted the proffered deal was Storm Energy of Calgary. The area premise for conventional oil looked very good, so Storm jumped in with both feet.

Drilling results were generally successful, and the Loon River field became the bedrock of Storm Energy in the Red Earth area. Good relations were maintained between the First Nation and the company, with the CEO often hopping in his truck and driving north for a visit with no warning. As a result, Storm was able to fully implement their work plan under the permit agreement.

Legally the five-year agreement was run through Indian Oil & Gas Canada, a federal agency that oversees such development on reserve lands.

The deal gave Loon River First Nation a revenue stream outside of government funding that enabled the community to achieve a solid bedrock of financial stability.

Government funding for First Nations in Treaty 8 is usually short-term and inadequate to the cost of the program. The revenue stream to Loon River from Storm Energy consisted of a structure of oil royalty payments based on well production and price, drilling bonuses paid if petroleum was discovered and a minority equity position in the well once discovery costs were paid off. The company gained secure access to its property through a federal lease, and enjoyed complete access to the reserve resource. The CEO of Storm Energy told me the basic attraction of the Loon River deal for them despite the cost was the fact they got exclusive rights for five years to a 38,000-acre piece of property not available anywhere else.

From the need to build lease sites, roads, pipelines and maintain same, the First Nation company received a big boost in its work plan to promote sustainable company employment in Loon River. Once things had started off well, Storm Energy became active in the community, supporting events and sports and directly employing members as battery operators in the Red Earth area.

The oil development led to economic stability in the Loon River community and a stable petroleum resource for Storm Energy.