An Oil Baron Forges On
WHY YOU SHOULD CARE
We love cleaner energy — but there is always a cost for another section of people.
Joe Dion was just 6 when his mother dressed him in a fresh pair of jeans and a shirt and brand-new sneakers. He walked a mile off the Kehewin Cree Nation reserve, where he was born in eastern Alberta, in a log cabin with 11 siblings, and was about to be shipped off to a special residential school for the descendants of Canada’s indigenous people. But when the bus driver pulled up, he looked out at Joe and told him: “You’re not going.” To this day, Dion says, “I have no idea why they didn’t take me.” Fortune, it turns out, smiled on him.
Today, Dion is CEO of Frog Lake Energy Resources Corp., the first oil company to be owned by Canada’s First Nation people, specifically the Cree people of Frog Lake Reserve, near where Dion grew up. FLERC may seem like a minnow in the more than $30 billion-a-year Albertan oil industry, but the company has become a rare success story for a population that often struggles throughout North America. And it owes its start to Dion, a pioneer who step by step leveraged the treaties and constitutional rights of Canada’s indigenous people to claim a piece of Alberta’s black gold — all the while parlaying an original $1.2 million investment 15 years ago into around $300 million in royalties for the community. “It’s the most successful oil company I’ve seen for what’s invested at the start,” says John Zahary, the former CEO of much larger energy companies, including Petrovera Resources and Harvest Energy, who recently became FLERC’s president.
But it doesn’t take a Wall Street genius to know that big oil has become only a shadow of the J.R. Ewing days. In remarkably rapid fashion, the world has been cutting its energy needs or taking advantage of the shale boom. Today, oil is about one-third the price it was 18 months ago — and around half what it was last summer. Sure, Frog Lake’s wells are still profitable enough to cover operating costs, FLERC says, but they aren’t enough to pay back all of the investments that got them started. Already, there have been layoffs. If you’re Dion, now 67, or virtually anyone overseeing an oil empire, it’s time to reenvision the future.
But how? How does an industry battered by natural forces and an impatient public struggle to survive — if not thrive? Certainly, Dion has a long history of being a fighter. Even as a kid, he recalls fistfights in school. “I didn’t like being called a savage or a red Indian,” he says, or hearing a mocking war whoop. “They didn’t think we were smart.” Today, he looks younger than his age, his full but graying hair swept straight back, a man who sets aside an hour before dawn for running and weight training. A fit 185 pounds, he’s in his element wearing skinny jeans, pointy cowboy boots and multicolored shirts. And he’s so driven that he has his wife, Ruth, take the wheel so he can continue doing business on his phone in the car. The new battle, it appears, does not faze him. “The days of me feeling inferior are gone,” he says.
We are in that car with Dion, taking a three-hour trip from Edmonton to Frog Lake, traversing flat plains covered by farms and cattle ranches, punctuated by the occasional oil well. As we drive by Kehewin Reserve, Dion points out the modest homes of his relatives. Dion’s own home is on his ranch, sitting in a grove of aspen trees in the hills just south of the reserve, and a monument to one of his great passions: hunting. (He’s got no fewer than a dozen rifles locked in one of his rooms.) Outside, there’s a moose door knocker and welcome plaque, while the softly lit interior features a moose doormat, an imitation moose antler chandelier, moose table statues complete with sunglasses and various wooden moose toys hanging on the walls. Of course, Ruth cooks me moose (and elk) for dinner. Dion, who’s constantly on the move, also owns a house in Vancouver, plus an apartment in Calgary, from where he can walk to FLERC’s offices.
Frog Lake, Dion says, sits on about four billion barrels of bitumen, the thick stuff that doesn’t gush out of the ground. While that sounds like a lot, only a small portion — maybe 5 percent — can be produced economically with today’s technology. Dion basically invented FLERC’s business model and has managed to pull in investors all the way from China, leaving the company debt-free and largely able to withstand today’s collapse of oil prices. Rather than operate wells, FLERC co-invests with operating companies, leveraging its access to the reserve to open doors and smooth operations, sharing in the profits, which accrue back to its owners: Frog Lake First Nation. Although drilling has slowed, it hasn’t stopped and most of the wells continue to pump away while fueling twice-a-year cash handouts to reserve residents. It’s a low-risk, low-cost operation where a new horizontal well costs just over CAD$1 million (around U.S. $749,000), which takes just days to complete and an almost unheard of 14 days to get into production. All told today, 600 wells dot the landscape along with heavy tanker trucks and service vehicles, many of which are operated by reserve residents and come and go 24/7.
We’re looking at getting into a casino, or finding other revenues
Clifford Stanley, Frog Lake First Nation’s chief
For his daily eyes and ears on the reserve, Dion relies on Mel Abraham and Ruby Quinney. Abraham, a former police officer who returned home to the reserve, laughs about how he’s now working side-by-side with his onetime childhood sweetheart, Quinney, who cooked up a lunch of wild duck soup and fried bread for our visit. He explains his job and how he helps Dion by pulling out a large map of the reserve and pointing to a proposed drilling site separated from the main road by a cluster of houses. Some residents don’t want a well nearby or traffic next to their homes, despite improved roads. So begin the negotiations to find out what residents can put up with, and when it’s time to move a drill site, build a new access road or gently fend off expectations of a payoff. “It’s easy for me and Ruby to deal with it because we’re from the community,” says Abraham.
As Abraham drives me around the reserve in a battered truck, he points out that all of the new and renovated houses within this community — about 300 of them — as well as the new arena, skating rink and powwow grounds were paid for by oil money. It’s a big contrast with most First Nation housing elsewhere in Canada, which is generally in short supply, overcrowded and often dilapidated. Death rates from home fires are also 10 times higher than off reserves, according to a recent Canadian Senate report. Aside from housing, many First Nation communities continue to struggle with the fallout from the residential school system, blamed for some of today’s broken families that battle with addiction, domestic violence and poverty.
Of course, Dion knows full well that today’s oil industry comes with its own problems. While the local environmental impact is far less than the infamous surface-mining tar-sands projects to the north, or carbon-intensive steam-injection plants in nearby Cold Lake, it’s still a dirty business from start to finish. Frog Lake produces a thick, carbon-dense oil that’s been pilloried as the villain behind President Obama’s recent cancellation of the Keystone XL Pipeline, which aimed to take Alberta’s black gold to the U.S. Gulf Coast. Then there are the financial issues here: Frog Lake First Nation’s chief, Clifford Stanley, says the community has had to cut spending and layoff some staff. And if the slump continues, they may turn to more conventional sources of income that many other First Nation communities have previously turned to, sometimes with controversy: “We’re looking at getting into a casino, or finding other revenues,” says Stanley.
Still, Stanley’s an enthusiastic supporter of Dion’s biggest and most ambitious investment, which is just going into operation not on, but off, the reserve. It’s the culmination of decades of work. After high school and a year of college, Dion returned to the Kehewin Reserve in 1970 to work for its chief, managing reserve business as chief administrator. He started a few businesses — weaving, fabricating sheet metal garages, a sawmill — before getting elected chief in 1974 and then spending two terms as the politically influential grand chief of Alberta. But Dion’s restless soul, plus debt, got the better of him and, in 1980, he left politics to become a consultant who negotiated oil-project deals. He also served as a lobbyist with Pierre Trudeau’s government when it repatriated the Canadian constitution from Great Britain, ushering in a clause that affirmed treaty land rights of indigenous people. A landmark 2004 Supreme Court ruling upheld those rights, mandating that First Nation individuals must be consulted and appropriately accommodated before resource projects launch. “We can stop projects,” says Dion while looking over a map showing Frog Lake’s traditional hunting, fishing and trapping area stretching hundreds of miles from the reserve.
We say to people: Go to school so you can earn $200,000 a year rather than $237 a month [in welfare]
Rather than stop development, though, as Wahgoshig First Nation did in Ontario when it obtained an injunction to halt a gold mine near its reserve a few years ago, Dion is looking for a piece of the action, even off the reserve. In August, FLERC plunked down $35 million to own the co-generation plant that’s part of a $700 million steam-injection project operated and mostly owned by oil producer Pengrowth; that gives the company a guaranteed 15 percent payout that’s not dependent on the price of oil. Also signed was a benefits agreement with the nation, which includes a stream of income from the oil, and an ambitious target of staffing the plant with 40 percent First Nation members within 10 years. Pengrowth executives say it’s cheaper, and better for community relations, if they can hire locals for these high-paying jobs. But it won’t happen automatically. “We say to people: Go to school so you can earn $200,000 a year rather than $237 a month [in welfare],” says Dion.
What’s next? It’s too late for politics — Dion already made a furtive effort to get back into that scene in 2004, even switching parties, but he failed. And he says, “I think I’ve made enough money.” But he just can’t resist securing that next deal. One project he doesn’t want to unveil just yet is based on a new process technology, and where he hopes to see FLERC’s logo — a stylized shield with a feather on a slant — across North America. I wonder how many projects over the years he’s dreamed up that never launched, amidst the obvious successes. No matter — you can’t count him out just yet.