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Financial Post (Canada): Native group joins boom: Oilsands development

Native group joins boom: Oilsands development: Fort McKay, Alta., to be producer with $1B project
Mar 21, 2006
CALGARY – The hamlet of Fort McKay, Alta., is about to become the first Canadian aboriginal community to join the booming oilsands business as a producer, with plans to develop a $1-billion mining project with help from Shell Canada Ltd.
The First Nation of about 500 residents 65 kilometres northwest of the oilsands hub of Fort McMurray is forming a private, pure-play oilsands company that will be run as a division within Fort McKay Group of Companies.
That conglomerate of seven businesses, 100%-owned by the reserve, has successfully supported nearby oilsands development for the past 10 years. It generated $50-million in revenue last year through land-reclamation services, hauling of ore and overburden, transportation and camp catering.
The enterprising First Nation community, once a fur-trading and trapping hub, now wants to expand its growing oilsands interests and develop two main leases to which it acquired resource rights in a land claim settlement with Ottawa in 2003.
Details of Fort McKay's oilsands strategy will be unveiled at a community meeting on April 4 but Chief Jim Boucher said he believes the group's 8,200 acres of prime oilsands territory could hold 500 million barrels of oil.
“We're probably looking at production by the 2013-to-2015 time frame,” Mr. Boucher said in an interview. “[The 500 million barrels] is a preliminary estimate based on what we know now of the bitumen in place,” he said, adding core drilling this winter will help define the quality of the reserves and more delineation wells will be drilled next winter.
The acreage is surrounded by larger companies with larger stakes. Petro-Canada's proposed Fort Hills oilsands mine is to the west and the giant Muskeg River Mine owned by Shell Canada sits due east. Syncrude Canada Ltd.'s Aurora mine borders the southeastern edge of Fort McKay's leases.
Fort McKay has hired engineering giant SNC Lavalin Inc. to come up with a capital-cost estimate for a mining project, a number Mr. Boucher said could be about $1-billion.
“But in terms of the total value of the project — the capital going in and total potential value of the reserves at these kinds of oil prices today — I think we're looking at a project worth anywhere from $20-billion to $28-billion,” he said.
“It terms of a small community like Fort McKay, there's never been anything seen of this nature anywhere in Canada — in terms of ownership of the natural resource and the economic opportunities that will arise from developing this project.”
He said Fort McKay was able to move forward with its plan after royal assent was given late last November to Bill C-71, the First Nation Commercial and Industrial Development Act.
Mr. Boucher played a prominent role designing the legislation, which in part creates a regulatory framework for a large-scale First Nation-backed endeavour such as this to follow.
“Now we can attach an application for a project of this scale to a regulatory process, one that will utilize the system in place in Alberta today,” he said.
Fort McKay and Shell Canada, which is trying to grow its own oilsands production over the next 10 or so years to 500,000 barrels a day, have a “high-level” agreement in place that will give Shell some role in the Fort McKay project, said Rob Seeley, general manager of sustainable development for Calgary-based Shell Canada.
It could involve Shell becoming the primary developer and producer if Fort McKay relinquishes control and favours simply recouping a royalty from the bitumen produced on its land.
Mr. Boucher, who is also board chairman of the Fort McKay Group, suggested the community wants to be more involved than simply collecting a royalty.
“We're developing the capacity to do it and would obviously have to acquire the people, expertise and infrastructure to make it happen. We're quite confident of our ability to make it happen.”
Mr. Seeley said the possibility exists for Shell and Fort McKay to develop one of the two Fort McKay leases jointly.
Mr. Boucher played a prominent role designing the legislation, which in part creates a regulatory framework for a large-scale First Nation-backed endeavour such as this to follow. “Now we can attach an application for a project of this scale to a regulatory process, one that will utilize the system in place in Alberta today.”
Fort McKay and Shell Canada have a “high-level” agreement in place that will give Shell some role in the Fort McKay project, said Rob Seeley, Shell's general manager of sustainable development.
It could involve Shell becoming the primary developer and producer if Fort McKay relinquishes control and favours simply recouping a royalty from the bitumen produced on its land.
Mr. Boucher said the community wants to be more involved than just collecting a royalty.

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