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Bond issue led by Alberta First Nations raises $545-million for Suncor deal

Fort McKay and the Mikisew Cree First Nations will use funds to buy 49-per-cent stake in oil-storage facility owned by Suncor.

Jeff McIntosh/THE CANADIAN PRESS

A half-billion-dollar bond issue led by two Alberta-based First Nations is being touted as a model for greater Indigenous investment in the economy that could also help blunt opposition to major oil sands pipelines.

The $545-million issue led by the Fort McKay and the Mikisew Cree First Nations closed on Wednesday, with funds earmarked to buy a 49-per-cent stake in an oil-storage facility owned and operated by oil sands giant Suncor Energy Inc.

The offering, which was structured and marketed by Royal Bank of Canada, is the largest business investment by a First Nation entity in Canada, its backers said. A top executive with the bank said the issue was oversubscribed by three times, showing strong demand for the unique financing.

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The deal is a major step forward for Indigenous participation in the oil sands and could be emulated in infrastructure projects across Canada, including stalled pipelines, Fort McKay Chief Jim Boucher said in an interview.

It shows that opposition to multibillion-dollar energy projects is not intractable, he said.

"It's a new way of doing business," he said.

"I think it provides an opportunity for First Nations to enter the Canadian economy in a much more substantive way than what we're doing now."

Calgary-based Suncor announced the sale of a minority interest in its East Tank Farm last year in a bid to deepen ties with local communities.

Fort McKay paid $350-million for a 34.3-per-cent stake, with the Mikisew paying $147-million for a 15-per-cent interest.

But closing was contingent on the First Nations obtaining financing.

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The $1-billion storage facility will handle crude from Suncor's $17-billion Fort Hills bitumen mine, which is due to start up by the end of the year. A newly formed joint venture between the Fort McKay and Mikisew will collect fees for storing crude.

Discussions on how to finance such a deal go back more than two years.

Oil's collapse from more than $100 (U.S.) a barrel hit the Fort McKay First Nation hard. Revenues at its Fort McKay Group of Companies, which provide services to the oil industry, plunged 30 per cent to about $440-million (Canadian) overnight, Mr. Boucher said.

Layoffs mounted and capital projects were shelved, prompting a search for a more stable source of income. Mr. Boucher said the facility will generate about $14-million in revenue a year over 25 years.

The energy industry has said for a long time that equity agreements can be a key way to build support among First Nations for major oil sands pipelines. Enbridge Inc., for example, funded ownership stakes valued at $300-million for 26 Indigenous groups in its Northern Gateway project, covering a 10-per-cent slice of its equity.

Gateway was killed last year by Ottawa at the same time the Liberals approved rival Kinder Morgan Canada Ltd.'s $7.4-billion Trans Mountain expansion, designed to nearly triple the flow of crude along an existing right-of-way.

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Kinder Morgan has pointed to benefit agreements valued at more than $400-million with 51 First Nations along the route as evidence of strong support for the pipeline, but the project remains mired in opposition and legal challenges.

For the Fort Mckay and Mikisew, success from the deal hinges on steady cash flow generated by terminal fees, helping to support a triple-B (high) credit rating from DBRS Ltd. for the newly formed company.

Suncor chief operating officer Mark Little said similar deals could help mollify pipeline opponents, although he cautioned they take time. "There's been a lot of good talk. I think there's a lot of good intention. It's just getting across the goal line is difficult," he said in an interview.

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About the Author

Jeff Lewis is a reporter specializing in energy coverage for The Globe and Mail’s Report on Business, based in Calgary. Previously, he was a reporter with the Financial Post, writing news and features about Canada’s oil industry. His work has taken him to Norway and the Canadian Arctic. More

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