Considering how much effort the Frog Lake First Nation has spent developing its oil business over the decades, the decision to turn off the taps was especially difficult for the community to make. Still, based on dollars and cents, it was a no-brainer.
Since drilling for oil and natural gas began in the 1970s, the community has been able to use resource revenues to build more than 200 homes on the reserve and offset tuition for hundreds of students who attend college and university.
During good times, the money has also helped build facilities like an arena, fieldhouse and chuckwagon race track, while also offsetting the cost of several community programs.
For the last 15 years, the First Nation, located near Lloydminster in northeast Alberta, was one of the largest oil-producing reserves in the country. But the business took a severe financial hit after the oil price crash in 2014 and now production is shutdown amid painfully low prices over the last two months.
“We’re just a small player in a big market,” said Chief Greg Desjarlais, about the decision to turn off oil production.
“We would probably get an invoice instead of a revenue cheque. We had no choice but to shut-in our wells.”
In recent weeks, focus has been paid to the plight of corporate Calgary as large oilpatch companies reported billions of dollars in financial losses. But far away from those downtown towers, many First Nations are dealing with the repercussions of the current crisis in the energy sector.
More than 100 Indigenous communities across Western Canada are experiencing a steep drop in revenue from oil and gas production at a time when expenses are adding up to protect against COVID-19.
“It’s a pretty huge blow for the First Nation. We’re trying our best to adjust and keep our head above water,” said Desjarlais. “We’re trying different ways to be creative and trying to look at ways to sustain our people, our programming and even our food bank.”
First Nations received about $55 million in energy royalties and other compensation in 2018-19, compared to more than $250 million in 2011-12, according to Indian Oil and Gas Canada — the federal agency responsible for managing and regulating oil and gas resources on First Nation reserve lands.
Oil prices tumbled this spring after Saudi Arabia and Russia decided to flood the global market with oil, while fuel demand plummeted as governments introduced lockdown measures to slow the spread of COVID-19.
North American oil began the year worth about $60 US per barrel, but fell so far in April that prices even turned negative. A barrel of West Texas Intermediate was trading at around $27 US this week. So far, natural gas prices have remained stable during the pandemic.
Oil production peaked in 2012 on the Frog Lake First Nation at 9,000 barrels per day, but fell to about 800 barrels per day at the beginning of this year.
Since the crisis began in the oilpatch in March, the Frog Lake First Nation has not only received less royalty revenue from production on its reserve, but has also been impacted from its ownership of oil production firm, Frog Lake Energy Resource Corporation, and its joint-ownership with five other First Nations of oilfield service company, Pimee Well Servicing.
Pimee has 109 employees, after recently cutting 20 per cent of its workforce. Its staff is 97 per cent Indigenous.
The oilfield service sector is suffering across Western Canada as companies scale back their spending, including on how many new oil wells they want to drill.
“We’ve had some reduction in rig utilization and of course when there are rigs that are being released, we’re looking at six employees with each rig that will be laid off,” said Sandy Jackson, Pimee’s business development officer, who is from the Whitefish Lake First Nation in northeast Alberta.
“Anytime you lose employees like that it’s hard because our employees are very proud of what they do and who they represent.”
Watch | Sandy Jackson from Pimee Well Servicing reflects on recent job cuts:
Oil prices are expected to remain relatively low for the next couple of years, but gradually increase over that time. On Friday, credit ratings agency DBRS Morningstar updated its forecasts with the expectation that North American oil prices will average $32 US for 2020 and $40 in 2021.
Jackson hopes the industry can get back on its feet soon, so employment can pickup again.
“There are a lot of companies that have arrangements with First Nation communities and I think there are a lot of benefits to the jobs that are created. That’s the biggest impact we are experiencing right now,” said Jackson. “It’s a paycheque to support themselves either individually or the families they have in the communities.”
The Indian Resource Council (IRC), which represents about 130 Indigenous communities in Western Canada with oil and gas production on their land, wrote a letter to the prime minister last month asking for assistance.
“It is critical that the federal government support First Nations communities and businesses who are seeing dramatic losses of revenues and business from this year’s cutbacks to oil and gas production,” wrote Chief Roy Fox, the chair of the IRC. Fox is part of the Blood Tribe in southwestern Alberta, which has had oil production on its land for about seven decades.
Since then, the federal government has announced several programs to aid the oil and gas industry and to support Indigenous businesses.