Oil sands aboriginal breakthrough with Shell Canada breaks down

What was hoped to be the first commercial role for an aboriginal community in development of the Alberta oil sands has been sidelined.

Shell Canada and the Fort McKay First Nation of northeastern Alberta have agreed to suspend their attempt to team up in the development of 500 million barrels of bitumen deposits, ending an effort that started a decade ago.

Unable to agree with Shell on a “feasible business case” for early development of the resource, the Fort McKay leaders have chosen to explore other unspecified development options.

“We’re open to talk to anyone,” said a spokesman for the first nation.

In breaking off talks that involved a possible land swap involving 8,200 acres and the delivery of bitumen production to Shell’s nearby Athabasca project by 2012, any deal on mining the Fort McKay deposits has been postponed indefinitely.

A mid-2005 preliminary agreement was designed to see Fort McKay participate in the next Athabasca mine expansion as Shell works on building output from 155,000 barrels per day to 500,000 bpd.

Clive Mather, Shell Canada’s chief executive officer at the time, said the pact had the potential to “return real value to both Shell and Fort McKay for many years to come.”

The land was Shell’s original Lease 90, which was transferred to the first nation as part of a comprehensive land claim settlement in 2003 with the Canadian government.

Fort McKay Chief Jim Boucher said an equity stake in Athabasca would give his community of about 500 residents a chance to control its economic density and rebound from the loss of its fur-trading business.

However, the community continues to benefit from a Native-owned group of companies that supplies services to the oil sands region, including Shell, valued at about C$100 million a year. Still very much alive is a second attempt to give aboriginals a direct role in oil sands development.

The Bigstone Cree Nation through its own oil and gas company is a partner in a joint-venture with Bronco Energy to drill test wells on a 16,000-acre lease by the end of 2011.

An independent evaluation estimates discovered resources on the lease range from 250 million to 303 million barrels, with the undiscovered resource estimated at more than 500 million barrels.

Bronco has regulatory approval to build a 6,000 bpd processing battery this quarter and is looking for equipment to boost that total to 10,000 bpd.

With Bigstone as a partner, the junior company also acquired 32,000 gross acres of oil sands leases last summer.

—Gary Park