When the First Nations Group Limited Partnership (FNLP) signed its benefits agreement with the B.C. government and backers of the Kitimat LNG project for a proposed 463-kilometre pipeline earlier this year, Robert Metcs was in the background, smiling.
Metcs, the President of Havlik Metcs Limited, which represented the 15 First Nations in the FNLP, says the $200 million agreement is a new benchmark for how business can be done between government, industry and aboriginal peoples in Canada.
The proposed pipeline will carry liquefied natural gas (LNG) from Summit Lake north of Prince George to the proposed Kitimat LNG facility, as well as provide a number of economic opportunities for First Nation communities along the route.
Metcs said his job was to “go out and get the best deal we could,” for the First Nations with Kitimat LNG project backers Apache Canada and Chevron Canada.
The Oil & Gas Investments Bulletin (OGIB) spoke with Metcs recently about negotiating with First Nations communities, and what investors should know about why some deals work out, while others don’t.
OGIB: How does the process start when a company comes to a First Nation community? What’s the right and wrong way to start a negotiation?
Robert Metcs: Traditionally, proponents would develop a project to a certain point and their lawyers would advise that there is a duty to consult with First Nations. That can work two ways. Most of the time what you are going to get on the other side of the table is a process that might lead to an impact benefit agreement, where there are some benefits through contracting opportunities, jobs and/or some form of payment over time. There is no real partnership. Or, you could have outright opposition and a pathway to litigation. That is where Northern Gateway looks to be now. It has become a symbol of how not to do consultation. I think that there is a widespread view out there that the traditional way of doing things is not serving anybody’s interests.
OGIB: What are some good examples of negotiations with First Nations?
Metcs: A good example is the Haisla First Nation with their BC LNG project with Houston-based LNG Partners LLC. That company went to talk to the Haisla before they even started planning the project for a floating LNG facility, asking if they wanted to be partners. We are trying to do something similar with the LNG-related pipeline proposals, which is to go to the proponents and say that there is the opportunity for first Nations to be partners, that there is value to be created and that this is economically advantageous to you as a proponent and as a business person to have the First Nation on board. Let’s sit down and figure out what this value is and how to make this work. There is a commercial benefit to getting First Nations on board as partners, and we are going to continue to try to explore that angle. What we have seen with LNG and natural gas is that many First Nations are willing to sit down and have this discussion within the context of a cost-benefit analysis. That does not appear to be the case with any of the oil pipelines.
OGIB: Why are the First Nations in your group in favour of natural gas pipelines, but not oil?
Metcs: I don’t think that’s an irrational position. One of the reasons we could do this deal was because the FNLP First Nations came to view natural gas as different from oil. The fear at first was that if they said yes to natural gas pipelines, they would have to say yes to oil pipelines. There was a diametrically opposed view with respect to natural gas and oil within FNLP. There are differences in terms of what happens if a pipeline leaks or bursts. Oil is a different animal, particularly along the BC coast and in the Interior. The cost benefit analysis appears to be in favour of natural gas and goes the other way in terms of oil. It’s not the pipeline; it’s what’s in the pipe. What goes in them is a consideration.
OGIB: What are some of the misconceptions you think investors have about companies working with First Nations?
Metcs: That they are always opposed to everything. That you can’t do business with them. That they don’t live up to agreements. This is partly the media’s fault. FNLP was a pretty unique deal. 15 First Nations said yes to a massive pipeline project, but the only question I seem to get is “What about oil?” You can talk about oil, but FNLP is an example of something that most people thought was impossible. Why it happened and whether it can be replicated are legitimate questions that should be asked.
OGIB: Help investors understand the cost-benefit analysis and why it worked out for the FNLP?
Metcs: The potential impacts of a project on rights and title and the environment are always going to be front and centre. You should be minimizing the impacts, which means doing things like rerouting from areas that are sensitive and respecting the legitimate concerns that First Nations will have. At the same time you should be trying to maximize things on a commercial basis. It’s not about proponents taking money out of their pockets and saying ‘How much of the pie are we going to give you?’ One thing we learned from the FNLP deal was that you can create value by having First Nations as partners as this can reduce project risk, accelerate timelines, all of the things you can put a number on. That’s real economic value that can be shared, so there’s an upside for everybody to do this. You also have to remember that each First Nation is its own government with its own constituents. There’s politics involved. The communities eventually need to make a decision, weigh the potential benefits against the potential impacts. The more attractive you can make that decision, the better. With FNLP, we got 15 Nations across the finish line. You aren’t going to get a positive decision every time, but that’s not irrational either.
OGIB: Is the FNLP agreement solid? Do investors have anything to worry about in terms of it falling apart down the road given this is all still a proposal?
Metcs: The only thing I can say is that, as in any agreement, we tried to align the interests of the parties going forward. With any agreement you can have circumstances change. There may be issues going forward, but I don’t think there is any more danger of this agreement falling apart than there would be with any other agreement.
OGIB: What’s next in terms of negotiations with First Nations and companies looking at natural gas and LNG projects in BC?
Metcs: We are involved in the other LNG pipeline proposals on behalf of a number of First Nations. The idea is to try to make it as broad as possible, but obviously other people are looking to do other things. I think we have a pretty good model and a pretty good group.
OGIB: What advice do you have for companies negotiating with First Nations?
Metcs: Get rid of the lawyers – the people advising them from a legal perspective – and look at it from a business perspective first. Look at it as a potential value creation proposition. And do it as early as you can. The most you have to lose is the First Nations say they’re not interested and you go back to the standard way of doing it. Look at the LNG project the Haisla are doing. It’s a small project, but they are going to be the first to export LNG from Canada and there’s a reason. It may not work in every situation. Some Nations aren’t as business-oriented as others. There is not a lot to lose. If you win, you win big and if you lose you go back to what you were going to do anyway.
OGIB: What are next steps in LNG for FNLP?
Metcs: The first step will be whether Chevron and Apache make a final investment decision to move forward with Kitimat LNG and PTP. FNLP has been restructured to implement the deal that was reached, so it is ready. As was announced recently, the Hon. Bob Rae has agreed to serve as Chairman on the Board of the general partner to ensure that all parties understand the importance of successfully implementing this deal. Many deals with First Nations have floundered because industry and governments have forgotten that signing an agreement is just the beginning. A long-term relationship has been established. As with any such relationship, it needs to be maintained.
OGIB: There are lots of proposals for LNG now in BC. Is your deal now the template or do you see different types of agreements with different First Nations?
Metcs: Every deal is different, but there are many aspects of the FNLP deal that could be adopted to other deals involving First Nations. It has certainly raised the bar in terms of what is possible for First Nations with respect to agreements with industry. It has also shown that First Nations and industry can deal directly with each other in trying to come to a fair trade, without having their interaction take place within a government-mandated consultation process.
OGIB: From a First Nation perspective, what does the LNG industry look like ten years from now in BC?
Metcs: I’m not sure that there can be any useful answer to that. Less than a decade ago, the idea that Canada would be looking to export, rather than import, LNG would have been dismissed out of hand by many of the same industry experts who are now making statements about future developments. “I don’t know” is the most honest answer that comes to mind.