Too quick to PIK?

Too quick to PIK?

The deals set to haunt European high yield

Latin America

Latin America

Sovereigns shape up for differentiation

October 2011

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Oil boom brightens Native Americans’ prospects

The Native American reservations of three northern US states are on the brink of an oil boom that could reduce global concerns about the future supply of oil. Helen Avery talks to a private equity venture that hopes to produce triple-digit returns for investors while ensuring the Tribal Nations are not swept aside in the rush for oil.


IT IS HARD to find a beacon of light in the US economy. However, something unusual is happening in the most underpopulated and barren lands of the country – an oil boom is welling up.

In Williston, North Dakota, hotels and motels are fully occupied, the shelves of Walmart are empty and the roads are lined with trailers and tents. These so-called man-camps are temporary accommodation for hundreds of oil-crew workers who have been transferred up to the rocky plains to drill for wells that, by some estimates, might produce as much as 24 billion barrels of oil.

The oil lies in the Bakken Formation, which spans North and South Dakota, eastern Montana, and south Saskatchewan in Canada. Technological advances in oil drilling have made this land a focus for oil producers. With deeper and horizontal drilling, companies such as Continental Resources, EOG Resources, Hess Corporation and Brigham Exploration are hoping to make serious money once the oil starts to flow. Investment opportunities are few and far between however. For one, while analysis looks promising, little oil is moving as yet. The second deterrent to investors is political risk and a question of ethics, for most of the land belongs to the Tribal Nations of the US.

Sharing the land

Tribal Nations in the US, with a population of just 2 million, control about 55 million acres. The reservations allotted to them were chosen because the land was rocky and considered to be unsuitable for farming and therefore of little value. With little help from the US government, unworkable land, no tax base and little integration with modern society, many of the Native Americans have the worst standard of living in the US. "People think they are making money from casinos, but that is rarely the case," says an oil investor. One in four Native Americans is in poverty. Unemployment rates on reservations can be as high as 75%. Substance abuse and suicide rates are much higher than the national average.

Unbeknown to the decision-makers, however, the rocky lands Native Americas were allocated have proved rich in oil and gas. In some ways, says John Jurrius, chief executive and founder of Native American Resource Partners (Narp), the Tribal Nations are having the last laugh. Jurrius’s firm is funded by a $5 billion private equity firm, Quantum Energy Partners. With the capital injection, Narp works with Tribal Nations to establish a joint energy company that can give a return of as much as 500% to Quantum Energy and its institutional end-investors, while ensuring the Tribal Nations are fully compensated for their resources. Jurrius and the other senior members of Narp all formerly worked in the oil and gas industry. In the 1980s Jurrius began partnering with the Southern Ute Tribe in Utah, working on the tribal council and with financial investors to develop natural gas resources, and create a financial plan and growth fund for the tribe, generating hundreds of millions of dollars in long-term commercial revenue.

It’s a new direction for investing in oil and gas production – a sector not renowned for marrying profits with ethics. "By having a joint company it means the tribes are proactively developing their resources, rather than being limited to their historically passive role of receiving lease income while industry takes most of the income streams from resource developments on reservations," says Jurrius.

Tribal Nations are not unfamiliar with oil production companies. In the past, and indeed in parts of the Williston Basin, tribal members have leased land to oil producers. The deals have not worked in their favour. Forrest Smith is a member of the Fort Peck Tribes, which have around 12,900 Assiniboine and Sioux members and sit across 2 million acres in northeastern Montana on the edge of the Williston Basin. Some of Smith’s tribe’s members leased land to oil producers in the 1980s for a 12.5% royalty fee. When the oil price dropped to $30 a barrel, the producers sold the land and left, leaving just 900,000 acres of land to the Tribes, and no more royalty fee. "In some ways we have been our own worst enemy," says Smith. "We have not always fostered a relationship with the outside oil companies, and certainly have not managed business agreements in a way that would provide us with long-term capital." Smith is the director of the Fort Peck Tribes’ Minerals Resource Office. "It’s a huge opportunity for us working with Narp," he says. "Now instead of having just a passive royalty position with the 16.67%, we use the $100 million of capital from Quantum Energy to lease to our own energy company and therefore, as co-owners of the company, we can retain a larger piece of the revenues." Fort Peck Energy has already partnered with Samson Oil and Gas Limited and will receive a third of the working interest revenues from the oil on the reservation.

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