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Native companies say 'fronts' are epidemic

Native companies say 'fronts' are epidemic

NEW TOWN, N.D. — Work and money are pouring into the Fort Berthold Indian Reservation like never before, reducing unemployment to new lows and creating business opportunities for tribal-owned businesses.

Because of the Bakken oil boom, hundreds of millions of dollars in contract work is done annually, with 23 rigs drilling on the reservation, 1,100 active oil wells and daily oil production of 295,000 barrels. Some 330 more wells are already permitted and waiting for a rig and state oil officials estimate that the reservation can expect another 2,200 wells drilled going forward.

Even in the vast pool of money and opportunity, some certified Native business owners say they’re on the verge of going under and laying off employees because they can’t compete with other Native businesses that are essentially a front for non-Indian companies to come on the reservation and do the work.

And there is plenty of work, in everything from roustabout services on rigs, to water hauling, to road building, to fencing, to getting easements and leases, and the list goes on.

“The work, it doesn’t get any better,” says Charles Foote, administrator of the Tribal Employment Rights Office, a busy, crowded agency with a warren of small offices on New Town’s Main Street.

That only adds to the rub, especially since under TERO rules, originally adopted in 1983, tribal-owned companies and members have preference for work on tribal lands and more to the point, wells drilled on trust lands.

There are some 140 Indian-owned companies registered with TERO, more than ever because the opportunities are greater than ever, says agency deputy director Dewey Hosie.

Before becoming a certified Indian company, owners have to provide a checklist of information, starting with a federal tax identification number, enrollment documentation, proof of liability insurance, equipment list, lease agreements, and more.

Seven badge-wearing TERO compliance officers make random spot checks to keep track of who’s working on the reservation and whether they’re properly licensed and have issued some serious fines that accrue for each day’s violation, one recently amounting to nearly $100,000, Hosie said.

Companies that are 100 percent Native-owned are in the first tier of work and hiring preference. Companies in which the tribe member owns 51 percent are second tier, though those are expected to “graduate” to 100 percent tribal ownership in a reasonable time, Hosie said. About a dozen of those are listed on the TERO website. Other tribes or non-Indian companies are third and fourth tier in preference.

From good to bad

Coby Little Soldier, who with DeAnna Little Soldier, owns RezCo LLC on Highway 23, built up their 100 percent tribal-owned, truck-based business after starting small with two trucks and trailers two years ago.

The Little Soldiers got off to a great start, adding a couple dozen more trucks and employees to go with their contracts, keeping everyone busy, but in the last six months they’ve seen millions of dollars worth of work shrink to the point where they’re now worried about even making payroll for half the employees they had at the peak.

Lately, instead of filling his own trucking contracts, he’s going out on sub jobs.

“I’ve got work with a non-tribal company that’s working on the reservation. We’re working for them. What’s wrong with this picture?” Coby Little Soldier said.

TERO ordinances go out of their way to promote and protect companies like RezCo. They say work on tribal land has to go to a qualified Indian company, if reasonably bid, and that half the work must be done with the company’s own employees.

The ordinance also says a company that relies “inordinately” on leased equipment and contract employees will not be certified.

Little Soldiers, Melaney Mann, owner of Mann Energy, Terry Fredericks, owner of Native Energy Construction, and Steve Kelly, owner of Trustland Oilfield Services, all own companies in the first tier, 100 percent Native owned.

They say those rules, the ones they used to become certified and get into business, no longer apply. Now, they say, work goes to front companies that don’t have assets or debt on the line, but essentially provide the umbrella of Native certification in lease deals with non-tribal companies.

‘Skin in the game’

Kelly, who was an attorney for the tribe during Chairman Tex Hall’s first term starting in 1998, got into the oil field service business four years ago with water hauling, roustabout, cranes and other equipment.

He said everyone in business, including himself, uses subcontractors to back up big or specialized jobs. He said fronting happens when a Native-owned company owns one truck and then leases a much larger number.

“I’m not against tribal members making some money and leasing comparable to what they own. But it can’t be own one truck and have 100 under them,” he said. “They should have skin in the game.”

At this point, Kelly estimates at least 80 percent of the trucks running on the reservation are non-Indian and that somewhere around 20 Native-owned companies are fronting for them.

“I have all kinds of trucks sitting because of this,” he said.

TERO, through the relatively new tribal Department of Transportation office, lists trucking companies that have registered in order to do business on the reservation. There are more than 600 of them with addresses from all over the country that have registered in excess of 24,000 trucks and work vehicles.

Hosie said his office wants to see lease agreements Native-owned companies have with other trucking companies.

“They’re all going by the rules,” he said. He said any 100 percent Native-owned trucking company has to own at least one truck, but after that any lease deals are up to them to make.

Kelly and others say that is the crux of the problem: TERO, under the Foote administration, doesn’t follow its own published rules and is making up new ones as it goes along.

Hosie said he’s heard the complaints, but says, “The ones that are complaining have been in the same shoes. They started with one truck and leased others until they had enough to buy their own equipment and now they don’t like it.”

TERO coordinating officer Frank delaPaz adds some historical perspective to the situation.

When oil work started booming on the reservation, he said it quickly became apparent that local Native companies couldn’t compete with the established companies that had decades of background in oil work, coming up from primarily southern oil-producing states.

“At TERO, we allowed these lease agreements so they could become competitive. They’re all there. What’s fair? What’s right? At what point do we stop doing this?” he says. “The reality is, we’re saturated.”

Foote says qualified Native companies can take on leases. “But we have to see a signed agreement,” he said.

“If our Indian companies are doing their jobs, they should have no problems. If they’re not busy, they’re probably not maintaining their business the way they should,” Foote said.

Melaney Mann, of Mann Energy, with construction, trucking and pumping services in New Town and Watford City, a family company dating back to 1978, said she’s working out of state instead of on the reservation, a ridiculous turnabout considering all the work there is out there, she said.

Mann said she went through the list of TERO-certified tribal companies and identified a few dozen that were legitimate, the rest as fronts.

By Little Soldier’s count, legitimate companies number something closer to half, but he said the most blatant fronting occurs in trucking.

Based on rigs and wells, Little Soldier said he conservatively estimates 1,500 to 2,000 semi trucks are moving around the reservation on any given day.

“We 100-percents only own about 200-300 trucks. We should all be working,” he said.

Terry Fredericks, owner of Native Energy Construction, said he got into business under the 51-49 percent program, where as a tribal member he joined with a non-tribal company, Northern Improvement, to get started under a program where he is purchasing equipment.

He said it’s a TERO mentor/protege type program to help tribal members who don’t qualify for conventional bank loans.

He said lately bids for work are far and few between and when he does have a chance, it’s against “seven to nine companies that only have an Indian name on it.”

Fredericks said he still owes money for equipment even as his work is disappearing.

“I’m scared as hell,” he said. “These companies should be coming to us and giving us an opportunity.”

Companies calling

DeAnna Little Soldier, owner of RezCo LLC, said she routinely gets called by out-of-state companies looking for a qualified Native company to partner with.

“I get these calls at least once a week, asking if they can meet with us. We get offered 10 percent of the gross for a partnership. We say ‘No,’ so they just go down the line until they find somebody,” she said.

Melaney Mann said she’s had the same experience. “I was approached by welders, who wanted me to start a welding company. I said ‘No,’ I didn’t want to front.”

Coby Little Soldier said, “If I put my name on something, I want to make sure it’s done right.”

ElMarie Conklin, a former tribal judge and attorney, said she was named to the TERO Commission two years ago, but because other commissioners felt she had a conflict of interest, she has not been included in meetings since.

She believes she’s been excluded because she’s been outspoken about the agency.

“I think they should suspend any further licensing and pull the records to see if these companies are Native American-owned, or just a front,” Conklin said.

While the Native company owners were willing to talk on the record, none, except Kelly, were willing to be photographed for this story.

They say they fear having their pictures in circulation because a dark side has emerged in contract work on the reservation. The fear is directly related to allegations that James Henrikson, owner of Bridgewater Energy and Blackstone Crude, is involved in a murder-for-hire and that he was closely linked with chairman Tex Hall’s company, Maheshu Energy.

Henrikson is being held on weapons charges and remains under investigation for suspected ties to gang activity, the murder-for-hire of former business associate Doug Carlile, his business dealings with Hall and Hall’s company, and the disappearance of one of his former employees.

Federal Bureau of Investigation agents are on the reservation, pulling business records related to Henrikson’s dealings there.

The tribal business council has launched its own investigation into the Hall-Henrikson connection and says former U.S. Attorney Stephen Hill will lead a team of Dentons US LLP employees to look into the business relationship between the two men. The tribal council has said it will not comment on the investigation until it’s complete.

Mann said Hall had called her and asked her to use Blackstone if she needed additional trucks for a job.

She did and says, “It was the worst experience I’ve ever had, all the way around, just everything about them.”

Kelly says that fronting took hold when Hall was elected chairman again in 2010.

“He started fronting himself and when he started, everybody started,” Kelly said. “It’s gotten really bad in the last year.”

Hall, who is seldom readily available, has distanced himself from the media in recent weeks, not responding to calls to his cellphone or to tribal headquarters. His spokeswoman Glenda Embry said she attributes the complaints to the upcoming tribal council elections. Hall’s term expires and he has not formally announced whether he’ll run again in September.

Embry said Hall owned Maheshu Energy before being elected in 2010, “So why not continue to do so?”

Kelly says fronting is epidemic on Fort Berthold.

“History repeats itself, whites are dividing the tribe against itself and our own leadership is encouraging that by participating in it,” he said. “I can’t compete against the chairman.”

At the TERO office, the phones ring constantly and the staff appears used to working in such close quarters in the old downtown building.

Hosie said his office does a lot of mediating.

“If they’re complaining because they got beat out on a bid or they’re not getting work, we call the company. There’s so much work out there and one of our jobs is to get them the work,” Hosie said.

Marcus Levings is a former tribal chairman and directed the TERO office two decades ago, a different era with little work, when the 4 Bears Casino was the only game in town and unemployment was at 70 percent, instead of the 5 percent TERO says it is now.

Levings, who is contemplating entering the election for the tribal council, said he hears complaints and says that with the abundance of work, “there should be an exhaustion of TERO-certified companies before they bring in these out-of-state companies.”

He said he believes there’s too much focus on an oil company’s master service agreement, a complicated in-house vetting process that determines which vendors the company will do business with, as opposed to compliance with TERO preference rules.

He said certification for 100 percent Native companies is rigorous and not easy and he understands the rumblings. “I think there is frustration and a need for review on individual complaints,” Levings said.

Kelly and others have tried several times to get the tribal council’s attention.

Several months ago, an association of Native contractors asked the council to pass a resolution underscoring the intent and purpose of TERO.

The resolution asked the council to recognize that the situation has resulted in non-Native companies getting work at the expense of qualified companies that “truly own their equipment and manage their own companies.”

Kelly said the tribal council didn’t take any action, though in recent weeks it did pass an emergency ethics amendment prohibiting the chairman and other tribal employees from owning or having financial interest in oil and gas companies.

Meantime, DeAnna Little Soldier said she is facing the layoff of 17 Indian employees and 15 non-Native employees.

“It is breaking my heart,” she said.

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Managing editor at The Billings Gazette.

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