NANA looks ahead after oil prices drove 2016 losses

  • NANA Regional Corp. President and CEO Wayne Westlake is optimistic about the company’s future despite losing more than $60 million from its oil and gas businesses in 2016. (Photo/Courtesy/NANA Regional Corp.)

NANA Regional Corp. has always one of the high-fliers among Alaska’s Native-owned companies as an early and aggressive investor in oil and gas services beginning in the 1970s, and in recent years in a variety of diversified companies intended to provide shelter from an oil shock.

Diversification was a good strategy but it wasn’t enough to offset the staggering impacts of the plunge in crude oil prices and the effects those had on NANA’s customers. Oil prices have somewhat recovered and the hard-hit oil services industry is showing signs of life, but NANA’s 2016 operating losses in oil services still totaled $61.5 million, not including a writedown on subsidiary Grand Idle Shipyard Inc., according to the corporation’s 2016 annual report.

Even in tough times NANA is one of the state’s major employers, with about 5,000 Alaskans working in its companies, and 14,000 employees worldwide.

Leveling out

It has been a tough year for Alaska, and for NANA’s business holding company, NANA Development. NANA recorded a $109 million loss in net income for 2016, although much of that, $83.5 million, was a write-down of the value of an oil and gas subsidiary, Grand Isle Shipyard Inc., or GIS.

The good news is that things appear to be leveling out for NANA overall. Services to federal customers brought $39.5 million in operating income, and an additional $9.6 million in operating income from institutional commercial clients.

NANA’s share of profits from the Red Dog mine brought $60.8 million in operating income, after the required 70 percent distribution of resource revenues to other Native regional corporations.

The natural resources part of NANA’s business is poised for growth in 2017, particularly the Red Dog mine thanks to higher zinc prices.

NANA’s share of the mine’s profits is now 30 percent and will eventually reach 50 percent. Things seem to be stabilizing in the oil sector, too.

“Overall, we’re off to a good start for 2017,” said NANA President and CEO Wayne Westlake.

“The Red Dog Mine is producing well and zinc prices are up — they’ve been as high as $1.31 per pound — and our federal contracting is doing well,” Westlake said.

Oil and gas still presents challenges, Westlake said, particularly for GIS, its Gulf of Mexico-based petroleum support company, originally a shipyard and now a major maintenance provider for offshore platforms.

“They (GIS) have diversified into fields like engineering in the Gulf of Mexico but the diversification has not yet produced profits yet,” Westlake said. “GIS is still budgeting a loss for the first quarter but the trend is positive. The company is on target for performance and is actually a little ahead of budget.”

On the Gulf Coast, GIS has been able to expand its maintenance support to new customers in plastics and polymers and onshore refineries and chemical plants. A new line of business is the design of coastal remediation projects along the Gulf Coast.

‘Holding our own’ in the commercial sector

As for NANA’s commercial sector, which includes mostly Alaska-based companies, “we’re holding our own,” Westlake said.

NANA Management Services, which provides a variety of institutional services like camp management, food service and security, has had to squeeze margins on its oil and gas contracts.

However, the company has diversified in recent years with institutional services to other customers like school districts and large health care providers, and demand for these services has been steady.

NANA’s hotels, which carry the Marriott name in Anchorage, are doing well, Westlake said. The three Marriott hotels are jointly owned with Sodexo, a major international institution management firm, but NANA’s Nullagvik Hotel in Kotzebue and University Lake Hotel in Anchorage are 100 percent owned by the corporation.

However, even the diversified Alaska commercial sector is feeling the effects of oil price declines as those ripple through the state’s economy. Commercial work revenues in 2016 were down 8 percent from 2015, but profits in 2016 were up, although marginally, according to the annual report.

As for Alaska petroleum services, NANA has had to make sharp adjustments to help its customers, the oil producing companies, deal with low prices, and sold one of its subsidiaries, NANA Oilfield Services, at an opportune time.

“With continued low oil prices, more competition on Alaska’s North Slope and the need for more investment in trucks and tanks, it was a good time to sell the company and NANA receive a fair price,” according to the 2016 annual report.

Oil work picks up, a bit

Work seems to be picking up, however. A module fabrication plant operated by the Alaska division of GIS that is near Big Lake, in the Matanuska-Susitna Borough, is now attracting new work, enough to keep 35 people employed.

“In general, work across Alaska has slowed but we are looking at an uptick in projects coming out,” NANA spokeswoman Amy Hastings said. “There are several projects coming up and our fab shop is excited to be able to bid on them,” she said. Projects now in the shop involve gas-processing and piping upgrades for BP’s gas cycling processing plant in the Prudhoe Bay field.

GIS is also doing maintenance and project work at the Red Dog mine, and that has been steady.

NANA overall expects a flat year for Alaska oil and gas services in 2017, Westlake said. The corporation has a long history in providing support to the petroleum industry, with its first contracts in the mid-1980s.

“We know our customers’ needs, and they know us,” he said. “The relationships will survive the current industry downswing.”

Meanwhile, the drop in oil prices and the needs of its customers have forced NANA to make changes in how it does business, including several rounds of staff cuts at NANA and it’s subsidiary NANA Development.

“This hasn’t been easy. We’ve had to make a lot of adjustments,” Westlake said.

Consolidations, merged operations

Among these is a rethinking how NANA is aligned from the parent corporation down through its business sectors, for maximum efficiency and mission clarity.

For example consolidating service functions like human resources, IT support and purchasing and certain accounting services among the different subsidiaries has allowed resources to stretch further. To facilitate this, NANA’s board has made Westlake CEO of both NANA Regional and NANA Development. Previously, Helvi Sandvik was CEO of NANA Development.

The overall goal is to improve internal communication and alignment of the operating businesses with the strategic goals of the parent corporation. In 2016 NANA managed more than 60 subsidiaries in its four divisions: federal, oil and gas, mining and commercial services.

One result of the consolidations might be a greater focus on NANA’s investments in its own region of Northwest Alaska, particularly in development of mineral resources and even potential oil and gas in the region.

NANA is already in a long-established venture with Teck, a major mining company, at the Red Dog mine, and has an exploration agreement with Trilogy Metals in exploration of large copper and zinc deposits in the Ambler Mining District east of Kotzebue.

On its own, the corporation has also been exploring gold mineralization on state lands on the northern Seward Peninsula as well as working to attract and oil and gas company partner in exploring prospective areas in the Kotzebue Basin.

“Within NANA we have all felt the benefits of the Red Dog mine, and we understand the importance of resource development within our region,” Westlake said.

The social compact

An important aspect of NANA and other Alaska Native corporations is the social compact, the obligation to improve the lives of shareholders in ways not typical for businesses, such as a focus on shareholder-hire.

In 2016 there were 1,517 shareholders employed in NANA operations, with $64 million in wages earned.

This includes 533 shareholders at the Red Dog mine, or 58 percent of the total workforce.

NANA also contributed $2.88 million in 2016 to social and cultural projects in its Northwest Alaska region and elsewhere in the state, and paid out $752,483 in scholarships to 326 NANA shareholders.

Financial pressures on NANA have caused the donation budget to be trimmed ­– $2.88 million in 2016 is down from $3.24 million in 2015 and $3.3 million in 2014 – but certain contributions, such as for shareholders’ medical, disaster and burial assistance, village economic development, which includes assistance in job-training, and educational assistance have been held steady.

Gearing for the future

NANA is now geared for the upswing, Westlake said.

“We expect the federal and mining sectors to continue to provide a stable base of revenue and income and for the commercial sector to remain stable. In the oil and gas sector, we have put measures into place to improve efficiency, reduce costs and diversify business offerings,” he said.

“The focus will be on operating efficiency, aggressively paying debt, and making changes in our business portfolio to position NANA for financial security and future success.”

Tim Bradner is co-publisher of Alaska Legislative Digest and a contributor to the Journal of Commerce. He can be reached at [email protected].

Editor's note: A few edits to this story have been made since publication. The Marriott hotels in Anchorage are jointly owned with Sodexho while NANA fully owns the hotels in Kotzebue and University Lake in Anchorage. The basin the company is seeking to explore is the Kotzebue Basin rather than the Selawik Basin.

03/03/2017 - 8:57am