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NANA subsidiaries struggle, leading to rare loss at Alaska Native corporation

Pat Forgey
Red Dog Mine has weathered some lean years lately, but 2005 was a boon. Zinc prices, which hovered around 35 cents a pound through much of 2002, closed at more than $1 a pound Tuesday. That's helped the mine's owner, NANA Regional Corp., bring the mine back to regular levels of staffing after years of layoffs and hiring freezes. Raises have been reinstated, and projects that had been put on hold are back on. The company that runs Red Dog for NANA, Teck Cominco, saw its best quarter ever in 2005.

JUNEAU -- NANA Regional Corp. has been growing for years, investing in the oil and gas industry to supplement profits from its cash cow, the massive Red Dog zinc mine near Kotzebue.

But now the company has seen profits plunge for two years in a row, including a $75 million loss last year. Company officials declined comment, but a review of publicly available financial documents indicate that one of the most recent of those oil and gas support-service businesses is a big part of the problem.

As recently as 2010, NANA booked a $41 million profit. The losses are the first in at least 10 years.

NANA is one of the 12 original regional Native corporations formed after passage of the Alaska Native Claims Settlement Act in 1971. It represents some 13,500 Inupiat shareholders with roots in Northwest Alaska, with headquarters in Kotzebue and Anchorage.

$1.7 billion in revenue

While the regional corporations have turned in mixed financial performance over the years, NANA has long been a standout.

But the regional corporations, along with the village and urban corporations, often fly below the radar. Because Native corporation stock is not publicly traded, Wall Street analysts generally don't follow them. However, the companies' annual reports offer some insights.

NANA's $1.7 billion in revenue last year was down $60 million from the previous year. The company has been a major beneficiary of the federal government's 8(a) program that makes Native corporation subsidiaries eligible for a small-business contracting preference. And while the corporation expects that business to remain profitable, growth prospects may be limited.

NANA declined to respond to Alaska Dispatch questions about the company's annual report and details about its businesses. It also declined to provide a copy of its annual report, though individual shareholders offered theirs. A copy was obtained from state securities regulators.

NANA's annual reports indicate that an expansion effort that began with high hopes encountered a series of problems.

In 2011, NANA liquidated its investment portfolio and borrowed hundreds of millions of dollars to refinance debt and purchase Grand Isle Shipyard, a privately held company that, despite its name, is an established oil field services company.

GIS, with headquarters in Louisiana, cost about $300 million. It operates in the Gulf of Mexico, Texas, Alabama and Ohio.

Hurricane Isaac troubles

NANA doesn't break out profit-and-loss specifics for GIS, but the company appears to have performed poorly since the purchase. In 2012 NANA reported it was trying to change what caused GIS to "perform at substantially lower levels than had been expected," and was revamping the company's core business systems to boost profits.

Then Hurricane Isaac hit in August 2012, forcing workers to be pulled from offshore platforms in the Gulf of Mexico, where GIS gets much of its business from contract construction and maintenance work. Revenues declined, but NANA hoped they'd be recouped later with work repairing hurricane damage.

Instead, things got worse for NANA's new subsidiary. Contract crews that GIS provided were working on the Black Elk Platform in the Gulf in late November 2012, when an explosion and fire on the platform killed three company workers and embroiled GIS in a dispute with the platform owner.

Further, the hoped-for boost in hurricane repair work never materialized. NANA called the Black Elk explosion "a very unfortunate incident for GIS."

Federal regulators with the Bureau of Safety and Environmental Enforcement said GIS employees were partially to blame for failing to follow safety rules, and various lawsuits have resulted. That includes GIS suing some of the other parties involved in the rig incident.

And a federal investigation appears to be going on as well. In October, a federal prosecutor in New Orleans subpoenaed Black Elk documents from GIS. The company said in its most recent annual report that it cannot determine the eventual financial impact of the various cases, but some may be covered by existing insurance policies.

While NANA did not break out GIS in its financial reports and would not take questions, the 2013 annual report did say NANA was writing down $33 million of the company's value because it is not likely to produce the kind of revenues in the future that were expected when it was purchased.

Several NANA companies are working on Alaska's North Slope, including at Exxon Mobil's Point Thomson field. GIS is expanding in Alaska, hoping to "take advantage of synergies with its existing business platforms."

Hotel division: $29 million loss

Other NANA businesses have encountered difficulties, too.

A NANA subsidiary that owns or manages several hotel properties built the Nullagvik Hotel in Kotzebue in 2011, but the business with 71 rooms and seven suites is not performing as well as expected. Consequently, NANA's six-hotel hospitality division reported a $29 million loss in 2013, following a $1.6 million profit the previous year, largely due to another write-down.

But NANA says the new Kotzebue hotel was needed to provide critical infrastructure for the regional hub. "Financial return was not the company's primary driver in building the new Nullagvik hotel," it said.

Those factors and others combined for the $75 million operating loss, but the effective loss may be larger. The company reported that its shareholders' equity, essentially what the company is worth, declined from $370 million in 2012 to $240 million in 2013, or 35 percent.

Earlier this year, the ratings agency Standard & Poor's lowered NANA's rating from B+ to B. NANA has substantial debt, and the downgrade could raise the company's borrowing costs. Recent financial filings show NANA is already paying relatively high rates of up to 9.5 percent to borrow.

Reach Pat Forgey at pat@alaskadispatch.com.

 


By PAT FORGEY
pat@alaskadispatch.com