NANA
2016 NDC business outlook
is about 17% lower. Most of the drop-off
in revenue is tied to the decline in the
price of oil—nearly 40% of our business
revenue depends on the oil industry, from
offshore rig work at GIS in the Gulf of
Mexico, to module construction at GIS
Alaska, to the camp and security services
NMS provides on Alaska’s North Slope.
We thought it would be helpful to share
some insights with you into what’s
happening in the oil industry in Alaska.
We contracted with Tim Bradner, a
well-respected journalist, to provide
a snapshot of Alaska’s history with
oil, and what is happening today. Tim
has been writing about the resource
industry in Alaska since 1966.
Helvi K. Sandvik
NANA Development Corporation President
W
e are halfway through our
2016 fiscal year, and the year
is proving to be a difficult
one for NANA’s businesses. So far, our
revenues are about 12% lower than at this
same time last year. In our three business
sectors, Federal Sector revenue is the
same as last year, the Oil & Gas sector is
29% lower and the Commercial Sector
What does this mean for NDC? Business
is much slower for us in Alaska, and all
across the country, as our customers cancel
projects and ask for lower prices for the
work we do. We are not alone—many
companies are struggling with these low
oil prices. We are doing what many other
companies have done —cut our prices,
cut our costs, and cut positions. GIS is
now going through its fourth round of
layoffs. They are also working hard to
look for ways to deliver services to other
industries, and have made some progress.
When work slows down, not only do we
see revenues falling, but we also see a
lower number of jobs across the company,
which impacts job opportunities for
shareholders, especially in Alaska.
We are blessed that the Federal Sector that
we have been building for the past 20 years
is now very strong. Our companies in this
group are delivering about half of NDC’s
revenues. This year, we are fortunate that
we have not had the federal budget issues of
the past, and although growth has slowed in
the Federal Sector, the steady revenues and
earnings from that Sector are important,
in a year when our other sectors are
challenged. This is a great example of why it
has been so important for NANA to develop
businesses that are not all dependent
on one customer and one geography.
Despite our challenges, we know it is
important to continue to pay down
our debt. We have reduced our debt
by $175 million since 2013. This year,
we are carefully managing our cash
and looking at other ways to reduce
our interest expense over time.
believe we need a healthy oil industry, but
we also know that the Permanent Fund
Dividend is important, now and in the
future. Our legislators will have to work
hard to balance all of the state’s needs with
much lower revenues. We recognize that
the legislature will most likely need to
turn to some of the earnings of the State’s
Permanent Fund investments. We have
been communicating that, while they work
to reduce the cost of government and look
for new sources of revenues, it is important
that they also preserve a meaningful
Permanent Fund Dividend program.
As we move forward in 2016, we are
working to weather the downturn in oil
prices and the economy. At this point, we
are expecting revenues in our businesses
to be much lower and, despite our cost
cutting, we may see a loss in income again
this year. But in these times of stress, our
businesses are working hard to operate
more efficiently. We know we will be
ready to take advantage of the upswing in
oil prices, which Tim Bradner and others
believe will come in the next year or two.
Alaska’s state and local governments
are also feeling the squeeze from low oil
prices. We have been an active part of the
discussion in Juneau, where legislators are
working to balance the state budget. We If you want to learn more about NDC’s
businesses, we post business news almost
every day on LinkedIn (www.linkedin.com/
company/nana-development-corporation). ■
All Alaskans are having to tighten their
belts. Revenues from oil will improve at
some point, but no one knows when. revenues that the ups and downs of state
oil revenues were mostly cushioned by
the state’s other savings accounts. In the meantime, the North Slope oil
companies are delaying drilling and
development of new projects and asking
contractors, including NANA’s companies,
to reduce expenses. One company, Caelus
Energy, has delayed development of a small
new oilfield, Nuna. Another company,
Brooks Range Petroleum, is also delayed
in completing work on one other field. BP,
a major North Slope field operator, has
cut its drill rigs from five to two this year.
Most important, the large Alaska LNG
Project, which would take North Slope
gas to market, may be delayed because of
the effects of low oil prices on its sponsor
companies, the North Slope producers. WHY DID OIL PRICES
DROP SO QUICKLY? If economic activity picks up in the
major oil-consuming nations, like China,
the oil market will regain stability and
prices will begin to increase. There are
signs that this is happening, but it is too
early to know for sure. The economic
recovery is weak in many places.
Oil and Alaska’s economy
By Tim Bradner
Oil fields on the North Slope have
provided huge benefits to Alaska over
many years. The oil companies pay
taxes and royalties to the state, which
allowed the state to pay for community
buildings and schools across the state,
and services like Power Cost Equalization
and community revenue-sharing.
Since oil was discovered in Alaska, the
state’s economy has grown steadily. Directly
or indirectly, oil fueled much of this growth.
Professor Scott Goldsmith, a University of
Alaska economist, says oil pays for about
a third of Alaska’s economy either directly
through oil field jobs or contracting with
service companies, or indirectly