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ANC Outside Interests

Bringing money back to Alaska

For the past two hundred years, the standard business model in Alaska has been focused on exports: fur, fish, timber, gold, and petroleum. Wealth in Alaska has generally moved outward, but in the past twenty years, one group of companies has successfully turned that business model around and brought the money back to the state: Alaska Native Corporations.

The corporations were formed under the 1971 Alaska Native Claims Settlement Act, which divided 44 million acres of land and $963 million among Alaska’s Native peoples. It set up twelve regional corporations and more than two hundred village corporations to manage the lands and money. A thirteenth regional corporation was later established for Alaska Natives living outside the state. These corporations were given a dual mandate—to use the money and land to create economic opportunities for shareholders and to provide for their cultural and social well-being.

In fiscal year 2012, the twelve Alaska-based regional corporations alone pulled in more than $9 billion in revenue; village corporations accounted for millions more. In 2012, they comprised twenty of the top 49 Alaskan-owned businesses ranked by gross revenue in the state. And while the corporations focus on providing jobs and opportunities for shareholders inside Alaska, much of their business takes place out of state, which means those Outside interests are generating revenue that’s coming in to Alaska.

Alaska businesses have operations outside the state for two major reasons: one is the need for a large corporation to have geographic diversity in its holdings; the second is that, for all its great size, economic opportunities in Alaska are limited.

 

Energy and Real Estate

Anchorage-based Cook Inlet Region Inc. (CIRI) makes its investments Outside with an eye toward the business sectors it knows well and the ability to partner with businesses that are also successful in their fields. In the past several years, CIRI has focused on specific sectors such as the oil and gas industry, energy, and real estate, says Jason Moore, corporate communications director.

“First of all, the reason we focus on certain sectors is because they’re sectors we know well,” he says. “The oil and gas sector, we’ve been involved with that for a long time.” In 2011, CIRI sold its interest in Peak Oilfield Services to its longtime partner, Nabors Industries. A year later, CIRI had the opportunity acquire a majority equity stake in Cruz Energy Services, which has its roots in Alaska’s North Slope.

Cruz Energy specializes in moving rigs, crane work, and energy project logistics, all skills honed in Alaska’s unforgiving arctic conditions. This make it ideally suited to work in the harsh conditions found in the Bakken formation in the Dakotas, Montana, Colorado, and Wyoming.

“It’s an example of knowing about the sector,” Moore says. “Our board is familiar with it, our management is familiar with it. We’re pretty confident with knowing how the sector operates.”

The same goes for wind-generated energy. CIRI constructed a commercial-scale wind farm on Fire Island, three miles from Anchorage. The success of the sixteen-megawatt project encouraged the company to invest in wind technology outside the state. In 2012, CIRI partnered with Edison Mission Energy and Teachers Insurance and Annuity Association and College Retirement Equities Fund to form Capistrano Wind Partners to operate large-scale wind energy projects across the nation. Capistrano oversees five wind farms in Texas, Wyoming, and Nebraska. Later in 2012, CIRI also became a tax partner with Boston-based First Wind in the 105-megawatt Palouse Wind project in eastern Washington.

“Given the impressive track record of First Wind as an experienced wind project developer, CIRI is excited about this new partnership,” says CIRI President and CEO Sophie Minich in a news release. “Palouse Wind is a good fit for CIRI and complements our diverse and developing portfolio of energy assets.”

The Palouse Wind project is a long-term investment for CIRI. Avista Corporation, a transmission and distribution company that serves about 1.5 million people, has signed a thirty-year contract to buy power from the project.

The investment made sense for many reasons, says CIRI’s Stig Colberg, chief financial officer. “The project strengthens our energy portfolio and provides significant tax advantages for the corporation, while the thirty-year power purchase agreement reduces our risk and ensures a stable income.”

Wind energy, like oil and gas, is a sector that CIRI’s board is very comfortable with, Moore says.

 

Real Estate

CIRI also has invested with Weidner Apartment Homes to manage high-end, multi-family rental housing in Arizona and elsewhere. Weidner has a solid reputation in its field, as does Browman Development Corporation, which worked with CIRI to develop Tikahtnu Commons shopping center in Anchorage. Other projects may be coming in the future with Browman, Moore says.

“Browman is a company that really knows how to put the pieces together for a successful project,” he says.

CIRI looks for solid successful entities for partnership opportunities, Moore says.

“I think it’s those two things that really kind of define how we operate,” he says. “It’s sectors we know well and partnerships with people who have these core competencies.”

 

Helping Lower 48 Tribes

A subsidiary of Arctic Slope Regional Corporation (ASRC) is using its expertise to help tribes in the Lower 48.

ASRC Energy Services, a well-established oil field services company on Alaska’s North Slope, is the lead on a project to build the first oil refinery in the Lower 48 for more than thirty years. The MHA Thunder Butte refinery on the Fort Berthold Indian Reservation in western North Dakota will process crude oil from the Bakken formation into gasoline, diesel, and propane.

“The Mandan, Hidatsa, and Arikara Nation is where ASRC was more than thirty years ago, when oil was discovered at Prudhoe Bay,” Jeff Kinneeveauk, president and CEO of ASRC Energy Service, noted when the project was announced. “We’re excited about sharing our decades of unique industry experience and tribal knowledge and helping to responsibly bring this crude oil to market.”

 

Unattended Fuel Stations

As for investments outside Alaska, Bristol Bay Native Corporation (BBNC) holds the keys to one of the largest, but almost invisible, companies in the Northwest.

BBNC, with a land base in southwest Alaska, is one of the most successful Alaska-owned corporations. In 1985, it acquired PetroCard, Inc., a cardlock fuel distribution system based in Kent, Washington. It specialized in unattended fuel stations that use a proprietary cardlock system. The company has been a strong performer for BBNC and now has more than 180 employees and eight offices in Oregon and Hawaii.

Revenues from petroleum sales totaled $1.2 billion in 2012, a big chunk of the overall financial snapshot for BBNC.

The company originally provided fuel to fleets of commercial vehicles. In the ensuing years, acquisitions added new cardlock locations, one hundred retail fuel dealers, mobile fueling, and wholesale distribution of motor oils and lubrication. Deliveries have also grown, from 25 million gallons to 330 million gallons in fuel sales. In 2011, it was named the fifth-largest privately held business in Washington state.

 

SBA 8(a)

For young companies, gaining core competencies in a field can be difficult, but a program administered by the Small Business Administration is designed to give businesses a chance to grow and develop before graduating to compete with other players in their chosen fields.

The program, called SBA 8(a), is designed to help small, disadvantaged business by allowing federal agencies to sole-source contracts with 8(a) businesses without having to go through the competitive bid process. An amendment to the program allows Alaska Native Corporations and other American indigenous groups access to the program and grants extra incentives for agencies to partner with the corporations. It also allows corporations to have multiple subsidiaries in the 8(a) program, under different sectors, and makes them exempt from caps on contracts.

NANA Development notes that the corporations themselves are owned by Native Americans, who “are among the poorest and most under-employed groups in our society, with many still living in third world conditions.” The profits from these contracts are used to fund dividends and programs to benefit these shareholders.

“We have projects all around the world,” says Blythe Campbell, director of marketing and communications at NANA Development, the business arm of NANA. Most of NANA’s subsidiaries are based in the United States, but they oversee projects around the globe, with one company based in Australia and one joint venture in Russia. Its subsidiaries employ 11,500 workers, and NANA currently has 550 job openings in its family of companies. Twenty-seven NANA Development subsidiaries are based in the Lower 48 in such fields as facility services, logistics, information technology, environmental services, and construction.

Subsidiary Akima Construction Services, based in Laurel, Maryland, for example, has built modular housing for Army bases to support troop realignments and in the aftermath of Hurricane Katrina. Wolverine Services, based in Colorado Springs, Colorado, does facility maintenance and warehousing services. Both are certified under the Small Business Administration 8(a) program.

The program is effective, with many companies “graduating” from 8(a) and entering the competitive field.

For example, Ahtna Technical Services graduated from the program in 2010 and is working on projects in five states, as well as Alaska. In 2012, it built infrastructure at Watford City, North Dakota, in the heart of the booming Bakken oil development. It also performs facilities services at the Marine Air Corps Air Station in Beaufort, South Carolina.

 

Broadened Focus

In the last decade, government contracting formed the fiscal backbone for many Alaska Native regional and village corporations, with some reporting as much as 88 percent of their revenue coming from subsidiaries working in federal contracting. A congressional backlash, more competition, and fewer federal contracts being offered in recent years has given corporations an incentive to broaden their focus beyond contracting.

Kodiak-based Koniag noted the decline in defense contracts in fiscal year 2012 and shifted its strategy to focus on projects closer to its land base. It also, however, noted the strength of its real estate investments and purchased interests in property in California and Texas. It holds interests in eleven properties in several states and Alaska.

 

Federal Contracting

All of the regional corporations and many of the village corporations have federal contracting subsidiaries, some 8(a), others in the competitive arena. For remote villages such as the ten along the Kuskokwim River in southwest Alaska that joined to form The Kuskokwim Corporation, there are few other economic opportunities.

TKC Development, Inc. oversees four subsidiaries, all enrolled in the SBA 8(a) program or seeking certification. Their success in government contracting has catapulted the corporation into the top ranks of Alaska-owned businesses. They’re also providing jobs for shareholders outside Alaska.

Subsidiary Strategic Initial Outfitting Transition Solutions (SIOTS) works with medical offices and hospitals to help them through moves and renovations with minimal disruption to patients and services.

In 2012, SIOTS won a contract for work at Lackland Air Force Base in San Antonio, Texas. It was a large project and enabled SIOTS to open job positions to shareholders. SIOTs general manager Grant Bonser traveled to Alaska to interview shareholders in Anchorage and Aniak.

“We are dedicated to strengthening ties with our Alaska Native shareholders through scholarships, education, training, and employment opportunities,” Bonser said in a release. “The success of SIOTs has a direct positive impact on the lives of our shareholders.”

The shareholders were paired with senior SIOTs specialists to learn the skills such as project management, interior design, transition planning, move management, and installation.

“We’re very happy that SIOTS is able to provide shareholders with this employment and on-the-job training,” says TKC human resources manager Nichola Ruedy. “Not only are they earning good wages, they’re gaining valuable training, experience, and confidence that will help maximize their employment opportunities in the future.”

Julie Stricker is a journalist living near Fairbanks.

This first appeared in the November 2013 print edition of Alaska Business Monthly magazine.

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