Date post: | 14-Dec-2015 |
Category: |
Documents |
Upload: | jackeline-percival |
View: | 235 times |
Download: | 0 times |
NAVAJO NATION OIL & GAS COMPANY
1
NAVAJO NATION OIL & GAS COMPANYPresentation to Navajo Nation Council
October 15, 2014
Navajo Nation Council ChambersWindow Rock, Arizona
NAVAJO NATION OIL & GAS COMPANY
2
Vision Statement
“The premier Native American energy company”
Mission Statement
“Maximize resources for the benefit of the Navajo Nation with respect for
Mother Earth”
NAVAJO NATION OIL & GAS COMPANY
Summary of Presentation• The Council has been provided lots of information on the
NNOGC governance controversy, much of it disinformation.• It is the purpose of this presentation to present the facts, to
tell what really happened from a business standpoint.• The presentation will cover how the company progressed
from humble beginnings to become a multimillion dollar corporation and enjoyed success and stability until new management was installed in 2013.
• You will be made aware of the financial problems that were discovered when the majority Board re-assumed control of the company and the damage that was done to the corporation.
• Presentation will cover what present management is doing to correct these problems, the tough decisions that were made in the face of a financial crisis, and what the plans are to right the ship and continue the growth of the company. 3
NAVAJO NATION OIL & GAS COMPANY
4
Historical Information
Formation• Created as the Navajo Nation Oil and Gas Co, Inc. in 1993 as
the first for-profit tribal corporation– 88 shareholder representatives
• Navajo Nation Oil and Gas Company was created as a federal corporation under the I.R.A. in 1997– 11 shareholder representatives
• As such, NNOGC is not a private corporation but considered the “alter ego” of the Navajo Nation
• Corporation’s purpose is to engage as a Navajo Nation-owned entity in the oil and gas industry and share in the value creation from oil and gas and other tribal trust resources
• Initial Board: Louis Denetsosie – Chairman; Mae Gilene Begay, Marjorie Irwin, Raphael Martin, Ben Silversmith, Lew Broadbent, Larry Hansen
NAVAJO NATION OIL & GAS COMPANY
5
Historical Information
Start-up Achievements
• 1995 - Implemented RIK Marketing Program• 1995 - Purchased 2 Business Site leases in Window Rock
and Kayenta, Arizona• 1996 - $500,000 dividend payment to Navajo Nation• 1996 - Obtained Chevron Brand• 1997 - Collaborated with ONTC to create Fuel
Distributor’s Licensing Program• 1997 – With fuel distributor’s license from the Navajo
Nation, began transporting motor fuel free of State Fuel Excise Tax
• 1999 - Purchased fee land from Karigan Estates in St. Michaels for the corporate office– Humble beginnings with two rooms at the Window Rock Motor Inn
NAVAJO NATION OIL & GAS COMPANY
Historical InformationStart-up
Achievements• 1999 - Negotiated Tax Sharing Agreement between
Navajo Nation and State of Arizona in 1999• 1999 - NN Fuel Excise Tax program started based on this
agreement -- $12 million a year minimum• 1999 - Negotiated NNOGC Oil and Gas Revenue Fund
with Speaker Ed T. Begay at $3M per year x 5 years• 2002 - Used proceeds of Oil and Gas Revenue Fund make
the move into the midstream and upstream space• 2002 – Purchased Running Horse Pipeline• 2004 – Purchased 10% of working interest in the
Ratherford Unit of Greater Aneth Field
6
NAVAJO NATION OIL & GAS COMPANY
7
Historical Information
Growth in Upstream• Purchased 10% of Ratherford
in 2003• Purchased Texaco’s interest in
the GAF in 2004 with Resolute• Purchased Exxon’s interest in
the GAF in 2006 with Resolute• Built Corporate Office in 2005• Opened Denver Office in 2006
to house E&P staff (15 employees in 2013)
• Obtained CBM Lease for 150,000 acres in the San Juan, Nenahnezad, Fruitland and Burnham Chapters in 2010
Achievements
• 2012 - Purchased Denbury and Resolute working interests in GAF bringing production to 3600 BOPD
• Paid over $24,000,000 in bonuses and rents for the CBM lease to the Navajo Nation
• Built truckloading facilities at Bisti pipeline terminus in Huerfano Chapter
• FY 2013 fair market value of company is over $500 million
NAVAJO NATION OIL & GAS COMPANY
8
Historical AchievementsBarrels of Oil Per Day
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
500
1000
1500
2000
2500
3000
3500
4000
BOPD
BOPD
NAVAJO NATION OIL & GAS COMPANY
9
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
20
40
60
80
100
120
140
160
180
REVENUES
REVENUES
Million $
NAVAJO NATION OIL & GAS COMPANY
10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
10
20
30
40
50
60
INCREASE IN NET ASSETS
INCREASE IN NET ASSETS
Million $
NAVAJO NATION OIL & GAS COMPANY
11
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
20
40
60
80
100
120
140
160
180
200
CAPITAL EXPENDITURES
CAPITAL EXPENDITURES
Million $
NAVAJO NATION OIL & GAS COMPANY
12
2006 2007 2008 2009 2010 2011 2012 2013 2014 20150
20
40
60
80
100
120
140
160
180
200
Comparison of Line of Creditand Outstanding Amount
BORROWING BASELOAN OUTSTANDING
Million $
NAVAJO NATION OIL & GAS COMPANY
What Really Happened• Previous slides show that NNOGC was a solid company that
continued to grow up until the end of FY 2014 [March 31, 2014]. It took good management and competent staff to bring the company to a value exceeding $500 M.
• Slides 9 and 10 illustrate that the increase in company earnings in FY 2014 was the result of acquisitions in 2012 (Slide 11).
• The Board, on regaining control of the company in late June 2014, discovered the following financial problems and instances of mismanagement:• Borrowing base reduction from $170 M to $110 M• Borrowing base deficiency of $42.75 M• Unexplained transfer of $18.4 M to an unauthorized bank in
violation of loan agreement• Serious cash flow problems arising from an agreement to repay
$42.75 M in six months• Annual audit hopelessly behind schedule
13
NAVAJO NATION OIL & GAS COMPANY
14
What Really Happened• It was further discovered that prior management blatantly
misused the corporation’s funds by –• Wrongfully spending $1.5 M in attorneys and consulting fees for
the terminated CEO to unlawfully hold the office.
• Wrongfully spending over $438,000 for four Shareholder Representatives’ legal representation in Navajo and federal courts.
• To pay for unsuccessful suits in Navajo courts and an unsuccessful suit to overturn a Navajo Supreme Court opinion in federal court, which threatened Navajo sovereignty.
• Imposing additional costs on the corporation for necessary professional fees and costs, of which the totality is still being calculated.
• The action of former management and seven law firms that were hired in an effort to permanently remove the Board of Directors caused serious economic and reputational harm to NNOGC.
NAVAJO NATION OIL & GAS COMPANY
15
Navajo Nation Oil and Gas CompanyCurrent Status – What’s Happening
Accomplishments
• Made 4/6 payments of $7.125 M each to banks
• Reinstated 4 competent accountants to correct financial deficiencies– Audit, budget, financials
• Company realized benefits from 2012 acquisitions– $70.5 M cash from
operations– $43 M increase in net assets– $154 M total revenues– $49 M operating income
Challenges
• Borrowing Base was reduced from $170 M to $110 M on June 7, 2014
• $2.63 Million per year additional interest during the six month period of payback
• Cost of money to NNOGC has increased due to borrowing base redetermination
• Financial crisis necessitated cutback in expenditures, including the RIF of 13 employees
NAVAJO NATION OIL & GAS COMPANY
16
Navajo Nation Oil and Gas CompanyCurrent Status – What’s Happening
Accomplishments
• 5 full ride scholarships to Navajo college students – 3 graduating by May 2016
• $210,000 total funding for scholarships to Navajo students
• $51 M in direct payments to the Navajo Nation
Challenges
• Restated Charter of Incorporation if adopted increases the risk of further turmoil and instability
• In the event of further instability, banks may merely want to liquidate the loan with NNOGC
NAVAJO NATION OIL & GAS COMPANY
17
NNOGC E&P, LLC - Current Status
Accomplishments• Total working interest of
36.6% and net revenue interest of 31% in the Greater Aneth Field
• $400 M investment by Resolute and NNOGC has reversed decline curve in GAF
• Life of Greater Aneth Field is extended until at least 2030
• Proven reserves of 20.7 MMBOE with PV of $460.8M
Challenges• CBM Lease is
economically unfeasible due to 49% royalty and tax burden– Inability to acquire
partners to share risk
• Northern portion of CBM Lease is in the Mancos oil window
• Management must prove up reserves on CBM Lease or lose development costs
NAVAJO NATION OIL & GAS COMPANY
Immediate and Future Plans
• Pay off the Borrowing Base Deficiency• Working capital loan request to the Navajo Nation • Company is working on sale of loss allowances earned by Running
Horse Pipeline
• Repair the relationship with the banks and resume the hedging program• Declining oil prices poses a risk to cash flow
• Renegotiate loan facility and increase borrowing base
• Prove up reserves on the CBM Lease• Navajo Nation Council’s assistance is required
• Obtain partners for CBM lease and recover development costs
18
NAVAJO NATION OIL & GAS COMPANY
Immediate and Future Plans
• Continue to invest in the development of the Greater Aneth Field
• Hire experienced CEO and Vice-Presidents of upstream and downstream business units
• Hire geologists, geophysicists, engineers, land managers and technicians
• Complete exploration of the Desert Creek lease• Resume exploration and production activities on
lands of the Navajo Nation• Build up expertise of operations staff and begin
managing and operating own leases
19
NAVAJO NATION OIL & GAS COMPANY
20
Immediate and Future Plans
• Construct administration building for Running Horse Pipeline staff
• Partner with Navajo Nation Gaming Enterprise to construct a Chevron gas station and c-store at Twin Arrows
• Lease, design and construct a gas station and c-store in Crownpoint
• Renovate Pueblo Pintado gas station and store• Collaborate on other gas station and c-store
developments on the Navajo Nation• Continue to partner with other Navajo Nation
enterprises
NAVAJO NATION OIL & GAS COMPANY
21
Future Challenges
• Profits will be squeezed by increasing interest costs and lease operating costs
• Profits will be squeezed further by the low cost of crude oil due to increased production in San Juan Basin
• It will be difficult to obtain lenders who provide low cost of capital
• Improvements in technology in exploration and drilling technology has made the Navajo Nation’s oil and gas resources, including helium, more valuable
• Youth of the Navajo Nation face an exciting challenge in deploying the advanced technology to extract more value for the Navajo Nation
NAVAJO NATION OIL & GAS COMPANY
Organizational Chart
22
Navajo NationShareholders
Board of Directors
President & CEO
Corporate
NNOGC
Exploration
& Production, LLC
Running Horse
Pipeline,LLC
Navajo Petroleum,LLC
NNOGC Holdings, LLC
NAVAJO NATION OIL & GAS COMPANY
23
Board Composition
Member RepresentingLennard Eltsosie Chairperson, Ft. Defiance Agency
Diandra Benally Northern Agency
Jennifer Hatathlie Secretary, Western Agency
Frances Totsoni Presidential Appointee
Nelson Toledo Presidential Appointee
Mae-Gilene Begay Chinle Agency
Young Jeff Tom Eastern Agency
NAVAJO NATION OIL & GAS COMPANY
24
Ahéhee’