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ALASKA NATIVE
Awell-diversified portfolio is a cornerstone of success for Alaska Native corporations determined to fulfill their missions of providing meaningful benefits to their shareholders. Both Chugach Alaska Corporation and Koniag have found fertile ground for diversification within the energy service sector, even as big changes occur on the North Slope.
The energy service sector is a broad umbrella that covers everything from oil spill response and equipment fabrication to electrical work and security system design. Basically, it's an assortment of businesses that fill the variety of needs of the oil and gas industry, as well as those in the renewable energy sector.
“We look at Koniag as more than just a multi-generational business, but as an organization that can provide benefits to our shareholders, our Alaskan Native owners, forever,” Koniag CEO Ron Unger says. “And in order to stay on track we need to continue to grow.”
Unger explains that diversification is key in allowing the corporation to provide ongoing benefits and opportunities, from shareholder dividends and Elder benefits to educational opportunities and scholarships.
“In order to fund those, we need ongoing earning sources, so diversifying those sources is really critical for us,” Unger says.
Chugach takes a similar stance.
“Keeping Chugach’s businesses healthy and profitable is a pillar of our mission statement, as the stability and success of our operating companies enables us to provide jobs, benefits, and opportunities to our shareholder community,” says Chugach President and Chief Operating Officer Daniel Fenza.
An Evolving Oilfield
Without a doubt, 2020 was a particularly challenging year for most businesses, including those in the energy service industry—and on the North Slope there were also significant changes unrelated to the pandemic.
“The Alaska energy services market experienced a generational transition with BP Alaska selling its North Slope and TAPS ownership stakes to Hilcorp Alaska,” Fenza says. www.akbizmag.com
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It was announced in 2019 that Hilcorp would be purchasing all of BP’s Alaska interests for $5.6 billion. BP had started working in Alaska in 1959, producing more than 13 billion barrels of oil.
The energy service sector was additionally impacted by North Slope crude prices hitting historic lows due to the global crude oil supply dispute and reduced demand due to the COVID-19 pandemic, Fenza explains.
“Despite these circumstances, both Chugach Alaska Services [CAS] and All American Oilfield [AAO] have proven to be steady, resilient industry players,” Fenza says. “CAS’ stability in the midst of the pandemic and oil price volatility is due largely to the regulatory nature of oil spill work that ensures requirements are always maintained, along with a continuing demand for personnel services as an efficient option for CAS’ clients.”
In addition to being a stable asset in Chugach’s portfolio, CAS employs a large number of Chugach shareholders and descendants. It allows for Chugach “to bring in-region job, internship, and apprenticeship opportunities to the local communities where job opportunities can be limited,” Fenza says.
Chugach launched its most recent diversification strategy in 2014, which included the pursuit of building on existing assets while looking for merger and acquisition opportunities.
“Each step in this journey has expanded Chugach’s portfolio to different regions and industries, which provides stability and reduces customer concentration risk during challenging times,” Fenza says. “This diversification strategy included the acquisition of AAO, which has given Chugach a foothold in Alaska’s oil and gas industry.”
AAO provides upstream oil and gas drilling services in the Cook Inlet region, North Slope, and other areas of Alaska.
Energy Support
Given the energy industry’s role as an economic foundation in Alaska, Koniag also saw significant opportunities in diversifying their holdings through the energy support sector.
Just a year before Chugach began its diversification strategy, Koniag reset their business strategy, explains Unger. The corporation focused on five investment sectors, including Koniag Energy and Water.
The Koniag Energy and Water sector, wholly owned by Koniag, is focused on energy support.
Dowland-Bach was the corporation’s spearhead into the energy support sector, providing fail-safe wellhead and flow line protection as well as custom engineering and design.
“Over the past few years, we've acquired three other companies to help build out this sector,” Unger says.
Those companies are Glacier Services, out of Anchorage; Big G Electric & Engineering, out of Soldotna; and Great Northern Engineering.
According to Koniag Energy and Water CEO Art Garrod, when it acquired Glacier Services it was the largest automations professional services company owned in the state.
Garrod explains that Koniag Energy and Water saw the writing on the wall with regard to Hilcorp preparing to take over BP’s Alaska assets, which further spurred the interest in adjusting their portfolio.
“The landscape is changing. We’ve got to be nimble and quick, and we’ve got to kind of change the way we're doing business, too,” Garrod says. “So, by bringing on a little more breadth, we can go after larger projects. Those additions have allowed Koniag Energy and Water to go after more work and it also shows that we're here to stay.”
Through its subsidiaries, Koniag Energy and Water provides a number of critical support services, starting with engineering and design, explains Tony DeHaven, vice president of sales and marketing at Koniag Energy and Water.
“Our focus is on the industrial side, and that applies to oil and gas facilities, tank farms, pipelines, power stations, and mining facilities,” DeHaven says. “They all use similar technology and we're experts on that technology, so we can provide those services and across all of those fields.”
For Unger it’s important to grow and diversify Koniag’s portfolio and to find additional ways to diversify the holdings within Koniag Energy and Water.
This means acquiring companies that can not only provide direct services to the energy sector but also have a broader client base that already exists or can be developed in the government and commercial sectors.
“Great Northern Engineering has civil, structural, and other engineering disciplines, which certainly support the energy sector but also support these other customer segments,” he explains, noting the importance of companies with capabilities that are transferable across different customer segments.
One such segment is industrial automation systems, which includes security, software, and other professional management systems.
“We're going after a variety of energy producing resources,” DeHaven says. “We’re working with Chugach Electric Association and the new power plants that they have recently acquired.”
Unger says that Koniag is continually on the lookout for opportunities supporting the renewable energy sector, as well.
“At times, they use the same types of technology systems,” Unger says. “We're looking at those opportunities as part of our strategy with purchasing
Ron Unger, CEO, Koniag
Daniel Fenza, President/COO, Chugach
these companies and bringing them together under our Koniag Energy and Water sector.”
Koniag Energy and Water’s acquisitions have helped it become more vertically integrated, allowing the company to take a project from design to execution, DeHaven explains.
“We're the first people on the job, and we're the last people off the job,” DeHaven says, though that doesn’t mean they have the expertise for every element of a project. “Where we see ourselves being most successful is custom engineering, construction, and automation solutions. So we're always looking for companies that align with those concepts.”
Expand and Diversify
Like Chugach, Koniag remains on the hunt for acquisitions that meet their needs, filling in gaps in their current energy support sector portfolios.
“There are some other types of companies that would allow us to
maybe bid on 20% more of a project,” Garrod says.
The companies Koniag Energy and Water are eyeing, however, must work within the company’s strategy and vision for the sector, Garrod says.
“We don't just go grab any company just because it's for sale or go chasing companies that are for sale—they have to fit within our Koniag Energy and Water divisions,” Garrod says.
Beyond its business interests, Koniag Energy and Water sector’s core purpose is to empower the Alutiiq people.
“It is all about providing opportunity for Koniag shareholders and descendants,” DeHaven says.
Part of continuing to make that a reality is looking beyond Alaska’s borders for opportunities through the geographical diversification of Koniag’s assets.
“Most of our energy and water business is in Alaska, but with these acquisitions, we believe we'll be able to create some geographic diversification by growing further in the Lower 48,” Unger says.
While Big G Electric & Engineering already has particularly strong in-roads into the Lower 48, the acquisition of Great Northern Engineering has opened up opportunities as an 8(a) company to support federal government customers.
“The Biden Administration is looking to invest in infrastructure, and our 8(a) certification will position us to bid on that work,” DeHaven says. “It's a perfect opportunity for Alaska Native corporations to use our expertise and experience in some of these important infrastructure projects,” DeHaven says.
The energy support sector has played a key role in the diversification strategies of both Koniag and Chugach. Despite the global financial difficulties in 2020 that have seeped into 2021, Fenza says that CAS and AAO brought stability and diversity to Chugach’s portfolio that provided benefits and opportunities to shareholders.
“Thanks to the diversification efforts launched by our leaders in 2014, today Chugach has a more balanced portfolio that is well-positioned to deliver value to shareholders over the long-term, while maintaining resilience through a strong balance sheet and ample liquidity,” Fenza says.
“Having a diverse portfolio of businesses also strengthens the corporation’s ability to withstand and overcome challenging times.”
In 2020 Chugach achieved the highest operating profit in its history, despite the pandemic.
Similarly, Unger says that Koniag’s strategy of having assets in different business sectors and different geographies but with complementary capabilities throughout its holdings has allowed the company to leverage its experience and expertise to grow all of its interests.
“Koniag’s strategy is to provide sufficient diversification so that we have a likelihood of continuing to grow year after year,” Unger says. “We were fortunate that Koniag was diversified both within and across business sectors because some areas were hit hard. It allowed us to persevere through the pandemic and come out with real opportunities.”
Tony DeHaven, VP of Sales and Marketing Koniag Energy and Water
