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Alaska Native lands provide increased revenue: exploration efforts to boost natural resource revenues continue.


For Alaska Natives, who hold a long tradition of living off the provisions of their lands, 2008 proved to be an active and profitable year for natural resource exploration and production.

Resource development revenue shared among Alaska Native regional corporations increased substantially in 2008--in some cases almost doubling from the prior year's contributions. That's due largely to increased revenues generated by the Alpine oil field on the North Slope, which generates royalties for Arctic Slope Regional Corp., and the Red Dog zinc and lead mine in northwestern Alaska, which contributes a share of net profits or losses to NANA Regional Corp. Inc.

"The high price of zinc resulted in extraordinary royalty payments, which not only benefited NANA but all other Native corporations across the state," said Helvi Sandvik, president and CEO of NANA Development Corp., the operating arm of the regional corporation.


In 2008, NANA distributed $121.7 million in resource revenues to other regional corporations, up from $33.6 million in 2007 and $18.2 million in 2006, according to the corporation's annual report.

Zinc market prices ranged between 75 cents and $1.30 in 2008, between $1.30 and $1.70 in 2007 and between 65 cents and $1.70 in 2006. In recent weeks, zinc has traded in the 70 cent range.

NANA's share of net resource revenue income in 2008 was $55.1 million in 2008, slightly down from 2007, but substantially higher than the $17 million reported in 2006.

"NANA did well with natural resource income in 2008, but so did other Native corporations. We were able to make a significant contribution to other corporations, which spreads to every community in the state," Sandvik said.

That's because Alaska Native corporations share with other Alaska Native regional and village corporations the majority--70 percent--of monies paid as royalties or shares of subsurface resource extraction, such as oil production or gold mining. That's according to the 7(i) and 7(j) natural resource revenue sharing provisions of the Alaska Native Claims Settlement Act.

Only the 13th Regional Corp. does not share resource revenue with other ANCs, as the for-profit corporation created for Alaska Natives living outside of the state did not receive land rights under ANCSA.


In 2008, Calista Corp. received $23.8 million in shared resource revenues, compared to $13.4 million the prior year. Bristol Bay Native Corp. received $7.3 million in 2008, compared to $5.5 million in 2007. Sealaska Corp. received $26.5 million in 2008, compared to $14.3 million in 2007. Doyon Ltd. received $10..5 million in 2008, up from $8.1 million the prior year. The Aleut Corp. received $3.7 million in 2008, up from $2.9 million the prior year.

All of those corporations either made minor contributions or had no resource revenue to share with other ANCs in 2008.

Calista's resource revenue payments were "extra strong this year," according to Dixie Retherford, executive vice president and chief financial officer at the regional corporation that represents Alaskans in the remote southwestern part of the state. Because those resource revenues come from other corporations without related expenses, it "helps drive up the bottom line," she added.

Calista is one of the regional corporations with active exploration on its lands, a project that could contribute to resource revenues shared among all Alaska Native corporations in future years.


The Donlin Creek gold project being developed by NovaGold Resources and Barrick Gold, estimated to contain more than 31 million ounces of gold in the hard-rock deposit, is located on Calista lands.

"It's still progressing along--they are still working on the feasibility and we have hopes that in the future we will see a mine developed out there," Retherford said. "We have actually been able to put quite a few shareholders at work out there through the years. It's had a good positive impact on our shareholders through creation of jobs and it will be a good contributor to 7(i). We will share it back with other regions."


While that sharing provision might seem unusual in today's culture, it has worked to the benefit of many Alaska Native corporations, particularly those without current active natural resource production.

"We've had the privilege of paying 7(i) for so many years, and in the early years, before there were any streams of production online. Often, we kept other corporations afloat with our 7(i) payments," said Margaret Brown, president and CEO of CIRI, the regional corporation for the Cook Inlet region.

Shortly after CIRI acquired title to its lands in Cook Inlet, the regional corporation began receiving royalty payments from oil and gas production in the Kenai and the Swanson River fields, and in turn, sharing a portion of that revenue with other ANCs.

Cumulative 7(i)and 7(j)distributions to other Alaska Native corporations were reported as $225 million, according to CIRI's 2008 annual report.

"Back in the day when I was running our oil and gas department, I would get thank you notes when we made our distributions ... CIRI's 7(i) payments would roll through the regions and villages in the early years, when it was slim pickings.

"The amount we have contributed has declined over the years as our production has declined, but that's just the way these fields are--they reach their peak and then go into the flow of decline," Brown added.


CIRI has been encouraging exploration for energy resources on its lands on the Kenai Peninsula, with results of three wells planned for 2009. "We think the fastest and most cost-effective way to provide natural gas for Southcentral Alaska's energy needs is to find and develop additional natural gas in the Cook Inlet basin," Brown said.

In 2008, CIRI distributed $17.4 million in natural resource revenue to others, reporting $16.8 million in revenue received or retained by the regional corporation.

"Our current 7(i) distribution to others is being eclipsed by Arctic Slope (Regional Corp.) and its production from the Alpine field, which also benefited from the high oil prices," Brown said.

Barrow-based ASRC owns approximately 31 percent of the royalty interests in the Alpine oil field on the western side of the North Slope, according to the company's past annual reports. Production at Alpine began in 2000, providing oil-back revenues for ASRC and other Alaska Native corporations.

For its fiscal year 2008, ASRC paid out $146 million in 7(i) payments, according to Kristin Mellinger, executive vice president and chief financial officer at the Barrow-based regional corporation.

"While 2008 was a good year, not all of it was sustainable. The earnings that we earn from our royalty interest are not considered sustainable, as they were certainly based on the highest oil prices we've ever seen," Mellinger said. "It's also based on the peak volume out of Alpine and that oilfield is now in decline."

For its resource revenues net of its 7(i) distributions, ASRC reported earnings in 2008 of $71.5 million, which was 33 percent of the corporation's $193 million in net earnings before income taxes, and 47 percent of the corporation's net income of $1,51.1 million, after taxes.

As well as for other corporations, ASRC reported a substantial increase --more than 2,5 percent--in its net resource revenue in 2008, compared to 2007's $56.8 million.

"In 2009, we expect the royalty number--the portion of the number that is royalty related--to definitely be lower," Mellinger said. "Volume is expected to be down a little bit and oil prices aren't as high as they were last year."


ASRC has entered into Alaska's oil industry as an exploration player. In 2008, the company participated in the second drilling season and completion of the Jacob's Ladder C Well with industry partners. According to ASRC's 2008 annual report, the well was deemed a dry well and the corporation booked an impairment charge of $3.5 million.

Also in 2008, ASRC entered into an agreement for exploratory drilling in the Badami Unit on the eastern side of the North Slope with industry partners BP Exploration (Alaska) Inc. and Savant Alaska LLC.

"We're a minority partner and our thinking there was, we are wanting to diversify and we have a strength which is our financial position, an understanding of the local economy and who the local partners are," Mellinger said. "Using those strengths, this is a really good investment for us."

ASRC also has invested as a minority partner in another energy exploration project--the Nenana gas well drilled this summer in the Interior. The strategy for that investment was "exactly the same thing," Mellinger said. "We knew the other partners and we knew the local economy. It just played to our strengths."


Doyon Ltd., the Interior Alaska Native regional corporation, also is involved in the Nenana gas project, both as an investor, as a service provider through its subsidiary Doyon Drilling, and as a potential 7(i) revenue contributor, if the exploration gamble pays off. While the well drilled this summer was on state-owned land, Doyon holds tire to nearby lands that could be prospective gas targets.

"Part of this for Doyon is proving the geology of the Interior basins. Either there is potential for hydrocarbon generation or not," said Aaron Schutt, senior vice president and chief operating officer for the Fairbanks-based regional corporation. "Some people have expressed surprise that the program came together and that we're spending big bucks on a gas well right now, but for us, it makes a lot of sense. There's still a big opportunity for us ... it's still high risk, too."

Success in the Nenana Basin could parlay additional industry interest in other oil and gas prospective tracts held by Doyon and some of the region's village corporations in the Yukon Flats, northeast of Fairbanks. A long-running proposed land swap with the federal government for some lands in the Yukon Flats thought to be prospective for oil and gas development fell through this summer, although Doyon managers are not disappointed by the decision.

Already, an investor group has expressed interest in starting to explore the region on lands already conveyed to Doyon. "We're still talking to the same group but there is not a deal signed," Schutt said. "There's still some interest, but it's a tough time to raise money to go do oil and gas exploration."

Doyon also has active mineral exploration on its lands. For several years, junior exploration company Full Metal Minerals has been working on Doyon's base metal project in eastern Interior Alaska in the 40 Mile region, targeting the Little White Man prospect.

In 2008, Full Metal drilled 39 core holes at the LWM Carbonate Replacement Deposit, containing high grades of zinc, silver, lead and copper. Two subparallel zones of mineralization have been traced more than 2,500 feet in strike length and the mineralization is open for expansion in all directions, according to the exploration company.

Another Vancouver, B.C.-based exploration company, Freegold Ventures Ltd., also has optioned a Doyon-held mineral prospect, the Vinasale gold property located 16 miles south of McGrath in Central Alaska.
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Comment:Alaska Native lands provide increased revenue: exploration efforts to boost natural resource revenues continue.(ALASKA NATIVE BUSINESS NEWS)
Author:Liles, Patricia
Publication:Alaska Business Monthly
Geographic Code:1U9AK
Date:Sep 1, 2009
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