Future is unclear for Navajo oil and gas co.

James Fenton
jfenton@daily-times.com
The offices of Navajo Nation Oil and Gas Co. are pictured on March 17 along Arizona State Route 264 in St. Michaels, Ariz.

FARMINGTON — Like many fossil fuels-based companies faced with record low commodities prices in a prolonged "bust" cycle, the Navajo Nation's sole oil and gas company is facing some significant challenges this year.

Established as a federally chartered Section 17 corporation with authority granted by the tribal council in 1998, the Navajo Nation Oil & Gas Co. has closely mirrored its competitors during the current prolonged downturn, when commodities prices for a barrel of crude oil plummeted from a high of more than $140 before Thanksgiving in 2014 to a low below $30 earlier this year.

Russ Rizzo, a spokesman for the company, said NNOGC is currently saddled with $86 million in outstanding bank debt. The energy company made appeals to the tribal council for millions of dollars in loans at the end of 2015 and again earlier this year, but those requests were not approved.

Stung with shrinking revenue and stalled drilling programs, the company, whose mission statement directs it to "Maximize resources for the benefit of Navajo Nation with respect to Mother Earth", is facing the challenge of paying down its debt.

Without loan guarantees from the tribal council, NNOGC has been left to try to refinance existing loans, consider selling some the company's assets or explore filing Chapter 11 bankruptcy protection.

"We are considering all avenues to pay down our bank debt while maintaining the company’s assets," Rizzo said.

Rizzo said the company's net worth has tumbled with the fall of crude oil, but that the company remains an "integral tribal enterprise."

"NNOGC remains the Navajo Nation’s most valuable asset and also a very important strategic asset," Rizzo said. "The valuation of oil and gas properties and pipelines goes up and down with oil prices. We estimate our assets to be worth $100 million to $200 million in the current market and for those values to again rise as oil prices increase."

But one tribal lawmaker has raised serious doubts over the tribe's continued investment in fossil fuels-based energy production.

Council Delegate Jonathan Hale (Oak Springs, St. Michaels) pushed for legislation in April to oppose hydraulic fracturing on tribal lands. That bill was tabled by the tribe's Naa'bik'íyáti' committee in in favor of a study to look into the potential health impacts of fracking. That study is due by the end of the year, but Hale is doubtful the committee will produce anything more than references to existing or outdated studies.

And NNOGC's financial troubles only add to the uncertainty surrounding the enterprise, Hale said.

"It brings attention to what we're facing as a nation," Hale said in a phone interview earlier this month. "What is the financial cost? Is it worth it? Shall we wait for higher prices down the road?"

Hale said he was inclined to press for a work session to examine the fiscal health of NNOGC and consider alternatives in light of the sharp decline in crude oil and natural gas prices that has resulted in the value of the company's assets being roughly halved in a calendar year.

Hale said he is skeptical of outreach efforts this year by NNOGC officials that were intended to educate lawmakers and tribal members at a half dozen agency meetings.

"I think it was a ploy to cover up and try to keep them going," Hale said.

Other legislators seem to share Hale's concerns.

In July, tribal lawmakers rebuffed NNOGC's request for a $95 million loan following an earlier denial by the tribe's Investment committee of a request for $4.9 million from the tribe's Undesignated Unreserved fund.

Denetsosie and Eltsosie wrote to council in December that Wells Fargo, the company's primary lender, required NNOGC to pay back $37.5 million by mid-2016.

In a letter to shareholders a year ago, NNOGC CEO Louis Denetsosie and board Chairman Lennard Eltsosie said that the crude oil slump has made facing foreclosure a possibility.

"Without a loan or capital infusion, it is likely that the Navajo Nation will have to deal with NNOGC's lenders in foreclosure to retain the $300 million to $400 million net worth of NNOGC," Denetsosie and Eltsosie wrote, and added, "We will do everything in our power to prevent this from happening."

Lennard Eltsosie,Navajo Nation Oil and Gas Company board chairman, is pictured at the tribal Council Chambers in 2016.

NNOGC's failure to hedge, or lock in, favorable prices for crude oil in 2014 has also cost the company potential revenue that could have insulated it from the decline of crude oil prices, the two executives said in the letter.

That outstanding debt has forestalled the company's plans, Rizzo said.

"We have plans to drill in the near future but remain focused on repaying outstanding debt at the moment," Rizzo said in an email.

NNOGC maintains operations focused primarily in the Greater Aneth, Tohonadla and Desert Creek fields in southeast Utah, an oil and gas pipeline called Running Horse Pipeline in southeast Utah and northwest New Mexico, and six gas stations on the reservation selling gasoline under the Navajo Petroleum and Chevron brands, according to its website.

The company also owns 150,000 acres on reservation lands in the San Juan Basin. The company drilled six Fruitland coal and four Mancos shale wells there in 2011, and had plans to begin a horizontal drilling program with the Mancos shale wells. It has yet to complete the development, according to the company's 2015 financial report.

Eltsosie was unable to join a conference call arranged by Rizzo for The Daily Times, and follow-up efforts to reach him were unsuccessful.

James Fenton is the business editor of The Daily Times. He can be reached at 505-564-4621.