Tribe's oil & gas company offers no relief at gas pump

WINDOW ROCK, July 10, 2008

If you're tired of hearing about high gas prices and hoping for some aid to help lower what you pay at the pump, this story probably won't make you feel much better.

With the price per gallon climbing well over $4 throughout the Navajo Nation, there seems little that can be done to halt the steady increase of fuel prices.

While the tribe is expecting some heavy increases in revenue from oil sales, the prices you pay per gallon are unlikely to change without a massive shift in the national - or even world - economy.

"Is it a good cash flow? Yes," said Wilson Groen, president and chief executive officer of Navajo Oil and Gas Co., which is expecting a banner year with its sale of crude oil. "Is it all going into our pockets? No."

In short, there are several trends causing the high gasoline prices. From the decreasing value of the American dollar and the country's faltering economy, to the ongoing war in Iraq.

According to reports from AAA, the average price of gasoline nationwide had increased from $3.20 last summer to $3.95 in June. The price of crude oil has doubled in that same span from $65 a barrel last June to its current price hovering around $130.

For the most part, it seems that Navajo Nation residents are biting the bullet and paying the high prices.

According to figures from the Navajo Tax Commission, which collects an 18-cent tax per gallon of gasoline sold at Navajo Nation pumps, there has been little change in the amount collected since last fall.

4-day tribal workweek a possibility By Bill Donovan Special to the Times WINDOW ROCK - The Navajo Nation is considering going to a four-day work week to help tribal employees cut the cost of commuting now that gasoline prices are consistently above $4 a gallon. The idea is still in the informal stage but tribal officials said that more and more tribal programs are asking about the possibility. "The state of Utah decided last week to put its employees on a four-day work week and New Mexico is considering doing it as well, " said Bernadette Bernally, director of personnel. Vice President Ben Shelly said he is monitoring the discussions and that before the tribe decides to make a commitment to change its scheduling of employees, a feasibility study would probably be done or some kind of hearing conducted to look at the advantages and disadvantages. He stressed that even if the tribe allows employees to go to a four-day week, tribal offices would continue to be open five days a week in order to provide services to the people. One possibility under discussion is to schedule part of the workforce for 10 hours a day, Monday through Thursday, while another portion would work Monday and Tuesday, take off Wednesday, and then work on Thursday and Friday. Bernally said she would rather see a system in which part of the employees work Monday through Thursday and others work Tuesday through Friday. The idea is gaining support as gasoline prices increase. Many employees commute 60 miles or more and rising costs have put a strain on everyone's personal budget, tribal officials said. A four-day week would allow employees to reduce their fuel expenses by up to 20 percent. Bernally said that some tribal programs already have instituted the four-day workweek. "Most of these are in seasonal programs," she said, mentioning forest workers. The police department has some of its employees working a four-day week in an effort to avoid overtime. Bernally said any program can put the request to her office. Her staff looks at the request to see how it will affect those who receive services and will make sure their needs continue to be met. Most tribal employees are expected to favor such a proposal since it would give them three days off a week, as well as cut down on gas usage. With tribal employees getting 14 days off a year for federal and tribal holidays, this would mean that, on the average, they would have off one four-day span about every month. As for services to the people, supporters of the four-day work week point out most tribal members already know that Fridays are slow in most tribal offices, with many employees using annual leave to take the day off and enjoy a three-day weekend. Bernally said as more programs opt to go to a four-day workweek, there may come a time when tribal leaders decide to institute the change in all tribal government offices.

There was a slight drop last winter in the amount generated from the Navajo Fuel Excise Tax, signifying that fewer gallons of gasoline were sold. However, this is a low-travel season and drops in gas sales are common.

During the first half of the current fiscal year the fuel excise tax generated nearly $3.6 million from October through December 2007. That decreased to $3.1 million from January to March 2008.

The excise tax rebounded in the year's third quarter, April to June, when it generated $3.4 million.

"I've been kind of bracing myself to see that (decrease in fuel excise tax revenues)," said Mary N. Etsitty, executive director of the Navajo Tax Commission. "But we're not really seeing it right now."

In fact, compared to the previous year, the fuel excise tax revenues have increased slightly. In fiscal 2007, the excise taxes brought in $3.3 million in the first quarter (October through December 2006) and just under $3 million in the second.

The excise taxes, which generated $12.8 million in fiscal 2007, are reserved for the tribal Roads Fund, which the Navajo Nation's Department of Transportation uses for road maintenance.

Tribal coffers benefit

According to a report from the controller's office, revenue projections for the Navajo Oil and Gas Co. are expected to increase significantly due mostly to crude oil sales.

For fiscal 2009, which begins Oct. 1, the company is expected to bring in $47.2 million, a nearly 50 percent increase from the $31.5 million expected when fiscal 2008 ends Sept. 30.

The tribal corporation generated $26.3 million in revenue in fiscal 2007, $36.7 million in 2006, and $20.4 million in 2004.

The spike in revenue comes primarily from the sale of crude oil, Groen said.

The Navajo Nation currently has three oilfields in production, all in southern Utah, though the company is exploring other areas in the Four Corners believed to hold potential.

Although the number fluctuates month to month, currently the Navajo oilfields produce about 10,000 barrels of crude oil daily. The Navajo Nation, through royalty agreements, lays claim to 14.5 percent of that.

The Navajo Oil and Gas Co. sells the crude oil to El Paso, Texas-based Western Refining, which has refineries in Bloomfield, N.M., and Gallup.

Dream of self-sufficiency

The tribal enterprise was originally conceived as a means to develop Navajo petroleum resources and provide gas and other products to the Navajo people at a reasonable rate, freeing tribal members from the cupidity of international oil politics and enabling the nation to be self-sufficient in energy.

But it hasn't worked out that way.

The oil is sold at the going worldwide rate, Groen said. This means the company would naturally see higher revenue when crude oil prices increase. These market-driven rates are dictated by the rules of supply and demand.

Even if gasoline sales across the Navajo Nation did drop dramatically, Groen said it wouldn't have much of an effect on gas prices here.

"Something would have to happen nationwide," he said. "Or worldwide."

It's impossible to pinpoint the cause of high crude oil prices. Certainly, the waning value of the American dollar plays a part.

The dollar has decreased against other currencies significantly over the past six years, due mainly to the U.S. trade deficit.

The Euro, for instance, was established as an international accounting currency in 1999 and was worth about one dollar. One Euro is now worth two dollars.

Because crude oil is sold worldwide in dollars, the market price is affected even more severely with outside countries like China and India seeing significant surges.

This means countries are taking advantage of the low value of the dollar by purchasing crude oil at nearly bargain rates and driving up demand, which in turn drives up prices.

Even if the Navajo Oil and Gas Co. did want to decrease the price of its own crude oil, the company makes a straightforward sale to Western Refining, which gives it no control over how and where the oil is used once purchased by the refinery.

According to Gary Hanson, director of corporate communications with Western Refining, one barrel of crude oil yields about 45 gallons of various petroleum-based products.

Of that, less than 20 gallons are used to make gasoline. Another nearly 10 gallons are used to make diesel fuel. The remaining is used for several products including jet fuel, liquefied petroleum gases and heating oil.

The company then sells the refined products to outside companies. This may or may not include the Navajo Oil and Gas Co., which owns seven gas stations across the Navajo Nation.

In this branch of the company, Oil and Gas is in the same gas-guzzling vehicle as the rest of the country.

"We look for the cheapest way to truck in the gas to our stations," said Deborah Klein, manager of Navajo Oil and Gas Co.'s retail end. "Everybody is looking at cost now."

Although the crude from the Navajo oilfields is refined nearby, Oil and Gas - which as an owner of Chevron and Texaco franchises is required to purchase a specific blend of gasoline - might choose to purchase its gasoline elsewhere because of price, Klein said.

Groen pointed out that last summer the company purchased its gasoline from a refinery in Tucson because it was cheaper.

However, that's unlikely now as the price of the fuel used to transport the product across the state has become prohibitive, he said.

Overall, Klein said, of the money paid by consumers at the pump, only about 1 percent of that goes to the stations operated by Navajo Oil and Gas. Like other gas stations, they make most of their profit from in-store concession sales, she said.

However, the tribe does see a significant cash flow in its fuel excise tax. In recent months, some tribal officials have questioned whether repealing that tax could provide some relief for tribal members who are straining under high gas prices.

That's not likely, said Mary Etsitty of the Navajo Tax Commission. When the excise tax was implemented in 1999, it took the place of state fuel taxes.

According to the intergovernmental agreement between the tribe and the three states that overlap the reservation, the tribe would have to inform the states if it repealed the fuel tax.

The states would most likely then reinstate their own fuel taxes, Etsitty said.

In any case, the savings would be minimal. Using her own vehicle, which has a 27-gallon gas tank, as an example, Etsitty pointed out that 18 cents per gallon equals about $4.86 per tank.

At the price of $4.12 per gallon offered Wednesday at the Window Rock Chevron station, that's less than $5 off of a $111 tab.

"There's not a huge savings there," Etsitty said.

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