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NEWS BULLETIN

December 12, 2000 --- Vol. 6, No. 59December 2000

Revenue sees several years of production a 1 million barrel-a-day level

In its fall revenue forecast, the Alaska Department of Revenue projects that while high oil prices will likely produce a budget surplus of more than $100 million this fiscal year, crude oil prices will trend back toward historic averages of less than $20 a barrel, requiring a $500 million draw on the constitutional budget reserve in fiscal year 2002.

Production is expected to average a million barrels a day for the fiscal year ending June 30, and continue at that level through fiscal year 2007, but production at the state's two major fields, Prudhoe Bay and Kuparuk, will continue to fall, Revenue Commissioner Wilson Condon said Dec. 12. Production at those fields will be replaced by new fields coming on line in satellites in both areas, he said.

In terms of revenue, Condon said, "focusing specifically on the production tax part of it, we will continue to see the effective tax rate on North Slope production fall given the operation of the economic limit factor. For this year the average production tax rate is going to be eight and three-quarters percent. Next year that will fall to seven and a half percent."

The economic limit factor reduces the nominal severance tax rate on a producing reservoir based on the average rate of production from the reservoir and the average productivity of the wells producing that reservoir.

The ANS West Coast price, which was $23.27 a barrel in fiscal year 2000, is projected at $30.17a barrel for this fiscal year and $24.28 a barrel for fiscal year 2002 (West Texas Intermediate prices of $24.82 a barrel, $31.93 a barrel and $26.01 a barrel, respectively).

Study to look at feasibility of gas line to southern Kenai Peninsula

Subsidiaries of Homer Electric Association and Enstar Natural Gas Co. have signed a memorandum of understanding with Unocal Alaska for a feasibility study of a natural gas transmission pipeline on the southern Kenai Peninsula.

Norm Story, Homer Electric Association general manager, said in a Dec. 12 statement that Alaska Electric Generation and Transmission Inc. (of which Homer Electric is the primary owner), Alaska Pipeline Co. (a subsidiary of Enstar) and Unocal have signed a memorandum of understanding for a study of gas supply and demand, natural gas requirements, technical and engineering constraints and regulatory and financing issues.

The proposed pipeline would run south from the Kenai gas fields to the town of Ninilchik, then south to Anchor Point and ultimately to Homer. In the future, the companies said, this pipeline could transport and deliver natural gas from the southern peninsula to the existing industrial and residential customers on the Kenai Peninsula and the Railbelt.

Spur lines would be constructed to serve individual customers and to pick up gas from other producing gas fields along the proposed route. The entire pipeline from Kenai to Homer would be about 75 miles long. The final project plan, scope and construction phases will be determined as part of the study. Capital cost for the entire system is estimated at $45 million dollars.

Construction on portions of the project could begin as early as 2002.

AEG&T would own the natural gas transmission line, Enstar would own and operate retail distribution spurs from the gas transmission line and Unocal would be a shipper of gas on the system.

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