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April 2017

Vol. 22, No. 17 Week of April 23, 2017

Objections raised to production numbers in DOR’s spring forecast

There was an unusually political reaction to the Alaska Department of Revenue’s April 14 release of the spring update to its Revenue Sources Book.

The release was later than usual, and some legislators questioned whether this was to prevent access to higher production and revenue numbers than projected in the fall forecast.

The other issue was a steep drop shown in the forecast for Alaska North Slope production from fiscal year 2017 to fiscal year 2018.

Revenue Commissioner Randall Hoffbeck addressed those issues April 14 at a Senate Finance Committee hearing. On the issue of when the forecast was released, he said it had been in final draft form about a month ago, but that draft didn’t take into account a DOR Advisory Bulletin which clarified existing regulations on application of per-taxable-barrel credits for non-GVR (legacy) oil.

If the spring forecast had been released when the draft was completed, the department would have had to come back later and report an additional $100 million in revenue once companies complied with the advisory bulletin, Hoffbeck said, telling Senate Finance they had finalized the last numbers at 4 o’clock the preceding afternoon.

Both oil price forecasts and oil production forecasts are up by 7 percent for FY 2017 (the fiscal year ending June 30) compared to the fall forecast, Hoffbeck said. Post-FY 2018 the oil price forecast is unchanged from the fall forecast, and long-term prices, in FY 2025 and beyond, are expected to settle in the $70-$75 per barrel range, he said.

The spring forecast for the FY 2017 ANS West Coast per barrel price is $50.05, compared to $46.81 in the fall forecast, while ANS oil production is now forecast at 523,700 bpd for FY 2017, up from 490,300 bpd in the fall forecast, both 7 percent increases.

Alaska North Slope deductible lease expenditures, on the other hand, are down 7 percent from the fall 2016 forecast, an estimated $4,519.2 million in the spring forecast, compared to $4,867.6 million in the fall.

Production forecast another issue

The other wrinkle Hoffbeck addressed was the FY 2018 ANS production forecast - 459,900 bpd in the spring forecast compared to 455,600 bpd in the fall forecast, a 1 percent difference.

With the uptick in the FY 2017 volume, however, that would mean a 12 percent drop in ANS production between FY 2017 and FY 2018.

Hoffbeck said the department is not forecasting a decline. What happened, he said, is that the current year’s numbers are updated but the Department of Natural Resources only does a whole new forecast in the fall, so the FY 2018 forecast number is stale.

Chantal Walsh, director of DNR’s Division of Oil and Gas, said the fall forecast was the first DNR had done. Ed King, special assistant to the DNR commissioner, said DNR did the forecast in the fall for delivery to the Department of Revenue in the fall. That has not been updated for spring, he said, so the numbers shown for FY 2018 are stale. He said DNR does not anticipate a 12 percent decline over the next year.

Walsh said Alaska has just finished a second year of flat production on the North Slope with virtually no decline from major fields but cautioned that expecting production to hold flat for multiple years with low oil prices would be rather optimistic. We have seen flat production for two years, she said, noting that there had been flat spending.

King said the process has been the same over the last five years, whether the forecast was done by a consultant or in-house, with the spring production numbers just an update. He said the department is collecting the numbers that will go into the next forecast, but said DNR didn’t have the resources to do a full field-by-field forecast the way they do it in the fall.

Hoffbeck said FY 2017 unrestricted general fund petroleum revenue was up 20 percent from the fall forecast, $1,158.5 million, compared to the fall forecast of $966.9 million, an increase of $191.6 million.

For FY 2018, the forecast price of ANS on the West Coast remains the same as the fall forecast, at $54 per barrel while unrestricted general fund petroleum revenue is projected to be up by 16 percent from the fall forecast, $1,279 million compared to the forecast $1,099.8 million, an increase of $179.2 million.

- KRISTEN NELSON






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