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$5.4B in revenue expected for FY 2011 Alaska expects oil revenues to continue rising in the coming decade despite falling production, as production taxes yield more Eric Lidji For Petroleum News
The Alaska Department of Revenue expects the state to collect $5.37 billion in unrestricted revenue in fiscal year 2011 and $5.74 billion in FY 2012.
The preliminary fall forecast, released on Nov. 26, represents a slight increase over the projections the state made in its spring forecast released this past April. That forecast projected unrestricted revenues for the current fiscal year at $5.29 billion.
However, the state over-estimated its revenues for FY 2010. The state ended up bringing in nearly $125 million less than the roughly $5.63 billion it projected this past spring.
The state brought in $2.87 billion in production tax revenue in FY 2010. It expects those revenues to fall to $2.61 this fiscal year, but rise in FY 2012 to $2.73 billion. Altogether, the state raised $4.91 billion unrestricted revenue from the oil industry in FY 2010, a figure it expects to fall to $4.67 billion in FY 2011 and rise to $5.06 billion in FY 2012.
Tempered production declines The forecast predicts continued, but tempered, production declines.
Alaska North Slope production averaged 644,000 barrels per day in FY 2010. The forecast expects that to fall to 616,000 bpd in FY 2011 and 622,000 bpd in FY 2012. By 2020, the end of the forecast period, the state expects production to be at 520,000 bpd.
Over the next decade, “new oil,” or production from fields currently under development or evaluation, is expected to represent an increasing percentage of total production.
In FY 2011, these new fields are expected to account for 5.2 percent of total production, a figure the state expects to be above 50 percent by the end of the decade, meaning that existing fields would only be producing some 255,000 barrels per day by 2020.
New production is even harder to predict than production from existing fields, because so many factors can lead to development getting delayed or cancelled. For instance, BP recently suspended work on its Liberty project, one of the fields included in the forecast.
Tax revenues projected to rise Despite falling production, the state expects oil production tax revenues to steadily rise over the coming decade because of steadily rising oil prices. The state projects an ANS West Coast real price, in 2010 dollars, of $75.88 for FY 2011 and $78.30 for FY 2012 (or a nominal price of $77.96 per barrel in FY 2011 and $82.67 per barrel in FY 2012).
It expects nominal prices to top $100 per barrel in FY 2016.
Oil revenue currently accounts for 89 percent of all unrestricted revenue. The forecast expects that to drop slightly to 87 percent and 88 percent in FY 2011 and FY 2012 respectively, but then to rise and stay above 90 percent for the second half of the decade.
The state expects oil industry spending to increase in the short term.
The forecast predicts $5.12 billion in operating and capital expenditures in FY 2011 and $5.49 billion in FY 2012, up from actual spending of $4.65 billion FY 2010. As a result, the forecast also projects a rise in the tax credits the state gives for certain expenses, from $350 million in FY 2010 to $400 million in FY 2010 and $450 million in FY 2012.
Full forecast still to come The Department of Revenue typically issues an in-depth forecast of revenue each fall and a smaller update each spring. The department still planned to release its traditional revenue “source book” on Dec. 3, after Petroleum News went to print, but issued the preliminary fall forecast a week and a half earlier because the state wanted general revenue details to be available to support a state bond sale in early December.
On Nov. 23, Revenue announced that Moody’s Investors Service had upgraded the state’s bond rating to AAA, its highest grade, for the first time in the history of the state.
The rating applies to $200 million in General Obligation bonds the state plans to sell in December. Revenue said the new rating would save the state “tens of millions of dollars.”
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