State releases price, production preview

Revenue projects $58.72 for ANS crude on West Coast for fiscal ’06; $53.60 for ’07; long-term not reevaluated this year

Kristen Nelson

Petroleum News

The Alaska Department of Revenue released a price and production preview early to make numbers available to the Legislature for earlier than normal budget discussions, Revenue Commissioner Bill Corbus said March 7. He said the price-production forecast may also be useful as legislators discuss the administration’s proposed production profits tax. The departments’ spring forecast book will be available, he said, in early April.

The overall message was that while oil prices are up, North Slope production continues to decline.

Corbus said high Alaska North Slope oil prices will push unrestricted general fund revenues to about $4 billion for the current fiscal year, 2006, an estimated $3.4 billion for FY ’07 and an estimated $3 billion for FY ’08. These forecasts, he said, are all based on the state’s present production severance tax with the economic limit factor, not on the administration’s proposed PPT.

This compares to $3.2 billion for FY ’05 and $3.8 billion estimated for FY ’06 in the fall forecast.

But Corbus warned that oil prices are volatile: “what goes up can also come down.”

“Three times during the last two decades, the price of oil dropped more than $15 a barrel over a seven-week period,” he said.

Petroleum revenues are expected to account for 80 percent of Alaska’s general fund revenues through FY ’08 and 70 percent through FY ’13.

There are risks in forecasting, Corbus said, noting that the pipeline leak that occurred at Prudhoe Bay March 2 is reducing production volumes by 90,000 bpd.

West Coast ANS price forecast at $58.72

The department’s longer-term forecast, for FY ’09 through FY ’16, remains unchanged since last fall at $25.50.

Michael Williams, the department’s chief economist, said forecasts for the farther out period are only reviewed every other year and that number will be reviewed this fall.

Corbus also noted that the price differential between ANS on the West Coast and West Texas Intermediate has stabilized in the $2-$3 a barrel range.

The department has begun including natural gas prices, in anticipation of a natural gas pipeline, and estimates Henry Hub prices of $9.73 per million Btu in FY ’06, $7.53 for FY ’07 and $6.89 for FY ’08. Here the changes are a mixed bag: The December’s fall forecast had FY ’06 gas at $9.19, FY’ 07 at $7.79 and FY ’08 at $6.79, so the ’06 and ’08 forecasts are up, the ‘07 forecast is down.

Production down

Based on forecasts utilizing currently known reserves, North Slope production for FY ’06 is estimated to average 853,000 barrels per day, with production falling off to 825,000 bpd in FY ’07 and to 803,000 bpd in FY ’08 and declining to 772,000 bpd in 2016. Also by 2016, “new oil will be around 50 percent of total production,” Corbus said, “stressing the need for investment” and for more exploration.

Whereas price forecasts are up from the fall, North Slope production forecasts are down. In December the department expected an average of 865,000 bpd in FY ’06, 843,000 bpd in FY ’07 and 832,000 bpd in FY ’08.

Williams said the state has tended to overestimate production forecasts since 1999.

There are two reasons: “first is the maturity of the Prudhoe Bay field,” which has been producing for almost 30 years and has problems “associated with an aging field,” such as the pipeline leak that occurred last week.

“To reflect this reality, our production rate for future years has been decreased,” he said.

The other reason the state tended to overestimate is “because of the difficulty developing the heavy oil” on the North Slope. Heavy oil development requires “new techniques and new technologies,” slowing development and the state has changed its forecast to reflect this.

The department continues to make adjustments to its production forecast, Williams said, and has incorporated “a revised reservoir performance analysis on declining fields, reviewed the uncertainty associated with the pace and scope of developing satellite fields and reevaluated unplanned downtime at all fields, especially Prudhoe Bay.”

The reduction is about 30,000 bpd over the next five years, he said.