Increase from OctoberFall 2017 Revenue Sources Book shows $247 million increase in general fund Kristen Nelson Petroleum News
The Alaska Department of Revenue released its fall 2017 Revenue Sources Book Dec. 12, with a final fall forecast of oil price, oil production and state revenue. The department issued a preliminary forecast in October, and the final has a $247 million increase in fiscal year 2018 general fund unrestricted revenue, attributable to unexpected prior-year production tax payments, an adjustment in royalties deposited to the general fund, an increase in the oil price forecast and what the department characterized as “general refinement of the estimate and modeling with completion of the final forecast.”
For FY 2017, general fund unrestricted revenue was $1.35 billion, the lowest since the late 1990s. GFUR is forecast at $2.1 billion for FY 2018 and $2 billion for FY 2019, and is expected to be at $2.8 billion by FY 2027, the end of the forecast period.
Alaska North Slope oil prices are forecast to be $56 per barrel in FY 2018 and $57 in FY 2019, up $2 per barrel and $1 per barrel respectively from the preliminary forecast.
“Oil markets appear to have come into balance compared to prior periods,” Revenue Commissioner Sheldon Fisher said in a press release, “and the Department of Revenue projects that annual average prices will stabilize around $60 per barrel in real terms going forward. In nominal terms, this means that oil prices are expected to increase to $75 per barrel by the end of the ten year forecast period.”
Forecast North Slope oil production is essentially unchanged from the preliminary forecast, the department said, and is expected to average 533,000 barrels per day in FY 2018 and decline moderately to 492,900 bpd by FY 2027, “based on the expectation of several new developments beginning production over the coming decade to help offset most of the declines from existing fields,” the department said.
Oil prices In the forecast Revenue noted that the most sensitive variable in the revenue forecast is the price of oil, which averaged more than $100 a barrel from FY 2012 to FY 2014, and then plunged, reaching a low of $30 per barrel in early 2016. Prices have nearly doubled since then, the department said, and for most of the last year have traded in a range from the mid-$40s to the mid-$50s.
“The fall 2017 forecast is based on the expectation that oil markets are likely to stabilize around the $60 per barrel range, in real terms, in the foreseeable future,” the department said.
At current and expected prices each $1 increase or decrease in price translates to some $30 million in state unrestricted revenue.
Production Alaska North Slope crude oil production averaged 514,900 bpd in FY 2016, increasing to 526,500 bpd in FY 2017.
In Cook Inlet, production decreased, from 16,600 bpd in FY 2016 to 14,100 bpd in FY 2017.
In its forecast, the department uses three categories: currently producing; under development, new wells and pools that are planned and funded, with production expected within the first 12 months of the forecast period; and under evaluation, new wells and pools expected to be in production in years two through 10 of the forecast, and which don’t currently have final funding decisions or partner alignment.
With current production, the forecast is at the pool level, by experts from the Alaska Department of Natural Resources using data from the Alaska Oil and Gas Conservation Commission. This is the least speculative category in the forecast, with production from developed reserves where production characteristics are known and infrastructure is in place.
Under development volumes are based on information by operators in plans of development and include planned infill wells, as well as projects which have funding, approval and a drilling plan. Production is expected within the next 12 months.
“Because all oil in this category requires some level of capital investment and the use of equipment, there is potential for each of these projects to be delayed or abandoned,” the department said, there is a 5 percent risk factor assigned to each project.
Under evaluation volumes are forecast based on concepts and plans presented by operators and performance from analogue wells, and these volumes are from projects expected to start producing in years two through 10 year of the forecast.
“Most of the oil in this category is from discovered but currently undeveloped oil accumulations, though conceptually, the category could also include future infill drilling and other activities that lead to incremental oil production from existing fields,” the department said.
These projects may still have hurdles, such as funding, owner sanctioning or regulatory approval, and each is assigned a project-specific risk factor.
And, as with under development volumes, there is the possibility for these projects to be delayed or abandoned.
Volumes by field Revenue is projecting Prudhoe Bay production to average 228,600 bpd in FY 2018, declining gradually to an average of 206,700 bpd in FY 2027. Volumes for Prudhoe Bay satellites (Aurora, Borealis, Midnight Sun, Orion, Polaris, Sag River, Schrader Bluff and Ugnu), with the Milne Point unit included in that grouping, are forecast to average 57,500 bpd in FY 2018, gradually declining to 43,100 bpd in FY 2027.
The Greater Point McIntyre area, including Lisburne, Niakuk, Point McIntyre, Raven, West Beach and West Niakuk, is projected to average 30,500 bpd in FY 2018, declining to 24,900 bpd in FY 2027.
The FY 2018 average for Kuparuk is projected at 82,600 bpd, declining to 73,300 bpd in FY 2027, while Kuparuk satellites, including Meltwater, NEWS, Tabasco, Tarn and West Sak, are pegged at 23,900 bpd in FY 2018, declining to 24,900 bpd in FY 2027.
Endicott, including Minke, Sag Delta, Eider and the unrelated Badami, is projected at 8,200 bpd in FY 2018, declining to 7,400 bpd in FY 2027.
Alpine, including Fiord, Nanuq, Qannik, Mustang, CRU 5th and Fiord West, is expected to average 63,100 bpd in 2018, dropping to 34,300 bpd in FY 2027.
Offshore, a category including three fields in production - Northstar, Oooguruk and Nikaitchuq - and the undeveloped Liberty field, is shown as 35,800 bpd in FY 2018, down to 33,300 bpd in FY 2027.
NPR-A is not expected to be producing in FY 2018, but is estimated at 16,300 bpd in FY 2027.
Point Thomson is expected to average 3,100 bpd in FY 2018, rising gradually to 7,400 bpd in FY 2027.
The other category - projects under evaluation outside of established areas - including Pikka, Placer and Smith Bay, is not expected to have production until FY 2022, with an average of 100 bpd shown, increasing to an average of 23,600 bpd in FY 2027.
Cook Inlet is projected to average 16,700 bpd in FY 2018, rising to 22,200 bpd in FY 2019 and then declining to some 10,500 bpd in FY 2027.
Overall North Slope production is estimated at 533,400 bpd in FY 2018, dropping to 492,900 bpd in FY 2027.
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