The State of Alaska expects both oil prices and production to drop in the coming years, but also anticipates more than $1 billion in additional revenue this current year due to a revised oil tax, according to new Department of Revenue figures released on Jan. 9.
The state estimates the average price of a barrel of Alaska North Slope crude oil delivered to the West Coast will be $72.64 in the current fiscal year. According to the state, the price has already averaged $80.51 through Dec. 20, 2007.
On Jan. 9, the price of Alaska North Slope crude oil closed at $93.97.
But the state expects the average price to drop to $66.32 in fiscal year 2009, and drop again to $63.40 the following fiscal year. Looking farther down the road, the state expects oil to decline considerably after fiscal year 2015, where it estimates the average price to be $41.05 per barrel.
The state is typically cautious in preparing price forecasts, which form the basis for the annual operating budget.
First sign of ACESIn the current fiscal year, the state expects to bring in nearly $1.4 billion more than it did in fiscal year 2007, largely the result of the tax increases passed by state lawmakers this past November and recently signed into law by Gov. Sarah Palin.
The legislation, called Alaska’s Clear and Equitable Share, increased the base tax on oil revenues from 22.5 percent to 25 percent, along with a mechanism designed to increase the tax rate as oil prices rise and several retroactive elements.
As a result, the state this current fiscal year expects to bring in around $6.6 billion in unrestricted revenue, the funding pool for most legislative allocations and public budget requests.
The state generated around $5.2 billion in unrestricted revenue in fiscal year 2007, but the forecast anticipates those revenues will drop to around $5 billion in fiscal year 2009.
The oil industry continues to be the largest source of unrestricted revenue for the state, accounting for around 87 percent, or $4.6 billion, of all unrestricted state revenue generated in fiscal year 2007.
The state expects oil revenues to dominate the coffers for the foreseeable future, estimating the industry will account for 89 percent of all unrestricted funds this current fiscal year, and around 88 percent in fiscal year 2009.
Production declines to continue indefinitelyBut in the mid-term forecast, oil revenues are expected to account for only around 70 percent of the unrestricted revenue pool by fiscal year 2015 with expected declines in production and pricing.
Oil production has dropped 63 percent since hitting a peak in 1988, but prices have tripled since then, helping to offset the loss.
The state expects average daily production this current fiscal year to drop 1.2 percent to 731,000 barrels per day, a decline Revenue Commissioner Pat Galvin attributed in large part to “planned and unplanned shut-downs.”
Galvin expects the aging North Slope oil fields will require more maintenance in the coming year, and built more “down time” into the production forecast. Therefore oil production is expected to drop 4.1 percent, to 701,000 barrels per day, in fiscal year 2009.
However, Pioneer Natural Resources should bring the Oooguruk field in the Beaufort Sea online this year, which would create a bump in production, although not enough to offset declines at the two largest North Slope fields, Prudhoe Bay and Kuparuk.