Vol. 28, No.13 Week of March 26, 2023
Providing coverage of Alaska and northern Canada's oil and gas industry

Oil prices, production down in state’s Spring Revenue Forecast

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Kristen Nelson

Petroleum News

Oil prices and oil production are both down, driving the Alaska Department of Revenue’s Spring Revenue Forecast down for fiscal year 2023 and FY 2024 and beyond, compared to the Fall Revenue Forecast released in mid-December.

In December, unrestricted general revenue - before transfer from the Permanent Fund Earnings Reserve - for FY 2023 was forecast at $3.9 billion and $3.4 billion for FY 2024.

The Spring Revenue Forecast, released March 23, forecasts unrestricted general revenue at $3.6 billion for FY 2023 and $2.7 billion for FY 2024, a drop of $0.3 billion for FY 2023 and $0.7 billion for FY 2024.

Both the ANS West Coast oil price and North Slope production are down from the fall forecast, and in that forecast they were down from the spring 2022 forecast.

In the current spring forecast, the ANS West Coast price for FY 2023 is $85.25 per barrel, down $3.20 per barrel, 3.6%, from a fall ANS West Coast price of $88.45 per barrel. In FY 2022, the actual price averaged $91.41 per barrel.

The FY 2024 price is now forecast at $73 per barrel, down $8, 9.9%, from a forecast of $81 per barrel in the fall.

The forecast price is down from the spring forecast for the entire forecast period, through FY 2032.

On the production side, Alaska North Slope volumes are forecast lower for every fiscal year except one, FY 2031, for the forecast period shown, which ends in FY 2032. Non-ANS volumes, Cook Inlet, are also down from the fall forecast through FY 2032.

ANS production is now forecast to average 485,200 barrels per day, down 6,500 bpd, 1.3%, from a fall forecast of 491,700 bpd. For FY 2024, ANS is forecast at 496,400 bpd, down 7,200 bpd, 1.4%, from the fall forecast.

“Driven by this lower outlook for oil price and production, the Unrestricted General Fund (UGF) revenue forecast before accounting for the transfer from the Permanent Fund, has been reduced by $246 million for FY 2023 and $679 million for FY 2024. In addition, reductions to the revenue forecast have been made for years beyond FY 2024,” Revenue Commissioner Adam Crum said in a letter to the governor accompanying the spring forecast.

The forecast said: “projected UGF revenue has been decreased by $246 million, driven by a $295 million decrease in expected petroleum revenue” for FY 2023, while projected FY 2024 revenue “has been decreased by $679 million, driven by a $657 million decrease in expected petroleum revenue.”

Total revenue for FY 2022 was an estimated $8.6 billion from all sources, the forecast said, a decrease of $21.1 billion in total revenue from FY 2021. “FY 2021 represented the highest total revenue in state history, driven by strong investment returns and one-time federal funding,” the forecast said. “In FY 2022, increased petroleum revenue and continued large federal inflows were more than offset by losses in investments.”

Petroleum revenue

There are four components to petroleum revenue - production tax, royalties, property tax and corporate income tax - with four elements critical in the determination of those records, the forecast said: price, production, lease expenditures and transportation costs.

In forecasting oil prices, future market projections are used for as many years as available and then adjusted going forward to increase with inflation.

Unrestricted petroleum revenue, which was $3,480.9 million in FY 2022, is forecast at $3,085 million in FY 2023, $2,204.3 million in FY 2024, $2,006.8 million in FY 2025, and below $2,000 million for the years out to FY 2032.

“The oil production forecast balances projected declines in production of existing fields with incremental production from new fields and new developments,” the forecast said, and noted that there are several new fields in the planning and development process which are expected to contribute to production in the forecast period.

ANS production in this forecast period peaks at 549,200 bpd in FY 2028 (Pikka is forecast to come online in 2026).

Allowable oil and gas lease expenditures - reflecting work at existing fields as well as work to bring new fields online - were estimated at $4.2 billion statewide in FY 2022, with $3.9 billion of that on the North Slope. “Allowable lease expenditures are expected to increase for FY 2023 to $5.4 billion statewide, including $5.1 billion of spending on the North Slope,” and are expected to remain above $5.5 billion per year for the remainder of the forecast period.

Transportation costs for North Slope oil averaged $9.77 per barrel in FY 2022, the forecast said, and are expected to average $9.86 for FY 2023 and $9.61 for FY 2024.


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