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ANS production, prices, down this year; volumes to rise long term
Kristen Nelson Petroleum News
The Alaska Department of Revenue released its Revenue Sources Book Dec. 11, with projections reflecting a decrease in Alaska North Slope crude oil prices and decreasing production.
“Drilling and investment were sharply reduced this year, and are reflected in the lower near-term forecast, but we are hopeful that new developments will contribute to stabilizing production over the coming decade,” Revenue Commissioner Lucinda Mahoney said in a cover letter.
She said the revenue forecast for fiscal year 2021 is based on ANS crude oil prices averaging $45.32 per barrel, rising to $48 for FY 2020 and - based on inflation - reaching $57 per barrel by FY 2030.
“The oil price forecast is based on future market prices and reflects expectations of sluggish oil demand and ample global supply over the long term,” Mahoney said.
Revenues from oil and gas, which powered state unrestricted general fund spending for years, have been supplanted, as production declines, by investment dollars, primarily from the Alaska Permanent Fund. In FY 2020, investment provided $3 billion in unrestricted funds, 66%, compared to petroleum at $1.1 billion, 24%. (Petroleum also contributed some $600 million, 15%, to restricted state revenues, which collectively accounted for 48% of state revenue, $4.1 billion, compared to $4.5 billion in unrestricted.)
In the RSB, the department said petroleum revenue - production tax, royalties, property tax and corporate income tax - is projected to provide between 19% and 22% of unrestricted revenue over the next 10 years.
ANS price, production ANS oil prices averaged $52.12 per barrel in FY 2020. The department noted that it changed how oil prices are forecast in 2019, with the short-term price forecast - for the current and next fiscal year - “derived from futures market expectations for Brent crude.” Beyond that, “the price forecast is held constant in real terms, increasing with inflation.”
ANS crude oil production averaged 471,800 barrels per day in FY 2020 - a volume which excludes 10,000 bpd of natural gas liquids from Prudhoe that are sent to Kuparuk to be used in enhanced oil recovery. Those barrels, Revenue said, are counted by the Alaska Oil and Gas Conservation Commission but are not counted by Revenue when they are produced at Prudhoe to avoid double counting when the barrels are ultimately produced at Kuparuk.
Production is forecast to average 477,300 bpd in FY 2021 and then decline to 439,600 bpd in FY 2022, after which “production is forecast to stabilize and increase to 481,800 barrels per day by the end of the 10-year forecast period.”
Expenditures, revenues Allowable oil and gas lease expenditures in FY 2020 were an estimated $6 billion statewide, $5.5 billion of that on the North Slope, Revenue said. For FY 2021, the expectation is that those will decrease to $4.3 billion statewide, $3.9 billion on the North Slope.
Expenditures are expected to increase in FY 2022 and FY 2023, “as activity increases at existing fields and as companies make expected investments in new developments,” including billions to bring Pikka and Willow into production.
ANS transportation costs averaged $8.16 per barrel in FY 2020 and are expected to average $9.21 in FY 2021 and $9.91 in FY 2022. “Transportation costs are subtracted from the ANS price to form the basis for tax and royalty calculations,” Revenue said.
Total petroleum revenue - unrestricted and restricted - was $1.7 billion in FY 2020, Revenue said, down $915 million, 34.9%, from FY 2019, and is projected to be $1.187 billion in FY 2021, down $518 million, 30.4%, dropping to $1.090 billion in FY 2022, down 8.1% from the previous fiscal year.
Production forecast In its 10-year production forecast, broken out by North Slope fields and Cook Inlet, Revenue sees statewide production rising from 485,300 bpd in FY 2020 to 488,900 bpd in FY 2021, dropping off to 450,900 bpd in FY 2022, and then rising to 458,200 bpd in FY 2023, and climbing fairly steadily to 494,100 bpd in FY 2030.
The biggest contributors to the increase by FY 2030 are fields which fall in the department’s “other” category - projects under development and evaluation outside of existing production areas. The list includes Alkaid, Guitar, Narwhal, Pikka, Placer and Smith Bay. Pikka is the largest of these currently under development. The “other” category grows from no production in FY 2021, to nominal volumes in FY 2022 and 2023, is estimated at 9,000 bpd for FY 2024, 23,600 bpd in FY and grows steadily thereafter to an estimated 96,500 bpd in FY 2030.
The other large growth area is the National Petroleum Reserve-Alaska, which includes GMT1, GMT2, Willow and Umiat. Production is forecast at 2,200 bpd in FY 2021, growing to 19,900 bpd in FY 2023, 41,400 bpd in FY 2024, with volumes up and down thereafter but estimated at 55,000 bpd in FY 2030.
Most current producing areas have reduced production over the 10-year period, but the Kuparuk satellites - Meltwater, NEWS, Nuna-Torok, Tabasco, Tarn and West Sak - estimated at 30,900 bpd in FY 2021, drop slowly through FY 2027 and then increase to 33,600 bpd in FY 2030.
- KRISTEN NELSON
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