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Revenue’s forecast preliminary
pending review of oil markets
Kristen Nelson Petroleum News
Sheldon Fisher, the outgoing Walker-administration Department of Revenue commissioner, released a preliminary fall revenue forecast Dec. 3, but said issuance of the Fall 2018 Revenue Sources Book has been delayed so the department can review recent oil market developments and the impact on the oil price forecast.
The final fall forecast and the Fall 2018 Revenue Sources Book will be released in advance of the mandated Dec. 15 deadline for release of Gov. Mike Dunleavy’s proposed budget, the department said.
The preliminary forecast shows Alaska North Slope crude oil prices averaging $76 per barrel for fiscal year 2019, which ends in June, and $75 per barrel for FY 2020, which begins in July. Revenue said these price assumptions were finalized in late October. At that time ANS was at about $75 per barrel. “In the month since, oil prices have trended downward,” the department said, with ANS closing below $60 Nov. 28 for the first time since October 2017.
“Once again, Alaska is experiencing unexpected oil price volatility,” Sheldon said, “As has been our practice for the past 15 years, through the month of October the department worked with staff from Revenue, Natural Resources, Labor, the University of Alaska, OMB, and Legislative Finance, as well as a private economics firm and financial analysts to develop an oil price forecast. During November, however, the oil markets have experienced the largest monthly price decline, in percentage terms, in a decade.”
Sheldon said it appears markets are oversupplied due to Iranian oil remaining on the market despite sanctions imposed in November. He said the department assumed, in line with other analysts, that increased Saudi production would replace Iranian oil, but instead Saudi oil added supply, “which has a profound impact on price over the past month.”
Work done so far is presented as a preliminary forecast, with the delay in releasing a final forecast and the Revenue Sources Book allowing for review and potential revision of the oil price forecast.
The delay, Sheldon said, also allows incoming Commissioner Bruce Tangeman and the department “the opportunity to evaluate this situation, with an eye on whether the Saudi government is able to implement production cuts in the short to mid term.”
Revenue from Permanent Fund The department noted that this is its first revenue projection following the passage of Senate Bill 26, which sets the procedure for transferring a portion of the earnings of the Permanent Fund to the general fund each year, with the transfer funding both the Permanent Fund Dividend and general government operations. General fund unrestricted revenue is estimated at $6.2 billion for FY 2019, up $3.9 billion from the spring 2018 forecast.
With Permanent Fund monies, petroleum revenue drops from 80 percent of unrestricted revenue in FY 2018 to 47 percent in FY 2019, 41 percent in FY 2020, and then into the 30 percent range through FY 2028.
Production forecast ANS crude oil production is forecast to average 529,800 barrels per day for FY 2019 and 533,200 bpd for FY 2020, declining to 493,400 bpd by FY 2027, the department said.
ANS production averaged 518,400 bpd in FY 2018, down 3,500 bpd, 0.7 percent, from the spring 2018 forecast of 521,800 bpd. For FY 2019, the fall forecast for ANS is 529,800 bpd, up 3,200 bpd, 0.6 percent, from a spring forecast of 526,600 bpd. From FY 2020 through FY 2026, the fall forecast for ANS production is lower than the spring forecast by amounts ranging from 2,900 bpd in FY 2020 to 23,900 bpd in FY 2024, and then increases fall-over-spring in FY 2027 and FY 2028.
Price, expenditure forecasts The spring 2018 forecast projected $61 per barrel for ANS crude, a number which rises to $63.61 in the fall preliminary forecast.
Thereafter in the preliminary forecast the ANS price is projected at $76 in FY 2019, dropping to $75 in FY 2020 through 2022 and then rising gradually, reaching $86 per barrel in FY 2028.
Those projections, as Sheldon noted, come from work done in October.
ANS lease expenditures, combined operating and capital, were projected at $4.087 billion for FY 2018 in the spring forecast; the fall forecast is $4.379 billion, an increase of $292 million. For FY 2019 through FY 2024, total ANS lease expenditures are estimated at less in the fall forecast, $4.616 billion for FY 2019, down $322 million from a spring estimate of $4.938 billion, and ranging from a decrease of $598 million in FY 2023 to $58 million in FY 2021.
Deductible lease expenditures - amounts deducted against tax liability by producing companies - are $4.066 billion in the fall forecast, up $88 million from a spring forecast of $3.978 billion, and dropping in FY 2019 through FY 2021, and increasing from FY 2022 through FY 2028.
- KRISTEN NELSON
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