Oil revenue forecast down, driven by dropping oil prices, production

The Revenue Sources Book, released Dec. 4 by the Alaska Department of Revenue, projects a $2 billion drop for fiscal year 2014 (ending June 30, 2014) in all oil and gas revenues, which form the majority of the state’s unrestricted general fund revenues.

FY ’14 includes six months of oil taxes collected under ACES, Alaska’s Clear and Equitable Share, the old production tax system, and six month of oil taxes collected under the changes enacted in Senate Bill 21, which the administration is now calling MAPA, the More Alaska Production Act, most of the provisions of which become effective Jan. 1.

Unrestricted petroleum revenues for FY ’13, which ended June 30, totaled $6.352 billion (with $15.8 billion from all sources, compared to the spring forecast of $17.696 billion from all sources), while the projected total for unrestricted petroleum revenues in FY ’14 is $4.36 billion, $3.935 billion for FY ’15 ($12.76 billion for all revenues in FY ’14 and $12.342 billion in FY ’15).

The largest portion of unrestricted oil and gas revenues comes from oil and gas production tax: $4.1 billion in FY ’13 and projections of $2.1 billion in FY ’14 and $1.7 billion in FY ’15.

“This is a significant revision to our unrestricted revenue from the previous forecast,” Revenue Commissioner Angela Rodell said in a statement. “It is clear that the single-most influential contributor to the revision is a reduced oil price expectation.” In the spring forecast the Alaska North Slope crude oil price on the West Coast was projected at $109.21 per barrel; the actual came in at $107.57.

Rodell said the elimination of progressivity and capital credits under ACES are roughly offset by the new 35 percent base rate and per-barrel credits under MAPA.

“Alaska will see at forecasted prices a similar revenue stream between the current and previous oil tax systems,” she said.

Oil price down

Major contributors to changes in the FY ’14 through FY ’15 revenue forecast include (in order of significance): reduced price expectation; increase in lease expenditures (deductible for tax purposes); increased transportation charges; and closeout of ACES North Slope credits in FY ’14.

Compared to the spring 2013 forecast, Alaska North Slope production is down 18,400 barrels per day to a fall forecast of 508,200 bpd for FY ’14, compared to a spring 2013 forecast of 526,600 bpd for FY ’14.

The forecast for the FY ’14 price of Alaska North Slope crude oil, $109.61 per barrel in the spring forecast, is $105.68 per barrel in the fall forecast, down $3.93 per barrel.

Projected deductible lease expenditures, however, are up: Estimated at $6.146 billion in the spring forecast, they are listed at $6.6 billion in the fall forecast, an increase of $454 million. Transportation costs are also up, from a projected $8.87 per barrel in the spring forecast to $10.11 per barrel in the fall forecast, an increase of $1.24 per barrel, based on a higher cost per barrel for moving fewer barrels.

Overall, the average production tax value of a barrel is down by $9.23 in the fall forecast.

The MAPA tax rate of 35 percent compares to an ACES tax rate of 34.9 percent for FY ’14. For FY ’15, with the price forecast at $105.06, compared to $111.67 in the spring forecast, and with production projected at 498,400 bpd compared to 512,800 bpd in the spring forecast, the MAPA tax rate of 35 percent compares to an estimated ACES rate of 32.6 percent.

Increased capital expenditures

That includes announcements by companies, such as additional rigs, as well as projects not yet announced, but which industry has discussed with the state confidentially.

North Slope lease expenditures for FY ’13 were capital expenditures $2.948 billion and operating expenditures of $3.11 billion, totaling $6.057 billion (up from $2.383 billion capex and $3.001 billion operating in FY ’12, totaling $5.385 billion).

Forecast expenditures for FY ’14 are $3.929 billion capex, $3.083 billion operating, totaling $7.012 billion; FY ’15 $4.894 billion capex, operating of $2.893 billion, totaling $7.788 billion.

Alaska North Slope production, which averaged 531,600 bpd in FY ’13, is estimated at 508,200 bpd in FY ’14 dropping to 312,900 bpd in 2023.

FY ’13 production declined 8.2 percent from FY ’12, Rodell said, and the production forecast for the next couple of years has been reduced based on increased natural gas liquids reinjection for enhanced recovery of oil — as opposed to shipment of those NGLs down the trans-Alaska oil pipeline for sale — along with higher intensity of summer maintenance and decreased production expectations at legacy fields.

Rodell said that given all the changes, the impact of the change from ACES to MAPS is approximately $250 million to $300 million in FY ’14, “primarily due to the impact of closing out ACES capital liabilities.”

“In FY 2015, we can report that the two tax systems generate similar revenues at the forecasted price, expenditure and production levels,” Rodell said, as the elimination of ACES progressivity and capital credits are roughly offset by the 35 percent base rate and new per-barrel credits under MAPA.

—Kristen Nelson