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Revenue sees crude prices trending back to long-term average Prices of less than $20 a barrel forecast by fiscal year 2002; high prices this year will produce small budget surplus Kristen Nelson PNA News Editor
In its fall revenue forecast, the Alaska Department of Revenue projects that while high oil prices will likely produce a budget surplus of more than $100 million this fiscal year, crude oil prices will trend back toward historic averages of less than $20 a barrel, requiring a $500 million draw on the constitutional budget reserve in fiscal year 2002.
Production is expected to average a million barrels a day for the fiscal year ending June 30, and continue at that level through fiscal year 2007, but production at the state’s two major fields, Prudhoe Bay and Kuparuk, will continue to fall, Revenue Commissioner Wilson Condon said Dec. 12. Production at those fields will be replaced by new fields coming on line in satellites in both areas, he said.
In terms of revenue, Condon said, “focusing specifically on the production tax part of it, we will continue to see the effective tax rate on North Slope production fall given the operation of the economic limit factor. For this year the average production tax rate is going to be eight and three-quarters percent. Next year that will fall to seven and a half percent.”
The economic limit factor reduces the nominal severance tax rate on a producing reservoir based on the average rate of production from the reservoir and the average productivity of the wells producing that reservoir. Fields producing less than 20,000 barrels per day pay little or not severance tax, Revenue noted in its “Fall 2000 Revenue Sources Book.” Since much of Alaska’s current and projected North Slope oil production will continue to come from old oil fields and new production from small fields, the average tax rate will continue to fall, the department said. Wellhead price projected to fall The ANS West Coast price, which was $23.27 a barrel in fiscal year 2000, is projected at $30.17 a barrel for this fiscal year and $24.28 a barrel for fiscal year 2002 (comparable prices and forecasts for the ANS wellhead price — West Coast less transportation costs, are actual $18.82 for fiscal year 2000, $25.25 for FY 2001 and $19.26 for FY 2002).
Condon said the department’s long-term price forecast is based on a 60-month moving average of ANS West Coast.
“We see prices trending down back to the long-term average where they’ve been since the price crash that occurred at the end of 1985 and the beginning of 1986. And that is a price level that’s somewhere between $16.50 and $18 a barrel for delivered ANS on the U.S. West Coast,” Condon said.
The constitutional budget reserve fund is projected to be exhausted at the end of 2005, he said.
For this fiscal year, the department is projecting an average price of a little more than $30 a barrel with production volumes averaging just a little more than a million barrels a day.
“Focusing on next year, FY 2002, which is the period for which the Legislature will be budgeting during the upcoming legislative session, we are projecting or forecasting a price of a little over $24 a barrel, production volume at a million barrels a day, just the same as this year, and as a consequence of that, a draw on the constitutional budget reserve fund in the fiscal year that will begin next July 1 of a little over $500 million.
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