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Revenue forecast reflects lower price, higher volume from spring
There are two major changes from prior forecasts, Department of Revenue Acting Commissioner Marcia Davis said Dec. 10 in releasing the Revenue Sources Book Fall 2014, both impacting near-term revenue.
A small production increase is a positive for the state, more than offset by a large drop in oil prices, a big negative.
“North Slope oil production between FY 2013 and FY 2014 held steady, and it is expected to increase by approximately 15,000 barrels per day and 10,000 barrels per day in FY 2016 and 2017, following decline of 22,000 barrels per day in FY 2015,” Davis said.
“Given the forecast in investment trends, we expect that oil production should remain above 500,000 barrels per day for the next three fiscal years.”
However, oil prices are significantly lower than previously forecast for the near term, she said, down 40 percent to less than $65 per barrel from $110 per barrel in July.
Based on lower oil price forecasts, “we expect unrestricted revenue of $2.6 billion and $2.2 billion for FY 2015 and FY 2016, respectively,” Davis said. This compares to $5.4 billion in FY 2014.
“After FY 2016, we believe that oil prices will recover above $90 per barrel and remain higher throughout our forecast period to FY 2024.”
Total revenue $17.2B Total state revenue was $17.2 billion in fiscal year 2014, with general fund unrestricted revenue of $5.4 billion, Davis said in an introductory letter to Gov. Bill Walker.
Davis said oil revenue continues to dominate unrestricted general fund revenues, with approximately 88 percent of FY 2014 unrestricted revenue attributable to oil revenue.
The sources book notes that the $17.2 billion from all sources for FY 2014 makes it the state’s second highest revenue year in history.
Based on the current forecast of dropping oil prices, total revenues for FY 2015 and FY 2016 are forecast at $10.1 billion and $9.9 billion, respectively.
The forecast of unrestricted revenue of $2.6 billion and $2.2 billion for FY 2015 and FY 2016 “is a significant revision to our unrestricted revenue from the previous forecast,” Revenue said in the sources book.
The oil price issue Revenue said because Alaska is a price taker in the global market, it cannot exert any significant pressure on future oil prices by altering its production level.
Oil prices are determined on a global basis, the department said, listing several major contributing factors: inventory levels; infrastructure; geopolitics; natural disasters; warfare; action by the Organization of the Petroleum Exporting Countries; macroeconomic events; and financial market trends and speculation.
“In the longer term,” the department said, “fundamental economic factors of supply and demand drive oil prices.”
The department’s spring forecast was for a weighted wellhead value for Alaska North Slope crude oil of $95.25 per barrel for FY 2015; the current forecast is for $67. For FY 2016, the spring forecast was $98.07 - an increase from FY 2015. The current forecast is for $56.86 per barrel in FY 2016, a further decrease from FY 2015, with the price forecast to begin rebounding in FY 2017.
The production issue The difference between the spring and fall forecasts goes the other way on production, starting with FY 2014. The spring forecast was for 536,300 barrels per day (North Slope and Cook Inlet combined) in FY 2014, with the fall forecast at 546,900 bpd, up 10,600 bpd, a 1.98 percent increase.
For FY 2015, the spring forecast was for 507,500 bpd, compared to the current forecast of 526,100 bpd, a difference of 18,600 bpd, up 3.67 percent.
The decline rate between FY 2013 and FY 2014 ANS production was 0.1 percent, nearly no decline, Revenue said.
“The primary drivers in this extremely low decline rate were enhanced recovery, well counts increasing above those expected and operational seasonality,” Revenue said.
Cook Inlet saw its fourth annual increase, averaging 15,838 bpd in FY 2014, a 30.3 percent increase from FY 2013. “Early indications suggest that production in Cook Inlet will increase modestly next year based on projections for continued investment increases.”
Revenue said it is anticipating an increase in development, with increased production volumes over the next two years, higher than in recent years’ forecasts.
The change in forecast varies by North Slope producing area, with the Prudhoe Bay forecast lower while the Prudhoe Bay satellite forecast is higher, as is the Greater Prudhoe Bay area (Lisburne, Niakuk, Point McIntyre, Raven, West Beach and West Niakuk).
The forecast is for lower production from both Kuparuk and the Kuparuk satellites, while Endicott and Alpine both show increases. Offshore production (Northstar, Oooguruk and Nikaitchuq) is lower in the current forecast, while Cook Inlet production is forecast to be higher.
Statewide, the fall 2013 forecast for FY 2015 was 510 thousand bpd, which dropped to 507.5 thousand bpd in the spring forecast, rising to 526.1 thousand bpd in the current forecast.
- Kristen Nelson
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