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Forecast up on price
ANS at $53.05 per barrel for FY 2021, $61 in FY 2022 in spring update
Kristen Nelson Petroleum News
The Alaska Department of Revenue had some good news to share March 15 when it released its Spring 2021 Revenue Forecast: Both the projected Alaska North Slope crude oil price and ANS production are up from December’s fall forecast.
In a March 16 presentation to the Alaska Legislature’s Senate Finance Committee, and later in the day to the House Finance Committee, Revenue Commissioner designee Lucinda Mahoney said that, compared to fall, revenues are moving in a much better direction.
Unrestricted revenues for the current fiscal year, FY 2021, are now forecast at $1.572 billion, up $331.7 million from a fall forecast of $1.240 billion, and up $459.6 million for FY 2022 - $1.662 billion compared to $1.203 billion in the fall forecast.
The increases, Mahoney said, are mostly due to higher forecast oil prices but also reflect an increase in the production forecast.
Petroleum revenues are a significant portion of the state’s total revenue - the third largest source, almost 20% in the last fiscal year, FY 2020, behind federal revenue at just over 48% and investment earnings at almost 21%.
Unrestricted general funds, UGF, the monies with which the Legislature primarily deals, totaled $4.529 billion in FY 2020, with almost $3.0 billion from investment ($2.933 billion of that from the Alaska Permanent Fund), followed by petroleum revenue at $1.083 billion and non-petroleum revenue at $455 million.
Oil price In FY 2020, the ANS oil price averaged $52.13 per barrel - and was forecast in the fall to drop to $45.32 per barrel in FY 2021, the current fiscal year, and rise to $48 per barrel in FY 2022. The state’s fiscal year is July 1 through June 30.
The spring forecast shows the ANS oil price at $53.05 per barrel for FY 2021, up $7.73 from the fall forecast, and $61 per barrel for FY 2022, up $13.
Dan Stickel, chief economist for the Department of Revenue, told legislators the oil price forecast is drawn from financial markets, which show the current outlook somewhat improved, driven by international supply and demand.
The current ANS price forecast is based on futures market projections as of the final week of February, he said, and noted that oil prices have stabilized over the last few months.
Oil price forecasting is extremely challenging, Stickel said, and as a result the department looks at a range. The economic recovery is going better than expected in the fall, he said, and there is optimism around COVID-19.
Oil price impacts the state’s unrestricted general funds, UGF, he said: Based on forecast North Slope production of 459,700 barrels per day, for each dollar drop in the price near the current forecast, there is a $25 million drop in UGF; for each dollar increase in ANS, there is a $35 million increase.
ANS production ANS production averaged 471,800 barrels per day in FY 2020 and is now forecast to average 482,000 bpd in FY 2021 and 459,700 bpd in FY 2022 - but climbing again to reach 565,000 bpd by FY 2030.
In the fall forecast, FY 2021 ANS production was forecast to average 477,300 bpd, dropping to 439,500 bpd in FY 2022, and rising only to 494,100 bpd in FY 2030.
(ANS forecasts exclude 10,000 bpd of natural gas liquids from Prudhoe Bay which are shipped to the Kuparuk River field for use in enhanced oil recovery.)
The volume increases are 4,700 bpd in FY 2021 and 20,100 bpd in 2022, and an increase of 83,700 bpd by FY 2030 (a 1% change for FY 2021 and a 4.6% change for FY 2022, increasing to a 17.4% change from the fall forecast by FY 2030).
In discussing the ANS production forecast changes, Stickel said that there is a slight increase in FY 21 followed by a slight decrease in FY 22, with increases thereafter.
He said the FY 22 decrease is the result of very little drilling last year after most work on the North Slope shut down due to COVID-19. Stickel said it is the department’s understanding, reflected in the forecast, that drilling resumes in existing fields.
The increases over the forecast period are partly the result of reevaluation by the Department of Natural Resources of the decline rate for larger currently producing fields. DNR, he said, determined that decline rates are lower than expected and that, combined with the expected positive impact of higher oil prices on new field development, results in higher forecast production levels.
Lease expenditures Stickel said allowable lease expenditures for the North Slope were $2.6 billion in capital expenditures and $2.9 billion in operating expenditures in FY 20 and are projected to drop in FY 21 and recover only partially in FY 22.
The spring forecast shows a total of $5.544 billion for FY 20, $2.911 billion in operating expenditures and $2.633 billion in capital expenditures, down substantially to $3.799 billion ($2.362 billion operating and $1.437 billion capital) in FY 21 and recovering only partially, to $4.891 billion in FY 22 ($2.376 billion in operating and $2.514 billion in capital expenditures).
There have been dramatic cutbacks in capital spending due to COVID, Stickel said, although there are some signs of recovery.
On the operating side, he said, many of the reductions are likely to become permanent as companies have figured out how to make cost-reduction changes permanent.
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