State will receive $1 billion more in oil revenues, thanks to high prices

Alaskans are groaning at the gas pump, but those high prices are fattening the state treasury. State revenues from oil and gas are expected to increase by $1 billion this year compared to estimates made in December, the state Department of Revenue said in its latest revenue forecast.

A revised forecast issued by the state April 6 estimates Alaska will now receive a $10.14 billion in oil and gas income, mostly from production taxes and royalties, in the current state budget year, which ends June 30. Most of the increase results from higher crude oil prices.

“While higher than anticipated oil prices has given Alaska a strong revenue outlook, the long-term health of the state’s finances and Alaska’s economy depends on stemming the continued decline in North Slope oil production,” Revenue Commissioner Bryan Butcher said.

Production from the Slope has been declining at about 6 percent a year, but the large producing fields have been declining at higher rates of 7 percent to 8 percent annually.

The latest forecast assumes that Alaska North Slope oil prices will average $114.59 per barrel in the current fiscal year, compared to an $109.33 per barrel average assumed in the December estimate.

Capital investment by the industry in the producing North Slope fields is expected to remain flat, at $2.3 billion in the current budget year compared with the previous year, the forecast indicated. Alaska requires producers to submit capital investment estimates when they file production tax returns.

Operating expenses in the producing fields continues to rise. About $2.86 billion is being spent in operations this year compared to $2.61 billion last year. Operating expenses per barrel rose from $12.50 per barrel last year to $13.50 this year. When capital expenses are added, the total per-barrel cost rose from $22.60 per barrel to $24.50 per barrel, according to the forecast.

The per-barrel operating and capital costs rise partly because production is declining and the costs, many of them fixed, are spread across fewer barrels being produced. While some capital costs are for projects outside the producing fields, such as for exploration drilling, the bulk of the costs are in the producing fields.

Butcher said the flat capital investment in the face of higher prices is a real concern.

“It reflects a lack of capital investment in the state,” by industry, he said.

The commissioner blames lackluster investment on the state’s oil production tax, which takes an increasing percentage of net revenues as oil prices rise, dampening any incentive for producers to invest.

Most of the capital investment in the North Slope fields is in maintenance and replacement of pipelines and production facilities and not in developing new oil, the commissioner said.

Alaska Gov. Sean Parnell is pushing the state Legislature to modify the state production tax, but state lawmakers have deadlocked on the issue. The Legislature adjourns its 2012 regular session April 15.