Despite slight production dip, state oil revenue grows in FY18
Oil production was down a bit but higher oil prices likely afforded the State of Alaska a little more revenue than expected during the 2018 fiscal year.
The final cumulative tally for North Slope production in fiscal year 2018, which ended June 30, was 190.3 million barrels, or an average of 521,398 barrels per day.
In March, the Department of Revenue issued its Spring Revenue Forecast with a daily 2018 North Slope production prediction of 521,800.
North Slope production in fiscal 2017 averaged 526,500 barrels per day, making for a decline of about 0.9 percent.
The spring publication is a regular update to the annual Revenue Sources Book the department publishes each fall. The spring forecast, which usually provides greater accuracy than the one done released each December, is meant to provide legislators with more current information as they plan out the state’s budget for the upcoming fiscal year.
The situation for oil prices was much the opposite. Revenue officials in the spring forecast upped their fiscal 2018 Alaska North Slope average oil price projection to $61 per barrel from $56 per barrel last fall.
Similarly, the price estimate for 2019 was increased to $63 per barrel from $57. Alaska oil sold for $49.43 per barrel in 2017.
Revenue was supposed to increase by $200 million-plus in fiscal years 2018 and 2019 based on the higher price assumptions in the spring forecast, but that will likely rise further given the actual average price for the 2018 fiscal year was higher yet at $63.61 per barrel, or 4.3 percent greater than the spring prediction.
Revenue officials wrote via email that because June taxes aren’t collected until late July it is still too early to provide a preliminary estimate, but higher oil prices of late should push the state beyond the $2.3 billion forecast for unrestricted General Fund tax and royalty revenue during the year by at least $100 million, they said.
The indeterminate increase in revenue will help pay down the state’s budget deficit, which has previously been pegged at about $700 million for fiscal year 2019, which began July 1. In May the Legislature passed operating and capital budgets totaling roughly $4.7 billion to largely be paid with unrestricted General Fund revenue of about $2.3 billion and about $1.7 billion from the Earnings Reserve Account of the Permanent Fund. The remaining deficit will be filled out of the Constitutional Budget Reserve savings account, which held $2.3 billion on June 30, according to the Revenue Department.
The Fall 2017 Revenue Sources Book originally pegged fiscal 2018 North Slope oil production at 533,400 barrels per day. That would have been the third consecutive year of production growth from the large oil basin after many years of decline.
However, Revenue officials said when the spring forecast was released in March that higher than normal temperatures on the Slope were hampering the efficiency of production facilities and leading to less oil being pulled from the ground each day. As a result, North production is expected to rebound to 526,600 barrels per day in fiscal 2019, according to the spring forecast.
ConocoPhillips is scheduled to bring its Greater Mooses Tooth-1 oil project online late this year, which the company expects should provide up to 30,000 barrels of new oil per day. Additionally, leaders of the small independent Brooks Range Petroleum Corp. have said they expect to produce several thousand barrels per day of oil starting in early 2019 from their greenfield Mustang oil development.
Production on July 9 almost matched the 2019 estimate at 526,489 barrels, but production for the first nine days of 2019 averaged 481,9000 barrels per day. It is common for summer production figures to be significantly lower than winter as facility efficiency is diminished and regular Trans-Alaska Pipeline System maintenance work during the warmer months forces production to periodically be reigned in.
A spring surge in oil prices has helped Alaska oil start fiscal 2019 with an average price of about $79 per barrel, which is 25 percent more than the $63 per barrel expected average.
Former Department of Natural Resources official and economist Ed King, who now manages King Economics Group, wrote June 29 that his firm is projecting average oil prices in the $80 range for the next 12 months.
King added that the gross value of Alaska’s North Slope oil in fiscal 2018 was roughly $12.1 billion, of which he expects the state to ultimately collect about $1.9 billion in unrestricted revenue. That does not account for mandatory royalty payments to the Alaska Permanent Fund and other dedicated allocations.
Elwood Brehmer can be reached at [email protected].