Revenue Dept. expects lowest oil revenue since 1979
The State of Alaska’s traditional revenue sources are expected to fall to the lowest level in more than 40 years when the current fiscal year ends and the situation is only expected to get worse before it gets better.
Department of Revenue leaders released the Fall 2020 Revenue Sources Book Dec. 11, which projects the state will collect just more than $1.22 billion in unrestricted revenue from sources other than the Permanent Fund in the 2021 fiscal year that ends June 30. Revenue officials expect the state will collect $1.18 billion from the oil and gas industry and business taxes and fees in fiscal year 2022.
While the state has been mired in annual budget deficits since 2013, it has been 41 years since the last time Alaska’s longstanding revenue picture — primarily from oil and gas — was this bleak. Production on the North Slope was just ramping up in 1979 when the state collected $1.13 billion, according to the Legislative Finance Division.
These days, however, total unrestricted state revenue also includes nearly $3.1 billion per year via a 5 percent of market value, or POMV, annual draw from the Permanent Fund. Earnings from the Permanent Fund will continue to comprise approximately two-thirds of all unrestricted state funds for at least the next decade, according to the revenue forecast.
The fund has rebounded from early-year market disruptions that nearly pushed its balance down to $60 billion to now hold an unaudited value of more than $72 billion as of Dec. 11.
The pandemic is largely to blame for the revenue declines in the form of lower oil prices and, indirectly, less North Slope oil production in the coming year. The price for a barrel of Alaska North Slope crude is expected to average $45.32 in the 2021 fiscal year and $48 per barrel in fiscal 2022 that starts July 1.
Still, those prices are a significant improvement from the projections made at the start of the pandemic in the Spring 2020 Revenue Forecast, which forecasted $37 per barrel Alaska oil in 2021.
At the time, oil markets worldwide were flooded and prices were in the $20 per barrel range. The price of Alaska North Slope crude averaged $42.60 per barrel as of Dec. 11 in fiscal 2021 but it is currently trading at approximately $50 per barrel. Oil markets have been buoyed in recent weeks on the prospect of COVID-19 vaccines and other treatments soon easing the global economic toll of the virus.
Revenue officials noted in a formal statement accompanying the forecast that North Slope oilfield operators sharply curtailed drilling and other investment plans earlier this year when Alaska North Slope oil prices fell to sub-$10 per barrel. Those decisions are likely to be felt in 2022 when an average of 439,000 barrels of oil per day are expected to flow through the Trans-Alaska Pipeline System.
Production in 2021 was averaging 483,750 barrels per day as of Dec. 11, but is expected to end the fiscal year at 477,300 barrels per day after averaging 472,200 barrels daily in 2020.
North Slope production is expected to gradually begin growing again and reach nearly 482,000 barrels per day by 2030.
ConocoPhillips, the largest producer in the state, curtailed production in May and June and suspended its entire North Slope drilling program during the oil price trough in April. Company leaders have since said they are working to slowly resume drilling by the end of the year.
The production cut equated to 45,000 barrels per day less production year-over-year from ConocoPhillips operated fields from in the second quarter of 2020, according to the company.
Oil Search also revised development plans and pushed the production schedule back slightly for its large Pikka prospect on the central North Slope in response to the challenging conditions presented by 2020. Last year the company planned to produce its first oil at Pikka in late 2022 and eventually reach 120,000 barrels per day after several more years of development work.
The company now expects to pump the first commercial oil from the project in 2025 with daily production reaching 80,000 barrels per day in the first phase of the redesigned project.
Elwood Brehmer can be reached at [email protected].