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State: Oil prices to hit record high

Corbus: Projection won't end state's fiscal woes

Posted: Friday, April 16, 2004

The state is predicting record prices for Alaska North Slope oil for fiscal year 2004, at $31.13 per barrel, state Revenue Commissioner Bill Corbus said Thursday.

The price volatility and strong short-term market conditions are being driven by a strong global demand for oil, particularly in China; instability in Iraq; the production of non-OPEC oil and fluctuation of world currencies, Corbus said. But he cautioned the high oil-price projection doesn't mean the end of the state's fiscal woes.

"The state still maintains a structural financial problem that must be addressed," he said.

The state is projecting continued high prices through fiscal year 2005, with an average price of $28.30. At that price, the $2 billion Constitutional Budget Reserve - tapped to cover deficits in 10 of the last 12 years - would last until 2008. That's a year longer than previously predicted.

Corbus said the state is also projecting oil production of 985,000 barrels per day for fiscal year 2004, and an average of 962,000 barrels per day for the period between 2004 and 2013.

Chuck Logsdon, the state's chief petroleum economist, said the decrease in projected production is due to older fields, such as Prudhoe Bay, hitting a natural decline.

"With the new oil we're expecting, we're not expecting enough of a rate to come on to offset the decline (of existing fields)," Logsdon said.

For example, developing fields only account for 2,000 barrels per day of the FY 2004 production projection. In FY 2005, the state projects a decrease of 55,000 barrels per day by existing fields and an increase of 45,000 barrels per day from developing fields.

The forecast estimates oil revenue will account for 87 percent of the state's unrestricted revenue in FY 2004, and decline to 72 percent by FY 2015.

Corbus said the state estimates the Constitutional Budget Reserve will be depleted in May 2008. To prolong the reserve's life, Gov. Frank Murkowski has placed a $400 million cap on the state's annual budget-reserve draw.

The estimated depletion of the budget reserve is based on a $2.3 billion annual state budget.

There are some other natural resource revenue generators on the horizon. Brett Fried of the state Revenue Department said mining development is on the rise, including the proposed Kensington Mine northwest of Juneau. But Fried said the state won't see any revenue from new mines for 3 1/2 years after they go into operation, because that's when the mine license tax kicks in.

There is also a projected increase in mining revenue, from $400,000 in FY 2003 to $3 million in 2005. Fried said that is due to large price increases in gold, zinc and silver. He said the price of gold has risen 17 percent in the last year to date from the previous year. Zinc prices have increased 25 percent and silver prices have gone up 49 percent.

• Masha Herbst can be reached at masha.herbst@juneauempire.com.



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