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State predicts darker future for oil revenue

Revenue commissioner: Production will fall, compounding effect of lower prices

Posted: Friday, April 20, 2007

Alaska's oil money future is getting bleaker, state Department of Revenue officials said Thursday.

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The state expects to receive $4.98 billion this year, less than anticipated despite a peak in oil prices of more than $70 a barrel, Pat Galvin, commissioner of the state Department of Revenue, told a press conference.

This year's income is still the most oil revenue ever for Alaska.

Galvin presented preliminary results of the official Spring Revenue Sources Book, expected to be closely watched in the Capitol as it is released over the next 20 days.

"This does represent a record year for state revenues," Galvin said. At the same time, oil production is expected to drop in coming years, likely compounding the effect of an expected drop in oil prices.

Hopes that the "oil fairy was going to save us" were wishful thinking, Sen. Gary Wilken, R-Fairbanks, said of the forecast.

Oil production was once more than 2 million barrels a day in Alaska, but is now about 740,000 barrels per day.

Production next year is expected to be 3 to 4 percent above this year. Volume last year was driven down by corrosion problems in Prudhoe Bay pipelines and other problems that state officials think have been solved.

The state's new Petroleum Profits Tax produced an additional $805 million last year, Galvin said. That's less than the $813 million that had been previously reported.

State officials are now studying tax returns and trying to determine why the controversial profits-based tax came in below expectations.

"The kind of information that was submitted doesn't help us very much in making that determination," he said.

That amount is likely to drop in the future, he said. The department is forecasting oil prices to decline to $54.72 per barrel in fiscal 2008, down from the $59.81 per barrel year this year.

Oil prices have been unnaturally high recently due to a variety of factors including political tension in critical oil producing regions, said Galvin.

The state's economists, and others nationally, predict a price decline over the long term, Galvin said.

"They tend to see things reverting to a mean," he said. The downward trend is expected to continue to $41.03 per barrel in 2014 and beyond.

In addition, oil companies that earned tax credits from investments this year will likely cash those credits in next year, Galvin said.

The declining production troubles state officials trying to plan for the future.

In the House, Rep. Mike Hawker, R-Anchorage, chairman of the Ways and Means Committee, has been urging development of a plan to help guide the state's response.

Sen. Fred Dyson, R-Eagle River, a member of the Senate Republican minority, said it was clear that more needed to be done to plan for the impending decline.

"Somehow that has not been a priority, and that's disturbing to me," he said.

Wilken has urged that the state develop a plan to use earnings from the Alaska Permanent Fund to provide some state services and bridge the gap until the state's vast reserves of natural gas can be developed.

• Pat Forgey can be reached at patrick.forgey@juneauempire.com.



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