Oil future stable, state official says
A combination of rising oil prices and tapering declines in production has given Alaska a projected 50 percent increase in unrestricted revenues from what it was expecting just six months ago.
Department of Revenue Commissioner Pat Galvin Thursday released the state's biannual Revenue Sources Book, which includes a projection of $4.8 billion on unrestricted revenue for next fiscal year, up from the previous estimate of $3.2 billion produced last spring.
Oil prices in the past year have gone for a "wild ride," Galvin said, reaching record highs and then taking an unprecedented fall earlier in the year.
The revenue projections will be used by Gov. Sean Parnell, who will propose a state budget next week, and the Legislature, which will adopt next year's budget in its session beginning Jan. 19.
Oil price projections for next year have risen 15 percent, to $66.93 per barrel, but because oil taxes increase progressively when profits are higher, that's resulted in the projection of a 50 percent increase in revenues, to $4.8 billion.
That's down from the record revenues of the last few years, when North Slope crude oil fetched prices as high as $147 a barrel, but well above the depths to which they subsequently fell. The Department of Revenue now believes that oil prices will stabilize near current levels and slowly climb as economic growth continues.
"Our longer term oil price forecast is based on an expectation of gradual economic recovery for the U.S. and other developed nations, and a corresponding gradual increase in demand for petroleum products," Galvin said.
The department expects oil to climb to $100 a barrel by 2019.
A key part of the positive forecast was a smaller decline in oil production than had been expected. In recent years, declines have been 6 percent or more, but in 2009, the decline was only 3.3 percent.
The department expects more decline in the next few years, followed by an increase 2012 with the new Nikaitchug field coming online, and production starting at Point Thomson in 2014.
Oil companies have bitterly complained about the state's oil tax increases under the Alaska's Clear and Equitable Share Act, passed in 2007. They said it will prevent them from investing in the state to produce more oil and stem the decline of aging fields.
ACES required new information sharing with the state, however, and Galvin raised questions among state officials about whether that decline is really happening.
There's a conflict between the companies' public statements, which say investment is going to be lower, and the data they've provided, he said.
"We're trying to figure out where that disconnect is coming from," he said.
ACES raises taxes when oil prices are high, but also allows tax credits for exploration and new investments. Galvin said the act helps make the state a partner with the industry.
Several state legislators and other oil industry allies have urged the state to significantly reduce oil taxes to spur more development, but Galvin said the state is not hearing details of what would get more production from the companies.
Galvin said Gov. Sean Parnell is committed to a stable tax environment, but is willing to consider improvements that would help production.
"If companies are saying that they need to have changes to foster investment, to foster job creation, show us what you need," Galvin said.
Oil taxes represent 89 percent of the state's unrestricted general fund revenue for the current year, a dominance of the state budget that is likely to continue through the forecast period to 2019, Galvin said.
The Revenue Sources Book also projects somewhat smaller tourism revenues in the next few years, but Galvin said that should not have much impact on the state budget.
"Tourism isn't a primary driver of state revenues; overall the impact is fairly low," he said.
• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.