Conservative production forecast revised upward

Following the passage of oil tax reform, the Alaska Department of Revenue (DOR) is now anticipating North Slope oil production to increase 13,600 barrels per day (b/d) in fiscal year 2014 over what was projected in its December 2013 forecast. The increase reflects short-term revisions in the state’s production and revenue forecast that relate to increased drilling activity on the North Slope.

The spring 2014 revenue forecast update shows a $374 million (7.6%) increase from the previous estimate in General Fund Unrestricted Revenue for fiscal year FY 2014.

The spring forecast for North Slope oil production revises expected production from 508,200 b/d to 521,800 b/d. The change reflects actual daily production levels that have consistently outperformed those that were forecast in the fall of 2013.

“I have been following the state forecasts for 15 years, and this is the first time production is higher than expected,” said Kara Moriarty, President and CEO of the Alaska Oil and Gas Association, and RDC Executive Board member. “This is beyond welcome news for a state that relies on oil and gas revenues to fund 90 percent of its unrestricted spending.”

Moriarty said the revised forecast confirms that oil tax reform is driving new production and working as intended. “Oil tax reform was engineered to boost production, and the new forecast predicts thousands of more barrels of oil flowing through the pipeline,” Moriarty said.

The conservative spring forecast is simply an update of the previous fall 2013 forecast and does not factor in new investment and potential new development. The coming fall 2014 forecast will be the first one under the new tax system, and the first budget cycle companies can evaluate projects with tax certainty.

“I expect to see many questions answered between now and then, hopefully resulting in high enough levels of certainty to begin incorporating new production into our revenue forecast, said DOR Commissioner Angela Rodell.

“In order to maintain stable or increasing unrestricted state revenue in the future, we will need to see higher oil prices and/or stable or increased production,” Rodell said. “I remain firm in my belief that with the More Alaska Production Act, we have a tax regime that can address the one factor we can influence – increasing production.”

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