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Despite oil tax cut, Alaska projects steady production decline for next decade

Pat Forgey
Alaska Revenue Commissioner Angela Rodell, shown here announcing the 2013 Permanent Fund Dividend amount, said her department didn't attempt to make oil production forecasts beyond 10 years out and thus couldn't say whether production would begin increase that far in the future. Loren Holmes photo

JUNEAU -- Despite the passage of Senate Bill 21 last year and claimed success from its supporters, Alaska's Department of Revenue maintains that oil production will not increase in the foreseeable future.

At best, it may briefly stabilize before resuming its decline, Revenue Commissioner Angela Rodell told the Senate Finance Committee during the first week of Alaska Legislature.

Just hours later, Gov. Sean Parnell maintained that there would be more oil production following last year's passage of tax cuts worth billions.

"I also assume we'll have new oil production bringing in new revenue," Parnell told reporters while explaining how the state would cope with deficits.

Years of deficit spending

In addition to Department of Revenue projections showing years of deficit spending consuming the state's savings, similar projections have been made by the University of Alaska's Institute of Social and Economic Research and the Legislative Finance Division since the passage of Senate Bill 21.

On Thursday, Rodell was grilled on those projections, and the Parnell administration claims that additional oil company investments would reverse the state's fortunes.

Oil production in Alaska has declined since peaking at 2 million barrels per day in the late 1980s as the huge North Slope fields gradually run out of petroleum.

Tax cut advocates such as Sen. Pete Kelly, R-Fairbanks, maintained that cuts would reverse that. "Turn the curve with (Senate Bill) 21, that was the mantra," said Sen. Lyman Hoffman, D-Bethel, who opposed the bill last year.

Rodell presented the Senate Finance Committee with the state's 10-year production estimates, released to the public last fall in a document known as the "Revenue Sources Book," something of a bible for Finance Committee members.

Rodell acknowledged that declines similar to those seen before the tax cuts are expected for the 10-year period covered by the book.

Where's the new oil?

Some projects underway may result in new oil, but they are not certain enough to be included in the official projections, Rodell said. It is important for the state to budget conservatively from conservative projections, something that credit rating agencies view favorably, she said.

Hoffman asked if the department was projecting a turnaround beyond 10 years, but Rodell was non-committal. "That's a really hard question for me to answer," she said. "Quite honestly, we don't look that far into the future."

Rodell said she couldn't say when the turnaround would happen. Hoffman wanted to know if it would happen at all. "I can't say one way or another if that will happen," Rodell said.

That's the last the public got to hear on the issue of new production, however. Chairman Kelly stopped the public meeting, moved all the committee members behind closed doors. Fifteen minutes later, the meeting resumed, leaving the production question behind. Kelly did not respond to an inquiry from Alaska Dispatch about the purpose of the closed-door meeting.

Sen. Bill Wielechowski, D-Anchorage, asked at a Thursday press conference about the new oil that was promised in exchange for Senate Bill 21.

"It was going to put a lot more oil in the pipeline, that's what we were told by the oil companies, that's what we were told by the governor, that's what we were told by the majorities," said Wielechowski, a member of the minority caucus of Democrats. The Republican-led majority caucuses in each house supported Senate Bill 21.

Wielechowski said that the range of estimates in the Revenue Sources Book all call for continued declines, even the most optimistic.

In 10 years, the state is projecting 312,000 barrels of oil per day, compared to 2013's average of 531,000 barrels per day.

Contact Pat Forgey at pat(at)alaskadispatch.com.