The volume of North Slope crude oil production may be going down but prices are going up and that means higher state oil revenues.
That was the conclusion of the Alaska Department of Revenue's fall forecast. While it was gloomy in its projections of oil production -- with volumes down from the spring forecast -- the department is predicting increasing prices for Alaska North Slope crude oil and, as a result, rising revenues.
Unrestricted petroleum revenue was about $7 billion in the last fiscal year, 2011. It is forecast to be a little more than $8 billion in 2012, the current fiscal year, and then drop to about $7.5 billion in 2013, $7 billion in 2014 and $6.3 billion in 2015.
North Slope crude production, which averaged 603,000 barrels a day in FY 2011, is forecast to drop to 574,000 barrels a day in 2012, 555,000 barrels per day in 2013, rebounding slightly in 2014 to 561,000 barrels a day and then dropping again in 2015 to 538,000 barrels per day.
The growth in unrestricted petroleum revenue, while production is dropping, is entirely the result of stronger prices.
The North Slope wellhead value -- West Coast price less transportation costs and other deductions and adjustments -- is growing: from $87.32 a barrel in FY 2011 to a projected $100.61 a barrel this fiscal year, to $100.91 in 2013, dropping to $100.25 in 2014 and to $99.61 in 2015.
Compare that to FY 2002, when the North Slope wellhead value was $17.04 a barrel.
The department said its forecast is compiled from several sources, including a state price forecasting session, the New York Mercantile Exchange futures market (as of late October), oil market analysts' forecasts and the U.S. Energy Information Administration.
"In the long run," the report said, "fundamental economic factors of supply and demand ultimately drive oil prices," and predicting future prices requires an understanding of long-term economic growth, the demand for refined products, global crude reserves and "the economics and politics of recovering those reserves."
The department said its price forecast for West Texas Intermediate and North Slope crude "reflects a consensus view of stable oil demand growth and modest supply increases in the short and medium term. In the long term, the forecast reflects stabilizing oil demand growth that puts pressure on world oil production and tightens oil markets. ...
"For FY 2012 and 2013, we are forecasting higher capital expenditures (by oil companies in Alaska), with the majority of the increase occurring in currently undeveloped areas of the state," the department said. Revenue said it included exploration and development plans by several newcomers to the state, "despite the speculative nature of those plans."
The department said it anticipates possible new developments on both state and federal lands in the next 10 years, with most of the opportunities to add production on state lands from "expanded heavy/viscous oil development (Orion), continued satellite development at Alpine (Nanuq and Alpine West fields), and continued developments at Oooguruk and Nikaitchuq."
By KRISTEN NELSON
Petroleum News