FAIRBANKS -- Anyone looking for evidence that oil production in Alaska is headed up and up because of the SB 21 tax change will not find it in a new report from the Alaska Department of Revenue.
The report, released Wednesday, predicts there will be new production in the years ahead, but not enough to offset the continued decline of the largest oil field in North America.
Parnell administration officials predicted repeatedly over the past year that the report would show that the SB 21 tax law had stopped the decline in North Slope oil production.
Former Revenue Commissioner Angela Rodell said last spring she hoped for "high enough levels of certainty to begin incorporating new production into our revenue forecast" as of this month.
Others took up the "no mas" banner in advance of the repeal vote on SB 21 and the governor's race: "The news that we have 'stopped the drop' in our oil production for the first time in more than 10 years is no surprise to those of us who believe creating a competitive investment climate will bring more rigs, more jobs, and more oil to the state," Kara Moriarty, president of the Alaska Oil and Gas Association, said in July.
Drop hasnt stopped
While the production level in fiscal years 2013-2014 did stay the same, the current fiscal year, 2015, is likely to record a 4 percent drop in production from last year's level, the Department of Revenue said this week.
The report predicts that if things go well, oil production in the "expected investment case" is likely to decline by 2024 to 455,000 barrels a day, more than 50,000 barrels a day below the current rate.
But that assumes that a variety of new projects already in the works would come in "on-time, on-budget and on-target." Because that is unlikely, the state adds a fudge factor and adjusts the prediction downward.
The "adjusted expected investment case," which attempts to account for the uncertain future, shows oil production dropping more than 200,000 barrels a day over the next decade, slipping to 315,000 barrels a day by 2024.
In the "low investment case," which means "nearly no new investment," oil production would drop to about 222,000 barrels a day by 2024.
Oil production in the last fiscal year was 531,000 barrels per day, a level that won't be matched this year because of the 4 percent decline, though the next fiscal year could see a rebound to 524,000 barrels a day, the report says.
In 2017, when Point Thomson is expected to start producing 10,000 barrels a day, production is expected to total 534,000 barrels a day.
For 2018, the department predicts a drop to 503,000 barrels a day, with a steady pattern of decline in the years after that.
In Cook Inlet, meanwhile, production has increased to almost 16,000 barrels a day and may increase "modestly," but productions taxes to the state are "negligible" because of incentives in state law.
It is possible that other North Slope oil projects will be developed and brought online over the next decade, but the department says that until a project has been approved and funded by a company with a drilling plan, "the expected future volumes from it are not even considered undeveloped; rather these contingent or prospective resources are considered too uncertain to include with any degree of certainty."
For the short term, oil prices are expected to stay well below $100 because of the changing world economic situation, but the value of oil is expected to return to the $100 range in the "mid to long term," the authors said.
The SB 21 tax change reduces state revenue at times when prices are in triple digits, especially above $120 per barrel, but at lower prices it is a tax increase. The new law contains a ban on using tax credits to drop below the minimum 4 percent gross tax that applies to the majority of North Slope production.
Under the former system, Alaska's Clear and Equitable Share, tax credits could be taken to reduce a tax below 4 percent, but under SB 21, it is only so-called "new oil" that is eligible for a rate below 4 percent of the gross value of the oil.