JUNEAU — The state is expecting nearly $2 billion less in oil and gas production taxes this year, which Revenue officials say has more to do with lower-than-expected oil prices and declining production than with the new oil tax law.
The fall revenue forecast, released Wednesday, shows that the state expects to receive nearly $2.1 billion in unrestricted revenue from the production tax, compared with an estimated $4.1 billion in fiscal year 2013 and $1.7 billion in fiscal year 2015.
Revenue Commissioner Angela Rodell said lower oil prices are expected to continue having the largest impact on the state’s revenue picture. The forecast is based on an Alaska North Slope oil price of $105.68 a barrel for this fiscal year, which ends June 30, and $105.06 a barrel in fiscal 2015. Last spring, the department forecast oil prices of $109.61 a barrel for the current year and $111.67 for 2015.
Oil revenue accounts for more than 90 percent of Alaska’s unrestricted revenue, which is money that isn’t restricted in its use by the law, constitution or something else. Gov. Sean Parnell has already said he wants state spending to be far less than current levels for the upcoming year due to the expected revenue decrease.
The state expects total unrestricted revenue of $4.9 billion this year, down from $6.9 billion last year. It is forecast at $4.5 billion for 2015 and isn’t expected to exceed about $5.1 billion through 2023. The production tax is forecast to get as high as $2.3 billion during that same time period. Oil prices — always volatile — are forecast to range from about $105 a barrel to around $130 a barrel near the end of the forecast period.
Legislators in April passed an oil tax cut supported by Parnell that is aimed at increasing oil production, which has been on a downward trend for years. Much of that law takes effect Jan. 1, meaning the current fiscal year is divided between the former oil tax system and the new one.
Department officials attributed some of the revenue decline to factors including the residual effects of the outgoing tax system, such as the closeout of credits, and higher-than-expected deductible lease expenditures.
In comparing the two tax systems, the department says the state would see similar revenue in 2015 and 2016 at forecast costs, production levels and oil prices of roughly $105 to $108 a barrel. Parnell said the new law will better protect Alaskans in a low-price environment, but it does not take as much on the higher end — should prices start to rise — as the old system.
Sen. Bill Wielechowski, D-Anchorage, said the report confirms his fears about the oil tax overhaul, which he argued strongly against during the last session.
“I think it’s safe to say it’s a complete and utter financial train wreck for the state of Alaska, based on the governor’s own data,” he said.
The report estimates production this year at around 508,000 barrels per day, compared with more than 530,000 barrels per day last year, and about 498,000 barrels per day in 2015. The overall decline trend continues through 2023, even as new oil is extracted, with production forecast at roughly 313,000 barrels per day that year.
Wielechowski said that shows the new tax is a flop.
But Mike Pawlowski, oil and gas program director for the state Revenue Department, said the forecast does not include all the projects on the horizon, including heavy oil and shale. Revenue officials also have said it’s difficult to project production more than a couple years out.
Rodell said the department sees “significant upside potential” if current and planned projects come in on time and at projected levels. She noted that companies have publicly announced or told the department of plans to invest $10 billion over 10 years, a figure that she said exceeds what the department projected last spring.
“I am optimistic that we are going to turn this around,” Rodell said. It will take time and patience, she said, but production numbers in next fall’s report will be better than those in the latest report because of additional production coming on line.
Wielechowski also expressed skepticism about the amount of oil that would be considered eligible for special tax breaks under the law. About 7 percent of oil is expected to fit that category this year, increasing to 11 percent by 2022, according to the forecast. He thinks those figures are probably too low.
Senate Finance Committee co-chair Kevin Meyer said he sees no real bright spots in the revenue forecast, though he said the new tax system “looks even better” to him as oil prices go lower. He said the new system also does away with credits that weren’t necessarily leading to more production and would have been increasingly difficult for the state to cover.
Meyer said he believes the new tax system will lead to more production but Alaskans should expect some lean budgets in the meantime.
Savings are expected to be used to help balance budgets over the next few years as officials wait to see if the new tax system — if it stands — has the desired impact on production. The tax overhaul will be the subject of a referendum that voters will decide next year.