ADN opinion: Not to be a spoilsport -
But high oil prices, new taxes mask steeply falling production
adn.com
Published: December 6, 2006
Last Modified: December 6, 2006 at 04:07 AM
Twice a year, the Alaska Department of Revenue issues an oil price forecast. And with it, the department pronounces its official estimate of state revenues, which mostly depend on oil prices.
Just last week the department issued its fall 2006 forecast book, with projections of an extra billion dollars this fiscal year -- thanks to continued high oil prices and the state's new production tax formula.
The words "budget surplus" cause many Alaskans to think of all that the oil riches can buy in the state budget -- increased education funding, roads, harbors, restoring the longevity bonus, adding state troopers, more judges and a big new prison.
All that cash from high prices and new taxes covers up the other statistics in the department's report.
The words "declining production" should cause an equally strong reaction. Too bad they don't for many people.
Old-timers -- Alaskans who have been around almost a decade -- may remember Arco's optimistic slogan: "No Decline After '99." North Slope production was about 1.1 million barrels a day in 1999. This fiscal year, the Department of Revenue is betting on 740,000 barrels a day.
And even that 740,000 barrels assumes no more production problems.
Several new fields -- under development or under exploration -- could push the total back above 800,000 barrels in fiscal 2012, according to the department. But it will be only a temporary reprieve. The official estimate last week projects 696,000 barrels by fiscal 2016.
That's down almost two-thirds from the North Slope peak of 2 million barrels a day in 1988. It's down 30 percent from the "No Decline After '99" pledge. Thank goodness for high prices. Thank goodness for the Legislature's vote this year to jack up oil production taxes. Without those, Alaskans wouldn't be dreaming of higher state aid to schools and restored longevity bonus checks; we'd be having nightmares over budget cuts.
The tax credits for new exploration and development adopted by legislators this year should help spur new oil production. At least that's the idea. The tax credits mean the state will cover more than 40 percent of a company's capital spending for exploration and development.
Higher oil prices and new technology for getting heavy oil out of the ground should also help. But even that combination does not guarantee success. The stuff is thick, of a poorer quality, and a lot of sand comes up with the oil. The rewards could be great, but the risks are formidable.
So as Alaskans count the riches of high oil prices and big tax and royalty checks, remember: Falling production could wipe out those gains. Alaskans -- especially the Legislature and the new Palin administration -- must keep watching those production numbers to see whether the new tax credits are working. If not, the state will need to try another plan.
BOTTOM LINE: Forget 1 million barrels a day; it would be nice just to hang around 700,000-800,000 barrels a little longer. |
