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New oil tax mitigates oil field shutdown in Alaska


August 31, 2006

ANCHORAGE, Alaska -- The partial shutdown of Prudhoe Bay could cost the Alaska state treasury $500 million to $2 billion, depending on how long production remains crimped, officials estimate.

But thanks to a new oil tax, there still will be plenty of money to run the government, they said.

Alaska gets most of the money it uses to run state government from oil royalties and taxes on North Slope oil production.




Prudhoe Bay is the nation's largest oil field, and it accounts for nearly half of North Slope production.

BP shut down more than 200,000 barrels a day of production after tests found pipeline corrosion problems that resulted in a small spill Aug. 6. BP runs Prudhoe for itself and the four other oil companies with leases in the field, including Conoco Phillips and Exxon Mobil.

The state Revenue Department has laid out four scenarios about how much the Prudhoe disruption could cost the state treasury in the current budget year, which lasts through June 30. The department's estimates vary depending on oil prices and when full production resumes:

- $460 million if the disruption lasts until January and oil prices average $53 a barrel, the price lawmakers used last spring to write this year's state budget.

- $816 million if the disruption lasts until January and oil prices average about $70, the price Wall Street traders are currently estimating.

- $1.1 billion if the disruption lasts until the state budget year ends June 30 and prices average $53.

- $2 billion if the production is reduced through June 30 and prices average $70.

Even with the partial shutdown of Prudhoe, the state is taking in much more oil money than forecasters had predicted last spring, said Michael Williams, the Revenue Department's chief economist.

"Even though we're losing money, we're still ahead of where we were when we did the spring (revenue) forecast," Williams said.

That's because lawmakers this month rewrote a key oil tax so that the treasury gains in times of high oil prices. Today's price is nearly $70 a barrel, much higher than the average price of about $27 over the past decade.

After BP announced the planned shutdown, state officials scrambled to figure out if they'd need to slash spending or risk running out of money to fund state government. The uncertainty prompted Gov. Frank Murkowski to impose a statewide hiring freeze.

He lifted the freeze last Friday, however, after the Revenue Department finished its analysis, which found that revenue is tracking well ahead of what had been expected when lawmakers wrote this year's $3.4 billion state budget, Williams said.

The agency found that even with the 200,000-barrel shutdown, the state would take in more than $2 billion beyond what was forecast if oil prices average $70 a barrel. At $53 a barrel, the windfall because of the higher tax would be around $308 million, the department's analysis shows.



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Ketchikan, Alaska