December 10, 2004
North Slope oil has averaged $43.16 per barrel through November. The department's fall revenue forecast projects high oil prices will persist through Fiscal Year 06, with an average price of $43.61 in FY 05, and $34.50 in FY 06.
This forecast projects a fiscal year-end surplus in FY 05 of $653 million based on last year's authorized operating budget of $2.33 billion, Corbus said. While the unanticipated windfall is good news for the state, the volatility in the price of oil underscores the need for action by the Legislature on a fiscal plan, Corbus said.
"We can use these high prices as an excuse to do nothing about our traditional mismatch of recurring revenue and spending or we can view these high prices as buying a little time to follow through on the Governor's initiatives to put our fiscal house in order," Corbus said.
Despite record high oil prices, the Department expects General Fund unrestricted revenues to decline in FY 06 along with oil prices.
While Corbus expects any gap
between FY 06 revenues and spending to be covered by withdrawals
from the Constitutional Budget Reserve Fund, he said this illustrates
the need to act while those funds are still available.
Since October when the department began formulating price estimates for the fall revenue forecast, the state has seen oil prices fall by more than $15 per barrel. This dramatic price swing demonstrates the extreme volatility of oil prices. Corbus warned that depending on high oil prices is not an acceptable strategy for dealing with the state's fiscal situation.
The purpose of the forecast is to provide the Governor, the Legislature and citizens of the State of Alaska with a summary of state revenues and a forecast of future revenues.
The revenue forecast is categorized into four major components: oil taxes and royalties, non-oil taxes and fees, federal dollars, and investment revenues. The forecast contains projections through FY 15.
Oil revenues continue to dominate the unrestricted revenue picture - expected to provide more than 80 percent of unrestricted revenue through FY 08, and then steadily decline to 74% by FY 15.
The forecast also updates production details. The forecast reduced FY 05 production estimates from the spring forecast due to unplanned disruptions and planned work that reduced flow for longer than anticipated.
The restricted portion of the State's budget is dominated by federal dollars and Permanent Fund investment earnings.
In anticipation of the possibility that Congress and President Bush may open a portion of the Arctic National Wildlife Refuge (ANWR) to exploration and development, the forecast examines USGS estimates for the size and distribution of petroleum reserves, and translates those into possible revenues.
"Revenues could be as much as a half-billion dollars a year by 2024 based upon our price forecast of $25.50. However, even if Congress gave authorization to President Bush today, it could be a decade before we see a steady flow of revenue from ANWR," said Corbus.
Despite extreme volatility
over the past week, current worldwide market strength for petroleum
is evident in this forecast. FY 05 is forecasted to have an
all-time record high for Alaska North Slope crude, and the long-term
forecast has been increased from $22.00 to $25.50. Through November,
the price of ANS has averaged $43.16 per barrel this fiscal year.
Source of News Release: