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Revenue Forecast Shows Highest Ever Oil Prices


December 10, 2004

Juneau, Alaska - Alaska Department of Revenue Commissioner Bill Corbus on Thursday released the fall revenue forecast for the State of Alaska, which shows a record all-time high price for Alaska North Slope crude oil.

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.

The Constitutional Budget Reserve Fund, the cash reserve the state has used in 9 of the past 12 years to balance the budget, is now forecast to fall below $1 billion in FY 09 and be depleted by FY 11. That assumption is based on flat spending by the state based upon a $2.3 billion annual budget.

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:

Alaska Department of Revenue
Web Site



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