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Oil drilling rig in the Cook Inlet in Alaska
Stuart Hampton

Another Low Oil Price Casualty: Alaska

by Stuart Hampton | Dun & Bradstreet Editor

December 10, 2015 | No Comments »

Oil drilling rig in the Cook Inlet in AlaskaOil and gas companies are sweating the current low oil prices that have dipped below $40 a barrel for the first time since 2009. Productive but expensive wells are being shut down, big capital-intensive exploration projects are being postponed, and rig counts are in decline.

But oil and gas companies are not alone in feeling the oil price squeeze.

Oil-dependent states like Russia and Venezuela are already facing the economic crunch that low oil prices have placed on them as petrodollar revenues no longer cover their countries’ financial obligations.

The US has an oil-dependent state too — Alaska.

Alaska relies heavily on oil revenues to fund state government, and it is currently grappling with an estimated $3.5 billion budget deficit. In recent years oil and gas production taxes provided 90% of the money available for state lawmakers to spend. That number is now down to about 75%, and it’s not projected to be more than 72% during the rest of this decade.

Alaska is forecasting $1.6 billion in unrestricted general fund revenues in fiscal 2016, down from $2.3 billion last year.

Its traditional oil revenue engine is also in decline. North Slope oil production decreased from 531,100 barrels a day in fiscal 2014 to 501,500 barrels per day in fiscal 2015 (and likely down to 500,000 in fiscal 2016).

In 2012, when oil prices were topping $100 a barrel, the State of Alaska’s production taxes totaled $2.6 billion. This year the state is projecting revenues from oil and gas production taxes of $172 million.

It is so bad that Alaska Governor Bill Walker is proposing instituting a personal income tax (in fiscal 2017) for the first time in 35 years to plug the state’s multibillion-dollar budget deficit.

The state is also hoping that a major liquefied natural gas project may generate new revenues.

Alaska desperately needs oil prices to rise, but with a warm US winter forecast and a moribund Chinese economy likely to remain sluggish, demand for oil is not likely to rise dramatically any time soon. At the same time, there is a global oil glut also suppressing price growth.

Low oil prices seem to be baked into Alaska’s short- to mid-term future.

British editorial veteran Stuart Hampton has been covering oil and gas companies for Hoover’s since the Neogene-Quaternary period. Well, actually, since the early 1990s. For the best overview of the oil industry and its history he recommends Daniel Yergin’s “The Prize.” You can also follow Stuart on Twitter.

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