Dunleavy keeps inflating oil production numbers, as he did during campaign

As a candidate for governor, Mike Dunleavy repeatedly promised that he would make some painless budget cuts of $450 million that no one would notice and presto—Alaska would have a sustainable budget. After that, the budget could grow at 2 percent a year and oil production and revenue would keep climbing. “We can grow our way out of this,” he said many times.

He is now promoting drastic budget cuts that everyone has noticed, while still saying oil production and revenue will allow the state to grow our way out of this.

For the state to have an actual fiscal plan, as opposed to a loose collection of campaign statements, we need a realistic assessment of our financial situation. We haven’t seen that from the new administration on taxes or on oil production.

About oil production, the official Department of Revenue forecast says it’s too soon to count the extra barrels and the dollars that Dunleavy sees in our future.

“There is a good chance that we’re going to come into more oil and more oil revenue. There are some estimates that within the next seven years, we may see two to three hundred thousand barrels flowing through the pipeline, additional to what we have. This is gonna bring us more money,” he said last week in Wasilla during a Dunleavy/Koch Network budget presentation.

The state oil price and production forecast says that North Slope oil production in 2026 will be down to 484,000 barrels a day, compared to about 527,000 during this fiscal year. State revenue with that decline would be down by about $500 million in 2026.

But the state offers a range of numbers because it is impossible to get this right. The high end forecast is for 619,000 barrels a day in 2026—about 100,000 barrels a day higher than today—while the lowball number is 363,000 barrels a day,

Because of the natural rate of decline in oil reservoirs, the fields at Prudhoe Bay and Kuparuk are expected to show a drop of about 50,000 barrels a day over the next seven years, while an increase of nearly that amount is expected in the National Petroleum Reserve-Alaska.

The state forecast does not include any oil from about a half-dozen significant oil finds that are under evaluation by the companies. Those prospects will remain in the uncertain realm until investment decisions are made and the work begins. A lot will depend on world oil prices and the U.S. economy.

Under existing state oil tax law, new fields pay no taxes at current prices for the first seven years, though the state would collect royalties on oil produced from state lands, but not from federal lands in NPR-A.

When Dunleavy talks about oil production numbers he leaves out the all-important bit about the natural decline rate from the old fields and gives the impression that he is talking about an increase from the current level.

“Within two years we're anticipating another additional 100,000 barrels in the pipeline from the new finds that were discovered next to the pipeline over the last several years,” he said Sept. 4 on Talk of Alaska. “And then there are predictions that over the next three to seven years we'll have another additional 300,000 barrels in the pipeline.”

Six days later he told the Anchorage Chamber of Commerce the increase would be “several hundred thousand barrels” in five to seven years.

The state Department of Revenue forecast says oil production will "remain relatively stable in coming years,” which is not the story the governor is telling.

It’s time to end the fiscal fantasy of his continuing campaign, of which this is one part.

From the 2018 fall revenue forecast.

From the 2018 fall revenue forecast.

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Dermot Cole6 Comments