Alaskanomics

Alaska Oil & Gas: Fueling Our Economy

The Alaska Oil & Gas Association (AOGA) hosted its annual luncheon on Thursday.  Jim Calvin from the McDowell Group presented findings from their updated report “The Role of the Oil and Gas Industry in Alaska’s Economy”. The McDowell group was contracted by AOGA to assess the role of the oil and gas industry in Alaska’s private and public sector economy. The economic impact was based on detailed expenditure and payroll data provided by 16 primary companies in Alaska’s oil and gas industry. The study also measured direct, indirect and induced jobs and wages from the industry. An addition to the 2014 report was the tracking of tax and royalty payments made by the industry.  

Key findings in the study showed that during 2013, the 16 primary companies employed 5,335 workers; 4,700 individuals, or 88%, were Alaska residents. The employees earned $780 million in wages in 2013. Adding indirect and induced employment numbers, spending by the industry accounted for 51,000 jobs and a total of $3.45 billion in wages for Alaska’s private sector. This does not include non-resident oil and gas industry workers or their wages. Government spending of oil revenue accounted for an additional 60,000 jobs and $3 billion in wages. The total for direct, indirect and induced jobs within the primary companies, as well as the private and public sector is over 111,000 jobs and $6.45 billion in wages. For every primary company job, there are 20 more jobs generated in the Alaska economy. A multiplier of 20 is difficult, if not impossible, to find within other industries or areas of the country.

The report also broke out private sector spending within six geographic areas; the Municipality of Anchorage, Fairbanks North Star Borough, Kenai Peninsula Borough, Mat-Su Borough, North Slope Borough, and Valdez.

Alaskans understand the importance of a healthy oil and gas industry and its impact on state taxes and royalties. Alaska is the only state in the US that does not have a state sales tax or personal income tax. This is because of the revenue received from the oil and gas industry. During FY2013, the oil and gas industry paid $7.4 billion in taxes and royalties to the state government. This was 47 percent of the total of all state revenue. $6.4 billion was unrestricted general fund revenue (UGF), which was 92 percent of the total.

Statewide government programs benefit greatly from the oil and gas industry. Approximately $8 of every $9 UGF spending on support of K-12 education comes from the industry. On average, each student received approximately $9,100 in state aid and $8,170 was oil-funded revenue. Alaska’s Medicaid program is also heavily reliant on the industry. Approximately $9 of every $10 of Alaska’s state match is related to oil revenue. This relates to $4 of every $10 spent on Medicaid in Alaska ($557 million out of $1.4 billion).

Without question, the oil and gas industry has a significant impact on the Alaska economy. Speaker Jack Gerard, President and CEO of the American Petroleum Institute, noted that no other state in the union comes close to what the Alaska oil and gas industry can do for its residents. The report’s summary illustrates the magnitude of the economic impact of the oil and gas industry for all Alaskans.

The full report can be read at: http://www.aoga.org/sites/default/files/news/aoga_final_report_5_28_14_0.pdf

April Unemployment at 6.4 percent in Alaska

The State of Alaska’s Department of Labor and Workforce Development published the April unemployment rate this morning. For the first time in nearly five and a half years, the US national average is below the Alaska rate. The seasonally adjusted rate in Alaska was 6.4 percent during April. The not-seasonally adjusted rate was at 6.5 percent, which is eight-tenths of a percentage lower than March. It is very common to see large drops in April.

The fact that Alaska now has a higher unemployment rate than the national average is nothing out of the ordinary. Alaska’s rate was higher than the national average from 1983 until 2008. The national average had much more significant changes due to the recent recession than was seen in Alaska. The difference in the two rates is now in a pre-recession pattern and is expected to stay that way for the foreseeable future.

The summer tourist season is beginning to ramp up, which is in turn bringing declines in the rates throughout Alaska, especially in Southeast. Skagway had a rate of 21.6 percent in March and dropped to 13.1 percent in April. This was the most significant change throughout the state.

 Detailed employment estimates can be found at http://live.laborstats.alaska.gov/ces/

April Unemployment at 6.4 percent in Alaska

The State of Alaska’s Department of Labor and Workforce Development published the April unemployment rate this morning. For the first time in nearly five and a half years, the US national average is below the Alaska rate. The seasonally adjusted rate in Alaska was 6.4 percent during April. The not-seasonally adjusted rate was at 6.5 percent, which is eight-tenths of a percentage lower than March. It is very common to see large drops in April.

The fact that Alaska now has a higher unemployment rate than the national average is nothing out of the ordinary. Alaska’s rate was higher than the national average from 1983 until 2008. The national average had much more significant changes due to the recent recession than was seen in Alaska. The difference in the two rates is now in a pre-recession pattern and is expected to stay that way for the foreseeable future.

The summer tourist season is beginning to ramp up, which is in turn bringing declines in the rates throughout Alaska, especially in Southeast. Skagway had a rate of 21.6 percent in March and dropped to 13.1 percent in April. This was the most significant change throughout the state.

 Detailed employment estimates can be found at http://live.laborstats.alaska.gov/ces/

North Slope Project Update

There have been numerous announcements from the oil and gas industry regarding new projects since the passage of SB21, the More Alaska Production Act. Announcements have come from the major producers, as well as smaller, independent companies. Information compiled by the Bradner Alaska Economic Report shows that $8.6 billion in new projects have been announced since the passage of SB21. This is on top of the $4 billion that was in the works at Point Thomson and $1 billion for  ConocoPhillip’s CD-5 near Alpine field.

Oil industry leaders have been quick to point out that SB21 helped spur the increase in projects and new production and these projects could change depending on the outcome of the August 19 primary election. The announced projects and their expected production include:

BP

• West end of Prudhoe Bay- $3 billion project; 40,000 barrels per day (b/d) beginning in 2018
• Prudhoe Bay Drilling- $1 billion; 2 rigs added in 2015 and 2016

Brooks Range Petroleum

• Mustang Field- $600 million; 15,000 b/d by 2017

Cealus Energy

• Nuna Project- $2 billion; 15,000-20,000 b/d

ConocoPhillips

• GMT-1, Kuparuk drill site, and Kuparuk River site- $2 billion; 49,900 b/d
• CD-5- $1 billion; 16,000 b/d to begin production in late 2015

Pt. Thomson Project

• Field east of Prudhoe Bay- $4 billion; 10,000 b/d of liquid condensates in 2016

$13.6 billion and an increase of 145,900 to 150,900 b/d by 2018

These projects not only represent increased investment in Alaska and increased oil production, but they also represent more jobs for Alaskans. Oil industry leaders are optimistic that new development can continue with the help of SB21 and that the new tax reform is encouraging new projects throughout the State of Alaska.

SB21: Sense and Nonsense

Scott Goldsmith presented his interpretation of a recent ISER report on the More Alaska Production Act (SB21) to a packed house this morning at the Resource Development Council’s (RDC) Breakfast meeting. Goldsmith outlined his presentation by covering four main points from his research.

• The so-called $2 billion “giveaway” this year under SB21 does not exist.
• Without enhanced production, future tax revenues could be higher under SB21 than ACES if recent price and cost trends continue.
• Under reasonable future market conditions, a modest increase in investment and oil production would create more state revenues under SB21 than ACES.
• New money into the oil patch creates long lasting jobs and increased consumer purchasing power.

Critics of SB21 have stated that the new tax structure is a $2.1 billion giveaway to the oil companies. Goldsmith illustrated that the revenue loss was mainly due to the $1.29 billion reduction in production tax revenue. The shift to the new tax structure accounted for only 4 percent of the lost revenue. The $90 million difference from ACES to SB21 is nowhere close to the $2.1 billion difference in the expected oil revenue for fiscal year 2014.

The tax liability under SB21 is sensitive to both oil prices and lease costs. This will allow for higher tax revenue even without enhanced production.  The price of oil has stabilized over the past couple of years and Goldsmith noted that analysts do not see much upward movement from the current price.

Even a small investment in new oil production will create more state revenue under SB21 than it did under ACES. New investment will not only generate new revenue, it will create additional employment. This includes direct jobs in the oil industry and indirect jobs that help individuals and families throughout the state.

The opportunity for increased production is here in Alaska. There are opportunities to develop marginal fields under SB21 and if the size of the revenue pie is increased, the state and its citizens win.

To watch Scott Goldsmith’s presentation, visit http://www.akrdc.org/membership/events/breakfast/1314/050114.html

The full report is available at http://iser.uaa.alaska.edu/Publications/webnote/2014_05_01_WebNote17WhereDidthe2BillionGo.pdf