Alaskanomics

Governor Walker proposes reduced state capital budget amid falling oil prices

Governor Bill Walker discussed his FY2016 (July 1, 2015 – June 30, 2016) budget proposal at yesterday’s Anchorage Chamber of Commerce luncheon.  Having been in the office only two weeks, Governor Walker submitted a $5.3 billion operating budget developed by his predecessor, former Governor Sean Parnell. Walker has not endorsed this budget and his administration is working on its own version. The Walker administration did announce a capital budget of $106 million, pared down from the $220 million capital budget Parnell submitted. With oil prices lower than expected, Walker hopes the decrease in the capital budget will help stretch the state’s dollar and weather a projected $3.5 billion budget deficit for FY2015. Even with the lower capital budget, the state is looking at a similar budget deficit for FY2016, assuming oil prices remain low. Walker, however, pointed out oil prices do swing and is optimistic about the future of Alaska and the opportunities ahead. “We live in one of the most resource-rich states and one of the wealthiest countries in the world,” said Walker. “We don’t have a resource problem. We have a distribution problem. We need a distribution system in place to get our resources to Alaskans and the world market.”

Governor Walker’s team will spend the next few weeks reviewing all capital projects and the operating budget before submitting its final revisions by February 18. At the luncheon, Walker requested the public’s involvement during the budget process. The administration plans to solicit public input on ways to prioritize spending, cut waste and address any inefficiencies as it puts budget plans together.

“I’m confident that together, we Alaskans can manage our way through it,” Governor Walker said. “We need to develop a smart plan so that our children and grandchildren can have stability 30 years from now. We want a plan in place that will not just get us over the hump now, but provide a strong future for decades to come.”

For more information about the Governor’s proposed budget, visit https://omb.alaska.gov/html/budget-report/fy-2016-budget/work-in-progress.html

Alaska’s Oil Reserves Decline for Third Straight Year; Gas Reserves Down Sharply

By Blythe Campbell

On December 4, The U.S. Energy Information Administration (EIA) issued its annual report on U.S. Crude Oil and Natural Gas Proved Reserves for 2013. “Proved reserves” are estimates based on existing economic and operating conditions.

U.S. proved reserves of crude oil increased for the 5^th year in a row, to 36.5 billion barrels, with 5.5 billion barrels of new discoveries exceeding adjustments and production of 2.9 billion barrels. North Dakota’s proved reserves have passed the Federal Gulf of Mexico, and are now second to Texas among the states.

For the third year in a row, Alaska’s crude oil and lease condensate reserves declined, with 186 million barrels of production, and significant downward revisions. There were 123 million barrels in positive changes due to upward revisions, acquisitions and field extensions, but no new field discoveries or new reservoir discoveries in old fields. However, Alaska still is in 4^th place (behind Texas, North Dakota, and the Gulf of Mexico) at 2.9 billion barrels of proved reserves, or about 8% of the U.S. total.

U.S. natural gas proved reserves increased significantly – to a new record of 354 trillion cubic feet – with 96% of new discoveries coming from extensions to existing fields. EIA says that an increase in natural gas prices contributed to the increase in reserves. Pennsylvania and West Virginia accounted for 70% of the increase in reserves this year with continued development of the Marcellus shale gas play. Shale gas now makes up more than 40% of the U.S. natural gas reserves.

Alaska’s natural gas proved reserves declined from 9.7 billion cubic feet to 7.4 billion cubic feet – a 24% decrease. Production of 289 billion cubic feet was dwarfed by downward revisions of 2.4 trillion cubic feet. EIA attributes this significant reduction to a decline in “associated-dissolved natural gas proved reserves, the result of deteriorating well performance in certain crude oil fields.” On the positive side, though much less significant, acquisitions and extensions added 366 billion cubic feet, and there was 1 billion cubic feet of new reservoir discoveries in old fields.

The EIA’s data in this report is based on a 12-month, first-day-of-the-month average West Texas Intermediate crude oil spot price of $97.78 per barrel, and a natural gas spot price at the Louisiana Henry Hub of $2.66 per MMBtu. Production data are estimates.

New Alaska Governor and Administration

Monday saw a changing of the guard in Juneau and ushered in the Walker/Mallot era in Alaska. The past few weeks have been very busy for Governor Walker and his transition team. With the election not certified until weeks after the election, there was very little time for an official transition to take place. The Governor must submit a budget by December 15, 2014. This budget will really be an outline and will essentially be from Parnell’s team. Governor Walker has until January 20, 2015, when the legislative session begins to shape the budget with his own ideas.

The new Governor will have a lot to consider with oil prices hovering around $80 per barrel, well below the 2015 budget estimates. Will the industry be able to keep the current momentum of growth even with the low oil prices? The Governor must also keep the gas pipeline project on track and make sure that the major producers are continuing to invest in future development. The leaders of the major producers assured Alaskans that investment is still on track during last month’s RDC conference. Governor Walker also assured the conference that he was ready to continue working on the Alaska LNG project and make sure that it moved forward in a timely manner.

The Governor has been announcing staff and department heads during the past week. There will be more announcements as the Governor and his team prepare for the upcoming legislative session and assume the regular duties of running the state.

• Chief of Staff- Jim Whitaker
• Administrative Services Director- Guy Bell (retained from Parnell administration)
• Attorney General- Craig Richards
• Fish and Game Commissioner- Sam Cotten
• Health and Social Services Commissioner- Valerie Davidson
• Natural Resources Commissioner- Mark Myers
• Natural Resources Deputy Commissioner- Marty Rutherford
• Office of Budget and Management Director- Pat Pitney
• Public Safety Commissioner- Gary Folger (retained from Parnell administration)
• Revenue Commissioner- Randy Hoffbeck