Alaskanomics

Alaska's Current Economy - Spring 2024 presentation

Northrim Bank hosted its annual Community Summits in Nome, Soldotna, Homer, Anchorage and Fairbanks this past week. At these events, this economic update presentation was given by Mark Edwards, Chief Credit Officer and Bank Economist. 

41st annual Alaska Resources Conference

The Alaska Resource Development Council hosted its 41^st annual Alaska Resources Conference on Wednesday, November 18. This year’s event was a single day, hosted online. As in years past, the presentations were from industry experts and provided an insight in to the past year as well as a look forward to the future of Alaska’s resource industry.

Not surprisingly, most presenters noted that they were pleased that Ballot Measure 1 was defeated and that tax policy wasn’t changed yet again. There were also concerns about what the new administration would mean for resource development. As has been the case in the past few years, the concern over a stable fiscal plan for the state weighed heavy on most presenters.

Mining did provide a bright spot for a year that saw many disappointments and most of the industries represented were looking forward to the start of recovery in 2021. The full agenda with presentations can be found at https://www.akrdc.org/conference.

The 40th Annual Alaska Resources Conference

Last week, the Resource Development Council (RDC) hosted its 40^th Annual Alaska Resources Conference in Anchorage. The event is the chance for leaders from the tourism, fishery, oil and gas, mining, and forestry industries to come together and share highlights and frustrations from the past year and look forward to the coming year.

Overall the presenters and attendees were optimistic about the future of the resources industries in Alaska. There were concerns due to the tariffs being raised on fish, timber, and other goods. The other overwhelming concern came from the possibility of yet another ballot initiative to regulate oil taxes on the North Slope. The group OneALAKSA has been created to protect Alaska’s economy and oppose the Fair Share oil tax measure - an initiative to raise oil taxes that will likely be on the 2020 ballot. OneALASKA is a diverse group that includes organized labor, business and Alaska Native corporations, outdoor recreation, small business, and non-partisan political leaders. The group is working to make sure the ballot initiative does not make it on the 2020 ballot, and if it does, they will fight to oppose it.

Industry representatives painted an optimistic picture for 2020 and moving forward, dependent on the tax structure staying consistent and tariffs on goods. Most were moving forward with plans for expanded development and exploration and new projects.

It was clear that Alaska is moving out of the recession of the past few years, but speakers were hesitant to say that it was officially over. Individual presenters were happy to report milestones in their industry, such as Fort Knox pouring its 8 millionth ounce of gold this past October. BP expressed gratitude to Alaska for the past 60 years of exploration and development and was happy to have Hilcorp bring new life to the legacy fields on the North Slope.

The two days of the Alaska Resources Conference is always a time to celebrate past victories and rally around new challenges. This year was no exception. The room was more optimistic than the recent past, but that optimism had shades of apprehension over forces outside of the industries that could impact landscape of resource development in Alaska.

All presentations, including videos of each session, are located on RDC’s website.

Third Quarter Employment Numbers

The employment numbers for the third quarter of 2019 show that employment has continued increase throughout the state and the unemployment rate remained relatively flat for the quarter.

In July, employment was up 0.5 percent, approximately 1,800 jobs from last July. Construction continued to see the largest gain with an increase of 600 jobs for the month. Oil and Gas was not far behind with an increase of 500 jobs. Growth was steady in the private sector, but there were still areas to see a decrease. Financial Services and the Information Sector lost 400 and 300 jobs, respectively.  

Within the public sector, both Federal and State jobs increased with 400 and 300 more jobs than in July of 2018, respectively. A lot of the job growth came from an increase in staffing due to a busy fire season. Both the Alaska Department of Natural Resources and the federal Bureau of Land Management added jobs during the fire response.

Alaska’s seasonally adjusted unemployment rate fell to 6.3 percent in July, which was still higher than the national rate of 3.7 percent.

August’s employment growth was only slightly up from August 2018, but there was still an addition of about 400 jobs, which is a 0.1 percent increase. Construction and Oil and Gas added the same amount of jobs in August as they did in July. Manufacturing and Financial Services saw the largest loss, each losing 300 jobs.  

In August, the seasonally adjusted unemployment rate dropped slightly to 6.2 percent, while the national rate remained at 3.7 percent.

September saw another large jump with an increase of 2,000 jobs, which was a 0.6 percent increase over September 2018. Construction continued its large gains adding 800 jobs over last year. Oil and Gas and Leisure and Hospitality also grew with 500 and 400 jobs, respectively.

State government lost 400 jobs from last year, mostly due to cutbacks at the University of Alaska due to significant cuts in state funding.

The seasonally adjusted unemployment rate remained at 6.2 percent, but the national average dropped slightly to 3.5 percent. The not-seasonally adjusted rate followed the usual fall pattern with rates rising in nearly all areas of the state. Tourism and fishing drove a lot of the movement in the rates as things started to wind down for the winter.

Up-to-date employment numbers can be found at the State of Alaska’s Department of Labor and Workforce Development’s website.

History of BP in Alaska

By Tim Bradner

 

BP hands over the keys on its Alaska oil and gas holdings and operations to Hilcorp Energy next year, and it will be a bittersweet moment for Alaskans who remember the company as a fixture in the state’s oil patch for 60 years. BP began its Alaska exploration in 1959 and discovered the super-giant Prudhoe Bay oil field on the North Slope in 1969 along with Atlantic Richfield and Humble Oil, now ExxonMobil.

Atlantic Richfield and Humble drilled the first discovery wells but BP was close behind on its nearby leases. Ironically, BP wound up with most of Prudhoe’s oil under its leases.

A walk through six decades of this history is a tale of pluck, sheer luck, the fortunes of timing, and a fascinating look at the geopolitics of the era.

BP was really the first major oil company to begin serious exploration on the North Slope in the early 1960s, in partnership with Sinclair Oil, a smaller company. A lot of dry holes were drilled but the companies persevered, although Sinclair gave up (to its subsequent misfortune).

Here’s the geopolitics behind this: BP, then half-owned by the British government (Winston Churchill engineered that to guarantee oil supplies for the Royal Navy), was the dominant oil producer in Persia, now Iran, along with Iraq and Kuwait. The locals were restless, though. BP got kicked out of Persia. Middle East oil producing nations were also talking about getting together to deal with the western oil companies. OPEC, the Organization of Petroleum Exporting Countries, was in the near future. BP saw the writing on the wall and started looking elsewhere.

A good solution was for BP to go to a safer political environment, the U.S., by gaining entry into the big domestic gasoline and fuels market. To do that profitably the company had to find its own source of domestic crude oil, however. American companies had Texas, California and other domestic producing basins locked up, so BP had to look for somewhere new, where competitors weren’t entrenched. Alaska fit that category.

A famous story within BP is that in the late 1950s a company director was on a London-to-Tokyo flight over the North Pole. While over northern Alaska he looked out the window at the landscape below. It looked a lot like parts of Persia where BP had found a lot of oil. According to the tale, the director asked BP’s geologists to take a look at Alaska. The company opened its office, staffed by explorationists, in 1959.

BP started exploring the slope on federal lands in the early 1960s, just before the state’s Prudhoe Bay area land selections, and by 1965 ARCO and Humble had become active in exploration. They drilled dry holes, too.

The oft-told tale is that is that ARCO and Humble were discouraged in their efforts, as was BP, and ready to call it quits. The Prudhoe test, on leases ARCO, Humble and BP had won in state lease sales was to be their last, and it was signed off on reluctantly by managements tired of wasting money drilling caribou pasture. But the result is history – a huge oil find, construction of the Trans Alaska Pipeline System, Alaska’s oil wealth and Permanent Fund, and or course our beloved Permanent Fund Dividend.

Back to BP’s strategic thinking: Having help find a huge oil deposit the company still needed to find ways to market its new domestic oil. The logical thing was to buy an established U.S. company, and BP did that in buying a major stake in the Standard Oil Company of Ohio, or Sohio, a very efficient marketing company with a solid position in the U.S. Midwest. As serious work cranked up on North Slope development and the pipeline in the early 1970s BP decided to have Sohio become its U.S. operating group, partly because of sensitivities of how a foreign company would be perceived in Washington, D.C., where important decisions were being made on the pipeline. Many older Alaskans will remember Sohio’s presence in Alaska in the 1970s and 1980s.

Eventually BP decided to buy all of Sohio and also changed the name to cemented BP’s identify as a U.S. company, although one with British roots. BP expanded its new Lower 48 gasoline, fuels and chemicals marketing under the BP brand, although the Sohio retail name was retained in Ohio because of local loyalty. In the decades since BP has grown into a major American energy company, thanks to Alaska, but it has also become a major employer, taxpayer and contributor to arts and charities in this state.

Back to the pluck and luck: Let’s once again thank Tom Marshall, now retired but in the early 1960s the State Geologist who pushed hard for the state to select the Prudhoe Blands as part of the state’s land entitlement under the Alaska Statehood Act. Marshall faced bitter opposition from many Alaskans who wanted the state to use its entitlement to choose lands near communities or in areas with mining prospects.

To them, the North Slope could have been on the moon. Even the oil industry was unenthused about the Prudhoe area and recommended the state use its entitlement to choose lands near Umiat on the southern North Slope. The U.S. Navy had found a small oil deposit there, and it seemed logical to look for more oil near where it had been discovered already. To the oil industry at the time, Prudhoe Bay was far away. The Umiat oil is still there, undeveloped.

Luckily for Alaska, Marshall, with the help of then-Commissioner of Natural Resources Phil Holdsworth convinced then Gov. Bill Egan that the caribou pasture at Prudhoe Bay had a lot of oil potential and was worth the gamble. Had Egan not listened, the Prudhoe area, then federally-owned, may well have eventually wound up in a wildlife refuge, probably as part of the Arctic National Wildlife Refuge.

Luckily, disaster averted.

 

Tim Bradner is publisher of the Alaska Economic Report and co-publisher of the Alaska Legislative Digest

Alaska Economic Update part 1

By: Mark Edwards – EVP, Chief Credit Officer & Bank Economist

Each year, Northrim Bank publishes the Alaska Economic Update. It is an opportunity to review the past year as well as look forward to the current year in regards to oil prices, jobs and housing. We will break the report into four sections for the blog. Once all have been posted, we will post the full report in our ‘Resources’ section for your convenience.

The Alaska economy has been through three consecutive years of a mild recession.  There is hope that 2019 will be the year where we begin to grow again and add jobs. A positive indicator occurred when the State Department of Labor reported growth of 500 jobs in January compared to January of 2018.  This is the first month of year-over-year increase in employment since September of 2015.  The Department of Labor forecasted an increase of 1,400 jobs, or 0.4% growth for the entire year.  They expect the major drivers of job growth to be military, oil & gas activity and tourism.   

The wildcard in this forecast is the outcome of the state government budget debate in Juneau.  The Governor has proposed large cuts to government spending in the operating budget and large increases to the Permanent Fund dividend to compensate for reductions made by the prior administration.  An apparent majority of legislators are opposed to the Governor’s budget and prefer a more measured pace to cuts.  Conversation has begun again about broad based sales or income taxes to help fill the budget gap.  Each of these options will undoubtedly affect the economy in different ways across regions of the state, industry sectors and income classes.

Responsible natural resource development has been, and continues to be, the foundation of the Alaska economy.  Royalties and taxes from past projects are the primary reason we have been able to adequately fund government, pay $23 billion in dividends to residents and still have over $60 billion in savings accounts.  We need to take the necessary steps to balance the government budget, but we cannot lose focus on helping a number of world-class resource projects advance.  This will stimulate new jobs, private sector investment, personal wealth creation, and tax revenue to help fund government.

Oil Prices and Production

Alaska North Slope (ANS) crude oil prices have trended higher over the last two years.  The recent low monthly average was $30.22 in January of 2016.  Oil prices moved higher throughout 2017 and reached a monthly average high of $80.03 in October of 2018.  ANS prices have moderated since then and averaged $68.90 for the month of February 2019. The State Department of Revenue has forecasted an annual average ANS oil price of $67.98 per barrel in fiscal year (FY) 2019 and $66 per barrel in FY 2020.

Alaska’s crude oil production averaged 540,500 barrels per day (bpd) in FY 2017.  This was an increase of 9,300 bpd over the previous year and the second year of production growth.  This two-year positive trend reversed slightly last year when total output declined 1.2% to 534,000 bpd in FY 2018.  The State Department of Revenue forecasts production on the North Slope to decline in FY 2019 by 1.3% and then rise by 3.5% in 2020.

The low price environment experienced between 2015 and 2017 caused companies to cut back on spending as certain projects were no longer economically viable. This led to a reduction in State revenues and a loss of thousands of high paying oil and gas related jobs.

 

Federal Support for Resource Development

The recent comprehensive change to the U.S. tax code includes a provision opening the coastal plain of the Arctic National Wildlife Refuge (ANWR) for oil and gas exploration and development.  There will be at least two large lease sales in ANWR prior to 2028 and 50% of the federal royalties will be provided to Alaska. 

There is also renewed optimism for future natural resource development in Alaska due to executive orders supporting domestic energy independence and reducing regulatory burdens.  Specifically, there have been reversals of federal positions pertaining to off-shore Arctic oil exploration and regulation in the Beaufort and Chukchi outer continental shelf and climate change policy.

New Oil Prospects

ConocoPhillips has advanced four large-scale developments in the National Petroleum Reserve – Alaska (NPR-A), which is west of Prudhoe Bay and the Trans-Alaska pipeline (TAPS).  Greater Moose’s Tooth (GMT) 1 and 2, CD-5, and Willow are all planned to connect through pipelines via Alpine to move the oil east back to TAPS.  GMT-2 is under construction this winter and could produce up to 40,000 bpd starting in 2021.  GMT-1 has just begun production at about 3,000 bpd and is projected to reach peak production at 30,000 bpd. CD-5 is producing approximately 37,000 bpd, far beyond the 16,000 bpd that was originally forecasted.  Willow is the largest find in the area.  Discovered in 2017, it is expected to produce up to 100,000 bpd starting in 2024 or 2025.  It will require the investment of $2 to $3 billion, including the construction of a new fluid processing facility. Together, these projects are creating thousands of construction jobs, hundreds of permanent positions, and $5 to $6 billion in direct investment.  Royalties and taxes also provide significant revenues for Alaska Native Corporations, and local, state and federal government. The expansion of infrastructure further west improves the economics of other exploration targets in NPR-A.  

Australian company Oil Search is moving closer to developing the Pikka field into what could potentially produce as much as 120,000 bpd.  Fiord West is a series of new wells northwest of Alpine expected to come online in 2021 and produce an estimated 20,000 bpd.  It will use improved technology of an extended reach drill rig to reduce the surface impact of the project.

In the next post, we will have an update on the US economy, tourism and military issues.

 

Written by Mark Edwards, EVP Chief Credit Officer and Bank Economist with Northrim Bank. He was an adjunct professor of economics at Alaska Pacific University. Mark served the State of Alaska as an Economist in the Department of Commerce and the Department of Revenue, and as the Director of the Office of Economic Development. He has a B.A. in Economics from the University of Virginia and a Master’s Degree in International Business from the Thunderbird School of Global Management.

 

The 39th Annual Alaska Resources Conference

Last week, the Resource Development Council (RDC) hosted its 39^th Annual Resources Conference in Anchorage. The event is the chance for leaders from the tourism, fishery, oil and gas, mining, and forestry industries to come together and share highlights and frustrations from the past year and look forward to the coming year.

There was clear optimism throughout the conference as many in the room had worked hard on the campaign to defeat Ballot Measure 1. Many of the industry leaders expressed their gratitude to volunteers, donors and voters who helped defeat the initiative.

This is the third year where presenters were optimistic about the future of resource development in Alaska. This year’s optimism was even stronger, especially in oil and gas, mining, and tourism. Fishing is still a bit cautious because of the uncertainty around tariffs and imports/exports with China. The timber industry still has a lot of challenges with federal regulations. There are opportunities for timber, but it will take time to sort those out.

Each year, Neal Fried presents his look at the past year and a look forward to the year ahead for the State’s economy. He looks at all aspects of Alaska’s economy and provides a great overview for conference attendees. Alaska is still in a recession, and while this is the longest recession that the state has faced, it is not the worst. Employment continues to fall, but it is moderating and many believe that 2019 will be the end of the recession. Fried’s presentation has a lot of valuable data and is worth watching if you missed the conference.

Dr. Ian Mead, Assistant Administrator for Energy Analysis with the US Energy Information Administration shared global energy trends and where Alaska fits in. His presentation outlined that global energy consumption continues to rise, especially throughout non-OECD Asia. Fossil fuels remain dominant and will supply 77% of the world’s energy consumption in 2040.

Governor-Elect Dunleavy wrapped up the first day with remarks to the crowd regarding his administration’s focus on bringing business to Alaska and his desire to work with the resource development industry to grow Alaska’s economy. He also announced the Corey Feige would be the Commissioner for the Department of Natural Resources. The Governor-Elect made it clear that he wanted to work with industry as a partner not as an adversary.

Keith Meyer highlighted the work that was being done to move the Alaska Gasline forward. He noted that the project has momentum and Alaska should get ready for the mega-project to kick into high gear. The focus for 2019 is accelerate. His slides show the progress that has been made to date and how Alaska has a competitive advantage over global competition when it comes to the natural gas market. Meyer noted that the gasline would be beneficial for not only the oil and gas industry, but other resource development sectors throughout Alaska. Gas will power Alaska’s growth.

This year’s conference was much more optimistic than the recent past and industry leaders are working hard to make sure that all resources are safely and responsibly utilized throughout Alaska. There was a lot to celebrate a week after the election and presenters and attendees seemed to be reenergized to move forward with projects that have been on hold or slowed because of the recession and uncertainty around Ballot Measure 1. There will always be areas of concern for the resource development industries, but you could feel a sense of relief moving into 2019.

All presentations, including videos of each session, are located on RDC’s website.

Optimism for North Slope Oil

By Tim Bradner

Those new oil discoveries announced recently on the North Slope are pretty remarkable. It wasn’t too long ago that we’d pretty much given up on major new finds, at least in areas open to exploration.

Now billion-barrel new fields are being found. They aren’t super-giants like the Prudhoe Bay and Kuparuk River fields but the discoveries like ConocoPhillips’ new “Willow” and “Pikka,” now planned for development by Oil Search, an Australian company, are still very substantial.

We have a real possibility of actually increasing the amount of oil flowing through the Trans Alaska Pipeline System. Even if that doesn’t happen it seems a sure bet that production from the slope will at least remain stable. In fact, it has been essentially stable over the last two years. For that, let’s give a hand to the operators of the large existing fields. The Prudhoe field, operated by BP, still produces about half of the North Slope oil. There’s also ConocoPhillips, the Kuparuk field operator, and Hilcorp Energy, which manages several smaller fields on the slope.

Keeping production steady is no small feat given 6 percent annual declines we’ve seen in past years. TAPS was built to carry 2 million barrels a day since 1989 production has dropped to about a fourth of that, to just over 500,000 barrels daily.

It’s important to remember, too, that stemming the production decline in large fields like Prudhoe and Kuparuk, done by squeezing more oil out of the rocks, is just like finding new oilfields.

A lot of Alaskans are hoping for some really big new discoveries, the kind that will really move the needle on production, from the Arctic National Wildlife Refuge, a highly prospective area where there will soon be lease sales.

But ANWR is a crap-shoot. Even the best exploration prospects could be dry holes. Look no further than Shell’s spectacular flop in 2013 at the highly-touted Burger well in the Chukchi Sea, or the failure of Mukluk, a costly Beaufort Sea well drilled in the early 1980s in which companies like Sohio and BP had great confidence, but proved to hold water, not oil.

The new discoveries, which all around the Colville River and in the northeastern National Petroleum Reserve-Alaska west of Prudhoe Bay and Kuparuk, seem pretty good bets, in contrast.

Oil has been found and the wells have been flow-tested, so companies now know they can actually get hydrocarbons out of the rocks.

Cumulatively, what’s now discovered could bringing tens of thousands of new barrels of oil per day to TAPS in the near future.

What’s remarkable is that these finds are in areas like the northeast NPR-A that have been explored for years by companies, but without commercial-scale finds. Why are discoveries being made in what was until recent years considered a lot of caribou pasture?

New technology is one answer. Explorers continue to improve their ability to spot potential underground oil traps in geologic formations previously thought unproductive, and once the oil is found to commercially extract it.

Companies are also quick to credit state tax changes made in 2013 for this, which were very controversial at the time. The tax changes improved the economics of finding and developing new oil set the stage for a burst of new exploration.

The pace of new technology gains has been a real surprise, however. Companies are rapidly improving their ability to drill horizontal production wells, essentially wells drilled sideways. These enable explorers to reach underground prospects several miles from the surface location of a drill rig. It means companies can explore and then produce from a wide expanse of subsurface acreage, a huge financial savings of surface infrastructure.

There are also “multi-lateral” wells, another development, that involve as many as five wells drilled underground from a single vertical well to the surface. These lateral wells can target several oil formations which can be produced through one surface production pad and set of flow lines and utilities instead of several sets if the deposits were developed on a stand-alone basis, as done previously. Again, huge savings.

These technologies are now being combined, with horizontal drilling and multilateral wells used together, and when new methods of profiling and mapping underground rock layers are added we see savings enough to allow tens of millions of barrels of new oil resources to be at an economic even point at oil prices below what they are today.

This is a breakthrough. Previously we assumed $90-per-barrel and $100-per-barrel oil prices would be needed to develop new North Slope oil. Now companies say $60 may be enough, and for some deposits near infrastructure even less.

Here’s the best part: A lot of these new technologies are being developed right here in Alaska. Horizontal drilling, on a commercial scale, was pioneered by BP in the 1980s for Prudhoe Bay.

Horizontal drilling on the North Slope set the stage for shale oil and gas development in the Lower 48, where horizontal wells are used, and that has upended the world’s petroleum industry.

Multilateral wells were similarly pioneered in Alaska, by ARCO Alaska (predecessor to ConocoPhillips) a few years later.

Alaska, in effect, is an applied technology laboratory for the industry because the gain, in new oil, is substantial enough to offset the risk. Alaska contractor companies get the benefit of experience with this, also. Alaskan-owned Doyon Drilling is now operating some of the world’s most advanced drill rigs with horizontal drilling capabilities.

All in all, we’re in a good place, with experienced companies, huge untapped resources, and now oil prices moving up.

Tim Bradner is editor of the Alaska Economic Report and is the 2018 Atwood Visiting Professor of Journalism at the University of Alaska Anchorage

Is the sun shining a little brighter in Alaska’s oil patch?

By Tim Bradner

There is a little spring warmth, it seems, after a long winter. Several winters, in fact, of low oil prices and workforce cuts.

The job numbers have not yet ticked up and in fact they’re still slipping, though modestly now, after big cuts made in 2016 and 2017 as producing companies adjusted to the world of lower prices.

But prices are ticking up again. Even during the slump a number of new projects were being worked on and the brighter price outlook should cause some companies to push the green button on their projects.

It’s possible there could be enough new oil that the Trans-Alaska Pipeline System, now running at one quarter of its design capacity, could see an increase in oil throughput. But given that some projects could be delayed, not happen at all or meet expectations, it’s a safe bet there will be enough to maintain the current production for a decade or more.

This is significant because it wasn’t long ago that forecasters were predicting continued declines, to the point that the pipeline might be no longer economic in 10 years.

There’s other reasons for cautious optimism. One not widely recognized is that for the first time in years the Alaska Legislature wasn’t convulsed in acrimony over oil taxes. Some lawmakers did raise the tax issue, mainly to look at things not done in a big tax overhaul last year.

Despite that there was little appetite in most of the Democrat-led state House to revisit this issue, at least this year. The Republican-led Senate opposed this from the beginning.

But what’s also important is the Legislature’s action to use some Permanent Fund earnings to help finance the budget, and not turn to the oil companies once again, is a big shift.

This is a signal to new resource industry investors, whether in oil, minerals or fisheries, that if they’re lucky enough to develop profitable businesses after investing they won’t be heavily taxed the next time the state needs money.

Another underappreciated accomplishment of the Legislature this spring was in developing a solution, finally, to the festering sore of a billion dollars in unpaid oil tax credits to oil explorers, mostly small independents, who had been promised payment by the state.

One can argue whether the state’s oil tax credit investment program was a good idea. It involved state funds used to help fund exploration, but it did achieve its objectives in bringing new companies to Alaska and getting more wells drilled, and new discoveries made.

However, it was hugely expensive. In the end we just couldn’t afford it. But welching on commitments, even in our dire financial circumstances, became a black stain on Alaska’s reputation.

This spring the Legislature dealt with it with a plan proposed by Gov. Bill Walker to pay off the tax credit liabilities with bonds. Companies participating would accept a 10 percent discount in what they are paid, which is enough to cover the state’s costs of borrowing. State revenue commissioner Sheldon Fisher said this is a good deal for the companies because they get money right away rather than having to wait 10 years or so.

A feature of this is companies can get a lower discount, down to 5 percent, if they put the money to work in their Alaska projects within 24 months. Sheldon Fisher estimates this could result in over $700 million in new capital being deployed to restart projects stalled when the tax credits couldn’t be paid.

The companies can also get the lower discount by agreeing to a higher royalty on their state oil and gas leases, but state officials believe most will opt to put their money back to work in Alaska. If this plan works – there is a court challenge from an individual that must be dealt with – the stain on our financial reputation will be removed.

Added up, this paints a nice picture. We’re getting our financial house in order, and oil prices are up.

But things are still fragile. What’s causing the oil price rise is the agreement between OPEC and Russia to restrain production as well as continued Middle East tension. This could change quickly. Also, those prolific U.S shale oil producers will respond to higher prices, putting new oil on the market.

We haven’t closed the state fiscal gap, the difference between revenues and spending, although it is narrower. Even with this year’s financial restructuring a $700 million deficit remains for the next fiscal year, which begins July 1.

There are also upward pressures on the state budget that seem uncontrollable. Rising health costs, a problem almost intractable, along with rising costs in prisons and higher pension expenses combine to push the budget up. If the oil price rise sticks and oil production remains stable we could have more revenue, which would help this. But one should never try to predict oil prices.

The plan to use part of the Permanent Fund earnings has risks, too. A few bad years in financial markets could bring the wolf back to the door. The Legislature may be tempted to draw more than is prudent from Permanent Fund earnings.

We can’t even count on all those new oil projects. Most of these haven’t been sanctioned, or formally approved, by their developers. Some of the discoveries that seem very promising need more wells drilled to confirm the oil is really there, and some of these might not pan out. Even if companies move to develop new discoveries there could be unexpected technical problems in reservoirs that could impede production. It’s happened before on the North Slope and in Cook Inlet, more than once in fact.

Summing up, things are still fragile and there are reasons to be cautious. Still, there’s also lot of progress and a lot to be pleased with.

A little sunshine feels nice.

Tim Bradner is co-publisher of the Alaska Legislative Digest and the 2018 Visiting Atwood Professor of Journalism at University of Alaska Anchorage

March Employment Numbers and Encouraging News from the North Slope

The State of Alaska’s Department of Labor and Workforce Development released employment numbers for March. Total employment was down an estimated 0.8 percent from March 2018 to March 2017. This is a loss of approximately 2,600 jobs.

The highest percentage of lost jobs came from the oil and gas industry. In the past year, the industry has lost 6.0 percent of its jobs, or about -600 jobs. Retail lost more jobs at -700 jobs, but it was a much lower percentage at 2.0 percent. Health care continues to be the one sector that has seen job gains in the recent past. The sector added about 1,000 jobs since March 2017, which is a 2.7 percent increase.

Even with the reported job losses in the oil and gas sector, there was good news reported in the Anchorage Daily News within the sector late last month. North Slope Oil hit $73, which is 170% higher than the price of oil in January 2016 when it hit a low of $26.23. This will do doubt help the confidence that companies have in the state’s economy. Another bright spot is the report that ConocoPhillips reports strongest Alaska profits since mid-2014. Oil prices have been steadily rising and ConocoPhillips has worked to decrease its operating costs in Alaska. They also announced new oil discoveries in Arctic Alaska. They noted that this could significantly boost oil production in Alaska.

Many are hoping that we are seen the bottom of the recession in Alaska and that jobs will start to increase and the unemployment rate will also edge closer to the national average, which has been steadily lower than Alaska’s for the past few years.

The seasonally adjusted unemployment rate in Alaska remained at 7.3 percent in March. The national average is 4.1 percent. In comparison, the not-seasonally adjusted rate dropped three-tenths of a percent to 7.9 percent. Unemployment fell in 26 of the 29 boroughs in March. The Aleutians East Borough and Aleutians West Census Area had the lowest rates at 1.8 and 2.5 percent, respectively. Both areas have busy winter fisheries.

For detailed employment numbers, visit the Department of Labor and Workforce Development.