Appreciating Forward Progress - Alaska Permanent Capital Management


Appreciating Forward Progress

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Unbeknownst to most of us, there’s a trend building in Alaska’s oil fields. Producers on Alaska’s North Slope (ANS), who represent the clear majority of our statewide oil production and state revenue payors, are on track to increase production for the second consecutive year, and should increase for a third consecutive year in 2018. ANS production bottomed out in 2015 at around 500,000 barrels of oil per day, increased in 2016 to just under 520,000 barrels per day and increased again in 2017 to an estimate of roughly 525,000 barrels per day (see Figure 1). For 2018, the Alaska Department of Revenue (ADOR) is forecasting an increase to just over 530,000 barrels per day. While not a major increase, this flattening of our production decline is only the second departure from our downward trend oil production since ANS production peaked in the late 1980s at nearly two million barrels per day. The last time producers arrested the production decline was around the turn of the century with the addition of the Kuparuk and Alpine fields, additions which bought five years of relative stability before our long-term decline trend reasserted itself.

Figure 1. Preliminary Fall 2017 Alaska North Slope Oil Production Forecast

Source: Alaska Department of Revenue Fall 2017 Preliminary Production Forecast

Over the last several years the ADOR has invested in more robust and sophisticated forecast techniques. These techniques focus on the existing fields and potential projects individually and then create a risk-weighted projection of future production. Their risk-weighting technique for both production and price incorporates input from industry and local experts meaning their projections aren’t developed in a vacuum. This new process is designed to overcome the Department’s history of overestimating future production. All geeky details aside, ADOR’s “best guess” is that oil production remains roughly stable around 500,000 barrels per day for the next decade with prices between $50 and $75 per barrel. Their low side projection keeps production above 450,000 barrels per day.  Why is this important? Because prior production estimates had production falling to 350,000 barrels per day in the next decade. Industry experts decried these estimates as too low and a shift of 100,000 to 150,000 barrels per day means more revenue for a state which desperately needs it, and a healthier, easier to operate, Trans-Alaska Pipeline System. Alaska’s oil industry deserves credit for finding a way to increase oil production at a time when lower prices make it harder for such investments to be justly rewarded. We also can’t completely discount the potential role of the state’s tax credit system even though the effects of such systems tend to be hard to fully quantify.

So, what does this mean for Alaskans? Hopefully, it means we’ll see employment losses in the oil and gas industry come to an end soon, but the number of Alaskans who feel changes in the oil patch through direct and indirect employment is relatively small compared to those who feel industry changes via the state budget which in recent years derived 90%+ of its revenue from oil related taxes and royalties. The short summary is that the oil price recovery to nearly $60 per barrel and an increase production mean that the state is expecting roughly $2 Billion in oil-related revenues yearly. However, the FY 2018 unrestricted general fund plus Permanent Fund Dividend (PFD) expenditures equaled just over $5 Billion dollars. Thus, we’re still spending $3+ Billion more than we generate in revenue each year. Both the Alaska House and the Alaska Senate have passed “Percent of Market Value” bills which would guarantee a steady stream of revenue to fund State Government and provide for a PFD. For ease of explanation let’s say this stream is around $2.5 Billion a year. So -5+2+2.5=-0.5 Billion. We’re still short $500 million, and, we could be short $300 million to $900 million depending on spending decisions and inflationary pressures, but that’s a lot better than being short $3 Billion annually without a plan. While the “Percent of Market Value” bills still need to be negotiated and signed into law, our discussions about how to use the Permanent Fund have shifted in the same way that our oil outlook shifted – for the better.

Neither of these shifts in outlook are enough to solve Alaska’s problems, but after three brutal years for workers, legislators, and residents in general, it’s time to acknowledge the progress we’ve made and recognize the road we still have left to travel.

Jonathan’s Takeaway: We’ve come a long way in the last 3 years, but our roughest road looks to be behind us. Jonathan choose to be optimistic that Alaskans can work towards a better future whatever they choose that future to be.


Jonathan King is a consulting economist and performance coach. His firm, Halcyon Consulting, is dedicated to helping clients reach their goals through accountability, integrity, and personal growth. Jonathan has 21 years of social science consulting experience including 14 years in Alaska. The comments in this blog do not necessarily represent the view of employers and clients past or present and are Jonathan’s alone. Suggested blog topics, constructive feedback, and comments are desired at

The views and opinions expressed in this article are those of the author and do not necessarily reflect APCM’s position.


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