Spring 2020 Revenue Forecast Presented by: Dan Stickel, Chief - - PowerPoint PPT Presentation

Spring 2020 Revenue Forecast

Presented by: Dan Stickel, Chief Economist Colleen Glover, Director, Tax Division

04/29/2020

Spring 2020 Revenue Forecast

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Spring Forecast Assumptions

How the COVID-19 crisis will continue to unfold is unknown. DOR has developed a plausible scenario for COVID-19 and its economic impact, upon which to base the spring revenue forecast. Key assumptions include:

• Forecast assumes widespread government mandated shutdowns begin reversing

in first half of FY 2021.

• Assumes overall economic activity back to pre-COVID levels beginning FY 2022.
• Oil Price: Assumes ANS price below $30 for remainder of FY 2020, averages $37

for FY 2021, and climbs to $52 by FY 2029.

• Oil Production: Production forecast developed prior to March price crash and has

not been revised at this time.

• Investment Returns: Based on Alaska Permanent Fund Corp’s (APFC) “low

projection” for FY 2020, with an overall 0.5% loss in value. Assumes APFC’s median projection of 7% annual returns for FY 2021 and beyond.

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Spring Forecast Assumptions Cont.

• Corporate T

axes: Assumes minimal net corporate oil and gas revenue for FY 2021 – FY 2022. Non-petroleum corporate tax revenue is expected to fall significantly for the most-impacted sectors.

• T
• urism: Assumes no cruise ships and minimal independent tourism in summer
• 2020. Assumes summer 2021 cruise visits at 75% of previously expected levels and

summer 2022 resumes previously expected levels.

• Mining: Reflects lower expected prices for industrial minerals such as zinc and

lead, partly offset by higher gold prices. No adjustment to expected production.

• Fisheries: Revenues reduced to reflect uncertainty in demand for fish and

available labor supply.

• Motor Fuel T

axes: Assumes 25% reduction in fuel use for rest of FY 2020, 5% reduction from baseline in FY 2021, and return to prior expected levels in FY 2022.

• Federal Revenue: Based on federal receipts as of the passage of the state budget

in late March 2020. Additional federal revenue, including from Coronavirus Aid, Relief, and Economic Security (CARES) Act, not included in spring forecast.

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Changes to Three-Year Unrestricted Revenue Outlook

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 Sou

• urce

ce: : Spring 2020 Re Revenue For

• recast

FY 2020 FY 2021 FY 2022 Fall 2019 Forecast $63.54 $59.00 $61.00 Spring 2020 Forecast $51.65 $37.00 $41.00 Change ($11.89) ($22.00) ($20.00) ANS OIL PRICE (Nominal $ per barrel)

Revenue Forecast: 2019 to 2021 T

• tals

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 So Source: : Sp Spring 2020 Re Revenue Fore

• recast

st  Note te: : The feder deral revenue fore

• recast do

does s no not t incl nclude po pote tential add dditional sta tate revenue du due to

• the

he CARES Act t pass passed by by con

• ngress

ss in n late te March,

• 2020. Petroleum revenue sho

hown in n the he Federal cate tegory incl ncludes the sta tate shar hare of

• f rents

ts, royalti ties, and nd bo bonuses received from the he Nati tional Petr troleum Re Rese serve in n Alaska (NPR-A).

$ Millions History Revenue Type FY 2019 FY 2020 FY 2021 Unrestricted General Fund Petroleum Revenue 2,043.8 1,098.8 716.6 Non-Petroleum Revenue 490.1 454.2 411.5 Investment Earnings 2,815.9 2,969.4 3,116.3 Subtotal 5,349.8 4,522.3 4,244.3 Designated General Fund Non-Petroleum Revenue 450.3 416.4 413.4 Investment Earnings 53.3 (42.4) 38.2 Subtotal 503.6 374.0 451.6 Other Restricted Revenue Petroleum Revenue 563.5 549.8 285.2 Non-Petroleum Revenue 180.9 216.9 200.9 Investment Earnings 1,134.7 (3,406.0) 1,073.8 Subtotal 1,879.2 (2,639.3) 1,559.9 Federal Revenue Federal Receipts 3,434.5 4,304.8 4,304.8 Petroleum Revenue 12.3 13.0 9.1 Subtotal 3,446.8 4,317.8 4,314.0 Total State Revenue 11,179.4 6,574.8 10,569.9 Forecast

Unrestricted Petroleum Revenue Forecast: 2019 to 2021 T

• tals

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 Sou

• urce

ce: : Spring 2020 Re Revenue For

• recast

$ Millions History Unrestricted General Fund Revenue FY 2019 FY 2020 FY 2021 Taxes Petroleum Property Tax 119.5 123.2 116.7 Petroleum Corporate Income Tax 217.7 35.0 35.0 Oil and Gas Production Tax 595.5 267.6 122.3 Subtotal Taxes 932.6 425.8 274.0 Royalties Mineral Bonuses and Rents 33.0 25.8 29.4 Oil and Gas Royalties 1,074.5 646.2 410.9 Interest 3.6 1.0 2.3 Subtotal Royalties 1,111.1 673.0 442.6 Total Petroleum Revenue 2,043.8 1,098.8 716.6 Forecast

Relative Contributions to T

• tal State Revenue:

FY 2019

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Total State Revenue: $11.2 Billion

Mining: 0.5% Investment Earnings 35.8% Petroleum 23.4% Fisheries: 1.1% Non-Petroleum Corporate Income: 1.1% Tourism: 0.9%

 Sou

• urce

ce: : Spring 2020 Re Revenue For

• recast

 Dis Discl claimer: : Numbers may may not not add dd du due to

• ro

roun

• unding. Ex

Examples may may not not be be to

• scale.

Federal Revenue 30.7% Other Revenue: 6.4%

Forecasted Contributions to T

• tal State

Revenue: FY 2020

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Total State Revenue: $6.6 Billion

Mining: 0.8% Investment Earnings

• 7.3%

Petroleum 25.3% Fisheries: 1.9% Non-Petroleum Corporate Income: 1.7% Tourism: 1.2%

 Sou

• urce

ce: : Spring 2020 Re Revenue For

• recast

 Dis Discl claimer: : Numbers may may not not add dd du due to

• ro

roun

• unding. Ex

Examples may may not not be be to

• scale. The

he fede deral re revenue for

• reca

cast does does not not inclu nclude e pote potential add dditional sta tate te re revenue du due to

• the

he CAR ARES Ac Act t pa passed by by con

• ngress in

n late te Ma March ch, 2020.

Federal Revenue 65.5% Other Revenue: 10.8%

Spring 2020 Price Forecast

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Price Forecast Methodology

• Beginning with the Fall 2019 Revenue Sources Book, the
• il price forecast is based on the most recent futures

market projections.

• Through FY 2025, using Brent crude oil futures traded on

the Intercontinental Exchange (ICE).

• Differential applied to Alaska North Slope (ANS) crude
• il through end of FY 2020.
• Later years use FY 2025 forecasted price, adjusted for

inflation.

• New method allows for a more timely and transparent

forecast.

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12 12

 Sou

• urce

ce: : An Analyst for

• recast is an

n average of

• f 5-19 firms fro

rom a Bloomberg sur urvey as of

• f Ap

April ril 23, 2020. Futures pr price ces are re fro rom the he New Yor

• rk

Me Merca cantile Ex Exch change (NYM YMEX) as of

• f Ap

April ril 23, 2020. The he U.S. Ener Energy Inf nformation Ad Administr tration (EI EIA) for

• recast

t is fro rom the heir Ap April ril 2020 Sho hort-Term Energy Outlook. Forecasts are adjusted using Alaska Department of Revenue’s 2.25% inflation assumption.

Brent Forecasts Comparison

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 Sou

• urce

ce: : Spring 2020 Re Revenue For

• recast.
• t. The U.S. Ener

Energy Inf nformation Ad Administration (EI EIA) for

• recast is fro

rom the heir Ja January 2020 Ann Annual Energy Outlook. Forecasts are adjusted using Alaska Department of Revenue’s 2.25% inflation assumption.

EIA Annual Energy Outlook Forecasts Comparison

Changes to Long-T erm Price Forecast

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 Source: Spring 2020 Revenue Forecast. Forecasts are adjusted using Alaska Department of Revenue’s 2.25% inflation assumption.

ANS Price FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Fall 2019 $63.54 $59.00 $61.00 $62.00 $63.00 $65.00 $66.00 $68.00 $69.00 $71.00 Spring 2020 $51.65 $37.00 $41.00 $44.00 $46.00 $48.00 $49.00 $50.00 $51.00 $53.00 Change ($11.89) ($22.00) ($20.00) ($18.00) ($17.00) ($17.00) ($17.00) ($18.00) ($18.00) ($18.00) ANS OIL PRICE (Nominal $ per barrel)

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 Sou

• urce

ce: : Spring 2020 Re Revenue For

• recast

 Note tes: : As Assumes of

• ffici

cial for

• reca

casted Nor

• rth

th Slope pr product ction of

• f 486,500 ba

barr rrels pe per r da day. Near the he for

• recast AN

ANS pr price ce, a $1 chan hange in n pr price ce leads to

• an

n app pproximately $25 mi million chan hange in n UGF re revenue.

FY 2021 UGF Relative to Price per Barrel (excluding Permanent Fund transfer)

Spring 2020 Production Forecast

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Production Forecast Methodology

• T

en-year oil production forecast is developed internally by DNR, with assistance from DOR.

• Official forecast is most likely value taken from a range of

possible outcomes consistent with industry best practice

• Consists of oil volumes produced from three categories of

wells/fields:

• Currently Producing
• Under Development
• Under Evaluation
• The spring forecast for oil production was developed prior to the

March 2020 oil price crash. Given the long lead time for Alaska

• il projects and high level of uncertainty, the production forecast

has not been further revised at this time.

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Changes to North Slope Petroleum Production Forecast

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 Sou

• urce

ce: : Spring 2020 Re Revenue For

• recast

 Note te: : Foreca casts do do not not inclu nclude 10,000 ba barr rrels pe per r da day of

• f NGL ship

hipments fro rom Pr Prud udhoe to

• Kup

uparuk.

Spring 2020 Cost Forecast

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 Sou

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ce: : Spring 2020 Re Revenue For

• recast

North Slope Allowable Lease Expenditures

History Forecast

$0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 2 1 2 1 1 2 1 2 2 1 3 2 1 4 2 1 5 2 1 6 2 1 7 2 1 8 2 1 9 2 2 2 2 1 2 2 2 2 2 3 2 2 4 2 2 5 2 2 6 2 2 7 2 2 8 2 2 9 $ per barrel Fiscal Year

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 Sou

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• recast

North Slope Transportation Costs

History Forecast

Spring 2020 Credits Forecast

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23 23

T ax Credits for Purchase Status

 Sou

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ce: : Spring 2020 Re Revenue For

• recast

Note: Per AS 43.55.028, statutory appropriation is 10% of production tax levied, before credits, when ANS price forecast is $60 or higher. Statutory appropriation is 15% of production tax levied, before credits, when ANS price forecast is below $60. Does not include changes in company behavior or credit transfers beyond FY 2020 as a result of

• nly making statutory appropriation.

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 Sou

• urce

ce: : Spring 2020 Re Revenue For

• recast

T ax Credits for Purchase Status

Note: Per AS 43.55.028, statutory appropriation is 10% of production tax levied, before credits, when ANS price forecast is $60 or higher. Statutory appropriation is 15% of production tax levied, before credits, when ANS price forecast is below $60. Does not include changes in company behavior or credit transfers beyond FY 2020 as a result of

• nly making statutory appropriation.

• House Bill 331 created a Corporation that would purchase
• utstanding oil and gas tax credits at a discount and spread the

funding out over several years through issuance of bonds.

• The Corporation has not issued any bonds due to pending

litigation.

• The Alaska Supreme Court heard oral arguments on September

12, 2019. The court has not committed to a decision date.

• If court rules in favor of state, the Corporation can issue bonds up

to $700 million to finance purchase of tax credit certificates. No funds have been appropriated in the FY 2020 operating budget for purchase of tax credits outside of bonding program.

• No funds have been appropriated in FY 2021 budget for either

purchase of tax credits outside of bonding program, or to pay the bond annual debt service.

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T ax Credit Bonding Update

Plea lease fin find our r conta tact inf informatio ion belo low:

Da Dan Sti Stickel Ch Chie ief Economist Dep Department of

• f Revenue

da daniel.s .stickel@ l@alaska.g .gov (907 (907) 465 465-3279 3279 Co Colle lleen Gl Glover Di Director, Tax Div Divis ision Dep Department of

• f Revenue

colle lleen.g .glo lover@alaska.gov (907 (907) 269 269-1033 1033

dor

• r.ala

laska.gov

THANK YOU

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