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 2

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. 3

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 ourism: 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. 4

Changes to Three-Year Unrestricted Revenue Outlook ANS OIL PRICE (Nominal $ per barrel) 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)  Sou ource ce: : Spring 2020 Re Revenue For orecast 5

Revenue Forecast: 2019 to 2021 T otals $ Millions History Forecast 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  So Source: : Sp Spring 2020 Re Revenue Fore orecast st  Note te: : The feder deral revenue fore orecast do does s no not t incl nclude po pote tential add dditional sta tate revenue du due to o the he CARES Act t pass passed by by con ongress ss in n late te March, 6 2020. Petroleum revenue sho hown in n the he Federal cate tegory incl ncludes the sta tate shar hare of of rents ts, royalti ties, and nd bo bonuses received from the he Nati tional Petr troleum Re Rese serve in n Alaska (NPR-A).

Unrestricted Petroleum Revenue Forecast: 2019 to 2021 T otals $ Millions History Forecast 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  Sou ource ce: : Spring 2020 Re Revenue For orecast 7

Relative Contributions to T otal State Revenue: FY 2019 Total State Revenue: $11.2 Billion Investment Earnings 35.8% Federal Revenue Other Revenue: 6.4% 30.7% Non-Petroleum Petroleum Corporate Income: 1.1% 23.4% Fisheries: 1.1% Tourism: 0.9% Mining: 0.5%  Sou ource ce: : Spring 2020 Re Revenue For orecast 8  Dis Discl claimer: : Numbers may may not not add dd du due to o ro roun unding. Ex Examples may may not not be be to o scale.

Forecasted Contributions to T otal State Revenue: FY 2020 Total State Revenue: $6.6 Billion Non-Petroleum Corporate Petroleum Income: 1.7% 25.3% Federal Revenue Other Revenue: 10.8% 65.5% Fisheries: Tourism: 1.2% 1.9% Mining: 0.8% Investment Earnings -7.3%  Sou ource ce: : Spring 2020 Re Revenue For orecast 9  Dis Discl claimer: : Numbers may may not not add dd du due to o ro roun unding. Ex Examples may may not not be be to o scale. The he fede deral re revenue for oreca cast does does not not inclu nclude e pote potential add dditional sta tate te re revenue du due to o the he CAR ARES Ac Act t pa passed by by con ongress in n late te Ma March ch, 2020.

Spring 2020 Price Forecast 10 10

Price Forecast Methodology • Beginning with the Fall 2019 Revenue Sources Book, the oil 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). o Differential applied to Alaska North Slope (ANS) crude oil 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. 11

Brent Forecasts Comparison  Sou ource ce: : An Analyst for orecast is an n average of of 5-19 firms fro rom a Bloomberg sur urvey as of of Ap April ril 23, 2020. Futures pr price ces are re fro rom the he New Yor ork 12  12 Me Merca cantile Ex Exch change (NYM YMEX) as of of Ap April ril 23, 2020. The he U.S. Ener Energy Inf nformation Ad Administr tration (EI EIA) for orecast 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.

EIA Annual Energy Outlook Forecasts Comparison  Sou ource ce: : Spring 2020 Re Revenue For orecast. t. The U.S. Ener Energy Inf nformation Ad Administration (EI EIA) for orecast is fro rom the heir Ja January 2020 Ann Annual 13  13 Energy Outlook. Forecasts are adjusted using Alaska Department of Revenue’s 2.25% inflation assumption.

Changes to Long-T erm Price Forecast ANS OIL PRICE (Nominal $ per barrel) 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)  Source: Spring 2020 Revenue Forecast. Forecasts are adjusted using Alaska Department of Revenue’s 2.25% inflation assumptio n. 14

FY 2021 UGF Relative to Price per Barrel (excluding Permanent Fund transfer)  Sou ource ce: : Spring 2020 Re Revenue For orecast  Note 15 tes: : As Assumes of offici cial for oreca casted Nor orth th Slope pr product ction of of 486,500 ba barr rrels pe per r da day. Near the he for orecast AN ANS pr price ce, a $1 chan hange in n pr price ce leads to o an n app pproximately $25 mi million chan hange in n UGF re revenue.

Spring 2020 Production Forecast 16 16

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: o Currently Producing o Under Development o 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 oil projects and high level of uncertainty, the production forecast has not been further revised at this time. 17

Changes to North Slope Petroleum Production Forecast  Sou ource ce: : Spring 2020 Re Revenue For orecast 18  Note te: : Foreca casts do do not not inclu nclude 10,000 ba barr rrels pe per r da day of of NGL ship hipments fro rom Pr Prud udhoe to o Kup uparuk.

Spring 2020 Cost Forecast 19 19

North Slope Allowable Lease Expenditures  History  Forecast  Sou ource ce: : Spring 2020 Re Revenue For orecast 20