Oil revenue, production outlook is mixed, state says

The state of Alaska is projecting stable oil production over the next two years with increases expected in the future as new North Slope projects now under construction begin producing, the state Department of Revenue said.

However, near-term prospects for growth are mixed, and a lower oil price outlook is putting the damper on state revenue expectations, state officials said in a Dec. 13 briefing following release of the state’s annual production forecast.

The state revenue and natural resources departments work together on oil revenue and production forecasts.

One challenge is that production in the existing large fields on the slope is declining faster than anticipated. Production is 10,200 barrels per day lower this year compared with what was forecast last March, the most recent state production and revenue update. Similarly, the forecast for 2026 is 12,600 barrels per day below the March forecast, according to the forecast, according to the forecast.

Year-over-year oi production is generally stable at 460,000 barrels per day to 480,000 barrels per day, depending on the season, but state officials had expected incremental additions in producing fields to offset natural decline in the reservoirs, which are aging. But the additions didn’t appear.

However, one small new project set for a 2025 startup is Nuna, an undeveloped deposit in the Kuparuk River field now under construction by ConocoPhillips, the field owner and operator. Nuna is expected to produce 20,000 barrels per day at its peak.

In a longer 10-year outlook the expected startup of larger two fields now in construction, the Pikka project by Australia-based Santos Ltd. with Repsol, of Madrid, as a 49% partner, along with ConocoPhillips’ Willow project, are forecast to boost North Slope output to 657,000 barrels per day by 2034, the forecast said.

That is a mid-case scenario. A high case is 900,000 barrels per day if companies are lucky. The low case if the new fields don’t perform as expected is status quo in production, according to the forecast.

The state’s estimates do not include any new production from the Arctic National Wildlife Refuge, which is being promoted by incoming U.S. President Donald Trump. ANWR is highly speculative. A lease sale is planned in January but current U.S. Interior Secretary Deb Haaland has placed restrictions on any leases sold and expectations are now for modest bidding.

Operations costs are also rising in producing fields. Costs are monitored by state revenue department because they affect state income. Alaska has a net-profits type state production tax and the state requires producers to report production and capital costs, and also future cost estimates, in tax returns they file with the state.

Lease expenditures, basically field operation costs, were reported at $2.9 billion last year on the North Slope last year and are expected to amount to $2.9 billion this year and $3 billion next year and rising to $3.2 billion in 2027, according to the revenue forecast.

Not all costs are allowed as deductions from the production tax, however, so the amounts reported do not include all expenses. Transportation costs for moving North Slope crude to west coast refineries are stable, with $10.53 per barrel paid in 2024; 10.91 per barrel and $10.38 per barrel expected in 2025 and 2026, according to the forecast.

Until a few years ago oil production taxes and royalties paid for almost all of Alaska’s state budget, which is typically about $5 billion a year. The state also pays its citizens an annual cash “dividend”, amounting to about $1,500 per person in recent years.

Declining production and volatile prices have reduced the portion of state oil income supporting the budget to about 25%. The other 75% is mostly paid from earnings of a state investment fund of money saved from past oil royalties.

The Alaska Permanent Fund now totals about $79 billion in assets. Alaska citizens pay no significant state taxes such as income or sales taxes levied by most states.

Although the Permanent Fund’s investment income is steady, the volatility in oil markets and price is worrisome to state officials. State production tax income is forecast to drop from $974.7 million in 2024 to $441 million in 2026. Stagnant oil prices and higher costs underpin that decline, although the state also receives oil income from royalties, a state oil property tax and a special corporate income tax paid by oil producers.

For the near term the outlook for Alaska is mixed, state revenue commissioner Adam Crum said in a briefing when the revenue forecast was released. “The new forecast is more pessimistic about the state’s oil money prospect over the next few years than was the department’s previous forecast,” last March, Crum said.

“This is due to lower oil prices well as higher lease expenditures,” or production costs, he said. “The latest revenue forecast comes during a time of continued uncertainty due to recent geopolitical and financial events, causing volatile market conditions,” Crum said.

“It is important to note this forecast represents one plausible scenario within a range of potential outcomes,” he said. Those could go either way due to unpredictable world events.

Although it will take several years, possibly to the end of Trump’s new four-year term as U.S. president, his new pro-development policies are likely to result in new oil and gas discoveries and production.

The January ANWR lease sale is likely to see modest bidding but Trump could include new ANWR lease sales, which a Republican Congress is likely to endorse. The new president is also likely to start unwinding a web of regulatory restrictions Secretary Haaland placed on exploration and development in the National Petroleum Reserve-Alaska, a large federal enclave west of the large producing fields on the North Slope.

ConocoPhillips’ new Willow project is within the NPR-A and there are other Willow-type prospects nearby on leases now held by the company. A friendlier regime in Washington, D.C. will encourage ConocoPhillips to resume exploration the area.

Trump is also likely to reopen the Alaskan Beaufort Sea Outer Continental Shelf to leasing and exploration. While Shell was disappointed in initial results in a costly initiative in the Chukchi Sea, off Alaska’s northwest coast, the company was unable to fully test discoveries further east in the Beaufort Sea.

One discovery is in an area north of Point Thomson where ExxonMobil made a large gas and condensate discovery, which is now producing. This area is in relatively shallow water and a developer could take advantage of existing pipeline at Point Thomson that is connected to the Trans Alaska Pipeline System.