What others say: Caelus find will benefit state, but doesn’t fix revenue problem

  • Tuesday, October 11, 2016 12:54pm
  • Opinion

There’s no question that Caelus Energy Alaska’s major oil find on the North Slope will be good news for state revenue. At an estimated 6 billion barrels in total size, the field is one of the biggest ever found in Alaska — not of a similar size as Prudhoe Bay, but roughly on par with Kuparuk. When developed, it could contribute hundreds of thousands of barrels per day to the throughput of the trans-Alaska oil pipeline, easing concerns about declining North Slope production forcing an early shutdown. But there’s one thing the field isn’t — the answer to the state’s revenue crisis. Alaska needs solutions before the Smith Bay field is developed, and it will need them even more when most of the field’s recoverable oil has been extracted and it joins the North Slope’s other declining fields.

The discovery of the field could fairly be described as a game changer for the medium-term outlook for the North Slope. With Prudhoe Bay production on a long decline since peaking in the late 1980s and other fields too small to make up for the Prudhoe downturn, conventional wisdom held that North Slope oil was on its way to the fate of Cook Inlet, where large-volume production ended decades ago. But the Smith Bay find could help the North Slope maintain a presence more like what the state has been accustomed to for the past several decades — a landmark source of oil and gas that helps prop up one leg of the state’s proverbial “three-legged stool” of revenues.

But Smith Bay won’t fix the state’s current revenue problems. Even if permitted, leased and developed with all haste, oil from the field wouldn’t be flowing through the pipeline until the early 2020s, well after available state savings (including the Alaska Permanent Fund’s earnings reserve, out of which dividend checks are paid) would be exhausted without new revenue measures. What’s more, even at the top-end estimate of 200,000 barrels of new oil from Smith Bay flowing through the pipeline, the new field’s production tax revenue and royalty oil wouldn’t close the budget gap on its own; the state would still be operating at a significant deficit.

The state’s revenue crisis is just as severe today as it was a week ago. But the Caelus discovery is a significant bright spot for the state’s future, and there’s one way it could have a substantial direct positive effect on Alaska residents: Under Gov. Bill Walker’s permanent fund restructuring plan, dividend checks would shift from being generated by returns from the permanent fund corpus to a disbursement based directly on oil revenue. The Smith Bay oil, when developed, would provide a bump to that amount.

Alaska must address its revenue problem by restructuring permanent fund earnings and other means. The Smith Bay field doesn’t change that reality — what it does is give the state a bit of a boost that will make life easier once the budget has been balanced. Neither legislators nor citizens should labor under the idea that the find gives us more time or takes pressure off the need to resolve the revenue shortfall. At the ballot box in November, in the governor’s budget in December and when the legislative session starts in January, that will still be the first, most important order of business.

— Fairbanks Daily News-Miner,

Oct. 9

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