5.2.23 New Revenues to Fill the Fiscal Gap— ANWR
Commercial viability of oil development depends on factors such as the price of oil, quantity of oil, recovery/production technology and proximity to infrastructure (i.e., pipelines). USGS has estimated that ". . . the total quantity of technically recoverable oil in the 1002 area [of ANWR] is 7.7 billion barrels of oil (mean value) . . ." According to the USGS, estimates of technically recoverable oil in the ANWR 1002 area (excluding State and Native areas) ranges between 4.3 BBO (95 percent probability) and 11.8 BBO (5 percent probability).
It is important to understand that the quantity of "economically recoverable oil" increases as the price goes up; for example, at a higher price, more expensive technology could be used to extract oil that is harder to reach. USGS states that "at prices less than $13 per barrel, no commercial oil is estimated, but at a price of $30 per barrel, between 3 and 10.4 billion barrels are estimated. Economic analysis includes the costs of finding, developing, producing, and transporting oil to market based on a 12 percent after-tax return on investment, all calculated in terms of 1996 dollars." Arctic National Wildlife Refuge, 1002 Area, Petroleum Assessment, 1998, Including Economic Analysis, U.S. Department of the Interior, U.S.Geological Survey, USGS Fact Sheet FS-028-01, April 2001. http://pubs.usgs.gov/fs/fs-0028-01/
What does this mean to the state of Alaska? Could production of oil in ANWR help fill Alaska's fiscal gap?
Projections of when ANWR might be developed, even under an aggressive development schedule, do not suggest that any royalty or tax income to the state would be produced during this decade.
According to the Alaska Department of Revenue Fall 2001 Revenue Sources Book:
"The U.S. Department of Energy estimates it could take a decade after approval of ANWR exploration for the first production. Even if Congress approves ANWR this winter,  it is likely the first production would not come online until 2011, removing ANWR from our estimate of undiscovered oil production for this decade.
"However, Alaska would receive some revenues from lease sale(s) in ANWR, when and if these occur. According to the Department of Revenue, potential income to the state from an ANWR lease sale "... in 2004 could yield the state approximately $160 million. Assuming a 10-cent rule of thumb as a bonus bid, the companies would pay $320 million for access to 3.2 billion barrels. The state would receive half of this amount if revenue is shared in the same percentages as it is for the NPRA." Revenue Sources, Fall, 2001, Alaska Department of Revenue, Tax Division. December 2001, p. 41.
A SECOND OPINION
ANWR and the Alaska Economy, a study prepared in September 2002 by the McDowell Group, estimates state revenues based on 10.3 billion barrels of recoverable oil from ANWR. This is the "mean" estimate for the entire Coastal Plain area from the 1998 USGS study. The study notes that the U.S. Department of Energy estimates that it would take between 7 and 12 years from the time of approval to conduct a lease sale to the first production of oil from ANWR.
The study projects unrestricted state general fund revenues from royalties (based on a 50/50 split with the federal government), severance taxes, property taxes, and income taxes associates with ANWR oil production. The study also projects lease bonus revenues of $1.5 billion based on a US Department of Energy estimate. The estimates in the table do not include the Permanent Fund contribution.
Different assumptions obviously can produce very different projections of both the size and timing of revenues from ANWR production. However as an example these projections demonstrate that any potential revenues from ANWR (aside from lease bonus revenues) that could be used to reduce the fiscal gap are a decade away.