The Covid-19 pandemic is increasing around the world again as the cold weather season begins — just as every predictive model in the world suggested it would. Calls for aggressive actions to combat the virus are wreaking havoc on the markets. Fears of another round of shut-downs bring back bad memories of negative oil prices and a nearly 40% drop in stock market values from earlier this year. Labor markets are on edge and it’s unclear if another round of economic relief is on the way.
At the same time, everyone is watching the election with anxiety. Nobody seems to know exactly what will happen to our economy moving forward. In short, October was filled with nervous anticipation. Here’s how the numbers shook out:
Alaska’s labor market inched forward
Alaska’s official preliminary unemployment rate fell slightly from 7.4% to 7.2% in September. It remains below the national average of 7.9%. The Department of Labor estimates there are currently 305,000 jobs in Alaska, versus the expected 341,894 our economy was trended toward before the pandemic hit.
That shortfall of nearly 37,000 jobs is a little better than in August. With the adjusted numbers by the department, job losses this summer now appear to have been closer to 45,000. As the tourist season ends, that number should continue to shrink into the winter.
But, it’s starting to look like over 8,000 of those losses will be permanent. These lost jobs are a direct result of businesses going bankrupt and structural shifts in the labor market due to the pandemic.
Permanent Fund earnings sit at $2.9 billion so far in FY21
The financial reports from the Alaska Permanent Fund Corporation show that its assets lost $891 million in September. Most of those losses came from the stock market. That brings the net gains on stock holdings down to $2.1 billion so far this fiscal year. There are another $500 million in gains from other assets along with $300 million in income from interest, rent, and dividends.
Preliminary data suggest that October was similar — with another $800 million of losses from stocks offset by about $300 million in income and appreciation in other assets. That bring the estimated total earnings for FY21 to about $2.4 billion through the first four months. The fund was projected to earn $4 billion when the year started.
Looking at the financial documents and projections from the corporation, it suggests an accessible balance of $12.85 billion at the end of fiscal year FY22 (plus another $9 billion of earnings that would require asset sales to access). Here is a restated financial statement to include projected earnings:
|Alaska Permanent Fund (As of September 30, 2020)||Billions|
|Total assets||$ 69.74|
|Accounts payable||– 2.24|
|Constitutional account balance||– 46.67|
|Total undistributed earnings||20.83|
|Remaining FY21 POMV draw||– 2.39|
|Total unrealized gains||– 9.00|
|Current accessible balance||9.43|
|Projected realized gains for rest of FY21||+ 2.49|
|Projected balance at start of FY22||11.93|
|Planned FY22 draw||– 3.07|
|Projected realized gains in FY22||+ 4.00|
|Anticipated Uncommitted and Accessible Funds||$ 12.85|
Oil prices are back under $40
After trading between $40 and $45 for most of the fiscal year, prices fell through the $40 support in the last week of October. Brent front-month futures closed at $37.94 on Friday, October 30th (implying an ANS price of around $37).
The most likely cause for concern is the uncertainly around oil demand if governments re-impose lock-down measures. The impact of the US presidential election is also weighing on traders’ minds. November prices are likely to react to the resolution of these questions with significant movements up or down.
ANS oil averaged an assessed value of $40.42 in October. That brings the fiscal year average to $41.92 so far. Given the current state of high uncertainty, we are waiting until next month to reassess our projection.
North Slope oil production is on edge
15.5 million barrels of oil flowed through the Trans-Alaska Pipeline System in October 2020 – an average of 492,992 barrels of oil per day (BOPD). That’s down slightly from 495,309 BOPD last October. As far as we can tell, North Slope operators seems to be holding their breath as they wonder what will happen with oil demand in California and oil taxes in Alaska. We will update our forecast next month.
Rig report shows only two working rigs on North Slope
Based on data collected from the Petroleum News, it appears that only one rig is currently drilling a new well (in Milne Point). Another work-over rig is also working in Milne Point. All of the other rigs on the North Slope are stacked, with no drilling occurring in Prudhoe Bay, Kuparuk, or Alpine right now.
This lack of activity means there is no rate replacement going on and that higher than expected decline rates are eminent. If this lack of in-fill drilling continues, it will warrant substantial reduction to the oil production forecast. ConocoPhillips recently warned shareholders that it’s unlikely that they will resume drilling operations if the “Fair Share Act” passes.
Willow got its final approval on Federal permits
There was some good news for North Slope oil numbers this month. The Federal government finished its permitting process for the Willow prospect in the NPR-A. Now, with the Record of Decision (ROD) in hand, ConocoPhillips will assess the economic viability of the project. If they decide that Alaska is a good place to invest over $5 billion, the project will begin the engineering phase next year.
Since the project is expected to produce more than 400 million barrels of oil (and for other reasons), Ballot Measure 1 would change the project economics. Therefore, the company has said it will wait for the results of the election before starting its assessment. If sanctioned, the project is planned to produce a peak of 160,000 BOPD, with first oil flowing in 2026.
Pikka is still on track for a 2025 start
Oil Search is continuing its reevaluation of the Pikka project. As oil markets continue to shift, the project has underwent some revisions since receiving its ROD last year. The most recent public discussion about the project suggests that the company is abandoning the earlier production plan it previously announced. There will be no pre-facility production flowing through Kuparuk in 2022. Instead, Oil Search now plans to start the first phase of production in 2025, using capital reinvestment to expand the facilities and add drill sites over time.
ConocoPhillips Alaska shows $76 million loss so far in 2020
ConocoPhillips announced its third quarter earnings last week. The accompanying press release highlights what anyone that can properly read a financial statement already knew. The company spent $76 million more producing Alaska’s oil than it brought in so far in 2020. That includes $442 million of payments to the State Treasury.
Meanwhile, the company also announced a $9.7 billion purchase of assets in the lower 48. Again, we observe the simple economic truth — money migrates to places in which it has the best opportunity to multiply.