Anchorage (Platts)--13Apr2009

Alaska's oil and gas producers and explorers are expected to boost
capital and operating spending in the state's next fiscal year by about 25%
despite low prices, Alaska's Department of Revenue said in a forecast.

The department's estimates, part of a semi-annual forecast of state
revenues, is based on information provided by companies operating in the
state, the agency said in the forecast, released late Friday.

The estimate is for state fiscal year 2010, which begins July 1, 2009 and
ends June 30, 2010.

Industry capital investment is expected to increase from $2.154 billion
in FY 2009 to $2.975 billion in FY 2010. Operating expenditures are expected
to increase from $2.086 billion in the current fiscal year to $2.357 billion
next fiscal year, the report said.

Total industry expenditures are predicted to increase from $4.24 billion
in the current year to $5.332 billion next year.

Industry spent $3.98 billion in FY 2008.

The revenue department credited a state investment tax credit and
incentive program with helping boost investment even during a period of low
oil prices.

"The FY 2010 projections represent a 33% increase in spending over 2008
expenditures, and likely represent an early indication that the incentives
included in recent production tax changes are having the intended effect on
investment," revenue commissioner Pat Galvin said in a statement. "Increases
in lease expenditures reflect continued interest in exploring for and
developing petroleum resources in the state."

Sources among North Slope operating companies said the department's
projected boost in FY 2010 spending is likely due to one large new project,
BP's offshore Liberty field, which is in the Beaufort Sea five miles off the
northern Alaska coast, and is in in federal Outer Continental Shelf waters.
Spending on other industry capital projects is expected to be flat or even
lower because of oil prices, company sources said.

Independent exploration companies, however, say the state's tax credit
system is a big help for them. The system allows companies to claim 20% of
capital investments as a credit against production taxes. If companies don't
have production, such as those that only perform exploration, the credits can
be sold to other companies or cashed in with the state, which refunds 100% of
qualified costs.

The revenue department also revised its production estimate as a part of
the forecast. Production is expected to average 689,150 b/d in the current
2009 budget year, then drop 5% to 654,823 b/d during FY 2010.

--Tim Bradner, newsdesk@platts.com