Oil Prices, State Budgets, A Kamala Presidency, And All That Jazz — October 25, 2020

A lot of unknowns.  Thinking out loud. Not ready for prime time. Never will be. Too many unknowns. But some great links to get one started. Some of the links from readers. Thank you.

A gazillion links out there. Here are a few:

  • historic oil price burns hole in state budgets, a look at two states most at risk, Alaska, and North Dakota,  — taxfoundation;
  • New Mexico; New Mexico Oil & Gas Association, January 19, 2020; link here;
  • New Mexico: percent of oil production from federal land vs state land; link here;
  • New Mexico: state revenue from federal oil and gas land; link here;
  • New Mexico: implications of federal ban on drilling; link here;

Data points from the second link, New Mexico:

  • federal:
    • accounts for almost 60% of federal onshore oil production
    • accounts for 30 percent of federal onshore natural gas production
    • 2018: record revenue up to that time — $2.2 billion from oil and gas
      • 2018: revenue from federal land — $1.1 billion (unsaid how much of that was returned to the state)
    • 2019: record revenue from oil and gas
      • 2019: $3.1 billion; first year that revenue surpassed the $3-billion mark
      • 2019: contributing about 40% to state’s general fund
    • but look at this, a decade ago:
      • 2010: $1.8 billion from oil and gas generated about 35% to the state’s general fund
  • spokesman for oil and gas sector: “record highs were the ‘new norm,’ and expectations that gains would continue for the next ten years.”
  • bottom line:
    • state budget: about 40% derived from oil and gas (all sources)
    • federal ban on new leasing: a $1 billion hit on tax revenue for the state
  • let’s see
    • if state oil/gas revenue is $3.1 billion
    • $3.1 billion is about 40% of state budget
    • state budget x 0.4 = $3.1 billion
    • state budget = $7.75 billion (someone else can fact check that; I’ll leave it up to the editors at the NY Times)
    • $1 billion / $8 billion = about 10% (12.5% to be exact)
  • with waivers, policy to be phased in, etc., etc, a Kamala presidency would have almost no effect on the state, but the big losers: Native Americans?

Alaska: link, again;

  • 50% of the state’s revenue comes from severance taxes and a total of 81% of its revenue from taxes levied on the oil industry — does this compare to Saudi Arabia? Almost.

North Dakota, same link:

  • 53% of its revenue from severance taxes

Wyoming: 22%

New Mexico: 20%

Figures do not include revenue from corporate and personal income taxes, property taxes, and royalties. Further, oil production businesses may support other jobs in the local communities where they operate.

My hunch, for North Dakota, factors affecting royalties for mom-and-pop mineral owners:

  • most important unknown variable: price of oil
  • second most important unknown variable: price of oil
  • third most important unknown variable: price of oil:
  • fourth: state policies; taxation; incentives
  • fifth: takeaway capacity
  • sixth: Kamala presidency

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