West Texas Intermediate oil contracts closed at ~$55bbl on 12/15/2014. Soon after the oil swoon, Moody’s placed Alaska on negative credit outlook without revising the state’s AAA credit rating. We agree with Moody’s assessment of Alaska’s outlook and credit quality. Alaska’s budget and balance sheet are highly exposed to the price of crude oil. Nearly 20% of Alaska’s general fund revenue and 25% of the State’s economic output comes from oil and gas extraction activity. Accordingly, forecasting oil production and price is extremely important to the State’s fiscal condition, and boy did they get it wrong.
At the beginning of the 2015 budget process, Alaska forecasted oil at $105bbl. The forecasting error will result in a material 2015 budget imbalance, and, as we showed in last week’s note, the state faces long-term secular trends of lower oil production. But it’s not all bad news. Alaska’s Permanent Fund has $48.9B in AUM that buffers against any near term issues and supports balance sheet liquidity.
Read more at Iris.xyz.