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Panel cautious on N.D. oil outlook as new revenue forecast prepared

A drilling rig operates on Friday, Nov. 20, 2015, south of Tioga, N.D. Amy Dalrymple/Forum News Service

BISMARCK — Number crunchers, lawmakers and industry reps working on North Dakota's tax revenue outlook for the next two years took a cautious approach Thursday, scaling back earlier predictions for oil activity and prices to avoid a potential repeat of the state's current budget woes.

The assumptions adopted by the Advisory Council on Revenue Forecasting on Thursday will be used to prepare the revenue forecast for the 2017-19 biennium.

State lawmakers will receive the forecast on Dec. 7, the same day outgoing Gov. Jack Dalrymple will present them with his final executive budget proposal.

Dan White, senior economist for forecasting consultant Moody's Analytics, said states nationwide are struggling with putting together budgets as the majority fall short of their revenue forecasts because of distortion between what's happening in the economy and state tax collections.

"This is not something that is necessarily unique to North Dakota," he said, calling the North Dakota outlook "the most challenging forecast that I've ever had to personally work on."

Moody's prepared the revenue forecast that lawmakers relied on in early 2015 when setting the state's two-year budget at a record $14.4 billion, including a $6.03 billion general fund budget. Some lawmakers complained that the forecast was too rosy on oil prices, which were sliding at the time, and since then leaders have used two rounds of budget cuts and fund transfers to offset nearly $1.4 billion in revenue shortfalls.

House Majority Leader Al Carlson, R-Fargo, warned that if the new forecast aims too high and lawmakers end up scrambling again to cut budgets, "We are going to have our heads on the block."

"We've got to be careful," he said. "Things are not rosy."

Preliminary figures for October show revenues were $8.7 million, or 5.7 percent, below the revised forecast prepared three months earlier. Revenues are $15 million below forecast since July.

To make the new forecast more conservative, the advisory group downsized the number of drilling rigs and oil and gas wells expected to be completed, settling on 30 rigs and 700 wells next year, 50 rigs and 1,000 wells in 2018 and 55 rigs and 1,100 wells in 2019. The state had 36 active drilling rigs Thursday, compared with 188 two years ago.

Advisory group members also lowered the oil price forecast, agreeing on a West Texas Intermediate crude benchmark price of $56 a barrel next year and $61 a barrel in both 2018 and 2019.

North Dakota Petroleum Council President Ron Ness said the Bakken crude price is currently discounted about $8 below WTI, and completion of the controversial Dakota Access Pipeline would give investors more confidence that the discount won't increase.

"It ensures that you move those barrels every day, which is a big thing," he said.

Advisory group members agreed to hold oil production flat at 900,000 barrels a day in the new forecast, or about 80,000 barrels below current production.

"That leaves a little room for a little upside," Mineral Resources Director Lynn Helms said.

Members also reviewed assumptions for sales tax, motor vehicle tax and income tax collections, forecasting a gradual rebound after sharp declines. They also went conservative on farm commodity prices, which continue to slump.

Lawmakers will receive another forecast during their regular session, likely in February.

Mike Nowatzki

Mike Nowatzki reports for Forum News Service. He can be reached at (701) 255-5607.