Mont. oil output drops but high prices soften blow

Oil production in Montana is off by about 30 percent from its high three years ago, but state officials said rebounding energy prices have staved off a sharp hit to the state's budget.

That's a rare bit of good news - or at least not-so-bad news - for state revenue officials tracking a steady decline in corporate and income taxes caused by the recession.

Legislative fiscal analyst Terry Johnson said oil and gas revenues are projected to come in $14 million higher than previously expected, at about $80 million during the current fiscal year. Those revenues are expected to increase to more than $96 million next year.

Still, given a dramatic drop in projected corporate and income tax receipts, revenues are expected to be $243 million short of the budget adopted by the Legislature, Johnson said.

For now, the state is projected to remain in the black because of a surplus built into that budget, and Gov. Schweitzer on Friday promised no new tax increases and no cuts in programs.

Montana remains one of the few states in the country to stay out of the red or make drastic cuts due to the recession.

Its buffer is fast diminishing.

Figures released earlier this month showed a surplus once pegged at nearly $300 million will diminish to just $44 million by June 2011. A rebound in oil production could help avert a fiscal dilemma, but there's no certainty that will happen.

Production is now at about 2 million barrels a month - down from 3.1 million barrels at its peak in October 2006.

Whether it has bottomed out is uncertain. Tom Richmond with the Montana Oil and Gas Conservation Board said new drilling is expected in Richland County, which has the most productive oil fields in the state. Higher prices could help.

For natural gas, prices remain low - and the resulting production outlook is bleak.

Gas production is down about 10 percent annually since peaking in late 2007 and has slowed considerably in the coal-bed methane fields of southeastern Montana.

The development of new gas fields in Park and Sweet Grass counties has been slowed by low prices and a lack of pipelines to get the fuel to market.

The amount of state land currently leased for oil and gas exploration hovers around 2 million acres.

That includes more than 325,000 acres leased in the last year. Those lease sales brought in about $2 million, or about $6.40 per acre. That's the lowest amount in five years.

Lease sales most recently peaked when oil and gas prices were hitting record highs last year. The average per-acre bid price in 2008 topped $42, bringing in more than $13 million for the state.