Palin, Alaska grapple with lower crude prices

ANCHORAGE, Alaska (Reuters) - Falling oil prices will take a bite out of Alaska's state budget and put a damper on oil-field investment, Gov. Sarah Palin told a conference of major North Slope oil operators on Wednesday.

Palin, the Republican party's vice-presidential nominee for the recent U.S. presidential election, said the days of oil-revenue budget surpluses are over.

"It's a wakeup call. We preached, when oil was at $140, that we had to prepare for the day when prices would drop," Palin told reporters. "We realized it today."

Palin has until December 15 to present operating and capital budgets for fiscal 2010. She was not specific about any planned cuts but said it will be hard to add workers to agencies. "We don't want to grow that workforce if we can't afford to do so," she said.

The operating budget will likely not be smaller than the current year's budget, but the rate of growth is expected to slow, she said.

According to state officials, the current fiscal year's budget assumes an average annual North Slope crude price of about $83 a barrel.

Despite the recent drop in the price of crude and a worldwide financial meltdown, the governor said she remains optimistic about long-term investment in the proposed North Slope natural gas pipeline, a mega-project that has been sought since the 1970s, and other oil-field projects.

The economic collapse means the nation and world "are even riper for resource development," she said. "This all the more reason to tap directly into our domestic oil and gas supplies."

BP's BP Exploration (Alaska) Inc is actually increasing its planned 2009 Alaska capital spending to $1.2 billion, up from this year's $900 million, company president Doug Suttles announced at the conference, the annual gathering of the Resource Development Council for Alaska.

Much of that spending is for four major projects -- the offshore Liberty development in the Beaufort Sea; development of the billions of barrels of shallow North Slope heavy oil that, to date, has eluded production because of technological and economic challenges; development of the Point Thomson field, where BP, Exxon and other oil companies are in a legal dispute with the state over leases; and continued spending for the Denali natural gas pipeline that BP is seeking to build with ConocoPhillips.

But BP will drill fewer wells in 2009 than the approximately 90 that were drilled this year, Suttles said. And the company has indefinitely suspended one major project, a $120 million gas-handling unit that would have been constructed and installed in the western side of Prudhoe Bay, he said.

(Reporting by Yereth Rosen; Editing by Bernard Orr)