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Providing coverage of Alaska and northern Canada's oil and gas industry
April 2009

Vol. 14, No. 15 Week of April 12, 2009

Alberta finds ‘good news’ in deficit

Gary Park

For Petroleum News

The Alberta government has been knocked off its perch after 13 years of crowing budgetary successes to the dismay and often annoyance of other Canadian provinces.

Caught in the downdraft of oil and natural gas prices and left gasping by the pullback in industry investment, Alberta has forecast a record deficit of C$4.7 billion for the fiscal year 2009-10, which started April 1, less than a year after targeting an C$8.53 billion surplus for 2008-09 that is now expected to become a C$1.4 billion deficit when the final numbers are counted.

Overall revenues for the province of 3.6 million residents is budgeted to drop 11 percent to C$31.7 billion “due largely to the global recession.”

Finance Minister Iris Evans said Albertans should view the deficit budget as a “good news” story because it already has C$16.8 billion worth of savings in place to ensure the flow of red ink can be stemmed.

“We’re still riding the uncertainty of the tidal wave and we’re in the best boat possible,” she said. “Honestly, I don’t think it will get rougher. We haven’t seen the last of that scoundrel, that recession. But in Alberta we’re right on track to be there stronger than ever as soon as this recession passes.”

Forecast based on US$55 WTI

The measure of Alberta’s financial collapse is contained in its predicted resource revenues from C$12.3 billion in 2008-09 to C$5.9 billion for the new fiscal year, based on forecasts of US$55 per barrel for West Texas Intermediate crude and C$5.50 per gigajoule for natural gas at the AECO hub. For 2008-09 it forecast US$70 for oil and C$6.75 for gas.

Gary Leach, executive director of the Small Explorers and Producers Association of Canada, said he would not be surprised to see the actual gas prices for 2009-10 drop 10-15 percent below the government’s target.

In addition, the government is targeting returns from land sales of C$660 million, about half last year’s level.

Because of an expected payout of C$842 million in incentives to spur exploration and development, Alberta will erase about C$597 million in revenue gains under the new royalty regime.

For 2010-11, the government is counting on resource revenues of C$7.2 billion.

But the debt-free province expects to accumulate deficits of C$10.3 billion over four years and said it will borrow C$1 billion a year for the next three years to fund C$9.2 billion of capital programs, while cutting that spending by 9.6 percent.

The absence of new money to stimulate the oil and gas industry is not unexpected, given that low commodity prices have reduced the cash flow to companies and their ability to undertake new programs, said John Dielwart, chief executive officer of ARC Energy Trust.

Premier Ed Stelmach told the provincial legislature April 7 his government is “going to dip into our emergency savings (a rainy-day fund of C$7.7 billion) to make sure we keep the momentum of this economy going.”






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