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Alberta aims low in oil price estimates For ’08-’09 counting on average of US$70, minister factored in likelihood of U.S. recession, turbulent global financial markets Gary Park For Petroleum News
Low-balling is the name of the game when the time comes for the Alberta government to estimate oil and natural gas prices for its fiscal years.
A succession of finance ministers, including the latest incumbent Iris Evans, take great pride in pointing to their “cautious, reasonable and prudent” approach.
But this time, Peter Linder, an analyst with DeltaOne Capital Partners, suggests the government has achieved a “new low.”
For 2008-09 it is counting on average prices of US$70 per barrel for West Texas Intermediate and C$6.75 per gigajoule for gas at the AECO hub.
In her defense, Evans said Alberta expects and hopes that US$78 will be “determined to be cautious at the end of the day.”
“But we think it’s a reasonable point, within our tolerance risk. If we budget tightly and lose, then that’s not a smart answer either.”
“Only one year ago, oil prices were around US$65 per barrel. Who knew then that they would be hovering around US$100 today?” she said.
In building its forecasts, the government said it factored in the likelihood of a U.S. recession and turbulent global financial markets, as well as drawing on the projects of private sector forecasters for Brian Mason, leader of the New Democratic Party, said the government has a long record of deliberately “misstating” prices to avoid tough decisions and boast of fat surpluses at mid-year.
the next three years.
Range of US$65-$100 a barrel for oil Those estimates range from US$65-$100 a barrel for oil and C$5.20-$8.20 per gigajoule for gas, the government said.
Others aren’t buying the government explanation.
“I think they do this because they don’t want to be accountable for long-term financial planning for the province,” he said.
The government’s most recent record for oil prices shows:
2003-04 — Budget: US$23.30 per barrel. Actual: US$31.38.
2004-05 — Budget: US$26. Actual: US$45.08.
2005-06 — Budget: US$42. Actual: US$59.90.
2006-07 — Budget: US$50. Actual: US$64.89.
2007-08 — Budget: US$58. Actual: US$82.25.
Revenues expected to be up C$700M Based on its 2008-09 forecast, Alberta will collect C$11.7 billion in resource revenues, up C$700 million from last fiscal year, as part of its budgeted total revenues of C$38.6 billion.
For each US$1 per barrel increase in oil prices spread over a full year, Alberta gains an extra C$130 million in revenues, while an increase of C10 cents per gigajoule for gas yield another C$114 million.
When Alberta’s new royalties kick in next year, those same yardsticks would boost oil returns by C$211 million and gas by C$166 million.
To those who might view the current price estimates as conservative, Mike Percy, dean of the University of Alberta school of business, said: “Just wait until next year.”
On the production side, conventional oil for 2008-09 is forecast at 506,000 bpd, down 56,000 bpd from 2005-06 and expected to slide another 29,000 bpd by 2010-11; gas is projected at 4.92 billion cubic feet per day in the next fiscal year, off from 5.27 billion in 2005-06 and headed for 4.71 billion in 2010-11; and combined bitumen and synthetic crude is calculated at 1.67 million bpd for 2008-09 compared with 1.01 million bpd in 2005-06 and a projected 2.3 million bpd in 2010-11.
More than two-thirds of Alberta’s output is exported to the United States.
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