Alberta’s dependence on revenue from sales of discounted oil means the Aaa-rated province will miss its target of a balanced budget in the fiscal year ending March 2014 and could run a C$4 billion ($4 billion) deficit instead, according to Moody’s Investors Service.
The gap between Western Canada Select, the benchmark for oil-sands bitumen, and the U.S. West Texas Intermediate price could cause a C$5 billion shortfall in royalty revenues from previous estimates, Moody’s said in a report today. Every $1 decline in the WTI price results in $223 million less royalties, Moody’s said, citing provincial estimates. The oil-price gap widened to a record $42.50 a barrel on Dec. 14, according to data compiled by Bloomberg.
“The revenue shortfall is a credit negative but they’re in a strong position in that they have significant holdings of financial assets which provide balance sheet flexibility,” said Jennifer Wong, an assistant vice president at Moody’s in Toronto, in a telephone interview. “We’re in continual contact with the province.”
Alberta Premier Alison Redford said Jan. 24 in a televised address that rising oil-sands production and pipeline bottlenecks limiting market access amount to a “bitumen bubble” that will cut projected revenues for the province by C$6 billion in 2013-2014. The province, which will present its fiscal plan on March 7, will hold the line on spending and change programs and services to cope, Redford said.
Robyn Cochrane, a spokeswoman for the Alberta Finance department, declined to comment on Moody’s specific deficit forecast.
“Like Moody’s, we’re concerned about the drop in energy prices and resulting impact on our bottom line,” Cochrane said in a phone interview from Edmonton. “We’re working very hard in the budget and looking at all options, which include that every dollar is spent effectively and wisely and what we can do to reduce spending.”