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.
Stefan Baranski, Redford’s director of communications, did not immediately return a phone message seeking comment on the Moody’s report. Robyn Cochrane, a spokeswoman for Alberta Treasury Board and Finance, did not immediately return a phone message and e-mail seeking comment.
To contact the reporters on this story: Ari Altstedter in Toronto at email@example.com; Rebecca Penty in Calgary at firstname.lastname@example.org
To contact the editor responsible for this story: David Scanlan at email@example.com