In oil patch parlance it’s called the ‘breakeven’ price..In perfect market conditions, the producer who has the lowest breakeven gains the most profit as an overall measure of the sustainability of its business model. And the good news for Alberta — the largest oil producing region in North America — is that number is going down, not up..That’s because the Alberta government is actually making more money off its main export — oil sands and bitumen — despite lower world oil prices, according to its first quarter financial update released on Thursday.. Nate HornerFinance Minister Nate Horner. .That in turn has allowed Finance Minister Nate Horner to lower the UCP’s breakeven oil price to US$75 a barrel from $79 in its previous budget estimates and still maintain his surplus numbers for the full year..“We know how much lower WTI (West Texas Intermediate) prices can affect our bottom line, which is why it's encouraging to see that prices today, as they've been in recent weeks, are once again above our budget projection,” said Horner. .“But it's also the reason this government has taken action to implement a responsible fiscal framework that will help help guide decision making to manage volatility.”.Given that each dollar up or down would normally knock off CAD$600 million from government coffers, that should have resulted in a $3 billion revenue hit. .Instead, bitumen revenues actually increased by $515 million despite the fact that benchmark WTI averaged US$74 in the quarter. .That’s because the price of Alberta’s signature Western Canadian Select, which is expressed as a differential to WTI, actually increased (or fell, lower is better) to $15 from $20 in the previous forecast, netting a positive gain of about $3 billion..”As we've continued to experience the volatility that we've become so accustomed to over the years, our positive numbers today are a testament to the resilience we continue to build in the provinces finances, and in Alberta's economy, as we retain our position as the economic engine of Canada,” Horner added..Because oil is priced in US greenbacks but sold in loonies, a lower Canadian dollar also helps the bottom line. Each percentage point down adds almost another $500 million to the treasury. And on that front, Horner has lowered his forex projection down almost another full cent to US75.5 cents from 76.2 cents..The downside is that lower oil price differentials resulted in a CAD$576 million loss at the Sturgeon Refinery near Redwater where the government refines its share of royalty barrels into diesel fuel. The price of diesel also took a hit in the quarter. .Although he declined to comment on the viability of the facility — which former energy minister Ted Morton called a “boondoggle” — Horner said he still hopes it will eventually become profitable and pointed to the economic value of having a locally sourced supply of diesel fuel, for the transportation, agriculture and heavy construction industries that rely on it..Going forward, the books should still be gushing black ink. The price of WTI was above US$83 on Wednesday which would imply another multi-billion windfall if they hold through to the end of the year, which they are expected to do..London-based Barclays on Wednesday upped its forecast for UK benchmark Brent to $97 by the end of the year. That would imply a WTI price of $90 to $95..With that in mind, Horner said his own personal preference for surplus oil cash would go back to debt repayment which he said would reduce debt servicing costs — interest payments — by about $60 million for every $1.5 billion repaid..”If I get a vote, and I'm sure I will, I would probably bring us back to further debt repayment. Over the next three years, we have about $26 billion in debt that's maturing, so it will be refinanced at a higher rate. So I'll be pushing for further debt repayment in those conversations.”
In oil patch parlance it’s called the ‘breakeven’ price..In perfect market conditions, the producer who has the lowest breakeven gains the most profit as an overall measure of the sustainability of its business model. And the good news for Alberta — the largest oil producing region in North America — is that number is going down, not up..That’s because the Alberta government is actually making more money off its main export — oil sands and bitumen — despite lower world oil prices, according to its first quarter financial update released on Thursday.. Nate HornerFinance Minister Nate Horner. .That in turn has allowed Finance Minister Nate Horner to lower the UCP’s breakeven oil price to US$75 a barrel from $79 in its previous budget estimates and still maintain his surplus numbers for the full year..“We know how much lower WTI (West Texas Intermediate) prices can affect our bottom line, which is why it's encouraging to see that prices today, as they've been in recent weeks, are once again above our budget projection,” said Horner. .“But it's also the reason this government has taken action to implement a responsible fiscal framework that will help help guide decision making to manage volatility.”.Given that each dollar up or down would normally knock off CAD$600 million from government coffers, that should have resulted in a $3 billion revenue hit. .Instead, bitumen revenues actually increased by $515 million despite the fact that benchmark WTI averaged US$74 in the quarter. .That’s because the price of Alberta’s signature Western Canadian Select, which is expressed as a differential to WTI, actually increased (or fell, lower is better) to $15 from $20 in the previous forecast, netting a positive gain of about $3 billion..”As we've continued to experience the volatility that we've become so accustomed to over the years, our positive numbers today are a testament to the resilience we continue to build in the provinces finances, and in Alberta's economy, as we retain our position as the economic engine of Canada,” Horner added..Because oil is priced in US greenbacks but sold in loonies, a lower Canadian dollar also helps the bottom line. Each percentage point down adds almost another $500 million to the treasury. And on that front, Horner has lowered his forex projection down almost another full cent to US75.5 cents from 76.2 cents..The downside is that lower oil price differentials resulted in a CAD$576 million loss at the Sturgeon Refinery near Redwater where the government refines its share of royalty barrels into diesel fuel. The price of diesel also took a hit in the quarter. .Although he declined to comment on the viability of the facility — which former energy minister Ted Morton called a “boondoggle” — Horner said he still hopes it will eventually become profitable and pointed to the economic value of having a locally sourced supply of diesel fuel, for the transportation, agriculture and heavy construction industries that rely on it..Going forward, the books should still be gushing black ink. The price of WTI was above US$83 on Wednesday which would imply another multi-billion windfall if they hold through to the end of the year, which they are expected to do..London-based Barclays on Wednesday upped its forecast for UK benchmark Brent to $97 by the end of the year. That would imply a WTI price of $90 to $95..With that in mind, Horner said his own personal preference for surplus oil cash would go back to debt repayment which he said would reduce debt servicing costs — interest payments — by about $60 million for every $1.5 billion repaid..”If I get a vote, and I'm sure I will, I would probably bring us back to further debt repayment. Over the next three years, we have about $26 billion in debt that's maturing, so it will be refinanced at a higher rate. So I'll be pushing for further debt repayment in those conversations.”
