OIL’S WELL: Revenue resources propel Alberta to projected $2.9 billion surplus

Alberta crude was the star of the show in the Treasury Department’s first half fiscal update on Thursday, drenching the books in black ink — or more precisely, black gold.Not only did the ledger benefit from higher prices, heavy oil royalties also benefitted from lower price differentials thanks to the Trans Mountain pipeline expansion as well as a weaker Canadian dollar that increased the value of oil exports.Consequently, non-renewable resource revenue came in about $2.5 billion higher than forecast. Finance Minister Nate Horner is now predicting a $2.9 billion surplus for the fiscal year Compared to just $351 million previously..The finance department had originally budgeted based on USD $75 per barrel of West Texas Intermediate (WTI), but the first half average was actually closer to $80. In the second half the government is expecting $76.50, or $2.50 over budget.Every dollar up or down is worth about $630 million to the bottom line.But that’s only half the story. Oil price differentials — discounts between Alberta’s signature Western Canadian Select and WTI — were lower too, at about $14.40 per barrel or $1.60 per barrel lower than the $16 originally forecast.That’s almost exclusively due to the start-up of the Trans Mountain pipeline expansion this spring. Not only is the price gap, lower, but production is higher thanks to an addition 600,000 barrels per day of capacity — although those numbers won’t be known until the end of the year..To put it in perspective, the price differences usually run around 25% or closer to $20 per barrel although in the pre-pandemic past they’ve been as high as $50. For every dollar it shrinks is another $600 million to the bottom line.Finally, the Canadian dollar was lower than expected. Counterintuitively, a lower Loonie translates into higher value because although oil is priced in Greenbacks, Alberta oil is paid for in Canadian currency.Every penny in the exchange rate gives or takes another $400 million. Treasury now expects the Loonie to average about 73.7 cents to the dollar or more than two cents lower than the 75.9 cents it had originally budgeted.Finally, two more oil sands projects will move into ‘payout’ status this year followed by two more in 2025 and 2026, meaning they will be forking out more in royalties. Those of a certain age may recall the government under former premier Ralph Klein in the 1990s deferred royalties on oil sands projects until they recovered capital costs. As of June 30, 69 of 110 projects from that era had done so..That’s not including higher personal and corporate income taxes from all the people coming to Alberta looking for jobs; thus far more than 200,000 people have arrived in Wild Rose Country, the highest in absolute terms since 1981.Overall, it means that the stars may finally be aligning on Alberta’s fiscal roller coaster with the promise of more stable long-term revenue streams.“People across the country see a bright future for Alberta, and they continue to come here in record numbers. While this population growth is creating challenges and putting pressure on our hospitals, schools and other services, our prudence and discipline are helping to manage these challenges,” said Treasury Board president and Finance Minister Nate Horner.