After first quarter, province still on track to meet royalty projections
Surging oil production levels offset lower-than-expected prices in the first quarter of the fiscal year, keeping the Newfoundland and Labrador treasury on track to meet its revenue forecast.
An oil rig in dry dock. — Telegram file photo
The province has budgeted to receive $2.1-billion in offshore royalty revenues in 2010-11.
Oil royalties are the key component in the province’s fiscal turnaround.
High oil prices result in high royalties, and a boon of petro-bucks for the government.
Low oil prices result in red ink, and less money for everything from schools to roads to hospitals.
This year, oil royalties will provide one of out of every three dollars expected to go into the provincial government’s coffers.
And that figure does not include oil-related cash, such as $642 million in offset payments from the 1985 Atlantic Accord and corporate business taxes due from the industry.
The government budgeted for US$83 oil this fiscal year, with a 95.5 cent loonie.
The fiscal year runs from April 1 through March 31.
The province made its royalty calculations based on production of 90 million barrels.
The bad news is that oil has been below that magical US$83 benchmark since early May. And the loonie has been stronger than forecast. That has also nibbled into government royalty revenues.
But the good news is that production for the first three months of 2010-11 was strong — much stronger than expected.
According to figures posted by the Canada-Newfoundland and Labrador Offshore Petroleum Board (CNLOPB), nearly 25.4 million barrels were pumped in April, May and June.
That pace, if sustained for the entire year, would result in more than 101 million barrels — significantly higher than the 90 million used in fiscal forecasting.
Back of the envelope calculations put royalties for the first three months of the fiscal year on pace with government’s $2.1-billion target.
The estimate is a rough one, and assumes the averages of the first three months continue for the rest of the year.
Booming oil prices drove Newfoundland and Labrador to four years of budget surpluses from 2005-06 through 2008-09.
But the government is now forecasting four consecutive years of deficits, until at least 2013.
Last year’s deficit came in at $295 million.
This year’s deficit is projected to be $194 million.
The price of oil was trading in the $US80 per barrel range this week.