Eight million extra barrels of crude and hefty royalty rates helped turn last year’s triple-digit deficit into a $485-million budget surplus.
Last year’s oil production increased by three per cent to almost 101 million barrels of crude compared with the previous year.
Royalties on that oil topped out at more than $2.3 billion for the 2010-11 fiscal year.
“We’d expected declines in oil production … with the age of the fields,” Marshall told reporters prior to Tuesday’s budget speech.
“At the end of the year it turned out to be eight million barrels more than we had anticipated.”
Despite last year’s production blip, declines are expected at the three oilfields off Newfoundland this year.
Reserves at the Hibernia, Terra Nova and White Rose oilfields have been in decline for several years. To date, all three fields have pumped at least 60 per cent of their estimated reserves.
Despite this, Marshall is forecasting oil royalties of $2.2 billion this year — thanks largely to high oil royalty rates that mask the oilfield declines.
The bulk of the Hibernia oilfield is paying royalties of 30 per cent, while a smaller portion of the field pays 42.5 per cent.
Terra Nova is paying its top rate of 42.5 per cent and White Rose is paying 30 per cent.
Hefty world oil prices aren’t hurting, either.
But Marshall isn’t attributing last year’s oil revenue increase to high crude prices. He credits the extra eight million barrels of oil production for the increase in oil revenues.
“Offshore royalties are up, but they’re not up because of price,” he said. “We nailed the price. We’re only out 24 cents a barrel in Canadian dollars.”
Last year, the province forecast oil prices at US$83 per barrel.
This year, Marshall is basing his fiscal projections on crude prices of US$108.21 per barrel.
The province’s pricing benchmark is Brent crude, which has been trading higher than West Texas Intermediate.
For the past two weeks, Brent has traded above US$120 per barrel.
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Pair of deficits
This year, Marshall isn’t forecasting a repeat performance of the 2010-11 surplus. Instead, he expects a small surplus of $59 million.
And by 2012-13, he’s predicting a $500-million deficit.
“We’re monitoring it very carefully. We’re forecasting two deficits and then we’ll be back to surpluses,” he said.
“But our oil royalties will, after two years, will go up — they’re going to go up to higher than they’ve ever been.”
That prediction is based on royalties that kick in at higher rates for Hibernia South and the White Rose satellite fields. (They include super royalties that are triggered when the price of West Texas Intermediate exceeds US$50 per barrel.)
Also factoring into the projected deficit is the loss of the 1985 Atlantic Accord offset payments.
It expires in March 2012.
“Given the fact that oil royalties will rise, we can manage that. We can manage that for a year,” said Marshall.
“We’re projecting … to get back to a surplus three years down the road.”
Last year, offset payments pumped almost $642,000 into the provincial treasury.
This year, it’s forecast at $536,000.
Where The Revenues Go
The province is projected to have $7.34 billion in revenue to work with in the coming year.
Here are our expected expenditures:
• Health care sector - $2.97 billion
• General government sector and legislative branch - $1.59 billion
• Education sector - $1.51 billion
• Other social sector - $915 million
• Resource sector - $301 million
(Source: Budget 2011 “Standing Strong”)