Low oil prices drowning Alberta's finances

The steep drop in oil prices is leading to a sharp fall in revenue for Alberta's government and an expected loss of 31,800 jobs for the remainder of the year.

In the latest quarter, resource revenue was below budgetby $503 million.

Alberta's finance minister provided an update Tuesdayon the province's bleak financial situation, describing it as challenging, even though the governmentforecastsasurplus for the 2014-15 year of $465 million.

"It won't be easy, it won't be overnightand it won't be painless," said Finance Minister Robin Campbell about overcomingthe government's financial challenges.

The lower Canadian dollar played a big role in saving Alberta from a deficit this year, according to Todd Hirsch, chief economist at ATB Financial.

"Every cent that the Canadian dollar falls is additional oil royalty money for the government," said Hirsch. "Plus they've already started to put into placesome of the cost cutting. I think it was symbolically important that they show there was at least a little bit of a surplus."

Several analysts and energy-sector CEOs say the price of oil has likely hit bottom and will slowly increase over the rest of the year.

Prices have fallen by about 50 per centin the last year.West Texas Intermediate crude, the most commonly traded North American contract, was down $1.47 to $49.34 US at the close of trading Monday, followingfresh reports of an oversupply of oil.

The Alberta government was basing its 2014-15 budget on an averageWTIoil price of $95 US. During the second quarter, the forecast was lowered to $79 US. The government has once again revised that figure for the current quarter to $44.

"I won't forecast the price of oil, I've given up on that," said Campbell.

Companies suffering

This year, Alberta's revenue from oilsands bitumen royalties is expected to drop $644 million below the budget forecast.

The steep drop in oil prices hashit Alberta's energy sector hard.

Several companies have announced layoffs, cut capital spending and delayed projects, including Monday's announcement by Shell Canada to backout of the Pierre River oilsands project.

Oil and gas investment is expected to decline by 30 per centin 2015, according to the government, because of lower oil prices.

Alberta isn't the only provincestruggling because of oil's woes. TheConference Board of Canada suggests Saskatchewan, and Newfoundland and Labrador will also take a hit.

• Alberta squandered oil wealth with big spending, Fraser Institute says
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Private sector forecasts for the Alberta economy range from half a percent of growth in 2015 to a 1.5 per centcontraction. The province itself is forecasting 0.6 per centgrowth, which is an improvement over 2009 when the economy contracted by more than four per cent.

Alberta is considering many options to boost revenues, including increasing taxes and reintroducinghealth-care premiums.

The government has taken several steps to cut costs. Alberta trade offices will close in Ottawa, Chicago and Munich. All members of the legislaturehave agreed to a five per cent wage cut. Alberta Health Services has brought in a hiring and salary freeze.

Robin Campbell said that next year's shortfall from energy revenue was the size of the entire education budget, or one-third of all public sector salaries.

He also said that Albertans should not take much comfort from this year's surplus.

"That could disappear in a heartbeat," he said."I would not want anybody coming away thinking we are in good shape."

Alberta has yet to set a date for when the next budget will be delivered.