CBCNL selects prolonged oil slump and its effects as top story of 2015

A painful and prolonged drop in oil prices and its effects on the fragile provincial economy has been chosen by CBC News as the top story of 2015 in Newfoundland and Labrador.

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No other event had such a widespread and confidence-shattering impact over the past 12 months, with hundreds of millions in projected royalties erased by the collapse in prices and a decline in production, resulting in record deficits and fears of recession-inducing cuts to the public sector.

The steep slide in prices was unforeseen by most analysts, and exposed how dependent the province's economy is on the oil industry.

Prior to this year, roughly one-third of revenues came in the form of royalties from the three producing offshore fields.

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Oil companies and those who supply and service the industry have been scrambling to stay profitable by reining in spending, finding creativeways to improve productivity, and in some cases delaying projects such as the multi-billion-dollar West White Rose expansion.

One of the most dramatic signs of the downturn came in September, when Husky Energy announced it was cancelling a nearly $1.2 billion, five-yearcontract with Seadrillfor the brand new West Miradrill rig.

Husky later reached a two-year contract with Transoceanfor the Henry Goodrich at a much lower rate.

Political ramifications

After years of record spending, surplus budgets and unprecedented economic growth, much of the talk in 2015 was about spending freezes,a flat-lining of the housing market, increases in taxes and fees, and a downsizing of the public service through attrition.

The faltering economy likely played a role in the November provincial election, which saw the long-serving Progressive Conservatives swept from power and the Liberals, led by Dwight Ball, capture 31 of the 40 seats in a House of Assembly that was reduced in size as a cost-saving measure.

The downturn began midway through 2014, with Brent crude plunging from a high of US$115 per barrel.

The situation only intensified when OPEC countries such as Saudi Arabia refused to curtail production, and the oversupply ledto prices dropping below $40 for the first time in seven years earlier in December.

Oilpatch woes felt in this province

The situation delivered a double-fisted blow to Newfoundland and Labrador, since the oil collapse also stung the oil-rich province of Alberta.

During the boom years, thousands of people from this province commuted towestern Canada forjobs in the oilpatch, bringing home fat paychequesthat helped tosustain many rural communities.

But many of those jobs have disappeared, and so did the regular charter flights that delivered workers to and from the oilpatch.

It has set the stage for a challenging fiscal situation that even some top economists in the province suggest is bordering on a crisis.

Long-term outlook looks brighter

Wade Locke, who has advised past governments on fiscal policy, said there are no easy options for thenew government.

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"I don't envy Mr. Ball and I don't envy the new finance minister. They're in a difficult situationand there's no obviousand easy way out of it."

As bad as it was in 2015, Locke and others believe the situation will rebound. It's just a matter of when.

"There's lots of oil and there's lots of resources inNewfoundland that will help in the longer term. That longer term might be five, six, 10 years. It's not goingto be one or two," he said.