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Alberta Euromoney Dec2011
- 1. Province of Alberta December 2011
- 2. Province of Alberta • Canada’s second most western province d ’ d i − Rocky Mountains on the west, the vast prairies on the east, the United States on the south, and the arctic on the north the United States on the south and the arctic on the north • Population of 3.7 million, projected to be 4.4 million by 2020 • Canadian leader in economic growth over the past 20 years Canadian leader in economic growth over the past 20 years • Economic growth fuelled by oil and natural gas − Other key sectors include petrochemicals, agriculture, forest products, industrial metal fabrication and tourism • Excellent fiscal record and financial position − AAA rating from S&P, Moody’s and DBRS • Stable political environment − Ali Alison Redford became Premier in October 2011 R df d b P i i O t b 2011 − Election expected in Spring 2012
- 5. Oil Sands – The Oil Technology Created • The world’s third largest oil reserve h ld’ hi d l il − 170 billion barrels of recoverable oil − Mining can be used to access 20% Mining can be used to access 20% − In situ methods required for other 80% p • Current production is 1.5 million barrels per day − 2015 – 2.2 million bpd − 2020 – 3.0 million bpd − 2026 – 3.7 million bpd •AAccessible to companies and investors ibl t i di t − 77% of the world’s oil reserves are controlled by state owned companies controlled by state‐owned companies − Oil sands make up 51% of the remainder
- 6. Oil Sands Challenges • Getting oil to market i il k − Existing pipelines are sufficient at present − New pipelines will face strong environmental opposition New pipelines will face strong environmental opposition − Keystone XL would transport bitumen to Gulf Coast refineries − Northern Gateway would provide access to Asia y p • Environmental concerns − Strip mining and tailings ponds – land reclamation required − Water use – technology is reducing usage − Greenhouse gas emissions – carbon sequestration •IInput costs − Labour shortages are possible − Prices of key commodities (eg natural gas steel) affect Prices of key commodities (eg. natural gas, steel) affect operating and construction costs and new project economics
- 8. Budget 2011 – Economic Outlook • Oil price pushes economy il i h − Real GDP growth to average 3% over next three years − Increased oil industry investment and exports Increased oil industry investment and exports − Non‐energy investment will follow gradually − Construction costs expected to remain moderate p • More jobs, more people − Employment forecast to rise at 2% per year − Unemployment rate forecast to drop to 4.5% by 2013/14 − Population growth of 1.7% •WWage increases will drive consumer spending i ill d i di − Real wages will continue to rise − Consumer spending growth expected to be 2 3% per year Consumer spending growth expected to be 2.3% per year
- 10. Employment
- 11. Strong Balance Sheet Sustainability Fund Fund 8.1 • C$45 billion improvement C$45 billion improvement Self Supporting from 1993/94 to 2007/08 Lending Organizations g • Financial position allows 12.7 flexibility to meet revenue volatility
- 12. Unique Position
- 13. Alberta’s Savings Funds • Sustainability Fund – management of revenue volatility i bili d f l ili − Provincial surpluses and deficits flow through the fund − Deficits must be financed by the Sustainability Fund Deficits must be financed by the Sustainability Fund − Balance projected to be C$8.1 billion on March 31, 2012 − Balance peaked at over C$18 billion in 2008/09 p • Heritage Fund – long‐term income generation − Established in 1976 to collect a portion of resource revenues − At present, no royalties are being deposited into the Fund − Fund retains income sufficient to protect it against inflation − Current balance is C$14 5 billion Current balance is C$14.5 billion • Other Endowments − C$3 2 billion in research and scholarship endowments C$3.2 billion in research and scholarship endowments
- 14. Fiscal Record • Priority spending maintained in Budget 2011 − Deficit forecast to be C$3.1 billion in 2011/12 − Deficits financed entirely by the Sustainability Fund • Return to surplus budget in 2013/14 l b d i / • Three year capital budget of C$17.6 billion
- 15. Revenue Sources • In 2011/12, income taxes represent 33% and natural resources In 2011/12, income taxes represent 33% and natural resources revenues are 28% of total revenues − Consistent with historical averages
- 16. Revenues from Energy Resources • Resources revenues forecast to be C$10 billion this year • Large increase in oil sands royalties − Oil sands revenues expected to increase as production rises • Low prices have resulted in low natural gas royalties
- 17. Government Expenses • Health is 40% and education is 24% of current year spending − Health is up 9% and education is down 3% from 2000/01 − Health rising to 42% and education falling to 22% in 2013/14
- 18. Key Assumptions and Sensitivities Prices 11/12 12/13 13/14 Conventional oil (WTI US$/bbl) 89.50 95.50 95.75 Bitumen (WCS @ Hardisty C$/bbl) $ 71.82 78.32 80.17 Natural gas (C$/GJ) 3.30 4.05 5.00 Exchange rate (US¢/C$) Exchange rate (US¢/C$) 100.50 98.00 98.00 100 50 98 00 98 00 Sensitivities (Impact in C$millions) Change Impact Conventional oil (WTI US$/bbl) −$1.00 −141 Natural gas (C$/GJ) −10¢ −51 Exchange rate (US¢/C$) +1¢ −154
- 19. Financing Requirements Purpose (C$millions) 11/12 To Date 12/13 13/14 Provincial capital plan 1,837 30 0 0 Provincial corporations 3,745 2,340 3,770 3,670 Total requirements 5,582 2,370 3,770 3,670 • Borrowing for the province − Borrowing to finance deficits is not allowed; however, borrowing to build capital is allowed borrowing to build capital is allowed • Provincial corporations − Alberta Treasury Branches – retail financial services Alberta Treasury Branches retail financial services − Alberta Capital Finance Authority – capital funding for local authorities − Agriculture Financial Services Corporation – loans to farmers and agri‐business
- 20. Borrowing Strategy • GMTN programme recently put in place l i l • Borrowing terms driven by borrower needs − Province terms of ten years and less Province – terms of ten years and less − Alberta Treasury Branches – terms of five years and less − Alberta Capital Financing Authority – requires floating rate p g y q g funding; terms up to thirty years − Agriculture Financial Services Corporation – terms up to twenty years; limited requirements • Domestic markets are likely to be the primary source − Syndicated deals and reverse enquiries Syndicated deals and reverse enquiries • Global markets borrowing will be opportunistic − Will consider benchmark deals and smaller issues Will consider benchmark deals and smaller issues − Must deliver cost savings relative to the domestic market
- 21. Debt Maturities
- 22. Province of Alberta •GGreat place to live and do business l li dd b i − Highest per capita GDP in North America − Highest per capita investment in Canada Highest per capita investment in Canada − Highest median after‐tax income in Canada • Abundant energy resources − Crude oil and natural gas are plentiful • Solid financial position − N t fi Net financial assets of C$13.1 billion (March 2012) i l t f C$13 1 billi (M h 2012) − Return to surplus in 2013/14 • Politically stable environment Politically stable environment − Government committed to free enterprise, sustainable economic development, and strong infrastructure • Excellent credit − AAA (S&P) • Aaa (Moody’s) • AAA (DBRS)
- 23. Contact Information Lowell Epp ll Executive Director, Capital Markets Alberta Finance Alberta Finance Room 340, 9515 – 107 Street Edmonton, Alberta, Canada T5K 2C3 Phone (780) 422‐4052 Fax (780) 427‐2435 Email lowell.epp@gov.ab.ca Websites Province of Alberta www.alberta.ca Alberta Finance Alberta Finance www.finance.alberta.ca Alberta Heritage Fund www.finance.alberta.ca/business/ahstf