Forget the bubble, the imaginary protection Newfoundland and Labrador supposedly enjoyed from the global recession.
Forget any prospect of another windfall year in 2009 like the one in 2008.
The prospect of a balanced budget - let alone a slashed deficit - could be dim if provincial oil royalty figures thus far in the fiscal year hold true to the end of March 2010.
According to figures released by the federal natural resources department (NRCAN), Newfoundland and Labrador averaged $89.6 million a month in oil royalties for the first five months of 2009.
That’s about 57% below the average monthly 2008 oil royalties, based on $2.5 billion over 12 months.
It’s also 15% below the projected oil royalty figure contained in 2009 Estimates. If that trend continues, the provincial oil royalties would come in at around $1.08 billion instead of the $1.262 billion forecast in the Estimates.
Budget 2009 projected a $1.3 billion cash shortfall on a cash basis (The Estimates) and a $750 million shortfall on an accrual basis (The Budget Speech). In 2007, the current provincial government quietly reversed the practice established in 2003 and began to report the province’s budget using both accrual and modified cash accounting.
Without significant changes in other revenues, dramatic spending cuts or a combination of both, it’s going to be tough for the provincial government to avoid a deficit this year and it may well wind up with a larger deficit than forecast.
While other areas of the economy may be performing better than expected, it’s doubtful they be able to generate the added revenue for the provincial treasury that came from oil within the past few years.
Borrowing would seem to be inevitable, whether it was borrowing from banks or borrowing from the $1.8 billion in temporary investments the provincial government had on hand last spring. Some of that $1.8 billion is committed to other projects, however.
The table below shows the monthly oil royalty figures for April to August 2009 as well as the offshore oil production from April to September and the average royalty per barrel for each month.
| Month | Royalty ($) | Production (barrels) | Average royalty amount per barrel ($) |
| Apr | 94, 344, 222. 11 | 9, 116, 213 | 10.34 |
| May | 77, 970, 776. 28 | 6, 915, 304 | 11.25 |
| Jun | 97, 572, 585. 54 | 7, 374, 739 | 13.23 |
| Jul | 89, 287, 050. 27 | 8, 629, 918 | 10.34 |
| Aug | 49, 851, 328. 75 | 6, 537, 149 | 7.62 |
| Sep | N/A | 6, 164, 839 | N/A |
| Total | 448, 461, 684. 47* | 44, 738, 162** | N/A |
| Average | 89, 692, 336. 89* | 7, 456, 360** | N/A |
* First five months
** Six months
The August royalty total is particularly low due to decreased production at White Rose for planned maintenance. The September figure may also be low due to scheduled maintenance.
The production figures are taken from the Canada-Newfoundland and Labrador Offshore Petroleum Board website.
Bond Papers tried unsuccessfully to get the information from the provincial finance department before contacting NRCAN.
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