Province of AlbertaProvince of Alberta

December 2011

Province of AlbertaProvince of Albertad ’ d i• Canada’s second most western province

− Rocky Mountains on the west, the vast prairies on the east, the United States on the south and the arctic on the norththe 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 yearsCanadian 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 environmentAli R df d b P i i O t b 2011− Alison Redford became Premier in October 2011

− Election expected in Spring 2012

Economic PerformanceEconomic Performance

Energy Leads the EconomyEnergy Leads the Economy

Oil Sands – The Oil Technology CreatedOil Sands – The Oil Technology Createdh ld’ hi d l il• The world’s third largest oil reserve

− 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%

• Current production is 1.5 million barrels pper day− 2015 – 2.2 million bpd − 2020 – 3.0 million bpd− 2026 – 3.7 million bpdA ibl t i d i t• Accessible to companies and investors− 77% of the world’s oil reserves are controlled by state‐owned companiescontrolled by state owned companies

−Oil sands make up 51% of the remainder

Oil Sands ChallengesOil Sands Challengesi il k• Getting oil to market

− Existing pipelines are sufficient at present− New pipelines will face strong environmental oppositionNew pipelines will face strong environmental opposition− Keystone XL would transport bitumen to Gulf Coast refineries− Northern Gateway would provide access to Asiay p

• Environmental concerns− Strip mining and tailings ponds – land reclamation required−Water use – technology is reducing usage− Greenhouse gas emissions – carbon sequestrationI• Input costs− Labour shortages are possible − Prices of key commodities (eg natural gas steel) affectPrices of key commodities (eg. natural gas, steel) affect operating and construction costs and new project economics

Existing and Proposed Oil PipelinesExisting and Proposed Oil Pipelines

Budget 2011 – Economic OutlookBudget 2011 – Economic Outlookil i h• Oil price pushes economy

− Real GDP growth to average 3% over next three years− Increased oil industry investment and exportsIncreased oil industry investment and exports− Non‐energy investment will follow gradually− Construction costs expected to remain moderatep

• 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%W i ill d i di• Wage increases will drive consumer spending− Real wages will continue to rise− Consumer spending growth expected to be 2 3% per yearConsumer spending growth expected to be 2.3% per year

GDP and PopulationGDP and Population

EmploymentEmployment

Strong Balance SheetStrong Balance Sheet

Sustainability FundFund 8.1

• C$45 billion improvementSelf Supporting 

Lending Organizations 

C$45 billion improvement from 1993/94 to 2007/08

• Financial position allows g12.7 flexibility to meet revenue 

volatility

Unique PositionUnique Position

Alberta’s Savings FundsAlberta’s Savings Fundsi bili d f l ili• Sustainability Fund – management of revenue volatility

− Provincial surpluses and deficits flow through the fund− Deficits must be financed by the Sustainability FundDeficits 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 2008/09p

• 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 inflationCurrent balance is C$14 5 billion− Current balance is C$14.5 billion

• Other Endowments− C$3 2 billion in research and scholarship endowmentsC$3.2 billion in research and scholarship endowments

Fiscal RecordFiscal 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

l b d i /• Return to surplus budget in 2013/14• Three year capital budget of C$17.6 billion

Revenue SourcesRevenue Sources

• In 2011/12, income taxes represent 33% and natural resourcesIn 2011/12, income taxes represent 33% and natural resources revenues are 28% of total revenues − Consistent with historical averages

Revenues from Energy ResourcesRevenues 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

Government ExpensesGovernment 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

Key Assumptions and SensitivitiesKey Assumptions and Sensitivities

Prices 11/12 12/13 13/14Conventional oil (WTI US$/bbl) 89.50 95.50 95.75

$Bitumen (WCS @ Hardisty C$/bbl) 71.82 78.32 80.17Natural gas (C$/GJ) 3.30 4.05 5.00Exchange rate (US¢/C$) 100 50 98 00 98 00Exchange rate (US¢/C$) 100.50 98.00 98.00

Sensitivities (Impact in C$millions) Change ImpactConventional oil (WTI US$/bbl) −$1.00 −141Natural gas (C$/GJ) −10¢ −51Exchange rate (US¢/C$) +1¢ −154

Financing RequirementsFinancing Requirements

Purpose (C$millions) 11/12 To Date 12/13 13/14Provincial capital plan 1,837 30 0 0Provincial corporations 3,745 2,340 3,770 3,670Total 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 allowedborrowing to build capital is allowed

• Provincial corporations − Alberta Treasury Branches – retail financial servicesAlberta Treasury Branches  retail financial services− Alberta Capital Finance Authority – capital funding for local authorities

− Agriculture Financial Services Corporation – loans to farmers and agri‐business

Borrowing StrategyBorrowing Strategyl i l• GMTN programme recently put in place

• Borrowing terms driven by borrower needsProvince 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 gfunding; terms up to thirty years

− Agriculture Financial Services Corporation – terms up to twenty years; limited requirements

• Domestic markets are likely to be the primary sourceSyndicated deals and reverse enquiries− Syndicated deals and reverse enquiries

• Global markets borrowing will be opportunistic−Will consider benchmark deals and smaller issuesWill consider benchmark deals and smaller issues−Must deliver cost savings relative to the domestic market

Debt MaturitiesDebt Maturities

Province of AlbertaProvince of AlbertaG l li d d b i• Great place to live and do business− Highest per capita GDP in North America − Highest per capita investment in CanadaHighest per capita investment in Canada− Highest median after‐tax income in Canada

• Abundant energy resources− Crude oil and natural gas are plentiful

• Solid financial positionN t fi i l t f C$13 1 billi (M h 2012)− Net financial assets of C$13.1 billion (March 2012)

− Return to surplus in 2013/14• Politically stable environmentPolitically stable environment− Government committed to free enterprise, sustainable economic development, and strong infrastructure

• Excellent credit− AAA (S&P) • Aaa (Moody’s) • AAA (DBRS)

Contact InformationContact InformationllLowell Epp

Executive Director, Capital MarketsAlberta FinanceAlberta FinanceRoom 340, 9515 – 107 StreetEdmonton, Alberta, Canada T5K 2C3Phone  (780) 422‐4052Fax   (780) 427‐2435Email lowell.epp@gov.ab.ca

WebsitesWebsitesProvince of Alberta www.alberta.caAlberta Finance www.finance.alberta.caAlberta Finance www.finance.alberta.caAlberta Heritage Fund

www.finance.alberta.ca/business/ahstf