The Saskatchewan budget isn’t betting on an improvement in oil prices for this year.
In its key assumptions, the March 20 budget projects the benchmark West Texas Intermediate (WTI) oil price at US$59.75 per barrel, with total oil and natural gas royalties at $691.1 million. Potash is pegged at US$221 per potassium chloride tonne, with total potash royalties of $618.6 million. The exchange rate is set at 77.19 U.S. cents to the Canadian dollar.
On March 20, Daily Oil Bulletin reported a WTI price for April at US$59.03 per barrel for April, US$59.29 for May, US$59.58 for June and US$59.88 for July contracts. A year ago, that same contract was going for US$62.06 per barrel.
The light to heavy oil differential, as a percentage of WTI, is set at 24.8 per cent.
The wellhead oil price is set at C$55.46, with oil production forecast at 173.1 million barrels for 2019-20. That wellhead price is based on an average price per barrel of Saskatchewan light, medium and heavy oil.
Each US$1 change in the price of oil has a C$15 million impact on revenue. Every cent change in the dollar exchange rate will have a C$28 million difference.
“Real GDP is expected to grow by 1.2 per cent in 2019 and 2.4 per cent in 2020, or 3.6 per cent over the next two years, which aligns closely with an average of private sector forecast of 3.5 per cent GDP growth for the two years combined,” stated the budget document.
The government is forecasting a 5.5 per cent increase in revenue this year, an increase of $782 million.
That equates to a $15.03 billion in revenue and $14.99 billion in expenses. Expenses are expected to go up 2.6 per cent, or $382 million.
A hint of where some of that that additional revenue is coming from was noted in the second-last paragraph of the government’s press release, which stated, “The base payment component of the potash production tax is intended to provide a simple flat payment per tonne of potash sales,” Finance Minister Donna Harpauer said. “However, it has gradually been eroded by currently allowable deductions. To address this, effective April 1, the calculation of the potash production tax will be simplified by eliminating these deductions.”
