Saskatchewan will release its provincial budget as planned next week, despite the drastic drop in oil prices.
The budget, based on long-term forecasting, was finalized on Feb. 28, Energy and Resources Minister Bronwyn Eyre told reporters at the legislature Monday morning.
“Well obviously it’s of concern,” Eyre said, noting “it’s too early to tell” the impact on long-term forecasting.
“We hope that things correct,” she said. “We’re going to wait for budget day at this point and hope that in the meantime, this is a short-term thing and won’t impact long-term forecasts for the price of oil.”
The budget will be released on March 18.
While the COVID-19 has placed a strain on global markets, oil prices tumbled Monday in their biggest one-day drop since the 1991 Gulf War, as Saudi Arabia and Russia vowed to ramp up production after failing to reach an agreement to curtail supply in order to prop up prices.
Both Brent crude, the global oil-price benchmark, briefly dropped to around US$31 a barrel, while U.S. West Texas Intermediate (WTI) crude, the North American benchmark, went as low as US$27 a barrel.
The almost overnight dip is already causing the Canadian Association of Petroleum Producers to review its plans for this year, said Brad Herald, vice-president of Western Canada operations.
“Any business where over a weekend, 25 per cent of your revenue disappears, you recalculate,” he said, noting meetings were going on Monday in Calgary at the organization’s headquarters.
“What I can tell you is they’ll get to a sustainable level where they can weather this storm.”
Herald anticipates the situation will be short-term and of the production battle between Russia and Saudi Arabia, he said he expects there to be “capitulation after a little bit.”
However, he noted it would be very difficult for producers to survive if the low prices are prolonged.
In contrast to the dismal news, Eyre touted the provincial track record for cleaning up orphaned wells.
Between April 1, 2019, and Feb. 29, 2020, oil and gas companies cleaned up 2,030 orphaned wells, an increase of 40 per cent over 2018-19.
“Despite the economic downturn that we’ve see in the oil and gas sector, there have been a number of clean-ups of wells that we’ve seen, which is all about the long-term sustainability of the sector,” Eyre said.
While companies in Alberta have struggled with liability, abandoning old oil wells in the face of bankruptcy, Saskatchewan has collected about $100 million in security deposits, Eyre said.
“Right now, we’re well covered,” she said.