The steep drop in oil prices is leading to a sharp fall in revenue for Alberta's government and an expected loss of 31,800 jobs for the remainder of the year.
In the latest quarter, resource revenue was below budget by $503 million.
Alberta's finance minister provided an update Tuesday on the province's bleak financial situation, describing it as challenging, even though the government forecasts a surplus for the 2014-15 year of $465 million.
"It won't be easy, it won't be overnight and it won't be painless," said Finance Minister Robin Campbell about overcoming the government's financial challenges.
The lower Canadian dollar played a big role in saving Alberta from a deficit this year, according to Todd Hirsch, chief economist at ATB Financial.
"Every cent that the Canadian dollar falls is additional oil royalty money for the government," said Hirsch. "Plus they've already started to put into place some of the cost cutting. I think it was symbolically important that they show there was at least a little bit of a surplus."
Several analysts and energy-sector CEOs say the price of oil has likely hit bottom and will slowly increase over the rest of the year.
Prices have fallen by about 50 per cent in the last year. West Texas Intermediate crude, the most commonly traded North American contract, was down $1.47 to $49.34 US at the close of trading Monday, following fresh reports of an oversupply of oil.
The Alberta government was basing its 2014-15 budget on an average WTI oil price of $95 US. During the second quarter, the forecast was lowered to $79 US. The government has once again revised that figure for the current quarter to $44.
"I won't forecast the price of oil, I've given up on that," said Campbell.
This year, Alberta's revenue from oilsands bitumen royalties is expected to drop $644 million below the budget forecast.
The steep drop in oil prices has hit Alberta's energy sector hard.
Several companies have announced layoffs, cut capital spending and delayed projects, including Monday's announcement by Shell Canada to back out of the Pierre River oilsands project.
Oil and gas investment is expected to decline by 30 per cent in 2015, according to the government, because of lower oil prices.
Alberta isn't the only province struggling because of oil's woes. The Conference Board of Canada suggests Saskatchewan, and Newfoundland and Labrador will also take a hit.
- Alberta squandered oil wealth with big spending, Fraser Institute says
- Oil's swoon sparks Alberta schadenfreude in rest of Canada
Private sector forecasts for the Alberta economy range from half a percent of growth in 2015 to a 1.5 per cent contraction. The province itself is forecasting 0.6 per cent growth, which is an improvement over 2009 when the economy contracted by more than four per cent.
Alberta is considering many options to boost revenues, including increasing taxes and reintroducing health-care premiums.
The government has taken several steps to cut costs. Alberta trade offices will close in Ottawa, Chicago and Munich. All members of the legislature have agreed to a five per cent wage cut. Alberta Health Services has brought in a hiring and salary freeze.
Robin Campbell said that next year's shortfall from energy revenue was the size of the entire education budget, or one-third of all public sector salaries.
He also said that Albertans should not take much comfort from this year's surplus.
"That could disappear in a heartbeat," he said. "I would not want anybody coming away thinking we are in good shape."
Alberta has yet to set a date for when the next budget will be delivered.