Alberta Premier Jim Prentice is warning of tough times ahead for the province due to the continuing drop in world oil prices.

In a speech to the Calgary Chamber of Commerce on Friday, Prentice announced the government does plan to end the current fiscal year on March 31 with a surplus — but cuts will be needed to achieve that.

"It will not be easy on the Government of Alberta and it will not be easy on Albertans," Prentice said.

"Tough choices will have to be made and we will make them and they'll be felt across the province."

Oil closed at just under $66 U.S. per barrel Friday — the latest drop in a months-long decline that has seen prices decrease by about 35 per cent since the summer. 

Prentice says the spring budget will be based on oil prices staying in the $65-$75 range. However, he vowed Friday that core services in health, education and social services will be protected from any cuts.

He also repeated a promise not to bring in a provincial sales tax and said there are no plans to alter the province's low tax advantage.

Oil companies to also face challenges

A higher U.S. dollar, lower demand for oil and a major boost in global supply are being blamed for the sinking prices. All of this has led to losses on the Toronto stock market and big concerns for provincial budgets in Alberta, Saskatchewan and Newfoundland and Labrador.

Oil and gas well, drilling

Todd Hirsch, a chief economist with ATB Financial, says the Alberta government and oil companies in the province face tough challenges ahead with the dropping oil prices. (Larry MacDougal/Canadian Press)

"The Alberta provincial government is going to see fewer royalties coming into their coffers," said Todd Hirsch, a chief economist with ATB Financial.

"That's going to mean some tough decisions for the provincial government, I think, in the 2015-2016 budget, and also industry — the energy industry. And in Alberta, that's the dog that wags an awful lot of tails. They're going to feel a pinch with these lower prices too."

Hirsch says some oil companies may start looking at layoffs and the province will have to figure out how to adjust to lower oil revenues until at least late winter or early spring when prices could rebound.

He says even those companies that don't do layoffs will likely slow down their hiring in the oil patch to adjust to the lower prices.

Hirsch says some of the pain from the low prices is currently being buffered by the softer Canadian dollar, which acts as a buffer for oil prices, which are in U.S. currency.