International credit rating agency Moody's says three resource-rich provinces can withstand a drop in oil prices, but some will feel a pinch if the slump lasts for a long period of time.
Moody's says Alberta, Saskatchewan and Newfoundland and Labrador — all of which have high and stable credit ratings — "have sufficient fiscal flexibility" to keep their standings if the price of both West Texas Intermediate and Brent crude fell to US $60 per barrel — and stayed there into the 2015/2016 fiscal year.
Alberta, it said, is in the best fiscal condition to weather out a price trough, while Newfoundland and Labrador — where the government had been hoping to post a surplus in next winter's budget — has the most to lose.
It noted that Newfoundland and Labrador does not have as deep a financial cushion as Saskatchewan and Alberta.
"This leaves its fiscal position more vulnerable to fluctuations in royalty revenues," said Moody's, adding that Newfoundland and Labrador "would likely experience the greatest fiscal pressure" among the three provinces.
"A prolonged oil price decline would have negative implications for tax and royalty revenues, raising the risk that budgeted fiscal outcomes may not be achieved," Moody's said.
Moody's said that even though Alberta produces the most oil among the provinces, it is well positioned for a slump.
"The province has forecast a surplus of [$1.385 billion] in 2014-15, while direct oil royalties account for only 18 per cent of its total revenues, providing some leeway for underperformance as a result of lower oil prices," Moody's said.
Saskatchewan is also in a good position to handle an ongoing slump. While it has projected a $75 million surplus for this year, oil royalties account for about 11 per cent of all income, "making its revenues less sensitive to a drop in oil prices."
It noted Saskatchewan has been transferring some of its budget surpluses to a growth and financial security fund.
"Saskatchewan also benefits from substantial liquidity sources covering 59 per cent of its debt and 20 per cent of total expenditures as of March 31, 2014."