CBCNL selects prolonged oil slump and its effects as top story of 2015
Downturn erases millions in revenues, shakes confidence in oil-dependent Newfoundland and Labrador
A painful and prolonged drop in oil prices and its effects on the fragile provincial economy has been chosen by CBC News as the top story of 2015 in Newfoundland and Labrador.
- N.L. deficit balloons to $1.8 billion, as Liberals take reins
- Liberals win landslide victory in Newfoundland and Labrador election
- Budget 2015: $1.1B deficit, tax hikes, job cuts
No other event had such a widespread and confidence-shattering impact over the past 12 months, with hundreds of millions in projected royalties erased by the collapse in prices and a decline in production, resulting in record deficits and fears of recession-inducing cuts to the public sector.
The steep slide in prices was unforeseen by most analysts, and exposed how dependent the province's economy is on the oil industry.
Prior to this year, roughly one-third of revenues came in the form of royalties from the three producing offshore fields.
Oil companies and those who supply and service the industry have been scrambling to stay profitable by reining in spending, finding creative ways to improve productivity, and in some cases delaying projects such as the multi-billion-dollar West White Rose expansion.
One of the most dramatic signs of the downturn came in September, when Husky Energy announced it was cancelling a nearly $1.2 billion, five-year contract with Seadrill for the brand new West Mira drill rig.
Husky later reached a two-year contract with Transocean for the Henry Goodrich at a much lower rate.
Political ramifications
After years of record spending, surplus budgets and unprecedented economic growth, much of the talk in 2015 was about spending freezes, a flat-lining of the housing market, increases in taxes and fees, and a downsizing of the public service through attrition.
The faltering economy likely played a role in the November provincial election, which saw the long-serving Progressive Conservatives swept from power and the Liberals, led by Dwight Ball, capture 31 of the 40 seats in a House of Assembly that was reduced in size as a cost-saving measure.
The downturn began midway through 2014, with Brent crude plunging from a high of US$115 per barrel.
The situation only intensified when OPEC countries such as Saudi Arabia refused to curtail production, and the oversupply led to prices dropping below $40 for the first time in seven years earlier in December.
Oilpatch woes felt in this province
The situation delivered a double-fisted blow to Newfoundland and Labrador, since the oil collapse also stung the oil-rich province of Alberta.
During the boom years, thousands of people from this province commuted to western Canada for jobs in the oilpatch, bringing home fat pay cheques that helped to sustain many rural communities.
But many of those jobs have disappeared, and so did the regular charter flights that delivered workers to and from the oilpatch.
It has set the stage for a challenging fiscal situation that even some top economists in the province suggest is bordering on a crisis.
Long-term outlook looks brighter
Wade Locke, who has advised past governments on fiscal policy, said there are no easy options for the new government.
"I don't envy Mr. Ball and I don't envy the new finance minister. They're in a difficult situation and there's no obvious and easy way out of it."
As bad as it was in 2015, Locke and others believe the situation will rebound. It's just a matter of when.
"There's lots of oil and there's lots of resources in Newfoundland that will help in the longer term. That longer term might be five, six, 10 years. It's not going to be one or two," he said.
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