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“The downturn is forecast to be more protracted than previously expected, with weakness carrying into 2016,” the government acknowledged. “In addition, weakness in the oil and gas sector has spread to other sectors of the economy. Alberta machinery manufacturing has fallen 20 per cent since January.”

Economic growth is expected to resume in 2016, but only at a rate of 1.3 per cent.

One of the sharpest warnings against going too far with the oil and gas industry came from Canadian Natural Resources Ltd.

Alberta’s oil and gas sector had a poor return on capital at US$98 oil and extremely poor at US$60 oil and below, the company said in a candid presentation to Alberta government ministers this month that is being widely circulated.

Poor returns have resulted in only a few companies succeeding, with only 43 per cent of the Top 30 producers in Western Canada 15 years ago still around, Canadian Natural says.

Meanwhile, Alberta’s royalty rates are already far higher than those in British Columbia and Saskatchewan, the presentation says.

“It is critically important that when reviewing royalties, (green house gas) changes and increased taxes, that the Alberta government does not create a situation in which there are no winners” at all, the company said.

Ceci said the budget will include investments in infrastructure and to diversify the economy so it can better withstand oil boom and bust cycles.

“We can find a way out of this that doesn’t rely on draconian cutbacks to our public service,” he said.

The province is assuming West Texas Intermediate oil will sell on average for US$55.85 a barrel in the fiscal year, down from US$80.48 realized in 2014/2015.

If low oil prices persist, as many now expect — Scotiabank said Monday it expects the price of oil to remain under US$50 for the next 12 months — it will take more than government schemes to pay for some of the most expensive public services in the country. Government, too, will have to cut its fair share.

Financial Post

ccattaneo@nationalpost.com

Twitter.com/cattaneooutwest