November 28, 2014 / 10:39 PM / 3 years ago

UPDATE 1-Alberta premier says budget surplus forecasts will be reduced

(Adds quotes, details on OPEC decision, Alberta finances)

By Scott Haggett and Nia Williams

CALGARY, Alberta, Nov 28 (Reuters) - At current crude prices, Alberta will have a "tight, balanced budget" for the 2014/15 fiscal year, Premier Jim Prentice said on Friday as he scaled back oil price forecasts and signalled cuts in government spending for Canada's richest province.

After addressing a Calgary business audience, Prentice told reporters that a forecast of Alberta having a 2014/15 budget surplus of C$933 million, made earlier this week, is already likely too high.

"That will be undoubtedly be reduced," he said. "We're getting close to numbers that represent a tight, balanced budget."

The steep slide in oil prices following producer group OPEC's decision not to reduce production will cut into Alberta's finances.

The province, the single largest oil exporter to the United States, relies on fees and royalties from its natural resources sector for nearly a third of its budget. For each $1 drop in the average price of oil over the year, the province loses C$215 million, Prentice said.

The province expects an oil price between US$65-75 per barrel for the second half of the current fiscal year, down from the previous forecast of an average price of $75 through the end of the fiscal year.

Prentice said while he expects to restrain government spending, he will not impose a sales tax and will keep the tax regime the lowest in Canada.

His comments come as Alberta's energy industry and investors look to cope with a nearly 40 percent slide in benchmark oil prices since June.

U.S. crude hit $66.15 a barrel on Friday and the Toronto Stock Exchange's energy index fell for the fifth straight day to 230.22, the lowest since June 2012.

"OPEC was pretty clear that they want everyone in the world to share the burden of the lower price," said Macquarie Research analyst Chris Feltin. "That implies they want a lot of the global producers to be evaluating (capital expenditure) cuts."

The sell-off in Canadian energy stocks was broad-based with oil, natural gas and well-drilling companies all being hit.

Industry players warned that any companies with highly leveraged balance sheets would be particularly vulnerable.

"The balance sheet can go from being okay to being a real disaster within the space of a month or two with a big correction in oil prices," said Jennifer Stevenson, vice president and portfolio manager of Scotia Resource Fund. (Editing by Chris Reese and Gunna Dickson)

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