Government Releases Mid-Year Update:
Terra Nova Shutdown Impacts Fiscal Situation

The Honourable Loyola Sullivan, Minister of Finance and President of Treasury Board, released the province�s mid-year financial update today which forecasts a $39.8 million deficit for 2006-07, compared to a surplus of $6.2 million which was expected when Budget 2006 was released.

Due to a longer than anticipated shutdown of the Terra Nova oil production facility, the Floating Production Storage and Offloading (FPSO) vessel, total revenues for the current fiscal year are now expected to be about $202 million lower than previously anticipated. Original estimates were based on the understanding that the Terra Nova FPSO would be shut down and out of service for maintenance for a period of three months. The FPSO ceased operation earlier, and remained out of operation longer than had initially been anticipated.

Of the three oil projects in the Newfoundland and Labrador offshore, the Terra Nova project provides the greatest level of provincial revenue. The FPSO was shut down during a period of time when oil prices were at a peak.

�Oil revenues are now a significant component of our provincial budget and are impacted by production levels, oil prices, and exchange rates, as well as capital and operating expenses,� said Minister Sullivan. �This result shows the volatility of these revenues, and demonstrates the need to continue to be prudent and conservative in our fiscal planning.�

Although revenues are expected to be lower, reduced spending will lessen the bottom line impact. Program expenses are expected to be $149 million less than anticipated due to timing and cash flow issues on capital projects and savings in service delivery costs. In addition, debt servicing costs are anticipated to be $10.5 million lower than forecast in Budget 2006. Overall, debt servicing costs are $166.7 million lower than 2005-06.

�We will remain vigilant for the rest of the year to ensure that all reasonable efforts are taken to mitigate the impact of the reduced oil production in 2006-07,� said the minister. �We are mindful, though, that we must use our oil revenues strategically to reduce our debt burden and debt servicing costs, to renew and revitalize public infrastructure, and to diversify the economy.�

The 2006-07 mid-year update is available online for viewing at www.gov.nl.ca/fin/PUBL/midyear/

Media contact:
Deborah Pennell
Director of Communications
Department of Finance and Public Service Secretariat
709-729-6830, 685-6612
deborahpennell@gov.nl.ca

2006 11 16                                                     2:10 p.m.