Province of Alberta CIBC Government Finance Conference Vancouver June 11, 2018

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1 Province of Alberta CIBC Government Finance Conference Vancouver June 11, 2018 Stephen J Thompson Executive Director Capital Markets, Treasury Board and Finance and Catherine Rothrock Chief Economist & Executive Director, Treasury Board and Finance

2 Alberta's economy at a glance Share of nominal GDP by industry, 2017 Transportation and warehousing 5% Other 17% Mining, quarrying, and oil and gas extraction 21% Public administration 5% Construction 10% Health care and social assistance 6% Trade 9% 2 Source: Statistics Canada Professional, scientific and technical services 5% Finance and Real estate 16% Manufacturing 6%

3 Alberta s oil reserves ranked 3rd in the world 2016 global oil reserves, estimated proved reserves (billions bbl) United States Libya Russia United Arab Kuwait Iraq Iran Canada Saudi Arabia Venezuela Oil sands Source: U.S. Energy Information Administration, Alberta Energy Regulator

4 Alberta enters second year of recovery Rebound surpassed expectations Real GDP growth in 2017 estimated to be 4.5% Driven by rising oil production, broad-based strength across industries, and recovery from 2016 Fort McMurray wildfires Growth moderating in 2018 as recovery more entrenched Real GDP growth forecast to be 2.7% Exports and consumer spending to drive growth A prolonged recovery Lingering effects of downturn on corporate profits and investment Full recovery in real GDP not until 2019, nominal GDP in 2020 Government revenue not forecast to reach pre-recession levels until

5 Exports continue to drive recovery Contribution to change in Alberta real GDP by expenditure (percentage points) Exports Imports Total Domestic Demand* Real GDP e 2018f 2019f 2020f 2021f 5 Sources: Statistics Canada and Alberta Treasury Board and Finance; e-estimate, f-forecast * Includes total household, business and government spending

6 Energy investment stabilizing: Production continues to grow Alberta energy investment ($billions) Conventional Oil and Gas Investment (Left) Oil Sands Investment (Left) Production (Right) (Mbdp) Source: Statistics Canada and Alberta Treasury Board and Finance; e-estimate, f-forecast

7 Pipeline access critical for expanding production Pipeline and refinery capacity and western Canada heavy oil production (Mbpd) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Total Western Canada Heavy Oil Production Current Pipeline Western Canada Refinery Capacity Rail Commitment Keystone XL Expansion TransMountain Expansion Enbridge Line 3 Expansion + Clipper f 2019f 2020f 2021f 2022f 2023f 7 Source: Alberta Energy, f-forecast

8 Oil prices improve gradually: Differential to widen Oil prices (US$/bbl) 120 Light-Heavy Differencial WTI Western Canadian Select Sources: Alberta Energy, f-forecast

9 Manufacturing investment to surge Change in Alberta manufacturing investment ($billions) Other Petroleum, Chemical and Related Food & Beverage Total Manufacturing e 2018i 9 Sources: Statistics Canada, e-estimate, i-intentions

10 Labour market re-balancing Alberta labour market indicators (000s) 2,500 2,300 2,100 1,900 1,700 1,500 Employment (left) Unemployment Rate (right) f 2019f 2020f 2021f (%) Source: Statistics Canada and Alberta Treasury Board & Finance, f-forecast

11 Solid population growth Change in Alberta's population by component (Thousands) 140 Natural Increase (Left) Net Interprovincial (Left) Net International (Left) Population Growth (%) Source: Statistics Canada and Alberta Treasury Board & Finance, f-forecast

12 Alberta remains Canada s most prosperous province Nominal GDP per capita ($thousands) Rest of Canada Range Rest of Canada Average Alberta 12 Sources: Statistics Canada, Alberta Treasury Board and Finance and TD Economics, f-forecast

13 Revenue ($billions) Revenue sources (1) $60 $50 $40 $30 $20 $10 $0 Non-Renewable Resource Revenue Income and Other Taxes GoC Transfers Investment Income Non-Renewable Resource Revenue can be large, but variable Combined other sources provide stability and support growth Transfers from GoC of $8.2B in , or 17% of total revenue 13 (1) A=Actual, F= Forecast, T=Target.

14 Alberta's tax advantage British Columbia Saskatchewan Ontario New Brunswick Manitoba Nova Scotia Prince Edward Island Quebec Newfoundland & Labrador ($billion) Other Taxes / Carbon Charges Sales / Value Added Tax 14 (1) Alberta Treasury Board and Finance

15 Low debt burden Projected net debt-to-gdp (1) Quebec 43% Ontario 38% British Columbia 15% Alberta 8.7% Projected net debt-to-gdp expected to peak at 13.1% in ; below the current net debt-to-gdp ratio of any other province (2) 15 (1) RBC: Public accounts basis. Numbers are based on reports from individual governments and, due to accounting differences, are not strictly comparable between provinces. Sources include: Fiscal reference tables (Department of Finance Canada), various provincial budgets, budget updates and public accounts. As of April 10, (2) Alberta s ratio calculated by Alberta Treasury Board and Finance based on forecast Budget 2018 forecasts.

16 Deficit declines over time Consolidated fiscal surplus (deficit) ($billions) (1.4) (4.3) (7.0) (7.9) (9.1) (8.8) (10.8) e f f f f f f 16 Source: Alberta Treasury Board and Finance, e-estimate, f-forecast

17 ($ Billions) Borrowing platform Total Borrowing (Term debt) Forecasted term debt issuance $11.3 $ $15.4 $17.6 $ Direct Borrowing Provincial Corporations Estimate Forecast Forecast 17

18 2018/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /49 Maturity profile & liquidity (1) ($billions) $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $- 18 (1) As at June 7, Excludes Money Market amounts.

19 Borrowing strategy Target issuance 60% 40% Domestic International Ensure domestic liquidity Maintain larger domestic benchmark sized issues ($3-$5B) Limited domestic MTN issuance Promote secondary market liquidity Control domestic supply Target issuance of 40% in foreign currency markets Frequent US$ benchmarks Arbitrage driven global currency issues 19

Borrowing strategy continued Foreign currency borrowing Liquid US$ Global Issues in 3, 5, 7, and 10 years SEC Registered, large US$ benchmarks US$ CP program launched in September 2017 Inaugural Euro

20 Borrowing strategy continued Foreign currency borrowing Liquid US$ Global Issues in 3, 5, 7, and 10 years SEC Registered, large US$ benchmarks US$ CP program launched in September 2017 Inaugural Euro 7 year benchmark issued in 2018 Sterling benchmarks across curve driven by investor demand MTN and structured issues in multiple currencies, including GMTN and AUD programmes driven by arbitrage and investor demand 20

21 Credit ratings Long Term Short Term S&P A+ (Outlook stable) A-1+ Moody s Fitch Aa1 (Outlook negative) AA (Outlook stable) P-1 F1+ (Outlook stable) DBRS AA (Negative trend) R-1 (high) (Negative trend) 21

22 Summary Strong economic base; real GDP growth forecast to be 4.5% in 2017 and 2.7% in 2018 Demonstrated resilience to past commodity price shocks Continued high level of fiscal capacity Strong bond ratings Multi-currency, multi-market borrowing platforms Strong secondary liquidity 22

23 Appendix

24 Path to balance 3 Pillars Strong and diversified economy Stable spending and cost containment Reducing reliance on resource revenue 24

25 Path to balance A strong and diversified economy 25 The Alberta government has taken a number of steps to promote the growth of a more diversified economy These include: Securing approval of the Line 3 replacement and TMX Diversifying Alberta s energy sector and encouraging valueadded production by investing in the Petroleum Diversification Program, petrochemical feedstock infrastructure and partial upgrading Introducing three tax incentives the Alberta Investor Tax Credit, the Capital Investment Tax Credit and the Interactive Digital Media Tax Credit Creating 3,000 new post-secondary technology spaces and new scholarship programs to support emerging sectors

26 Path to balance - Stable expense growth below population growth and inflation Operating expense growth (%) Inflation + Population Growth Operating Expense Sources: Government of Alberta Annual Reports and Budget 2018, e-estimate, f-forecast

27 Path to balance - Capital spending to return to normal levels Capital plan - Consolidated basis ($millions) 10,000 Budgeted Actuals 8,000 6,000 4,000 2, Sources: Budget 2018 and Government of Alberta Annual Reports a - actual, f - forecast, t - target

28 Path to balance - Revenue surpasses pre-recession level in Government of Alberta revenues by source ($billions) Income and Other Taxes All Other Non-Renewable Resource Revenue Source: Treasury Board and Finance

29 Path to balance - Income tax revenue growing at slower pace Alberta compound average annual income tax growth (%) PIT CIT /11 to 14/15 17/18e to 23/24f 10/11 to 14/15 17/18e to 23/24f 29 Source: Treasury Board and Finance

30 Path to balance - A reduced reliance on resource revenue Non-renewable resource revenue as share of total government revenue (%) Year Average (96-97 to 16-17) 30 Source: Government of Alberta Annual Reports, e-estimate, f-forecast

31 Path to balance Fiscal metrics Energy and exchange rate assumptions Forecast Estimate Target Target Projection Projection Projection Revenue Tax Revenue Non-Renewable Resource Revenue Other Revenue Operating Expense % change CPI inflation population growth % Total Expense Surplus (Deficit) (9.1) (8.8) (7.9) (7.0) (4.3) (1.4) 0.7 Capital Plan Net Financial Debt % GDP

32 Appendix Assumptions Energy and exchange rate assumptions Forecast Estimate Target Target Projection Projection Projection WTI Oil (US$/bbl) (7) Light-Heavy Differential (US$/bbl) (7) Natural Gas (Cdn$/GJ) (7) Exchange Rate (US /Cdn$) (7) Economic assumptions Forecast Real GDP (% change) Nominal GDP (% change) Employment (% change) Unemployment Rate (%)

33 Appendix Sensitivities Fiscal Sensitivities to Key Assumptions in Budget, (1) (millions of dollars) Change Net Impact ( ) Oil Price (WTI US$/bbl) -$ Light-Heavy Differential (US$/bbl) +$ Natural Gas Price (Cdn$/GJ) -10 Cents +10 (2) Exchange Rate (US /Cdn$) +1 cent -198 Interest Rates +1% -226 Primary Household Income -1 % (1) Sensitivities are based on current assumptions of prices and rates and show the effect for a full 12 month period. Sensitivities can vary significantly at different price and rate levels. The energy price sensitivities do not include the potential impact of price changes on the revenue from land lease sales (2) Lower natural gas prices increase net royalty revenues due to the positive impact on bitumen royalties (due to lower costs) which more than offsets the decline in natural gas and by-product royalties.

34 Information and contact Website Contact Stephen Thompson, CFA Chris Williams, MBA Executive Director, Senior Analyst, Capital Markets Investor Relations Province of Alberta Province of Alberta Disclosure Statement This presentation was compiled by the Alberta Department of Treasury Board and Finance. The information in this presentation is for general information purposes only and does not constitute an offer to sell or a solicitation of offers to purchase securities. Certain forward-looking information or forward-looking statements have been included in this presentation for such general information purposes. These statements are based on the Province of Alberta s current estimates or projections which the Province believes are reasonable. Such statements are not guarantees of future performance, and accordingly, you should not place undue reliance on them. Forward-looking information or statements involve known and unknown risks, uncertainties and other factors which could cause the state of the Province s economy to differ materially from the forecasts and economic outlook expressed or implied by any forward-looking information or statements. Forward-looking information or statements speak only as of the date they are made. Alberta undertakes no obligation to update any forward-looking information or statements to reflect new information, future events or otherwise, except as may be required under applicable law. While the information in this presentation, when posted or released, was believed to be reliable as of its date, no warranty is made as to the accuracy or completeness of this document or the information it contains. 34

Province of Alberta Investor Meetings London June Lowell Epp Assistant Deputy Minister, Treasury and Risk Management

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