#1Alberta Government Province of Alberta London, UK Investor Meetings February, 2017 Stephen J Thompson Executive Director Capital Markets, Treasury Board and Finance#2Canada Quick facts • • • • 10th largest economy and 9th least risky country in the world (1) Federal Government, 10 Provinces and 3 Territories - Westminster parliamentary system. GDP of US$1.6 trillion in 2015 - Major industries include natural resources and manufacturing Population of 36M; highest growth rate in G8 during last decade ― Moderate unemployment rate at 7% - Provinces have significant autonomy - Responsible for health care, primary and post-secondary education Considerable taxing powers, including personal income, corporate income, value added/sales, fuel and payroll taxes. - Provincial ownership of natural resources (1) Euromoney Country Risk score Alberta 2#384 Alberta's economic strength & solid fundamentals remain - Alberta's (AB) economy hit hard by drop in oil prices Real GDP recovery expected to start in 2017. Economy has softened, but core strengths remains - Broad-based economic growth. - Massive oil reserves; production growing - Growing population - Economy is very capital intensive - Highest GDP per capita of any province. Continue to have solid fundamentals Demonstrated resiliency to commodity price shocks 0 - Largest fiscal capacity among provinces. - - Skilled workforce, with young population Credit Ratings - S&P AA, Moody's Aa1, DBRS AA (High) Alberta 3#4• Economic structure AB's economy at a glance Between 2000 and 2014, the province experienced broad-based industry growth that outpaced the rest of Canada AB's contribution to national GDP in 2015, declined to 16% and about 20% to exports • AB's share of the national population is about 12% Share of nominal GDP by industry, Transportation and warehousing. 5% Public administration 5% Health care and social assistance Other 17% 2015 Mining, quarrying, and oil and gas extraction 19% Construction 11% Trade 9% Young, skilled population with highest employment rate (around 67%) in Canada, despite significant layoffs in 2015 and 2016 6% Professional, scientific and technical Manufacturing 7% services -Finance and Real estate 6% 15% Expect modest recovery in 2017; Real GDP forecasted to increase 2.3% Source: Statistics Canada Alberta 4#5Economic structure 3rd Largest reserves & production growing AB's oil reserves are massive and open to private investment (1) Canada Oil sands Saudi Arabia Venezuela 0 50 100 171 150 200 250 269 300 300 350 Despite price declines, production continues to rise (2) 120 -Western Canada Select (Left) -Alberta Oil Production (Right) (US$/bbl) 80 60 40 40 0 2005 2007 2009 2011 2013 (1) 2015 Global reserves: U.S. Energy Information Administration, Alberta Energy Regulator (2) Statistics Canada, Alberta Energy and Baytex Energy, f-forecast Alberta 4 (Billions bbl) 3 2 1 2015 2017f 2019f (Million bpd) 5#6Economic structure AB's population expected to grow Change in the Alberta population by component 140 Natural Increase (Left) Net Interprovincial (Left) (Thousands) 120 100 80 Net International (Left) 60 40 -Population Growth (Right). 3.5 3.0 20 0 -20 2.5 2009 Alberta 2010 2011 2012 2013 2.0 1.5 Population gains driven by natural increases and immigration Sources: Statistics Canada and Alberta Treasury Board and Finance, Budget 2016 and Second Quarter Fiscal Update, f-forecast 2014 2015 2016e 2017f 2018f 2019f (%) 1.0 0.5 0.0 -0.5 6#7Economic structure Long-standing economic prosperity Nominal GDP per capita 100 ($ Thousands) 90 80 70 60 50 40 30 20 10 0 1984 1987 1990 1993 1996 1999 -Alberta -Ontario -BC 2002 2005 2008 2011 2014 2017f -Rest of Canada Average AB has proven to be resilient in the face of tough economic times Sources: Statistics Canada, Alberta Treasury Board and Finance and TD Economics (Dec, 2016) Alberta 7#8Fiscal policy Revenue sources (1) $60 $50 $40 $30 $20 Revenue (billions) $10 $0 2017-18T 2018-19T . Non-Renewable Resource Revenue can be large, but variable Combined other sources provide stability and support growth 2010-11A 2011-12A 2012-13A 2013-14A Non-Renewable Resource Revenue GoC Transfers 2014-15A 2015-16A 2016-17E Net Income from Gov Business Enterprises Other (1) A Actual, E= Estimate, T=Target. Alberta Income and Other Taxes Investment Income Premiums, Fees and Licences 8#9Fiscal policy - Q2 update Key metrics • • Fiscal policy Contain rate of growth of government operating expense to the rate of population growth plus inflation Manage province's fiscal position with a long-term view - Maintain government services, instead of making drastic cuts Actuals Budget Q2 Forecast Budget Targets 2014-15 2015-16 2016-17 2016-17 2017-18 2018-19 Consolidated Revenue 49.5 42.5 41.4 42.7 45.0 49.6 Consolidated Expense 48.4 48.9 51.1 52.8 53.6 56.0 Surplus (Deficit) 1.1 (6.4) (9.7) (10.1) (8.6) (6.4) Risk Adjustment (0.7) (0.7) (1.5) (2.0) Surplus (Deficit) After 1.1 (6.4) (10.4) (10.8) (10.1) (8.4) Risk Adjustment Alberta 9#10Fiscal policy AB's fiscal capacity Alberta has a significant Tax Advantage compared to all provinces (1) Saskatchewan British Columbia Newfoundland & Labrador Ontario New Brunswick Manitoba Prince Edward Island Nova Scotia Quebec 0 4 8 12 16 20 20 ($ billions) Sales Tax ■Other Taxes / Carbon Charges (1) Reflects total additional provincial tax and carbon charges that individuals and businesses would pay if Alberta had the same tax system and carbon charges as other provinces (Mar 24/16). Includes personal income, corporate income, sales, fuel, tobacco, payroll, liquor, land transfer and other minor taxes, as well as health premiums, liquor markups and full implementation of announced provincial carbon charge. Alberta 10#11. Fiscal policy Capital Plan ($ billions) $8 $6 $4 $2 $0 IIIII 2016-17E 2017-18T 2018-19T 2019-20P 2020-21P $34.8B over 5 yrs • Additional $4.4B will be self-financed by Alberta Health Services, post secondary institutions and school boards over 5 yrs (1) E Estimate, T=Target, P= Projected. Alberta 11#12Financial management Credit ratings Long Term Short Term Outlook S&P AA A-1+ (negative) Moody's Aa1 P-1 (negative) DBRS AA (high) R-1 (high) (stable) Alberta 12#13Financial management Borrowing program 2016-17 Borrowing $11.1 Borrowing Requirements ($ billions per Q1 Update) 2016-17 Estimate New Total(1) $12.2 $14.8 2017-18 Target $16.2 $19.8 2018-19 Target $13.8 $16.6 $3.7 ■Direct Borrowing ■Provincial Corporations (1) Includes new and re-financing of maturing term debt. Alberta 13#14Fiscal policy Low debt burden 2016-17 Projected Net Debt to GDP (1) 60% 50% 40% 30% 20% 15% 10% 3.3% 0% British Columbia Alberta Saskatchewan 12% Manitoba Ontario Quebec 48% 40% 34% (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 Dec 20, 2016 Alberta 14 New Brunswick Nova Scotia Prince Edward Island 42% 37% Newfoundland & Labrador 35% 50%#15Billions $2 $1 $0 $3 Financial management Maturity profile & liquidity (1) $6 $5 $4 2016/17 2018/19 2020/21 2022/23 2024/25 2026/27 (1) As of Jan 17, 2016. Excludes Money Market amounts. Alberta 2028/29 2030/31 2032/33 2034/35 2036/37 2038/39 2040/41 2042/43 2044/45 2046/47 15#16Financial management Borrowing platform Maintain strength of borrowing platform in domestic market and build on strength in international markets Domestic market • Ensure liquidity - - Maintain larger domestic benchmark sized issues ($3-$4B) - Infrequent domestic MTN issuance - Monitor secondary market liquidity • Control domestic supply - Target issuance of 30%-40% or more to international markets - More frequent large US$ benchmarks. - Opportunistic multi-currency issues. Alberta 16#17Financial management Borrowing platform continued Foreign currency borrowing • US$ Global Issues in 3, 5, 7, and 10 years - Expect more frequent issuance now province is SEC Registered - US$ CP program expected to come online in early 2017 Continued Euro placements in longer terms with potential for larger benchmark issues MTN and structured issues in other currencies, including under the new AUD program as opportunities arise Alberta 17#18Summary • Strong economic base Demonstrated resiliency to past commodity price shocks • Continued high level of fiscal capacity • • Strong bond ratings • Multi-currency, multi-market borrowing platforms Strong secondary liquidity Alberta 18#19Information and contact Website http://finance.alberta.ca/investor/ Contact Steve Thompson Executive Director, Capital Markets Province of Alberta 780-644-5011 [email protected] Chris Williams Senior Analyst, Treasury and Investor Relations Province of Alberta 780-638-3876 [email protected] 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. Alberta 19#20Alberta Appendix#21Q2 Update Assumptions (1) Appendix Actual Budget Q2 Forecast Budget 2016 Targets Fiscal Year (Apr- Mar 31) 2015-16 2016-17 2016-17 2017-18 2018-19 WTI Oil (US$/bbl) 45 42 45 54 64 Light-Heavy Differential 13.4 15.2 14.3 17.5 18.5 (US$/bbl) Natural Gas (CDN$/GJ) 2.21 2.4 2.1 2.8 3 Exchange Rate 76.3 73.5 77 75.5 77.5 (US/CDN$) Calendar year 2015 A 2016B 2016F 2017T 2018T Real GDP Growth (%) -3.6 -1.4 -2.8 1.9 2.8 Employment Growth (%) 1.2 -1.7 -1.7 0.9 2.1 6 Unemployment Rate (%) (1) A Actual, B=Budget, T=Target, F= Q2 Forecast. Source: Statistics Canada, Alberta Energy, Alberta Treasury Board and Finance 8 8 7.5 6.5 Alberta 21#22Economic structure Market access remains key Canadian & U.S. Crude Oil Pipelines and Proposals ENBRIDGE GATEWAY Proposed: +525,000 b/d KINDER MORGAN TRANS MOUNTAIN Existing: 300,000 b/d Proposed: +590,000 b/d TRANSCANADA KEYSTONE Existing: 591,000 b/d SPECTRA EXPRESS - PLATTE SYSTEM Existing (Express only): 280,000 b/d ENB SPEARHEAD SOUTH Existing: 193,000 b/d ENB FLANAGAN SOUTH Existing: 585,000 b/d Kitimat Edmonton Hardisty Burnaby Anacortes ENB/ENTERPRISE SEAWAY Existing: 850,000 b/d TRANSCANADA GULF COAST EXTENSION TRANSCANADA KEYSTONE XL Proposed: +830,000 b/d Cromer Clearbrook Sandpiper Superior nesota St. Paul Line 6, 14 Westover Guernsey Sarnia Warren Pony Express Flanagan 6P Chicago Lima White Cliffs Catlettsburg El Paso. Slaughter. Midland Crane ⚫ Centurion Cushing Wood Patoka River Pegasus Caplin Комел р Québec City Montréal Portland Existing: 700,000 b/d Proposed: +130,000 b/d Longhor Port Arthur Ho-Ho Houston Freeport •⚫New Orleans St. James Continue to work to improve market access Source: Canadian Association of Petroleum Producers Alberta Appendix ENBRIDGE MAINLINE Existing: 2.85 million b/d Proposed: +370,000 b/d TRANSCANADA ENERGY EAST Proposed: +1.1 million b/d Saint John ENBRIDGE LINE 9 Existing: 300,000 b/d ENBRIDGE SOUTHERN ACCESS Existing: 935,000 b/d Proposed: +265,000 b/d 22#2370 60 50 40 30 20 10 0 2005 2006 2007 • Enhanced $50-$60 USD/barrel 2008 Economic structure Appendix Oil and gas investment to remain lower AB oil and gas investment has shifted towards sustaining capital ($ Billion) ■Conventional Oil Sands 2009 2010 2011 2012 2013 Approximate breakeven Conventional oil projects • ~$25-$55 USD/barrel Oil sands projects Surface mine ~ $80 - $85 full cycle - • SAGD $45-$65 USD/barrel full cycle. Sources: Alberta Treasury Board and Finance, e-estimate, f-forecast, Budget 2016 and 2nd quarter update Alberta 23 • 2014 2015e 2016f 2017f 2018f 2019f#24-4 -6 (%) -2 Q3-2010 Source: Statistics Canada Alberta 6 4 8 Economic structure Costs are coming down Appendix Year-over-year change in non-residential construction price index Q3-2011 Q3-2012 Q3-2013 Q3-2014 Q3-2015 Alberta -Calgary -Edmonton Q3-2016 24#25Economic structure AB's economy is very capital intensive 2016 Private Sector Capital Expenditures by Province Alberta Newfoundland & Labrador Saskatchewan Manitoba British Columbia Quebec Ontario Source: Statistics Canada Alberta Maritimes $0 $10 $20 $30 $40 $50 $60 (billions) 25#26Economic structure Appendix Highest employment rate and incomes Employment Rate (1) (%) 70 60 50 40 NL National Avg. 61.3 ΡΕΙ NS Average Weekly Earnings (2) National Avg. $954 $1,250 $1,000 $750 $500 NL ΡΕΙ NS 66.5 NB QC ΟΝ MB SK AB BC NB QC $1,106 ON MB SK AB BC (1) Share of adults (15+) employed as of October 2016. Source: Statistics Canada (2) Including overtime as of Sept 2016. Source Statistics Canada Alberta 26#27Economic structure Appendix Housing activity remains sluggish Annualized AB housing starts, existing home sales and the average resale home price* (Thousands) 80 70 60 1232 30 20 50 40 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Housing starts Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 -Existing home sales Home prices have held up despite the decline in activity Alberta ($ Thousands) 420 410 400 390 380 370 Apr-16 Jun-16 -Average Resale Price. Aug-16 Oct-16 Dec-16 Sources: Canadian Real Estate Association, Canada Mortgage and Housing Corporation *3-month moving average 360 27#28Financial management ATB Financial (1) • Appendix Professionally managed at arms-length basis from government - - · Credit policies and other risk management not unlike those of any other financial institution – Subject to regulatory oversight by provincial and national regulatory bodies. • An agent of the crown, assets and liabilities belong to the crown ― Potential economic loss relatively small in relation to AB's balance sheet, budget and borrowing requirement • ― Less susceptible to the risk of a run due to provincial guarantee of deposits. ATB increased deposits during 2008/09 liquidity crisis • - Capital requirements set by the Minister of Finance Total Assets $47.9B, Total Liabilities $44.7B and Equity $3.1B - Liabilities include: Loans from province $3.3B, Collateralized Borrowings $6.5B, as well as Deposits and Other totaling $34.9B (1) As of September 30, 2016 Alberta 28#29Financial management Appendix Well funded public sector pensions Public Sector Pensions Fiscal Year Ending Mar 31 Net Pension Assets (billions) Aggregate Funded Status Liability for Province's employer share (billions) Total Government Unfunded Pension Liabilities (billions) 2012 2013 2014 2015 2016 $38.5 $44.4 $52.2 $60.1 $67.1 78.4% 81.5% 87.1% 93.8% 99.4% $1.5 $1.8 $1.8 $1.7 $1.5 $10.6 $10.9 $11.6 $11.2 $10.6 $8.1B of total unfunded liability from a settlement with teachers to deal with an issue stemming from 1992 pension reform Unfunded Pension Liability's absolute value has remained fairly static, but Aggregate Funded Status has greatly improved Alberta 29