06/19/2012 12:18 EDT | Updated 08/19/2012 05:12 EDT

N.L. warns plummeting oil price may drive up deficit

Newfoundland and Labrador Premier Kathy Dunderdale is warning further belt tightening may be necessary if the price of oil continues to drop much lower than the government forecast in its budget preparations.

"We are watching very carefully, and our deficit may end up at the end of the year larger than we forecasted .… We are keeping a very tight grip on the purse strings at the moment in terms of sanctioning spending that we announced in the budget,” Dunderdale said at a Newfoundland and Labrador Oil and Gas Industries Association (NOIA) conference in St. John’s Tuesday.

"It’s early on, and I hope we are going to recover, but we will have to wait and see. [The price of oil] is trending down, and there is no prediction that it is going to go up anytime soon."

Brent Crude was trading around $95.82 per barrel on Tuesday morning, far below the average price of $124.12 that the government set as the annual average for its budget.

Dunderdale said one third of the province’s revenue is derived directly from the petroleum sector.

She said the industry provides direct employment for more than 3,000 people but indirectly employs for thousands more.

Hebron promise

Meanwhile, Dunderdale is promising to hold oil companies to their promise to build Hebron oilfield structures in this province.

“We expect Exxon to live up to the terms of the Hebron Benefits Agreement and we will pursue the available avenues under the agreement should Exxon not reconsider its present direction,” she said Tuesday.

“We would rather not go to a process where penalties are applied. We would much rather have the work for Newfoundlanders and Labradorians.”

ExxonMobil said recently that it is considering building the Hebron drilling equipment module outside Newfoundland and Labrador, saying the province’s building capacity is too small.

“With Hebron, as with every development project, I make no apologies for fighting hard to secure maximum benefits for Newfoundland and Labrador, leaving no stone unturned to ensure we are as fully engaged as possible in all the work associated with this project,” she said.

ExxonMobil, Chevron, Suncor Canada, Statoil Canada and Nalcor Energy are partners in the Hebron project.