Alberta’s Heritage Fund is receiving a $1 billion injection from its large fiscal surplus, thanks to high energy prices.

The cash injection in the fund is a significant investment in the Heritage Fund, which had a fair value of $13.6 billion on Dec. 31, 2005 prior to this announcement.

As outlined in the Alberta government’s third quarter fiscal update, record high energy prices, plus record high land lease sales contributed to a surplus forecast of $7.4 billion. This is $5.9 billion above budget and $1.5 billion above the second quarter forecast. Total revenue is forecast to be $7.3 billion higher than estimated in the budget, with a record $14.4 billion in non-renewable resource revenue. A forecasted $3.4 billion in revenue from bonuses and sales of Crown leases contributed greatly to this year’s record resource revenue with two sales alone equaling revenue from all 23 sales in 2004-05.

“With the debt eliminated, we will continue to build a stronger future for Alberta through increased savings plus wise investment in priority areas such as health, education and infrastructure,” said Finance Minister Shirley McClellan. “The Heritage Fund has played a key role in putting Alberta in the strong fiscal position we all enjoy today. This additional investment will help ensure the Fund continues to benefit Albertans now and in the future.”

As announced in its last budget, the province is also inflation-proofing the Heritage Fund. Total allocation for inflation proofing for this year is $345 million in addition to the $1 billion injection.

The $1 billion allocation to the Heritage Fund is the first deposit since 1987. Through the end of the third quarter, the Heritage Fund had an average rate of return of 10.3% and the realized income from the Fund is now forecast at $1.2 billion for this fiscal year.

Nearly half of this year’s surplus, $3.6 billion, has been set aside in the Capital Account to help pay for capital projects in future years. This includes the recent capital commitments for health, schools, post-secondary institutions and acceleration of projects in Fort McMurray and high-growth areas.

The government has also announced $1.3 billion from this year’s surplus will be added to endowments. This includes $750 million for the Advanced Education endowment, $200 million to the Medical Research Endowment Fund, $250 million to the Scholarship Fund and $100 million to the Science and Engineering Research Endowment Fund. Approximately $1.6 billion remains unallocated in the Sustainability Fund, bringing the forecast year-end assets in this Fund to $4.1 billion.

Expense is forecast at $27.2 billion, down $52 million from second quarter but up $1.4 billion from budget. Expense increases over budget include natural gas rebates ($441 million); additional capital grants to health authorities, schools and community facilities ($521 million); and disaster/emergency assistance ($319 million).

Oil prices for the fiscal year are expected to average US$60 per barrel and natural gas prices to average C$8.40 per gigajoule. The oil price forecast is unchanged from second quarter, while the gas forecast is down by 10¢ per gigajoule.