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Syncrude Canada Ltd.'s oil sands processing facility stands in Fort McMurray, Alberta, Canada, on Tuesday, June 29, 2010. Canada's oil sands, a mixture of sand, clay, water and a heavy oil called bitumen, contain the world's second largest proven concentration of crude oil reserves at about 170 billion barrels.JIMMY JEONG

The Alberta government has jacked up the amount of money it expects to rake in from oil and bitumen royalties this year, but knocked down its expectations for natural gas and its more valuable by-products.

The extra money will fatten the province's operational surplus, and the Progressive Conservative government intends to use the cushion to bring down the amount of money it originally intended to borrow.

The government, in its first-quarter fiscal update released Wednesday, said it expects to pull in roughly $6.08-billion in bitumen royalties, up $506-million from the original budget released March 6.

Alberta attributed the jump to the shrinking price discount on heavy oil produced in the oil sands compared to West Texas Intermediate (WTI), the North American benchmark. The Progressive Conservative Party now predicts it will collect $2.24-billion in crude oil royalties, up $226-million from its original budget.

Former premier Alison Redford was at the helm when the Tories released their budget in March. She stepped down from that position in the spring as her expenses, many of those tied to airfares and hotels, were revealed and considered excessive. She recently gave up her seat as a member of the legislature as further expenses were exposed, particularly her use of government airplanes. The Tories are holding a leadership convention Sept. 6. A runoff, if needed, is scheduled for Sept. 20.

The Tories expect the extra cash brought in through royalties to push the government's operational surplus to $3.2-billion, up $524-million from the original budget. The government, in turn, plans to use the money to lower its expected debt load in 2014. The Tories, in their original budget, expected to borrow $4.89-billion this year. Now, the government predicts it will only take on an additional $2.9-billion in new debt for capital purposes.

Previously, operational surpluses went into the government's contingency account. That account had $4.65-billion in it at the end of March. Because the government considers the fund flush, it has decided to direct the vast majority of the operational surplus toward reducing the amount of debt it takes on.

The province's overall surplus is expected to ring in at $1.4-billion, up $298-million from the original budget. (The total surplus is smaller than the operational surplus because the former accounts for capital grants, such as money the government gives to postsecondary institutions. Operational expenses cover day-to-day government spending, such as salaries for nurses.)

"Albertans continue to reap the rewards of our government's plan that put the brakes on unsustainable spending growth," Doug Horner, the province's finance minister, said in a statement. "We have turned a corner financially."

While the government expects revenue to climb in 2014, so too will expenses. Alberta predicts revenue will hit $45.26-billion in the year, up from its previous estimate of $44.35-billion. Meanwhile, the province's total expenses are expected to ring in at $43.84-billion compared to its March calculation of $43.26-billion.

The government, which relies heavily on non-renewable resources to fund its spending, expects the price of WTI to average $96.69 (U.S.) a barrel this year, up $1.47 a barrel from the March budget. The forecast for the differential between light and heavy oil shrunk to 23 per cent from 26 per cent.

The increases do not span the entire energy sector. The Tories now expect royalties for natural gas and its by-products to drop by $35-million to $788-million. Natural gas by-products are commodities like ethane and propane, known as natural gas liquids. The government said this forecast dropped because gas processing costs climbed.

Alberta, British Columbia, and energy companies with property in these provinces, have spent recent years playing up the potential of natural gas liquids. Companies have tilted their spending toward these products as the price of natural gas remained under pressure.