Alberta municipal councillor James Nibourg emphatically supports the oil and gas industry, but worries the province is forcing his Stettler County council to pick winners and losers in a $20-million property-tax relief program aimed at shallow-gas producers.
Under the program, unveiled in July, Alberta municipalities were asked by the government to cancel 35 per cent of property taxes for qualifying shallow-gas wells within their borders. They have so far received a rebate from the province’s municipal affairs department to cover the lost revenue, but from 2020 onward, there will be no provincial money to replace the lost revenue.
Instead, municipalities will eat the anticipated $20-million annual cost of a new tax model that Associate Minister of Natural Gas Dale Nally says could reduce property taxes for producers by up to 40 per cent.
Natural gas producers have called the program a saviour, saying it will help keep them afloat as they grapple with low prices, limited pipeline capacity, high production levels and inadequate access to storage.
But the program worries rural municipalities, which are already facing a combined $81-million unpaid property-tax tab run up by oil and gas companies after five dismal years for the sector.
Natural gas prices plunged almost 90 per cent between February, 2014, and June, 2019. A 2018 report prepared for the former NDP provincial government concluded Alberta’s natural gas industry was facing “a daunting crisis.”
Mr. Nibourg knows natural gas companies must remain viable if they are to provide crucial revenue and jobs to the local economy, but the annual hit to his county 180 kilometres south of Edmonton will be close to $1-million.
He and his colleagues are now searching for creative ways to deal with a budget shortfall, including service fees, reduced services, and increased taxes. “Nothing’s off the table, let’s put it that way,” he said.
It also doesn’t sit well with many municipalities that shallow-gas producers were singled out for help over other areas of the energy sector such as drilling and services companies, as well as agricultural producers battered with a record early snowfall and torrential rains.
Almost 160 companies with a combined total of nearly 70,000 natural gas wells and pipelines are getting a boost under the tax-relief program.
Recipients are spread across 74 municipalities. Most of them are Alberta-based, small operators, although big industry players – including Canadian Natural Energy Resources Ltd. and Cenovus Energy Inc. – are also receiving help. So too are foreign-owned giants such as U.S.-controlled Exxon Mobil Canada Ltd. and Abu Dhabi-owned Taqa North Ltd., as well as Chinese-backed producers Sinopec Daylight Energy Ltd., Sequoia Resources Corp. and AlphaBow Energy Ltd.
Trident Exploration Corp., a defunct gas producer now in bankruptcy, is also on the list for a 35-per-cent property tax cut.
In Vulcan, a small town about 130 kilometres south of Calgary, balancing the effects of the industry-saving program with the hit to revenue is tough for chief administrative officer Nels Peterson.
Mr. Peterson is preparing his municipality for a $400,000 hit to tax revenue, or 2.5 per cent of the annual operating budget. Road maintenance, fire and administrative services will all be placed under the microscope if Vulcan can’t plug the tax shortfall come 2020, when the province withdraws its fiscal support for the program.
His concern and frustration with the program is echoed by Lacombe county manager Tim Timmons, whose municipality is about 120 km south of Edmonton.
“Certainly, Lacombe County has an understanding this is a challenging time for energy producers and we are on board with helping them out any way we can, but we didn’t think this was the most effective mechanism,” he said.
Work on creating the tax-relief program started the day gas giant Trident abruptly shuttered its Alberta operations on April 30 this year, leaving almost 100 people out of work and a $329-million clean-up bill for the 4,700 wells it dumped on the province’s orphan well fund.
It was the same day Premier Jason Kenney’s new cabinet was sworn in at Government House in Edmonton. As ministers mingled after the United Conservative Party government’s first cabinet meeting, word came that Trident had collapsed.
Mr. Nally and new Municipal Affairs Minister Kaycee Madu immediately started talking about the looming gas crisis.
“Where we landed fairly quickly was – we’re not going to tax companies into bankruptcy, because that’s what was happening,” Mr. Nally said in an interview.
Developed as a provincially governed program in the 1980s, Alberta’s linear tax assessment model for shallow-gas producers hasn’t been updated since 2005. That wasn’t such a problem in June, 2008, when gas was selling for around $10 a gigajoule, but with prices languishing under $2 for the past year or so – and crashing to 55 cents in June – companies were paying more to produce gas than they could fetch on the market.
Producers say the model taxes them at an unfair rate and doesn’t depreciate their assets.
Take Ember Resources Inc., one of the biggest players in Alberta. The $20-million it pays to municipalities in property taxes represents one of the producer’s largest single expenses.
President and chief executive officer Doug Dafoe contends the tax bill’s size demonstrates how provincial assessors have grossly inflated Ember’s asset value to $1.8-billion.
“In our wildest dreams, our assets might be worth maybe $400-[million] to $500-million. How do you get three times that value as far as an assessment for taxation purposes?” he said in an interview.
“Wells mature, production goes down and, if you have an assessment that doesn’t recognize that, then absolutely you’re going to get these wonky numbers,” he said.
Mr. Nally says the tax-relief program for shallow gas doesn’t pick winners and losers among industry sectors so much as it levels the playing field. Between over-taxation, unreasonably high Alberta Energy Regulator fees and the woefully low price of gas, he said, gas companies and jobs were at risk.
“We have 66,000 dry gas wells in southeast Alberta that will get shut-in if we don’t help this industry,” he said.
Mr. Dafoe of Ember doesn’t mince his words. “It might not be able to save everybody, but I’ll tell you what – it’ll save us, and we’re the largest.”
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.