ALBERTA – The four proposed scenarios offering tax breaks to oil and gas companies that could have resulted in millions in revenue lost across the province have been put on pause.
Instead, new measures were announced Monday (Oct. 19) including a three-year exemption from property taxes when drilling new wells and building pipelines, no well drilling equipment tax for new drills and lower assessments for less productive oil and gas wells.
"Recognizing the four scenarios as not acceptable is appreciated and I believe is the correct move for not only rural Alberta but all Albertans," said MD of Bighorn Reeve Dene Cooper.
- RELATED: Proposed gas and tax break still up in the air, minister in discussions with municipalities
The MD previously raised concerns about a document quietly released earlier this year, which proposed to cancel linear taxes for oil and gas companies.
Linear taxes are drawn from linear properties, which include pipelines, railways, telecommunications and electrical power systems. Historically, taxes from the properties are given to urban and rural municipalities where the industrial property is located, which helps contribute to overall revenue in annual municipal budgets.
In the initial proposal, Bighorn was facing a potential revenue loss of up to $500,000 – out of an average $6 million annual budget.
The document was created during the ongoing debate between industry and municipalities about whether taxes were too high on oil and gas properties, and as municipalities across the province were facing unpaid property taxes from oil and gas companies, affecting local budgets.
Instead of choosing one of the four scenarios in relation to the linear taxes, new tax breaks were announced.
Rural Municipalities of Alberta (RMA) president Al Kemmere called the new tax exemptions a "modified approach."
"It is very important to have good strong oil and gas in municipalities, [and] I think this is a great effort to try to move forward to recognize those pieces," Kemmere said. "The government has found balance at this point and I look forward to how we will have long-term solutions."
Industry officials applauded the announcement and said they look forward to working with rural Alberta.
“Municipal taxes and assessments for oil and natural gas are one of the biggest competitive issues facing this province today," said Tim McMillan, president and CEO, Canadian Association of Petroleum Producers said during the conference.
"The Alberta government's action to incent new drilling and provide relief to mature wells is a crucial step to help restore investor confidence and preserve and create jobs for Albertans.
"Rural Alberta is key to the success of the oil and gas industry and we are committed to continuing to work with the municipalities and the province on this issue going forward to rebuild our energy industry and bring prosperity back to Alberta.”
MORE SOLUTIONS REQUIRED
While the announcement was a great middle ground, Kemmere said municipalities are still dealing with unpaid property taxes from oil and gas companies and there needs to be a solution in the near future.
"We still have items we need to address. One of the biggest challenges with this is the unpaid taxes ... if we don't fix that in the near future, it will leave all this for naught," Kemmere said.
While other municipalities face unpaid property taxes, Cooper said Bighorn has been fortunate as the oil and gas companies have been paying taxes.
During the Bighorn council meeting in August, council approved a tax collection extension allowing a 10-month payment agreement for Canlin Energy. The extension allowed the MD to collect $1.1 million in taxes that could have otherwise remained unpaid.
“Canlin Energy Corporation along with its natural gas company peers continues to face severe cost challenges in economically sustaining its long-life natural gas assets in the region," Canlin vice-president Debbie McBride wrote in a letter to council dated July 30, 2020.
"The economics of sustaining Canlin’s assets continues to be threatened by consistent long-term low commodity prices, restricted access to bank lending and high fixed costs compromised of cost-intensive municipal taxes, surfaces lease rentals and government levies.
“Added to those cost challenges is the economic fallout due to the COVID-19 pandemic.”
During the August meeting, council said it was glad to see the oil and gas company pay its taxes and called the company "proactive."
Cooper said whichever solution the province chooses moving forward, he is hopeful it is one that ensures taxes are paid.
"I echo that taxes are due and expected to be paid, and to release individuals and corporations from that obligation is a very bad example to set," Cooper said.
With the new tax exemptions announced, Minister of Municipal Affairs Tracy Allard noted the original four scenarios eliminating linear tax were not completely off the table.
We have announced changes to the Assessment Model Review. Striking the balance between industry relief and municipal viability, has allowed @RuralMA @OilGasCanada @EPAC_Energy @TheAUMA and @aboutpipelines to support this policy. https://t.co/aC3ZAcWzhk pic.twitter.com/CMtLKl4jSH
— Tracy Allard (@TracyAllardUCP) October 20, 2020
"The original scenarios are paused – it was the first decision I made as minister ... we have to define what is the problem we are solving," Allard said, noting she was only appointed to the cabinet position on Aug. 25.
When asked what municipalities need to address issues moving forward, Kemmere said municipalities should not have to take on environmental liabilities.
"We need a legislative or regulatory change," he said.
Cooper said he is relieved the original scenarios are paused.
"I'm only approaching my second decade in office and I will never be allowed to stop worrying," Cooper said with a laugh.
"I only need to be worried about certainties. Removing the four scenarios for the short-term was the right thing to do, and personally, I don't think any [scenarios] should ever be brought back.
"During the early discussions, Bighorn was asked which one we prefer and we refused to make that choice as we preferred none of them."
