RED DEER — Rural Alberta is in for a rough future as bankrupt oil and gas companies abandon pipelines and wells and no longer pay their taxes to municipalities and lease payments to farmers, a surface rights adviser warns.
Daryl Bennett, a partner in My Landman Group, said low oil prices and world overproduction have put many companies out of business and more will follow unless prices rise.
For farmers, that means oil leases won’t be paid and well sites and pipelines will be abandoned without being reclaimed and cleaned up.
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Rural municipalities that rely on taxes from energy companies could see their revenues dramatically drop.
“Once you abandon a well, you don’t have to pay any taxes or linear assessments to the county. That will be a significant shortfall in county resources,” Bennett told an Alberta Federation of Agriculture meeting.
Alberta municipalities and counties receive two streams of oil and gas revenue:
Linear assessment is money that governments collect from pipelines and power lines and redirect to municipalities. About $845 million of linear assessment now goes to counties.
Rural municipalities collect taxes from oil leases, batteries and other energy facilities. Municipalities receive 60 to 95 percent of their budget from oil and gas revenue.
Bennett estimates that taxes in the M.D. of Taber, where he lives, would need to increase 350 percent if the linear assessment was lost.
“I know the counties are starting to get worried. Some of these companies gone bankrupt owe $15 to $20 million to various counties, and these are small counties,” he said.
Municipalities are required to pay the education portion of the tax to the provincial government, even if it isn’t collected.
Al Kemmere, president of the Alberta Association of Municipal Districts and Counties, said he is hearing concerns from many counties.
Taxes are not being collected from bankrupt companies, but some active companies have also chosen not to pay taxes, he said.
Bennett said the problem with abandoned wells will continue to grow. In November, Calgary-based Spyglass Resources was placed into receivership, which put the viability of its 3,500 wells into question. The company has no money on deposit with the Alberta Energy Regulator to reclaim any orphaned wells.
Bennett said the survival of Penn West and Penn Growth is in doubt. A collapse of those large companies would add more than 10,000 wells to the abandoned list.
“The big guys are abandoning wells and pipelines as fast as they can, and that reduces revenue.”
Energy companies do not have to pay taxes on abandoned wells.
“The tax revenue is one problem, but who is going to pay to reclaim the land,” said Bennett.
“Due to last year’s situation, there will be thousands and thousands of wells that are going to be put into the Orphan Well Association.”
The association’s $30 million a year budget isn’t enough to cover the number of wells needing reclamation. Under the present rules, solvent operators are required to pay for insolvent operators and reclamation.
“The last person standing is responsible to reclaim anyone else’s assets.”
Bennett said farmers are better off than municipalities because they can apply to the Surface Rights Board for payment if a company no longer pays the annual lease rent.
