Unpaid taxes on oil and gas wells squeeze municipal budgets

For example, the Municipal District of Taber is owed $1.75 million in taxes, or 13 percent of the total budget

Failure of some oil and gas companies to pay their Alberta municipal taxes is putting many rural municipalities in a financial bind.

As of last month, rural municipalities had approximately $173 million owing in unpaid taxes from oil and gas companies. Some haven’t paid because they’ve gone into receivership or are bankrupt, but others still have functioning wells and are simply not paying.

“As such, many municipalities are being forced to reduce service levels or raise tax rates on other property types to subsidize the shortfall,” Rural Municipalities of Alberta reported.

The Municipal District of Taber in southern Alberta is a case in point. It is owed $1.75 million in taxes from oil and gas companies, which is about 13 percent of the total budget.

Reeve Merrill Harris said the shortfall has forced some hard decisions.

“We’ve looked everywhere in the budget to try and trim. Unfortunately there were people laid off and I didn’t want to have to do that.

“The level of service might have to change because we just don’t have the resources to gravel and grade as often. And road rebuild projects will have to be put to the side. We’ll have to maintain what we have rather than rebuilding and building new roads.”

Harris said the MD’s options are limited as far as pressing the matter. Landowners who don’t pay municipal taxes can lose their property and it reverts to the MD. That isn’t palatable in the case of abandoned well sites.

“We really don’t want to take over oil and gas properties because then we become liable for the clean up and all the rest of it, so that’s really not an option,” said Harris.

Farmer and rancher members of the Action Surface Rights Association group, which is based in southern Alberta, have been critical of the provincial government’s stance on the matter.

Premier Jason Kenney has advised leniency when it comes to pressing oil and gas companies for lease payments and taxes in arrears.

“You can’t wring money from a stone,” he told reporters when asked about the Alberta municipal tax bills owing.

“The best solution, in our view, is to create a future for those companies that are struggling.”

That struggle was acknowledged by the RMA.

“It is critical that municipalities be recognized as secure creditors for all property types, as a lack of tools and power to recover unpaid linear property taxes from bankrupt oil and gas companies has major fiscal consequences for many rural municipalities,” it said.

Harris said he understands the provincial government position up to a point.

“I know they’re hoping that by supporting the oil and gas they can get the economy kind of kick-started again. When an oil company is broke and bankrupt, we’re not going to get taxes out of them.

“It’s the ones that are actively producing still, that are active and viable companies that aren’t paying their taxes, those are the ones that I really think something needs to be done with. Paying taxes shouldn’t be an option.”

The MD of Taber has many suspended or abandoned wells on the approximately 8,000 acres of property it owns, said Brian Peers, director of municipal lands and leases for the municipality. More than 500 sites have been placed under the Orphan Well Association for reclamation.

Of the approximately 600 wells on MD land, about one-third are still producing, said Peers, noting that the oil and gas fields in the region are generally older and production has slowed.

Failure by oil and gas companies to make lease payments on some of their sites has resulted in the MD filing about 50 applications to the Surface Rights Board to obtain money owed.

Harris said the MD is encouraged by the possibilities presented by RenuWell, a company that is investigating the logistics of putting solar panels on abandoned well sites. That could allow the municipality as well as some landowners to get lease revenue, although he noted it would not relieve oil and gas companies of their financial responsibilities.

As well, Harris said interest in other solar projects could help the budget.

“In the municipality we do have … six large scale solar projects on the books that are actually in the development stage, being built or have been built in the last year, so that’s going to make up some of the taxation difference that we’ve lost in the oil and gas sector.”

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