Oil and natural gas prices are soaring this year, creating a gusher of revenue for Canadian petroleum producers.
Yet, this shift hasn’t smoothed over the prickly problem of some energy companies not paying their property taxes to Alberta municipalities.
That’s why the president of the Rural Municipalities of Alberta (RMA) welcomed changes from the province on Thursday designed to give local governments a new tool to collect delinquent taxes from energy firms.
It’s a growing bill that reached nearly a quarter of a billion dollars earlier this year.
“Given the commodity prices, you would expect people would want to clear their plate. We are just not seeing it,” RMA president Paul McLauchlin said in an interview.
“I’m not getting the phone ringing off the hook saying, ‘Yeah, we are good.’ ”
On Thursday, Municipal Affairs Minister Ric McIver announced a legislative amendment that will restore the ability of civic governments to have special liens placed on assets of energy companies that have unpaid property taxes.
The decision is designed to disarm a hot-button issue that has escalated in recent years.
While overdue bills have piled up because of companies failing, the RMA estimates more than half have stemmed from producers that continue to operate.
A survey by RMA of its members in 2019 estimated the total unpaid tax bill at $81 million. The number grew to $245 million in its latest survey.
McIver blamed a few “bad actors” for ignoring the rules and said the changes should help, although it won’t likely eliminate the problem.
“This is a hammer,” he said.
“You can debate whether it’s a medium or large-sized hammer, but it’s definitely a hammer — and a hammer that the municipalities need.”
Two years ago, a decision by the Alberta Court of Appeal in the case of Virginia Hills Oil Corp., an insolvent energy company, ruled that previous special liens in the province didn’t apply to oil and gas and other linear properties.
Now, the matter is being clarified by the UCP government.
If a company fails and owes outstanding taxes, a special lien on linear property will give the municipality priority over other creditors.
The lien will make an operator and property owner liable for paying the taxes. And it will apply to a company’s wells, pipelines and other assets located within the municipality.
While it’s unlikely the change will lead to lawyers from civic governments rushing out to seize pipelines or wells — the Alberta Energy Regulator has to approve a licence being transferred — the province expects it will put pressure on companies to negotiate.
The bill also includes a 120-day period from the time taxes are due before the lien can be enforced, allowing for talks to take place.
The head of the Explorers and Producers Association of Canada (EPAC) said Thursday’s changes are reasonable and noted the industry pays an average of more than $3 billion in municipal taxes annually.
“We generally support the government in this direction,” said EPAC president Tristan Goodman.
“It has been a difficult period for oil and gas because of very low prices. I think the current pricing will help fix this. And we also think it’s important to ensure that municipal taxation is evaluated in an equitable manner.”
McLauchlin, who is also the reeve of Ponoka County, agrees a small number of firms are causing the problem, but the scale of the issue is creating hardship for local taxpayers.
In Ponoka County, $2.2 million is still outstanding for the 2020-21 tax years, while the municipality has written off $4.2 million since 2016.
“We all respect and like oil and gas, and understand the benefits it has. Our ratepayers do not want to pay someone else’s taxes,” he added.
Earlier this year, Alberta Energy Regulator CEO Laurie Pushor said the organization would begin to gather data about unpaid property taxes and lease payments from producers.
The information could be examined when assessing the financial capability of a company to transfer well licences.
McLauchlin said the special lien is another tool that should prompt companies to talk with local governments if they’re behind on their taxes.
“It will make a difference. Will it solve everything? Probably not,” he added.
The UCP government has tried to walk a fine line on the issue, recognizing all companies need to pay their taxes but not wanting to push cash-strapped producers into distress.
Last year, Premier Jason Kenney said a number of companies, particularly shallow gas producers, were barely hanging on, adding: “You can’t wring money from a stone.”
Higher prices should remove that from the equation.
NDP MLA Joe Ceci said the AER should publish a list of producers that haven’t paid their taxes. He blamed the government for dragging its feet on the issue until it turned into a crisis.
Energy Minister Sonya Savage said the tax issue was caused by low commodity prices last decade, but the sector is in a much stronger position today, with oil trading above US$82 a barrel.
However, she noted the matter is also tied to Alberta having 97,000 inactive oil and gas wells — many drilled decades ago — that are still being assessed and taxes continue to be owed.
The issue has been compounded by insufficient provincial liability management rules in the past, along with thousands of wells being transferred from financially stronger producers to weaker players since the 2015 price crash.
“Some of them are struggling, regardless of the price environment,” Savage said. “They are struggling because of low-producing wells.”
However, outstanding taxes still need to be paid. While Thursday’s announcement was a long time coming, it was a move in the right direction.
With higher oil and gas prices, there should be fewer reasons for this problem to linger.
Chris Varcoe is a Calgary Herald columnist.
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