Alberta energy watchdog must make firms pay property taxes
Zombie companies at core of issue, Paul Mclauchlin says.
For the past six years, the Rural Municipalities of Alberta (RMA) has collected data from members related to unpaid property taxes from the oil and gas industry. This survey has become an annual RMA tradition because unpaid tax amounts increase each year. The most recent survey results show a total unpaid amount of more than $250 million, with $43 million of that incurred in the 2023 tax year.
The RMA'S 69 member municipalities represent 85 per cent of Alberta's land base, with members touching all four borders. These municipalities support the oil and gas industry through the management of more than 75 per cent of roads and 60 per cent of bridges in the province, many of which exist only to provide industry with access to natural resources.
As some oil and gas companies continue to ignore their obligation to pay property taxes, we at the RMA want all Albertans to understand this issue and why it matters. The reality is that non-payment by some oil and gas companies is not only unfair to all other property taxpayers in the province, but also an indicator that companies are unable or unwilling to meet other regulatory or environmental requirements.
The Alberta Energy Regulator (AER) has the ability to deem non-payment of property taxes as a high-risk practice and take action against companies ignoring their obligations. Instead, the AER has looked the other way, mainly because it is a symptom of a larger issue that the AER has refused to deal with: zombie oil and gas companies. Zombie companies have a few frightening characteristics. Firstly, they often live on the margins of solvency. The AER'S liability management rating (LMR) is a ratio of assets over liabilities that the regulator is supposed to use to determine the financial health of a company and its level of risk in meeting its
Non-payment of taxes by some oil and gas companies is … unfair to all other property taxpayers.
reclamation obligations.
The problem with the LMR is twofold: Zombies can buy themselves an LMR increase by putting down a deposit that is only a marginal amount of their liability, and when they don't, the AER typically takes little action, even as zombie companies operate with no ability to address their liabilities.
While information on the identities and ownership structures of zombie companies is limited, about 70 per cent of the largest oil and gas companies operating in Alberta are foreign-owned. While these large companies reliably pay property taxes, extending this proportion of foreign ownership to zombie companies suggests that not only are taxes and surface leases not being paid, but much of the revenue that should be directed to this purpose is being funnelled to zombie company owners and shareholders located outside of Canada. The LMR system provides little incentive or requirement for zombies to reinvest profits in meeting their tax or liability obligations.
On its website, the AER states that “acquiring and holding a licence or approval for energy development in Alberta is a privilege, not a right” and that the regulator has wide latitude to deem a company as posing an “unreasonable risk” and take enforcement action. The AER'S Directive 067 states that, to determine this risk, the AER “may consider … outstanding debts owed for municipal taxes surface lease payments.” The crucial word here is “may.”
Our ask of the AER is simple. Move from “may” to “shall” and require oil and gas companies to take the same responsibility for property tax payments as every other property owner in Alberta. This simple wording change will ensure that zombies will no longer ignore the rules, and much like Daryl from Walking Dead, will wipe zombies off the land.
We estimate that if surface lease payments and municipal tax requirements were enforced today, 200 companies would walk away leaving 18,000 wells and $3 billion or more in liabilities with the Orphan Well Association. As scary as this is, these numbers will only increase if the AER continues to do nothing. Enough is enough. When will the AER regulate in the public interest? We need a regulator, not a cheerleader.