Prairie Post (East Edition)
Well abandonment a major issue lying ahead for region’s next MLA
Alberta’s counties face major upheaval in their tax base over the next decade.
Well abandonment, unpaid property taxes and linear assessment battles have been headline news for several years.
So too has the general state of the oil patch, now on a pricing roller coaster after a decade in doldrums.
Alberta could be entering a new period to tackle the issues worth hundreds of millions to local government and a cleanup liability in the tens of billions for the industry.
The News spoke with the major candidates in the Brooks-Medicine Hat riding – home to two counties with the largest number of marginal shallow gas wells – about the issues.
The United Conservatives have the most-developed policy on the issue, but also a new leader in candidate Danielle Smith. She won her party’s leadership last month promising to strengthen rural Alberta’s economy and standing, and told the News recently that improving the energy sector outlook is the way to bolster environmental compliance.
That incentive – a royalty credit program previously rejected by Alberta Energy ministers – could be rolled out in a pilot program.
“We’d give credit for cleaning up some of these traditional wells and give them a credit on the royalties of future production,” said Smith. “We can support them on both sides.”
Critics say giving up revenue to entice companies to meet regulatory obligations is unwise. Her main byelection opponents say the issue needs to be addressed with local governments, which are struggling to recover taxes, at the table.
Economics professor and public policy commentator Andrew Leach has come out strongly against the idea, saying that beyond undermining the polluterpays principle, the business case is contradictory.
“Right off the top, you’re handing out credits for work that companies are already required to do,” he told the News.
Since the credit’s value rises and falls with energy prices, companies would benefit most from shutting down production when market prices are highest, which he says is counter-intuitive.
Leach sees a better solution as putting the cash into the industry funded Orphan Well Association, which accepts wells from bankrupt firms.
Smith,however, has said the goal is to reward companies that are good operators.
“We’ve got to clean up the legacy issues that were caused by, unfortunately, some lax government regulation, and make sure we’re partners with the industry,” she said.
“Now that it’s been 50 or 60 years in the making, that, to me, is a joint problem.”
A potential wave of conventional oil and gas well abandonment isn’t just an environmental issue.
Closing a large number of wells that sparsely populated counties rely on for tax revenue could cause a major revenue crunch.
Cost-conscious energy companies have focused on local tax bills and lobbied government for changes in how assessments are calculated.
Several municipal affairs ministers have worked the file over three years, but it is now paused for study with the a tax holiday on new wells and the government waiving the 35 per cent portion of local taxes collected for the provincial education budget through 2023.
Analysis by Rural Municipalities of Alberta found proposed assessment changes could reduce tax revenue in 67 counties by up to $500 million per year.
Cypress and Newell counties would be among 11 districts facing a one-fifth reduction. Local officials said even a 60 per cent budget cut wouldn’t stop farm and residential taxes from rising to make up the difference.
Alberta Party leader and local candidate Barry Morishita was the head of the Alberta’s urban municipalities working group that advocated alongside the Rural Municipalities Association on the issue for several years.
“The government has always had the ability to be able to fix that – it can be done,” he told the News. “We can argue about the rate, how much you are paying, that is all fair. (Operators) decided to put a pipeline or a well in that jurisdiction based on the tax rate that was there and knowing that was the cost of doing business.”
On well abandonment, Morishita said the province needs to act but collaboration with industry and the federal government is needed.
“There are unique, innovative ways we could go about dealing with abandoned wells so they don’t become a liability to the landowner and municipality,” he said. “It’s not one solution, there are multiple ways to do that.
NDP candidate Gwendoline Dirk says her party would return a strong regulatory regime that would value local government’s need for a dependable taxation system.
“We’re going to go back to a government that you can trust,” she said. “I believe that the policy the NDP would come up with on that would be to listen to the municipalities and listen to the citizens and work with the citizens to have town halls through consultations.”
Smith has stated that evening local tax rates across the province may address a complaint from industry about myriad rates in multiple jurisdictions.
But she stressed the industry needs support to grow production.
“We have a tremendous opportunity to make sure that some sites are used to their true potential,” she said.