Balancing needs of oil industry and municipalities is no easy task: Turnbull

By COLLIN GALLANT on January 25, 2020.

cgallant@medicinehatnews.com@CollinGallant

After a wild week of debate about how to stabilize the struggling oilpatch without harming municipalities, a top official with the province’s only municipally owned petroleum producer says work needs to be done.

Phil Turnbull is chair the city of Medicine Hat’s energy committee. It steers the gas exploration and production company that is now planning a major scaleback of well inventory and could spend $90 million to close in 2,000 wells.

The city councillor told the News that the City of Medicine Hat will fully meet its responsibilities – both property taxes where it operates and well decommissioning – but the effort will eat into city reserves.

The wider industry however, could require a federal bailout.

“We can’t go bankrupt, so we’ve had to put aside substantial sums of money for well abandonment,” said Turnbull, stressing that private sector operators struggling with the same dearth of low-prices, especially for natural gas, may be in serious trouble.

“If companies have no money, they have no money,” said Turnbull, adding sectors such as auto manufacturing and aero-space receive federal support. “It seams to me that we, as a nation, need to treat energy as we would any other industry that employs a lot of people and provides a lot of tax revenue.”

The troubles in the oil patch seem to be multiplying.

This week the Alberta Auditor General announced it will study the solvency of the Orphan Well Association and that industry-funded agency’s ability to deal with a potential glut of unprofitable wells arriving with it for abandonment.

That cost is said to be $30 billion, but critics say it is an outdated estimated that could be much higher.

As well on Friday, the Alberta Urban Municipalities Association took a position supporting rural counterparts in an effort to collect back taxes totalling $173 million from oil and gas companies.

AUMA president Barry Morishita, the mayor of Brooks, suggested operating licences should be suspended in case of non-payment, thereby giving some leverage for municipalities. Traditionally a city or county could seize and sell property to collect amounts owed, but in the case of wells, the environmental liability could be much greater than any resale value.

“Municipalities currently have no legislative tool to collect these owed taxes … we urge the provincial government to update the Municipal Government Act,” Morishita said in a statement. “Having municipalities shouldering these economic burdens from oil and gas companies impairs our economy.”

Also cutting into rural budgets, the province has mandated a 35 per cent tax cancellation this year on specific shallow gas infrastructure that is most common in southeast Alberta.

That will be not be reimbursed by the province as it was in 2019, when the government also announced new assessment rules are en route that would affect future tax revenue. Industry argues those rules are outdated.

Local tax effects

A provincial decision to extend property tax reduction on shallow gas wells will remove $1.3 million from Cypress County’s revenue in 2020, if the 2019 program is a baseline.

The 35 per cent cancellation order from Municipal Affairs also means $3,300 to the Town of Redcliff and $41,000 in Medicine Hat, though the cancellation of the city taxes mostly benefits the municipally owned gas production company (Prodco).

A substantial portion of the county’s tax cancellation will also lower the tax bill of Prodco, though Cypress County didn’t publish a specific breakdown of the 2019 measure.

According to disclosure documents, Medicine Hat made a total of $830,000 in total property tax payments to Cypress County in 2018.

It paid a total of $1.3 million in property tax on the wells it owns in Alberta to the local jurisdiction.

That included $180,000 to Vulcan County, $170,000 to the City of Medicine Hat, and $110,000 to the County of Forty Mile.