A gas well located south of Medicine Hat on land used for grazing near Range Road 60.--News File Photo
@@CollinGallant
The city has a much better handle on its well-abandonment program and a strong investment portfolio that earned nearly 15 per cent as stock markets rocketed toward the end of 2024, a city committee was told Tuesday.
But, that only partially offset declining profits at the city’s power plant in the wider financial plan, and choppier markets are here.
The annual report presented at this week’s audit committee meeting also shows the city moving strongly into net asset position, as well as liabilities coming off the books and accountants reversing a write-down of energy interest from several years ago.
“There’s a lot of non-cash items in there,” warned finance director Lola Barta. “We’ve seen significant improvement since 2020 … and are in a net asset position. The biggest piece is abandonment (liability estimates).”
The city moved back slightly into the black in 2023 after several years in a negative financial position where long-term liabilities, like well abandonment and debt, outweighed assets in hand.
At Dec. 31, 2024, the difference had increased six-fold to $187 million thanks to $45 million in investment returns, lower debt levels and an update and recalculation of well abandonment costs.
Outstanding well retirement work is now pegged to comprise most of a total $138 million “Abandonment Obligation” item in city accounting that includes future asbestos removal at city facilities and decommissioning the landfill.
Committee chair Coun. Darren Hirsch told the meeting that he recalled 2017 when the then quarter-billion-dollar figure for well-closures alone was daunting.
“There has been some very good work done by some very dedicated people to put us in pretty good shape,” he told the committee.
Hirsch also said discipline with reserve funds – now totalling $750 million – has given the city a position to close gas fields, fund large projects and stabilize taxes.
“It is a big number, but we have an oil and gas division and other needs,” he said. “It doesn’t take very long for that money to be earmarked … but citizens need to know where the money is going.”
Administrators stressed that working cash will be needed to extinguish liabilities, which do not yet include future reclamation of the power plant, partially because the timeframe is not known, though the department will assess that this year, said Barta.
The total number though, is roughly $100 million less than the figure stated just to well closures several years ago, and $75 million was set aside last year.
“We’re progressing through the abandonment process (for uneconomical gas wells announced in 2019) and that is reflected in the number,” she said, citing some wells are now considered off the books after a multi-year certification process.
Along the way, some work was less than expected – also lowering estimates on incomplete work – and the city has received about $25 million in federal grants administered by the province.
In the overall consolidated financials, revenue fell steeply in 2024 thanks to lower power prices.
In the municipal budget $11.6 million in direct reserve funds were needed to balance – $6 million more than expected due to inflation, a large wage settlement, higher transit and facilities usage, plus lower fine revenue and business activity.
The energy division, which provided a record $134-million dividend in 2023, missed much smaller expectations in 2024 and produced just $12 million to be split by the city’s operating and capital reserves.
“Our (power) production plant is unlikely to provide the same income levels from a few years ago,” said Barta. “We may have to contemplate zero profits net in the future.”
A bright spot was a 14.34 per cent return on city investments, resulting in $45 million, said city portfolio manager Manjit Gill, who said funds outperformed benchmarks in most classes. The aim is to return an average of 5.5 per cent annually over five-year periods.
“We saw strong performance in 2024 – a stellar year for equities markets,” he told the committee. “We take a long-term approach to investments and understand that there is short-term volatility.”
Two new funds for liabilities and well abandonment were created last year, with $75 million each in existing cash, and now total $76.3 million.
Similarly the Medicine Hat Endowment Fund, which provides $5 million to the city budget this year and next, was created to hold $200 million. But that is indexed to inflation, and is now worth $208 million after income was earned in 2024.
City debt fell by $26.5 million to $363 million in 2024, though administrators warned borrowing was delayed as interest rate drops were expected, and then further as the province promised to eliminate a premium it added to public-sector borrowing rates.
That change would take effect after the current provincial budget is passed, after which the city would take advantage of slightly lower rates and debt could rise.
