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Tuesday , 2 March 2021

Oil companies get tax holiday on drilling new wells, municipalities won’t lose as much tax revenue

Local municipalities believe the changes to the recently announced assessment model review on oil and gas properties has softened the blow on potentially less tax revenues.

The Minister of Municipal Affairs Tracy Allard announced Monday what the government sees as a compromise of viability for both industry and municipalities with a new, short-term assessment review of how oil and gas properties would be assessed.

Energy companies will get a three-year property tax holiday when drilling new wells and building new pipelines. The government will also eliminate the Well Drilling Equipment Tax provincewide for new drills, all in hopes to create new jobs and drilling.

The government will lower assessments for less productive oil and gas wells while continuing the recently introduced 35 per cent assessment reduction on shallow gas wells for three years.

“The early numbers we’re getting is that it’s going to be between $1 and 2 million. That would be the drop,” said Sawchuk.

“Again, that’s a far cry from the $9-22 million that we were looking at from the previous models that they were putting out.”

This summer, the M.D. of Bonnyville and County of St. Paul were among a handful of municipalities to rally at the Legislature grounds against the proposed changes.

Under the four proposed scenarios at the time, the M.D. was anticipating losses of roughly $15 million.

Since then, the review has been on pause and the minister at the time, Kaycee Madu, was shuffled to Justice Minister.

Now, the hit will be much less, while they hope the changes incentivize new developments in the coming years.

“We just have to look at the maintenance side that’s affected by that new development. But we can handle that. Taking the straight loss as in revenue that was originally put out there was going to be a big hit.”

County of St. Paul reeve Steve Upham believes the Minister listened to the municipalities and their concerns.

“I think it’s a very sound way to approach the situation and the problems. So we’ll look forward to maybe some more conversation in the future,” said Upham.

“There will be some municipalities that have shallow gas wells…there’s going to be quite a reduction for some of those municipalities, but for the County of St. Paul, we shouldn’t be affected too negatively.”

In a conference call on Monday, Allard estimated that the average drop in revenues towards the rural municipalities would be roughly three per cent, instead of 7-20 per cent.

While the focus of the assessment review, the first since 2005, was on the competitiveness of industry, Sawchuk hopes this will bring new drilling activity for the tax free years of 2022-2024.

“Especially now over the last few years, that well drilling has dried right out…this actually probably bodes well if the oil company take up the government on this offer, and go ahead and make use of the break,” said Sawchuk.

Minister Allard said she consulted with over 200 Alberta municipalities since taking over as minister in late August.

The municipalities will look through the details and find out the exact impacts soon.

“Municipal taxes and assessments for oil and natural gas are one of the biggest competitive issues facing this province today. The Alberta government’s action to incent new drilling and provide relief to mature wells is a crucial step to help restore investor confidence and preserve and create jobs for Albertans,” said Tim McMillan, president and CEO, Canadian Association of Petroleum Producers in a press release.

“Rural Alberta is key to the success of the oil and gas industry and we are committed to continuing to work with the municipalities and the province on this issue going forward to rebuild our energy industry and bring prosperity back to Alberta.”

About Michael Menzies

Menzies is the editor-at-large for Connected Media Inc. Born and raised in Vermilion, he started in May 2018 during his NAIT Radio and Television practicum and reports on local politics, sports, and community issues. He became the Bonnyville Pontiacs play-by-play voice during the 2019-20 season. He also comments on provincial and national issues. Menzies hosts Connected! Evening Monday-Thursday at 5 o’clock. He also likes to buy books and read some of them.