Alberta’s oil and gas meltdown will hit rural municipalities hard, said a surface rights advocate on Friday.
Daryl Bennett said the Alberta Energy Regulator would like to see thousands of suspended wells reclassified as abandoned. As oil prices drop the number of suspended wells is expected to soar as companies struggle to pay their bills.
When wells are classified as abandoned “those wells come off the tax rolls,” said Bennett in an interview following a presentation at the Alberta Federation of Agriculture’s annual general meeting in Red Deer.
“That’s going to significantly affect the amount of property taxes municipalities and counties are getting from the oil companies.
“There are a lot of counties that vary from 6o to 95 per cent of their total budget comes from the oil and gas sector,” said Bennett, who is a member of the Alberta Surface Rights Federation, an umbrella organization for surface rights group across the province.
The Municipal District of Taber, where Bennett lives, relies on oil and gas income for 68 per cent of its budget. Some comes from linear taxes, applied to pipelines and similar infrastructure and local property taxes.
Adding to the fiscal crunch for municipalities are the growing numbers of oil companies going bankrupt while owing millions in back taxes.
“A lot of these counties are going to see some of their budget revenues clawed back or just lost because these bankrupt companies are no longer are paying what’s owed.”
Even those companies that are more financially stable are beginning to contribute less to municipalities.
“They are cutting and capping wells and reducing the amount of money paid in taxes,” he said.
Meanwhile, as more wells are abandoned by their cash-poor corporate owners, the organization that oversees their reclamation to farmland is facing a heavy burden.
The Orphan Well Association’s number of wells on its list to be reclaimed jumped to 705 at the end of March 31, 2015 from 162 a year earlier, according to the association’s last annual report. That number has since climbed and Bennett predicts thousands of suspended wells could be coming its way.
Despite doubling its funding to $30 million this year, there is nowhere near enough money to handle the numbers of orphan well reclamations required.
“Their budget is woefully inadequate,” he said.
And since funding comes mostly from a levy on oil and gas companies, solvent firms find themselves having to pay for the mess left by bankrupt companies.
“That’s not fair and it’s not sustainable, but that is what the system is. Certainly the system is broken and it never was intended to take care of the problem we’re now seeing with these low oil and gas rates.”
While an unfair burden is being placed on active companies and taxpayers, landowners are also seeing bankrupt companies trying to shift the liability for abandoned wells to them.