The growing problem of oil and gas companies not paying local taxes or landowners

Months before its demise, Trident Exploration made a plea to landowners to accept half of the payment it had promised to have the company’s natural gas wells on rural properties throughout Alberta.

The Calgary-based firm explained it was in dire financial straits and needed help to stay afloat.

Many of the landowners (mostly farmers) rejected the idea and still wanted full compensation.

In March, the natural gas company cut the payments anyway and said in a letter “we had a disappointing response to that request.”

The letter by Trident’s chairman and interim CEO Darren O’Brien painted a picture of the company’s problems:

Trident is under severe financial strains resulting from several factors beyond its direct control. A few of these factors include (1) the ongoing and unprecedented low price of natural gas, (2) extremely high rural municipality taxes, (3) the high cost of operations, and (4) costs of surface lease rentals. As a result, every possible effort is being made to keep the company financially viable through these difficult times.

Less than two months later, the company ceased operations.

When a company is forced to shut its doors, there are unique circumstances related to its assets and operations, among other factors. However, broadly speaking, it’s been a common occurrence for oil and gas companies in Western Canada to fail since the oil price crash in 2014.

Since then, dozens — if not hundreds — of companies have gone bust. And many rural Alberta residents say problems associated with the industry are getting worse as municipalities struggle to collect taxes and landowners often go unpaid for allowing companies to operate on their property. The situation underscores how many people are affected by the struggles of the oilpatch, even if they aren’t employed in the sector.

While the majority of energy companies fulfil their financial obligations, those that don’t are having a significant impact.

The Rural Municipalities Association (RMA) asked all of the 69 counties in Alberta how much money they failed to collect from the energy sector last year. Fifty-four responded with a collective total of more than $81 million.

Foothills County around Okotoks in Southern Alberta said it’s still owed $698,800, while Wood Buffalo around Fort McMurray has $14.5 million outstanding, according to the RMA.

Woodlands County, northwest of Edmonton, is short $4.3 million and the amount of unpaid taxes is about 22 per cent of the municipalities’ total tax levy and budgeted revenue for 2018.

The local government said the oil and gas sector’s failure to pay taxes could potentially have an impact on the “county’s viability and sustainability,” according to a news release in February.

The problem is also affecting municipalities in Saskatchewan.

“It’s an issue that is not going away,” said Al Kemmere, president of the RMA and elected councillor of Mountain View County, just north of Calgary.

‘It’s just a headache’

Bankrupt companies aren’t the only problem for local governments.

“Now, companies that are operating and continue to operate — are not paying their taxes, which makes it much more difficult to deal with from a collections point of view,” said Kemmere, who is advocating for policy changes with Alberta’s provincial government to help improve the situation.

Residents and business owners often have to bear the brunt of the energy sector’s failure to pay, since municipalities may increase taxes on everyone else to recoup funds, said Kemmere.

Even when municipalities can’t collect taxes, they still have to pay the education portion of the taxes to the provincial government.

Landowners with oil and gas wells on their properties are still able to collect unpaid money from private companies, if they have the patience to go through a cumbersome process with the provincial government.

A farmer can apply to the province’s surface rights board to be paid. However, those landowners have to file individual paperwork for each oil and gas well on their property.

“I have some landowners with 50 or 60 leases, said Daryl Bennett, a landowner advocate in southern Alberta. “They have to make an application for every lease, every year. It’s just a headache.”

A typical payment for one natural gas well can be about $4,000 a year.

‘Lengthy delays’

Under Alberta law, landowners can’t refuse companies wanting to develop oil and gas below the surface of their land.

Bennett said landowners have to wait more than a year right now to get paid — and the surface rights board has a backlog of 2,700 files that they are hoping to clear by next winter.

“A lot of landowners don’t even know they can apply to the board,” he said. “Due to the lengthy delays, most landowners aren’t even bothering.”

The fact companies are breaking their lease agreements in the first place is a growing frustration for landowners because the problem doesn’t seem to improve.

“A lot of them are just getting really ticked off,” said Bennett.

The Canadian Association of Petroleum Producers, which represents most oil and gas companies in the country, declined an interview request and said it was “unable to share any insight into this issue.”

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