The County of Barrhead says bad actors in the oil and gas industry who are not paying property taxes are making it hard on small town Alberta.
Uncollected taxes from some of these companies have spiked in recent years from $48,000 in 2023 to more than $1 million as of September of this year alone.
Now the county is short a total of roughly $2.2 million on taxes from gas patch players that have either walked away or are struggling to pay.
Few options to make them pay
In an interview with TheRockies.Life, Barrhead County Reeve Doug Drozd said rural municipalities have few options to make companies pay.
“There’s very little we can do because you can’t move in, like on a regular property, a farm or an acreage. If [farmers’] taxes go into arrears, there’s a specified process in the Municipal Government Act where you can take the property and put it up for auction to recover your costs,” Drozd said.
“But there’s no recourse in the oil and gas business because there’s hardly ever anything that you can actually claim onto. You can’t claim onto a pipe in the ground.”
According to Drozd, the only thing municipalities can do is count on the good faith of companies to pay their tax bills and inform the Alberta Energy Regulator about those who don’t.
The AER claims to be creating a database that it will then use to deny licenses or well transfers to tax-defaulting companies.
It started with Trident going bankrupt
Barrhead is located in the natural gas field northwest of Edmonton. More than 30 gas and pipeline companies are active in the county.
Calgary-based N7 Energy Ltd.is the largest player with 516 wells, 59 of which are abandoned and 129 are suspended. In 2022 Barrhead Provincial Court slapped the company with a $70,000 penalty for a construction project that threatened to damage a stream near Swan Hills.
Keyera Corp., also based in Calgary, operates 335 kilometres of pipeline in the county.
The oil and gas tax-cheating situation started to go sideways when natural gas prices tanked and Trident Exploration Co. struggled. According to Drozd, at first Trident said it would pay what it owed to the county. However in 2019, the company went bankrupt and handed its 4,700 wells over to the AER.
The Calgary-based junior player left behind an estimated $329 million in well abandonment, reclamation cost, and unpaid taxes.
Barrhead had no choice but to write those unpaid taxes off the books.
The current total of outstanding taxes has accumulated over the past few years. The lion’s share is associated with one company coming off an installment plan who failed to pay its taxes by the August 31 deadline. Drozd wouldn’t name the company because the county is currently still negotiating to collect the taxes.
Time to fix a broken system
Drozd thinks oil and gas industry regulation in Alberta is broken and needs to be fixed. He’s not alone. As TheRockies.Life has reported extensively, the Rural Municipalities of Alberta has been trying to work with the province on this issue but has made little headway. As of December last year, counties and towns were owed $254 million in taxes. Nearly one-quarter of that is from the 2024 tax year alone.
He has some ideas. Requiring companies to have a reclamation plan in place before the AER issues a license would be a good place to start.
Increasing royalties that the province collects and sending a percentage to rural municipalities is another possibility, Drozd said.
“A lot of people here work in the oil and gas sector and we understand how important it is to the Alberta economy. But some of these bad actor companies come in and withdraw the gas from the field and at the end of the day they know that it’s depleting. It’s not profitable anymore. They stop paying taxes on it so they can get all the money that they can for their shareholders. Then after that they file bankruptcy, walk away, and absolve themselves from the obligations” he said.
“Unpaid taxes and reclamation. Those two things are related. If the province is able to put some kind of reclamation requirement in place right at the beginning it might stop this from compounding.”
Homeowners and other businesses could be left with a large tax burden
When oil and gas companies default on taxes it forces towns and counties to consider passing more of the tax burden onto other businesses and homeowners. According to Drozd, property tax revenues from the oil and gas sector are essential for building up a reserve of cash to pay for all the things required to keep towns and counties functioning.
He calls it a much more prudent way to do rural government business, rather than having to borrow money every time they want to do a project or buy equipment.
“A lot of our neighboring counties are in a much worse property tax situation than us, but a million dollars is still a lot of money,” Drozd said. “It’s more than what we spend in agricultural services for spraying weeds and ditches. It’s more than we spend on protective services–having a community peace officer and bylaw enforcement. It’s enough to buy two graders. The list goes on and on and on.”
The province has been talking for years about closing the loophole that tax cheating oil and gas companies are jumping through.
“No, I don’t think they get it. The energy regulator is hands-off on this issue and they don’t see it as their role to look after tax revenues and the counties,” Drozd said. “This is a major problem.”
