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Preamble:
WHEREAS Alberta’s rural municipalities depend on property tax revenue to support the construction and maintenance of infrastructure and the provision of municipal services; and
WHEREAS property taxes remain the main source of revenue for municipalities, as provincial and federal transfers are diminishing, while the downloading and offloading of services and programs continues; and
WHEREAS the current legislation has limited the recourse available to a municipality to recover tax arrears owed by oil and gas companies, which predominantly arise from linear property, commercial property, and education requisitions; and
WHEREAS Alberta’s rural municipalities host and support infrastructure to most of the province’s oil and gas exploration and production activity; and
WHEREAS the ability of municipalities to recover tax arrears with respect to oil and gas properties is compromised because of significant unfunded abandonment and reclamation costs that are a first-ranking charge in favour of the Alberta Energy Regulator; and
WHEREAS insolvency of an oil and gas company often results in productive assets being taken out of service;
Operative Clause:
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta investigate the possibility of forming a public interest-focused subsidiary oil and gas company to acquire and operate productive assets owned by insolvent companies to stabilize the receipt of linear taxation revenue and prevent the premature retirement of productive assets.
Member Background:
In recent years, unpaid property taxes on oil and gas properties have been a persistent concern for rural municipalities, resulting in lost revenue. Although the province’s economic climate has improved, delinquent oil and gas operators still owe municipalities significant outstanding property taxes. These financially unstable companies are leading not only to lost tax revenue, but also permanently lost assessment base.
Oil and gas assets belonging to insolvent companies are often hastily abandoned at the appointment of a receiver, with many then becoming orphaned wells permanently. The looming threat of abandoned assets, and little chance of recovering substantial taxes through insolvency proceedings, have led municipalities to have little incentive to push marginal companies to repay arrears.
An oil and gas company operating in the public interest, for the purpose of stabilizing assets, could significantly lower the impact of non-operating companies and introduce the possibility of assets being operated through insolvencies.
By the numbers
While most companies in Alberta’s energy sector fulfill their local tax obligations, some, especially those facing potential insolvency, have not, forcing municipalities to make difficult choices between raising taxes to other taxpayers or reducing essential services.
Municipalities have reported a cumulative $220 million in unpaid taxes, with $130 million in tax arrears and the remaining $90 million in cancellations. Most of these taxes will not be recoverable because they are owed by defunct companies, already written off by municipalities, or both.
A smaller but significant portion of unpaid taxes, approximately $76 million, is owed by companies still operating and is potentially recoverable, including through repayment agreements.
Municipalities have reported having repayment agreements in place to collect $48 million in unpaid taxes. Municipalities could potentially recoup another $28 million from still-in-operation companies. (Government of Alberta, 2022)
RMA and Alberta Municipal Affairs both launched unpaid oil and gas property tax surveys, inviting municipalities to provide detailed information on tax arrears, write-offs, operational impacts, and companies responsible. Final responses for the Municipal Affairs survey were received at the end of September 2022, with 55 of the 71 rural municipalities responding to the information request and 52 having unpaid tax data to report. The current survey results represent information reported to the province by municipalities in fall 2022 and are based on a point in time – December 31, 2021, and prior – with a status that has most likely changed since that date.
Of the amount in arrears, $54 million belongs to non-operating companies and repayment is not expected. The remaining $76 million belongs to 99 operating companies, 15 of which are responsible for $71 million, or 93%. Payment plans or agreements are in place with 25 companies to recoup $48 million in arrears. This leaves an estimated $28 million in arrears belonging to operating companies that do not have repayment agreements.
Chart 1 – Summary of Municipal Affairs Unpaid Taxes, September 2022 ($ millions)
| Category | Unpaid Taxes ($ millions) | Percentage |
| Cancelled Taxes | $90 | 41 |
| Tax arrears, non-operating companies | $54 | 24 |
| Tax arrears, operating companies with tax agreements | $48 | 22 |
| Tax arrears, operating companies without tax agreements | $28 | 13 |
Source: Government of Alberta
Nineteen responding municipalities reported they have been successful in recovering only a combined $8 million in owed oil and gas property taxes and penalties.
Eighty-one per cent of reported recoveries were made in 2021 and 2022 and are associated with 44 companies, of which 11 are associated with 95% of recoveries. While tax recovery looks to be improving, the amount will remain a small portion of total unpaid taxes, as most companies with unpaid taxes are no longer operating.
Twenty-eight responding municipalities indicated success in negotiating repayment agreements with 25 oil and gas companies for $48 million in combined taxes and penalties. Nearly all the reported recoveries and repayment agreements were secured in 2021 and 2022, which likely reflects an improved economic climate.
The Government of Alberta has introduced a special lien and issued directives to the Alberta Energy Regulator (AER) to reduce the unpaid oil and gas taxes owed to municipalities. Companies now have to confirm that their unpaid municipal taxes across the province do not exceed the maximum threshold allowed or have a repayment agreement in force when applying for new licences and licence transfers. Companies seeking to sell their assets will also have to pay their back taxes first, or as part of the sale. Unfortunately, municipalities have not seen significant results from these new programs and RMA’s advocacy is ongoing in that respect.
In early 2023, the RMA requested all members complete a survey providing an update on their unpaid oil and gas burden as of December 31, 2022. All 69 RMA members responded to the survey.
Survey Results
Additionally, at least twelve Canadian oil and gas producers filed for bankruptcy protection in 2024, up from 5 in 2023 and 3 in 2022 (according to a Financial Post analysis). Among the insolvent companies was Alberta-based Long Run Explorations, which is struggling to pay $308 million in compliance expenses. (Snyder, 2024)
References
Government of Alberta. (2022, September). Unpaid oil and gas property taxes. Retrieved from https://www.alberta.ca/unpaid-oil-and-gas-property-taxes
Rural Municipalities of Alberta. (2023). Unpaid Oil and Gas Tax Survey Summary. Nisku: RMA.
Snyder, J. (2024, December 19). Oil and gas insolvencies surge to three-year high amid low prices, rising costs. Retrieved from The Logic Canada’s Business and Tech Newsroom: https://thelogic.co/briefing/oil-and-gas-insolvencies-surge-to-three-year-high-amid-low-prices-rising-costs/
RMA Background:
3-24F: Collection of Unpaid Municipal Property Taxes by Way of Royalties
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta (RMA) advocate that the Government of Alberta (GOA) require oil and gas developers and operators to pay municipal property taxes on oil and gas properties as a condition of being granted and/or retaining the right to develop oil and natural gas resources;
FURTHER BE IT RESOLVED that RMA advocate to the GOA to collect unpaid oil and gas municipal property taxes on behalf of municipalities through the collection of royalty revenue and distribute them accordingly.
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