WHEREAS municipalities benefit from long-term and stable financial commitments from the Government of Alberta; and
WHEREAS rural municipalities have recently experienced reductions in revenue and financial support from the Government of Alberta, including changes to or eliminations of linear assessment, well drilling equipment tax (WDET), grants in place of taxes, and reductions to program funding; and
WHEREAS rural municipalities have recently absorbed increased expenditures due to the downloading of provincial costs; and
WHEREAS rural municipalities have forgone considerable revenues from the WDET and non-payment of taxes by the energy sector, while shouldering increasing costs attributed to infrastructure strain and the administrative burden resulting from increased exploration and development activities; and
WHEREAS the global markets for oil and gas have improved significantly since the Government of Alberta introduced measures to increase oil and gas investment in the province, including the elimination of the WDET and a three-year property tax holiday on newly drilled wells; and
WHEREAS implementation of the WDET does not increase the financial burden on the Government of Alberta, but signals the importance of strong reciprocal relationships between municipalities and industry partners;
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta request the Government of Alberta reintroduce a Well Drilling Equipment Tax Regulation or otherwise provide funding to restore municipal revenue streams that assist with recovering costs for maintenance of public infrastructure from active industry participants.
Under Division 6 of Part 10 of the Municipal Government Act, Section 388 allows for municipal councils to pass a bylaw imposing a well drilling equipment tax (WDET) to be assessed on the equipment used to drill a well for which a license is required under the Oil and Gas Conservation Act.
Calculation of the tax is controlled through the Minister of Municipal Affairs by a regulation made under Section 390 of the MGA. This regulation allows municipalities to collect a one-time the WDET from companies based on the depth of wells drilled.
Alberta Regulation 218/2014 outlined annual the WDET rates calculated by well depths, with progressive taxation tiers, and increasing corresponding taxes in subsequent taxation years of the regulation.
Alberta Regulation 293/2020 came into force December 2020, repealing Well Drilling Equipment Tax Rate Regulation AR 218/2014 and setting the tax under Division 6 of Part 10 at $0. This measure was part of a larger provincial government strategy to encourage investment in oil and gas developments during an economic slowdown.
As outlined in the 2018 Rural Economic Study available on the RMA site, the oil and gas sector contribute significantly to the GDP, capital investment and employment in rural Alberta. Additionally, benchmark prices between $70 and $85 per barrel in U.S. dollars forecasted over the last few years were expected to support moderate growth in investment in the oil and gas sector across the province (https://rmalberta.com/wp- content/uploads/2019/05/The-Economic-Contribution-of-Rural-Alberta-AAMDC-FINAL-.pdf). By the middle of 2021, the WTI US per barrel price of oil has hovered at or above the $70/bbl mark and the resulting well drilling activity in the province is noticeable.
According to information published by the Government of Alberta , the number of wells drilled in the province over the last five years has been as follows:
The number of licensed wells drilled in Athabasca County is as follows:
Assuming that the WDET is assessed at the last regulated rate, the 54 wells drilled would have resulted in more than $430,000 in income to Athabasca County in 2021. Wells drilled in 2021 were on average just under 2500m deep, this works out to about $8,000 in taxes per well drilled lost in revenue.
RMA has no active resolutions directly related to this issue.
Alberta Municipal Affairs
In October 2020, the government committed to maintaining assessment models for wells, pipelines, and wellsite machinery and equipment for three years. Instead of substantial changes, the government implemented several property assessment and taxation incentives, including eliminating the Well Drilling Equipment Tax. These measures support economic recovery and provide certainty to industry, investors, municipalities, and other property taxpayers.
While the government continues to monitor the impact of this policy and appreciates the concerns regarding the impact this has had on municipal revenues, to date there had not been plans to reinstate the Well Drilling Equipment Tax or to directly compensate municipalities. All Albertans benefit from a strong oil and gas industry that creates jobs and supports economic activity in communities throughout Alberta.
Municipal Affairs, in collaboration with Energy has recently undertaken a detailed survey to collect current, comprehensive information on the state of unpaid property tax by oil and gas companies in Alberta. Municipal Affairs has also established a committee composed of industry and municipal representatives, including the Rural Municipalities of Alberta, to co-design an engagement process for the broader review and to recommend key principles for Alberta’s regulated property assessment system.
The Government of Alberta response references the elimination of the Well Drilling Equipment Tax (WDET) as a relief measure provided to industry in 2020 as an alternative to significant changes to the regulated assessment model that were then under consideration. While this approach may have had merit during the difficult economic period of 2020, it is currently unnecessary and subsidizing oil and gas companies by removing a revenue source for rural municipalities during a period of record profits for the industry. According to the Alberta Economic Dashboard, wells drilled have increased by 46% in the one-year period between October 2021 and October 2022 (the month in which the most recent data was available). The total number of wells drilled in October 2020 (when the WDET was eliminated) was 202, while 949 wells were drilled in October 2022.
The intent of the WDET is to provide rural municipalities with much-needed revenue to offset increased infrastructure strain associated with the drilling of new wells. In some municipalities, drilling is occurring at an extremely rapid pace. The lack of a WDET, combined with the tax holiday on new wells provided by the province at the same time, as resulted in municipalities having virtually no abilities to raise revenue to offset new costs associated with oil and gas industry growth.
Additionally, the response’s reference to efforts to address unpaid taxes by the oil and gas industry is concerning, as the payment of property taxes is a legal obligation of all property owners, including oil and gas companies, and a solution to the issue (which has not been found) should not be framed as an alternative to the return of the WDET, as the two issues are separate. If anything, the fact that municipalities currently struggle to collect property taxes from the industry would suggest that other alternative revenue-generation tools should be used.
RMA assigns this resolution a status of Intent Not Met and will continue to advocate on this issue.