+ RMA Rural Municipalities
of Alberta

Resolution 4-22F

Well Drilling Equipment Tax Regulation

Date:
November 9, 2022
Expiry Date:
December 1, 2025
Active Status:
Active
Sponsors:
Athabasca County
District:
3 - Pembina River
Year:
2022
Convention:
Fall
Category:
Municipal Governance and Finances
Status:
Sent to Government
Vote Results:
Carried as Amended
Preamble:

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;

Operative Clause:

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.

Member Background:

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:

  • 2018: 4,173 wells drilled
  • 2019: 3,069 wells drilled
  • 2020: 2,338 wells drilled
  • 2021: 5,503 wells drilled

The number of licensed wells drilled in Athabasca County is as follows:

  • -2018: 1 well drilled
  • -2019: 4 wells drilled
  • -2020: 11 wells drilled
  • -2021: 54 wells drilled

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 Background:

RMA has no active resolutions directly related to this issue.

Provincial Ministries:
Municipal Affairs
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