A new tax assessment model for Alberta’s natural gas producers will be delayed until 2021 as Associate Minister of Natural Gas Dale Nally pushes to get the industry off “life support” and come up with a brand for Western Canadian gas.
The natural gas sector has been struggling over the past few years by a combination of sub-zero prices at market and at-capacity pipelines. The industry players also argue they have been overtaxed for years because of an out-of-date assessment model they say fails to take into account asset depreciation or wells’ declining lifespans.
Efforts to improve the industry’s lot are being spearheaded by an associate ministry that was created when the United Conservative Party came to power last year.
The UCP approach to reviving the sector is based in large part on an October, 2018, report prepared for the former NDP government. Called Roadmap to Recovery, it lists a series of steps Alberta should take to curb the “daunting crisis” facing the sector.
The report talks of improving market access, encouraging long-term industry sustainability, improving transparency and accountability, and reducing regulatory inefficiencies.
The UCP government has made strides, Mr. Nally said in an interview in his office at the legislative building in Edmonton. It has completed or started work on 26 of the report’s 48 recommendations, and is in the process of a three-month consultation with industry.
The final step is a round-table with Mr. Nally and chief executives of large natural gas companies, slated for March.
Just as the United States last year began referring to its liquefied natural gas as “freedom gas,” Mr. Nally plans to propose new branding for Western Canadian gas at the discussion. However, some other recommendations in the Roadmap to Recovery report are unlikely to make it to the table.
Take, for example, a proposal for new credit support pools that would allow smaller producers to enter long-term pipeline contracts. Such a model would essentially establish a series of loan guarantees – something Mr. Nally does not support.
“Look, our coffers are empty. Our government is broke. If we take out a loan guarantee, that counts against our balance sheet. We’re not in a position to do that,” he said, adding there are “other, more creative ways” to achieve the same market access goals.
While industry players seem happy with the progress and focus on their sector, Mr. Nally wasn’t overly surprised when rural municipalities revealed last week that oil-and-gas companies owe them $173-million in unpaid property taxes.
The issue of unpaid property taxes is not a new one, he said. To underline his argument he points back to 2018, when energy companies owed $81-million to small Alberta municipalities.
Companies have been hemorrhaging cash for years, Mr. Nally said.
In a bid to stop the industry being "taxed into bankruptcy,” his government last year directed municipalities to grant shallow gas producers a 35-per-cent property tax cut. The province then backstopped the shortfall.
Initially the government planned to implement a new assessment model for gas producers for 2020, but it is yet to figure out how the new system will look. Instead, it extended the 35-per-cent cut for another year. Mr. Nally said the new model will roll out in 2021.
While the program has been hailed as a saviour by industry, not all recipients are paying their bills. More than 80 per cent of rural municipalities reported to their governing association that companies benefiting from the shallow gas tax credit still owe property taxes.
Mr. Nally said it will take some time for that to change.
“If you were hemorrhaging cash for five years then suddenly you were cash positive, you don’t just flip the switch and everything’s fine overnight,” he said.
“It’s going to take time for this industry to get off life support.”
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Emma Graney