Revenues For Canada’s Oil Towns Dwindle As Firms Stop Paying Taxes

A new discontent is brewing in Canada’s oil patch—insolvent oil firms or energy companies trying to stay afloat amid low Canadian oil prices have started to lag in municipal tax payments or have stopped paying taxes altogether, The Globe and Mail reports, noting that losses on missed tax payments could be in the tens of millions of Canadian dollars.

Although there aren’t precise figures about how much money municipalities in the provinces in Alberta and Saskatchewan are losing from laggard oil tax payers, the potential revenue decline has started to cause a discord between municipalities and oil companies, The Globe and Mail notes.  

Municipalities across Alberta and Saskatchewan have few options to enforce tax collection because oil and gas firms lease the land on which they drill, which leaves no property of a laggard tax-payer that the municipality could seize and sell in order to recover the payments.

Municipalities in Saskatchewan are calling on the provincial government to take actions against companies that have lagged in tax payments or such that have stopped paying municipal taxes altogether.

“It’s a pretty big issue. We’re concerned that the problem is actually going to get worse,” Ray Orb, president of the Saskatchewan Association of Rural Municipalities, told The Globe and Mail.

On the other hand, some in the oil industry argue that municipal taxes, unlike provincial taxes, do not reflect the fact that production from oil and gas wells drops over time, because municipal taxes are fixed.

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This year hasn’t been kind to the Canadian oil patch—production has continued to increase, but takeaway capacity has shrunk and spare pipeline capacity has virtually vanished, causing a steep drop in Canadian heavy oil prices.

At the beginning of December, Alberta’s government enacted a mandatory short-term oil production cut in Canada’s oil patch effective January 1, in a bid to address the record-low Canadian heavy oil prices due to constrained takeaway capacity.

As of January 1, 2019, Alberta will be curtailing production by 325,000 bpd, or by 8.7 percent, to reduce market volatility and drive Canadian oil prices up, Alberta’s Premier Rachel Notley said in early December.  

The 325,000-bpd production cut is expected to take three months.

By Tsvetana Paraskova for Oilprice.com

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