Morinville-St. Albert MLA Dale Nally, the province's associate minister of Natural Gas, has announced tax relief measures for Alberta's natural gas companies.
Nally, who announced the measures last week, said the tax relief will support dry gas companies that are primarily operating out of the south of the province.
Such tax relief is necessary, he said, because the property tax assessment process for natural gas producers hasn't changed since 2005, when gas was fetching a much better price on the market. Since then, the price of natural gas has dropped and the value of companies' equipment has depreciated.
“Companies were being assessed at a much higher value than the wells were actually worth,” Nally said.
The associate minister worked with Minister of Municipal Affairs Kaycee Madu, but noted municipalities don’t necessarily support this decision because it will reduce their property tax income.
“I think that the municipalities would have preferred to not have changed it. We are an energy-rich province and the municipalities have done well with the linear assessment from all the natural gas wells."
Nally said for some municipalities, the natural gas assessments can generate anywhere from two to eight per cent of their total revenues.
“The municipalities were not asking for this. The dry gas producers were – they were saying, 'We are an industry in turmoil,'” Nally said.
The associate minister said the problem with the natural gas industry became apparent right after he was sworn in, when Calgary-based Trident Exploration closed their doors and laid off 33 people. Nally said part of the reason they were not able to keep operating was because of the high taxes they were paying.
The announcement means municipal tax rates on shallow gas wells and pipelines will be reduced by 35 per cent, which is expected to save the producers more than $23 million for the 2020 tax season.
“If a company goes bankrupt, because they took on too much debt, or they had a business model that didn't work, that's one thing. But I do not want to just stand around and allow government to tax business into bankruptcy,” Nally said.
The announcement won't impact municipal budgets for 2019 since the UCP government was elected too late to get the ball rolling before the 2019 property tax assessment season. Natural gas producers will still see a tax break this year, but it will be the province that covers it.
The Morinville-St. Albert MLA said some companies had their linear assessment eating 60 per cent of the revenue they were generating.
“There isn't any company that can have a 60 per cent haircut before you even look at things and operating costs and labour. I mean, that's just huge,” Nally said.