Alberta Plans Tax Aid for Shallow Gas Producers

The Canadian province of Alberta said July 2 it would work with municipalities in shallow gas regions of the province to reduce property taxes levied on shallow gas wells and pipelines by 35%.

“You can’t tax business into bankruptcy,” Kaycee Madu, the government’s minister of municipal affairs, said in a statement. “This initiative will prevent further company failures and job losses in our province while creating a more viable system for industry and government.”

The move is in response to the bankruptcy earlier this year of Trident Exploration and addresses rising fixed cost issues identified last year by the province’s natural gas advisory panel as being a problem for smaller producers. It is expected to reduce taxes for qualifying producers by about C$23mn (US$18mn) annually.

While property taxes go to municipalities, the assessment model for linear property like pipelines is set by the province, and has not been updated since 2005, when the natural gas industry in Alberta was still very robust. To ensure municipalities are not impacted by the reduced tax take, the government will reduce the amount of education property tax they pay to the province.

“Alberta’s natural gas industry has been hurting for years due to extreme low prices and an outdated property tax model,” Dale Nally, Alberta’s associate minister of natural gas, said. “Our government committed to protecting Alberta’s natural gas industry and this measure is a tangible solution that will provide much-needed, short-term relief to our producers.”

Commodity natural gas prices in Alberta have been extremely volatile in recent years, and in June, the benchmark price at AECO plunged to an average for the month of just C$0.501/GJ, its lowest in nearly 20 years and down from C$1.89/GJ in May. 

Madu’s department, working with the Explorers and Producers Association of Canada, will soon provide a list of affected wells to municipalities and producers, the government said. About 65,000 shallow gas wells, primarily in the eastern, central and southern areas of the province, are expected to qualify for the tax relief.

The tax relief program is a one-time only initiative in place for the current taxation year. Madu's department is working on changes to the assessment model for oil and gas facilities that will more accurately reflect their value.