Oil is rebounding, but rural municipalities are waiting on their bills

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07/05/2021
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Rural municipalities in northwest Saskatchewan are chasing after millions of dollars in unpaid taxes from struggling oil companies as prices rebound.

They hope to recover the money as the West Texas Intermediate oil price fetches near $70 per barrel after cratering during the pandemic. If they can't, rural ratepayers may be left holding the bag.

Manitou Lake Reeve Brian Graham hopes to recoup $395,866 owed by five oil companies. His municipality is one of several in Saskatchewan that's out money because oil and gas companies working within their borders declared bankruptcy in recent years.

Over the last four years, the RM of Manitou Lake has written off $1.5 million in municipal taxes it couldn't collect from oil and gas companies.

In 2015, the municipality lost $402,000 as a struggling oil company hit receivership, followed by another $1.3 million when the company that bought it did the same, he said.

Transporting heavy oil in Manitou Lake takes a toll on local roads; the taxes from oil companies are supposed to help maintain that infrastructure. When the money's not available, it tightens municipal budgeting, said RM administrator Joanne Loy.

The bankruptcies also result in leases going unpaid, while local suppliers and contractors lose business.

"Oil and gas is a very big part of Saskatchewan's economy, so it's important to keep it here because it creates jobs and business for restaurants, grocery stores, clothing stores, and housing,'' Loy said.

"But when there's capital there and it has to be written off by the municipality, it unfortunately has a negative effect on that municipality and its residents.''

University of Saskatchewan economics professor Joel Bruneau said he doesn't expect oil prices to go much higher.

If companies were struggling before the drop, the pandemic likely hit their balance sheets, he noted.

"If they were having difficulties the last couple years, they're going to continue to have difficulties.''

Graham said two companies have promised to pay their arrears with rebounding oil prices, but he wants more tools from the province to collect taxes.

It's not a new problem.

In 2018, the Saskatchewan Association of Rural Municipalities passed a motion asking the province to widen its licensee liability rating program to include the collection of municipal taxes or surface rentals, so communities can recoup their money.

The province has no plans of including "collection of taxes or surface rentals outside the strict scope of environmental cleanup and liability management,'' Minister of Energy and Resources Bronwyn Eyre said in a prepared statement.

"Powers exist under the Municipalities Act to pursue the collection of unpaid taxes. However, we invite landowners to engage with the regulator if they have concerns.''

The majority of the wells in the RM of Eldon are owned by three major companies who reliably pay their bills, but Reeve Larry Lundquist sees few options in delinquent cases.

An RM could put a lien on the oil a compan sells and have the proceeds go to back taxes, but that requires the firm to be selling in the first place, he noted.

"If the company's not producing and the wells are just sitting there, we have no real recourse to collect the money. We end up having to write off those taxes,'' he said.

"It's not the goose that lays the golden egg. But we're very fortunate to have the oil because of the people it keeps in the community and the activity for our businesses and everything else.''

Canadian Association of Petroleum Producers spokesman Jay Averill said the vast majority of producers continue to pay their taxes in Saskatchewan. He said property taxes in RMs with resources had been creeping up in recent years, while oil and gas investment was trending down.

"In rare cases where unpaid taxes may occur, there are typically extenuating circumstances due to the immense challenges posed to industry in the past couple of years,'' Averill said.

Other municipalities are still holding a tab they are unsure will ever be paid.

Hillsdale chief administrative officer Janet Hollingshead estimated unpaid oil taxes were as high as $12 million at a meeting of local northwest-central rural municipalities last fall. Hillsdale's share is about $2.48 million, accounting for 38 properties owned by five oil companies.

She's confident companies who were one to two years in arrears will pay, but up to 10-year-old arrears are a different story, he said. Those are cases where she's received bankruptcy papers and expects to get back about $45,000 for roughly $2 million owed.

"I bet that we will get pennies on the dollar or less,'' she said, noting private landowners can face similar struggles getting their lease money.

Her region's municipalities struck a committee roughly five years ago to address their heavy oil concerns, she said. As a solution, they've floated a similar system to collecting unpaid taxes on Crown land, where they apply to the province to have companies lose their mineral rights if taxes aren't paid.

Hillsdale Reeve Glenn Goodfellow hopes there's some way RMs can get their tax revenue.

"We'd like reassurance that they're giving the municipalities the tools (to collect) taxes from all ratepayers equally. It seems that the oil company can get away with a little more than anybody else,'' he said.