With oil prices bottoming out around $30 a barrel, oil companies are scrambling to save money — sometimes at the expense of farmers.
“Some companies are just deciding not to pay the annual rentals,” said Daryl Bennett, who represents the Action Surface Rights Association in southern Alberta.
Last year, the Surface Rights Board had more than 750 new applications and gave landowners over $1.5 million to repay defaulted rents, said Bennett, who spoke at the recent Alberta Federation of Agriculture annual general meeting.
“That’s just the tip of the iceberg. There should have been thousands and thousands of new applications.”
But while lost rents are a short-term frustration for farmers, the long-term effect this will have on rural municipalities is much bigger.
“If you as a landowner don’t get paid by a company, it’s not that big of a deal. The minister of finance will ensure that you get your money,” he said. “The implication to counties and municipalities is what you should be concerned about.”
Right now, counties in Alberta get two streams of oil and gas revenues. The first is through linear property assessments.
“That’s generally all the pipelines, power lines, that type of stuff. Currently, there’s $845 million being assessed to the operators in the province that goes to counties,” said Bennett.
“A lot of these companies that are going bankrupt are not paying their linear assessments to their counties and municipal districts.”
And 25 per cent of the linear tax assessment goes toward education — money that has to be paid by the county “whether they collect it or not from the oil and gas operators.”
Counties also do local tax assessments, which fund their operating budgets. “An oil lease is assessed at higher rates than you are for your property taxes, and that’s collected by the municipality.”
In some municipalities, between 60 to 90 per cent of their total budget depends on oil and gas tax revenues. For instance, oil and gas tax revenues make up 68 per cent of the budget for the County of Taber.
“The County of Taber has estimated that if it was to lose its linear assessments paid by oil and gas, it would have to increase its property taxes by 350 per cent on everybody else to make up that loss,” said Bennett. “They’re going to have their budgets drastically cut in some cases. Then what do they do? Do they raise taxes or do they lay off people?”
Reduced oil and gas tax revenues will create a “snowball effect” in these counties — “they lay off more people, those people don’t pay taxes, real estate prices go down, property assessments go down, and it just continues on and on.”
And counties are starting to get worried, he added.
“Some of these companies that have gone bankrupt owe $15 million to $20 million to various counties.”
Until the oil market corrects itself, Alberta’s farmers will need to tighten their belts, regardless of whether they rent land to oil companies, said Bennett.
“As landowners, you can get your revenues back, but I think you need to be concerned about what’s happening in the industry and how this may impact your property taxes and the abilities of your counties and municipalities to function as they have in the past.”