OTTAWA: Canada’s largest heavy oil and natural gas producer is seeking a 30 per cent property tax break from municipal governments across Alberta, arguing the levies have “risen to an unsustainable level” at a time of low commodity prices.
Calgary-based Canadian Natural Resources Ltd. argues in letters to municipal governments that its property taxes ballooned five times more than its revenues per barrel of oil equivalent from 2004 to 2014.
The company says the downturn will likely diminish demand for municipalities’ services and infrastructure, while cutting their materials and contractor costs. “Despite our success in reducing overall costs, there remain too many properties where property taxes are a concern,” Scott Stauth, a senior vice-president, said in a letter to the Municipal District of Willow Creek.
“Increasing property taxes are likely to result in early abandonment of wells and facilities, which will reduce the assessment base, local employment and royalties.” Willow Creek’s council rejected Canadian Natural’s request, arguing other taxpayers have suffered through dramatic declines in their industries and continued to pay their taxes in full.
“We’ve had lots of farmers and ranchers who have gone through BSE (mad cow disease), drought, hail, and not even ask for that,” Reeve Earl Hemmaway said in an interview. Still, Canadian Natural is not alone in its request for property tax relief. Perpetual Energy Inc., a Calgary-based junior oil and gas company controlled by Clayton Riddell, asked that Athabasca County reduce its tax bill to $1, due to the diminished value of its assets. The county rejected Perpetual’s request and said it should direct its concerns over the assessed value of its assets to the provincial government.
Similarly, Athabasca County turned down Canadian Natural’s bid for a 30 per cent tax cut. Canadian Natural said it operates in more than 90 Alberta municipalities and began requesting the tax breaks in areas where the company is paying the most, and where taxes account for a “significant” share of its expenses.
The producer said it has enjoyed some success, citing the Municipal District of Greenview, which cut its industrial mill rate by more than seven per cent in part to “assist industry during these tough economic times.” The district said the cut was made possible by an unexpected increase in assessed property values. Canadian Natural warned in its letter it has shut in an estimated 1,700 wells and 50 natural gas compressors during the oil rout, with plans to shut in another 600 wells and 20 natural gas compressors by the end of the year.
“In evaluating properties to determine whether to shut in further production, the primary consideration will be high costs, including the property tax burden,” Stauth wrote. Canadian Natural hasn’t laid off any workers to cope with the oil price rout, though it has reduced salaries for senior management and staff. The company said it cut operating expenses by more than $1 billion, and is looking for further cuts this year.
Steve Upham, reeve of the County of St. Paul northeast of Edmonton, said his council rejected Canadian Natural’s request about six months ago on the grounds the company had not cut its dividend to shareholders.
Upham said the firm has made the same request a second time, though he doesn’t believe the result will be different. “Until we see a significant change in (the dividend to shareholders), we have no reason to believe that things are that bad,” he said.
Upham said his county’s property taxes did not increase exorbitantly as Canadian Natural suggests. He said the company’s taxes have likely risen because it built new facilities. The reeve worries that tax breaks will not guarantee the company will continue operating its wells in the county and it may later decide to shut in those wells based on other factors.
“How do I address the people that have been laid off?” Upham said. “Do I give them a 30 per cent reduction in their taxes because they don’t have a job anymore? I can’t do that.”
