File Photo courtesy Deltastream Energy

Original Published May 16, 2022

Three-year ‘tax holiday’ for new wells, pipelines

Joe McWilliams
Lakeside Leader

The boom in the oilpatch is a good news-bad news scenario, as far as the M.D. of Lesser Slave River is concerned.

On one hand, the M.D. welcomes economic development. On the other, the $37 million-worth of new linear (wells and pipelines) assessment (I.e. taxable property) is off limits until 2025. This is thanks to a “tax holiday” granted to the industry by the provincial government.

This was one of the more interesting tidbits shared at council’s May 11 meeting, in the annual report by Accurate Assessment. That’s the company that does the property value assessment for the M.D. and many other rural municipalities.

“You’re definitely seeing an increase in drilling out there,” Sean Barrett of Accurate told council. “I haven’t seen this level of drilling in the 15 years I’ve been in assessment.”

But for the years 2022, 2023 and 2024, it’s strictly ‘hands-off’ for municipalities when it comes to taxing wells and pipelines. This is due to a deal worked out between the government and industry back when the price of a barrel of oil was very low. It was intended to provide incentive to drill when very little of it was going on. It is entirely unnecessary now, council heard, but it’s in place and isn’t going anywhere until 2025. That’s when normal taxation of linear infrastructure can resume.

By that time, Barrett said, if the 2021 rate of activity continues, that $37 million in new assessment could be as big as $222 million. So if it’s still in production in 2025, the M.D. could be looking at a windfall in new taxes.

Councillor Brad Pearson was skeptical. He predicted the producers would work the wells for all they are worth during the tax holiday period, and abandon them when it ends.

“They’re going to produce like crazy,” he said. “They’ll play them out and move on.”

Not likely, said Ray Fortin of Accurate. The wells tapping the Clearwater Formation (as the oil source in question is called) are characterized as “long-decline,” meaning they could be in production for many years. Much of course depends on the price of a barrel of oil. If it remains high, the M.D. stands to cash in, tax-wise.

In the meantime, the tax-holiday does not apply to above-ground oilpatch infrastructure, and there has been some of that. It’s in the assessment category called ‘designated industrial property (DIP), which in 2021 was up $54 million (10 per cent) over 2020.

Further on the Clearwater Formation, council heard that it “knows no boundaries” as far as municipalities are concerned, but the majority of the drilling activity seems to be in the M.D. That there’s a lot of oil in it has been known for decades. But thanks to new technology, plus rising oil prices, companies have a new willingness to invest in it. A pivotal factor, Barrett explained to council was the construction of the Rangeland pipeline. It was built two or three years ago, connecting areas northeast of Slave Lake with a major pipeline running towards Edmonton.

This item reprinted with permission from Lakeside Leader, Slave Lake, Alberta