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By Mark Cathro, Director | October 21, 2020

Winners, Losers & Disappointments

On October 19, the Honourable Tracy Allard, Minister – AB Municipal Affairs announced that none of the four assessment scenarios for Wells, Pipelines and Machinery & Equipment (M&E) proposed by the Assessment Services branch will be implemented.  Instead, Minister Allard announced the following measures:

  • 3 year municipal and education property tax holiday on new wells and pipelines – Starting in the 2022 tax year and continuing until 2024
  • Permanent elimination of the Well Drilling Equipment Tax (WDET)
  • Additional depreciation for low productivity wells – starting in 2021 tax year
  • Continuation of the shallow gas well and associated pipelines assessment reduction that was introduced 2019 – Will continue to be applied for the 2021 to 2024 tax year

There has been extensive media coverage and information sharing, of the three-year assessment rate review, that varies in accuracy.  Altus has summarized some of the key takeaways resulting from the October 19, 2020 announcement:

Disappointments

  • The additional depreciation applies only to wells, not associated pipelines and M&E. Therefore, this only provides assessment reduction to approximately 40% of the assessment base for low productive properties in the province
  • The production levels at which properties are eligible for additional depreciation has not been adjusted. The low qualifying volume levels do not impact most oil wells; some of our oldest assets in the province
  • The measures provide neither fairness nor equity among ratepayers
    • The assessment models and rates remain outdated as they have not been updated since 2005. Technological and industry changes have not been reflected and there is clear inequity among ratepayers.  Tim McMillan, President and CEO of the Canadian Association of Petroleum Producers (CAPP) commented “This is an interim measure, as we’re working to correct a broader system issue that has built up over a very long period of time.”
    • Even with additional depreciation being applied to low productivity wells, some property types continue to be assessed far more than others relative to the same level of production
  • The extensive efforts invested by industry and government on the current rate review process over the past three years have been abandoned. Significant time and money squandered on three years of review and study

Winners

  • Companies with the ability to fund new growth through drilling
    • These ratepayers will benefit from the 2022-2024 tax holiday for new wells and pipelines and the elimination of WDET
  • Starting in 2021, ratepayers with low productivity wells will receive additional depreciation
  • Shallow gas producers will continue to receive the 35% rate adjustment from 2021-2024

Losers

  • Producers with mature assets
    • Except for shallow gas producers and wells with very low production levels, there is no reduction in assessment for mature assets. A well drilled in 1989 will continue to be assessed at the same rate as one drilled in 2019
  • Midstream companies and owners of large industrial properties (M&E assessments)
    • There is no adjustment to the assessment of transmission pipelines or machinery and equipment. Pipelines of the same diameter and material continue to be assessed at the same value regardless of age or capacity restrictions

Future Developments

  • Minister Allard has committed to developing a plan for a longer-term review of the regulated assessment system. These changes will most likely not take affect until the 2025 tax year
  • Altus will provide further comment on other proposed changes in November as more information is made available

Further reading

 

 

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