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The Alberta government has compensated landowners on behalf of delinquent oil and gas companies at a level unprecedented in recent years, The Narwhal has learned.
Last year alone, the government paid more than $20 million on behalf of oil and gas companies — a 142 per cent increase over the year before and equivalent to the total tab from 2010 to 2018, according to data from the province’s Surface Rights Board, an independent tribunal that handles landowner claims for land rent.
Data shows there has been a 3,000 per cent increase in the amount of money the government has paid out on behalf of oil and gas companies since 2010.
At the same time, the portion of that money recovered from companies has plummeted, according to data obtained through a freedom of information request.
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When an oil or gas company drills a well on private land, it is responsible for annual payments to the landowner known as land rent.
When the company cannot, or will not, pay land rent, landowners can apply to the Alberta government’s Surface Rights Board to have the government pay rent on the company’s behalf. The Minister of Environment and Parks is responsible for issuing payments to landowners from the government’s general revenue stream.
The government is supposed to be able to recover that money from oil and gas companies through its Crown Debt Collections arm.
Data obtained by The Narwhal through the freedom of information request shows $21,762.62 was recovered in 2020 — just 0.1 per cent of what the government paid out on behalf of delinquent companies. The rest is paid by taxpayers.
Mike Hartfield, a spokesperson for the Surface Rights Board, told The Narwhal by email that the board anticipates 2021 will be similar in terms of the volume of applications received as well as the amounts the government pays on companies’ behalf.
Daryl Bennett, a farmer in southern Alberta and a director with the landowner group Action Surface Rights Association, doesn’t see an end in sight to the government footing the bill for delinquent oil and gas companies.
“It’s just going to continue building as time goes on,” he said.
More than 336,000 oil and gas wells dot the province and less than half of those are active.
In recent years, companies have struggled to pay land rent, as well as property taxes — and in too many cases, Bennett said, they simply choose not to pay.
“They know they don’t have to pay the landowner,” Bennet said. “They know there’s no accountability. They know if they don’t pay the landowners, the government will.”
Under the Surface Rights Act, the government has long promised to compensate landowners in instances where companies have been delinquent in their payments.
“There’s no political will to hold industry accountable.”
It’s the grand compromise of resource development in the province. The government can allow oil and gas companies to drill on private land without the landowner’s permission. In return, the government has assured landowners they will always be compensated for the industrial activity on their land. The government is then supposed to seek to recoup the money from the company.
But, as the data obtained by The Narwhal shows, that rarely happens.
Hartfield, the spokesperson for the Surface Rights Board, told The Narwhal that the board can deny access to well sites to companies if they fail to pay, which, he said, “may prompt the operator to pay any outstanding amounts if they wish to continue operating on the particular lease site in question.” It doesn’t, however, preclude a company from simply walking away from its unprofitable wells — and its rental obligation.
According to Bennett, “there’s no political will to hold industry accountable.”
In recent years, landowners have become frustrated with long delays when applying to the Surface Rights Board for compensation. According to Hartfield, “high application volumes in recent years resulted in a large backlog of several thousand applications.” That, he said, meant longer processing times for landowners awaiting decisions on compensation.
“Strengthening the rights of landowners and operators to fair and timely decisions on these matters is very important to us and we’re doing everything we can to build capacity and speed up timelines,” he added, noting the Surface Rights Board received additional funding in the provincial budget to expand its staff, and hopes to clear backlogs this year with the help of a new electronic filing system.
Not all landowners seek to reclaim their unpaid rent through the Alberta government. Some have become discouraged by backlogs and long delays, while others don’t have the time to file the necessary paperwork.
Mathew Farrell is a lawyer with the Calgary-based Guardian Law Group, representing landowners seeking to be compensated by companies for land rent in class-action lawsuits. “They’re essentially like the landlord, and the oil company isn’t paying its rent,” he told The Narwhal. “We think that that’s wrong and that’s why we’re involved.”
In one case, Farrell is representing landowners who allege in a statement of claim that they received a notice the company that owed them money had decided to stop paying.
“Due to the severe impact of the COVID crisis that the oil and gas industry is currently facing, Alphabow Energy Ltd. is hereby advising that Alphabow is deferring any and all surface rental payments for the time being,” the company’s notice read, adding the company would review the situation in six months and “determine at that time what our plan is to catch up on outstanding rental obligations.”
In another instance, Farrell is representing a frustrated landowner in Galahad, Alta., who has filed a lawsuit to seek money owed by Rally Canada Resources, Ltd. In that case, the landowner says he has not been paid rent since 2018.
Both are class-action lawsuits and are awaiting certification. Farrell told The Narwhal he hopes the class-action lawsuit will help landowners recoup their rent directly from the company without having to go through the Surface and Rights Board.
A class-action lawsuit, he said, “allows us to do this once and do it for everybody and hopefully help a lot more people: people who … either can’t afford to or aren’t in a position otherwise or don’t have the time to to take these [companies] to task on their own.”
Land rents are not the only bills oil and gas companies have been shirking.
Last month, the Rural Municipalities of Alberta announced its members had reported oil and gas companies owed $245 million in unpaid taxes.
“In some municipalities, unpaid tax amounts are so high that service levels are being reduced, municipal staff are being laid off and serious discussions are occurring about whether the municipalities can continue to function,” Paul McLauchlin, the association’s president, said in a statement.
The Rural Municipalities of Alberta also noted the provincial government shoulders some of the blame. The government, the association said in a statement, has allowed what it called “legislative loopholes” to enable unpaid bills to mount. “Unfortunately, the province has yet to take any action, despite repeatedly indicating that they take the issue seriously over the past several years,” the statement read. (The office of the Minister of Environment and Parks, which issues land rental payments from the Surface Rights Board, did not respond to The Narwhal’s request for comment.)
McLauchlin said in the statement that when companies shirk their bills, it’s unfair to other Albertans and businesses.
“Small business owners across the province are expected to pay property taxes regardless of the profitability of their business,” he said.
Bennett told The Narwhal the dominant factor influencing companies’ ability, or willingness, to pay their bills is oil prices.
He lays the blame squarely on the boom and bust nature of the oil and gas industry.
“It’s the price of oil,” he said. “Back in 2010, all these guys were making tons of money and could afford to pay the rental.” By 2011, prices for the oil benchmark West Texas Intermediate were already well on their way to US$100 per barrel, bringing in profits for many smaller companies.
Oil prices crashed near the end of 2014, and the amount paid out by the Surface Rights Board soon more than doubled. The amount is now more than 10 times what it was after the last crash.
“I would think the payments for this year are going to be quite a bit higher than last year,” he said, noting he thinks the latest figures are just the tip of the iceberg.
Even though companies may not be paying their bills — taxes or land rent — many still own producing oil and gas wells.
According to the Rural Municipalities of Alberta, 57 per cent of unpaid taxes stem from companies that continue to operate oil and gas infrastructure.
The goal for many companies, Bennett said, is to “keep these things running as long as possible to generate some revenue.” At the same time, he added, some companies have increasingly worked to reduce their costs — including by ceasing to pay their bills.
And that, Bennett told The Narwhal, leaves landowners more frustrated than ever.
Landowners who see active oil or gas wells on their property, he said, often call him to ask, “How the hell are they doing this when they owe me all this money?”
Update Mar 11, 2021 at 10:00 a.m. MST: This article was updated to include a link to the specific data obtained by The Narwhal from the Surface Rights Board and through a freedom of information request.
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