Municipalities and oil companies should work together

Tim McMillan
President and CEO
Canadian Association of Petroleum Producers
March 16, 2016
Times are tough for many Albertans as the oil and natural gas price slump continues into its second year.

The most revealing statistic is the province’s unemployment rate, which has climbed to 7.9 per cent in February – the highest in more than 20 years. More than 100,000 people across Canada – most of them living in Alberta – have lost their jobs as a result of the downturn in oil and natural gas. That’s more people out of a job than the entire population of Red Deer. Every community in Alberta is feeling the impact of the most severe economic downturn in recent memory.

We as Albertans, including our industry and municipalities, have to ask ourselves what we can do together to ensure Alberta’s No. 1 industry is able to maintain the jobs that support families and keep communities strong during these tough times.

In its recent report, the royalty panel found that cost inflation, including increases in municipal taxes, led to a situation where “close to 100 per cent of a barrel’s value was consumed by costs in 2012 and 2013, the first time since 1960.” The panel also reported that “mill rates for taxes can vary widely across the province, thereby placing current and future development at risk.”

Today, municipal taxes are the No. 2 government cost on Alberta’s oil and gas industry, second only to royalties. To put this into perspective: in 2014, industry paid an estimated $1.1 billion in municipal property taxes. Property taxes in rural and specialized municipalities increased $60 million a year between 2010 and 2014, the equivalent of a seven per cent annual increase. This is impacting companies’ ability to keep people working.

We recognize the importance of contributing to communities. We buy from local businesses, create jobs and support families. We do so through property taxes, well drilling equipment taxes and community investment. 

Now is the time to look at new ways to maintain and attract investment for oil and natural gas activity, so we all can share in the prosperity.

Some of that work is already underway.

Ten municipalities have started to collaborate on the Alberta Municipal Benchmarking Initiative. Under this framework, municipalities collectively identify opportunities to improve how services are delivered. Costs are saved as a result, transparency is improved and municipal services are provided at the best value to taxpayers. This is the kind of municipal leadership that should be applauded.

Let’s build on this type of innovative leadership.

One way to reduce costs is to take advantage of lower material costs and contractor rates, which in some cases have decreased by nearly one third over the past year. Industry is already experiencing these costs reductions, and municipalities should be seeing these as well because we rely on the same workforce and supply chains. This means there may be opportunities to reduce municipal budget requirements without impacting the quality of services.

There’s also an opportunity for industry and municipalities to partner on infrastructure projects that are of mutual benefit through a joint funding program. Such a program would allow private roads to be converted to public use after drilling and completion activities are finished. And waste-water facilities, which are often too expensive for municipalities with a small population, could be built in partnership with industry. This could also reduce freshwater use in industry operations.

Creative thinking and collaboration are needed to get Alberta through this downturn, and to strengthen the oil and natural gas industry’s ability to attract the investment that supports jobs. Doing nothing is not an option.

A strong oil and gas sector is good for all Albertans. Together, we can work on an outcome that benefits communities, strengthens our province’s economy during these tough times and keeps Alberta communities healthy.

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