Orphan Well Association v Trident – The status of municipal property taxes in insolvency proceedings in Alberta

In December 2022, the Court of King’s Bench released its decision in Orphan Well Association v Trident Exploration Corp, 2022 ABKB 839. This is the latest Alberta case to deal with the implications of the Supreme Court of Canada’s Redwater decision for the status of municipal property taxes in the context of insolvency proceedings.

Trident is a group of privately-owned oil and gas exploration and production companies and partnerships. As of May 2019, Trident held interests in approximately 4500 oil and gas wells in various municipalities across Alberta, of which 3700 were licenced to Trident as the operator.

In late April 2019, Trident ceased its operations and walked away from its oil and gas assets. Trident’s licences were returned to the Alberta Energy Regulator. The Orphan Well Association would ultimately be responsible for Trident’s abandonment and reclamation obligations under Alberta’s Orphan Fund Delegated Administration Regulation.  

A Receiver was appointed by the Court at the request of the Orphan Wells Association. The Receiver decided it would not be economic to continue to operate Trident’s assets during the receivership, and instead focuses on selling the assets off. The sales process sought to get the most value for Trident’s assets, not only through cash proceeds from the sales, but also by transferring much of Trident’s reclamation obligations to the parties who purchased Trident’s assets. The Receiver was able to transfer most, but not all, of Trident’s reclamation oblgations to other oil and gas companies.

In Fall 2022, the Receiver held $900,000 in remaining funds generated by the sale of Trident’s assets, and asked the Court for direction on how to distribute these funds.

The Alberta Energy Regulator and the Orphan Well Association wanted all of the remaining funds to be used to satisfy Trident’s remaining reclamation obligations.

Meanwhile, several municipalities sought to use a portion of those funds to satisfy property taxes that had accrued on Trident’s oil and gas assets during the receivership – collectively totaling over $6.5 million. The municipalities argued as follows:

• Post-receivership taxes are commonly paid out by Receivers as a necessary cost of preserving the assets held by the Receiver.    
• There is an important public interest in ensuring that property taxes are paid – non-payment of taxes results in financial consequences for the entire community.
• Taxes continue to be assessed by the province and accumulate on oil and gas properties regardless of whether those assets are being operated during a receivership.

Ultimately, the Court decided that the funds should be used to satisfy Trident’s outstanding reclamation obligations, as sought by the Alberta Energy Regulator and the Orphan Well Association. The Court found the following:

• Unfunded reclamation obligations must be paid out before municipal property taxes
• The Receiver in this case was not required to pay the post-insolvency municipal taxes because under the circumstances, payment of these taxes was not necessary to preserve the value of Trident’s assets.

As a result, the municipalities received none of the funds remaining in Trident’s estate. The Court acknowledged that this admittedly put the municipalities “in a very unfair position vis-à-vis the Province of Alberta”, but that to the extent that the regime was unfair to municipalities (and rural municipalities in particular), this would need to be addressed by the legislature and not by the courts.