The Alberta Court of King's Bench (the Court) has confirmed that the abandonment and reclamation obligations owed to the Orphan Well Association (OWA) and the Alberta Energy Regulator (AER) rank in priority to claims of municipalities for unpaid property taxes in insolvency proceedings.

On December 13, 2022, the Court released its decision in Orphan Well Association v Trident Exploration Corp, 2022 ABKB 839 (the Decision), which considered the priority of post-receivership municipal taxes, in the context of a receivership of a group of privately-owned oil and gas exploration companies and partnerships (Trident Exploration Corp. and its affiliates, Trident). In the Decision, Justice R.A. Neufeld considered two issues:

  1. whether the AER/OWA was entitled to call on the proceeds of sale of all of Trident's assets, including real property; and
  2. whether such entitlement took precedence over municipal tax obligations that were incurred post-receivership in relation to licensed oil and gas wells, pipelines and production facilities.

Justice Neufeld answered both questions in the affirmative.

Key Takeaways

  • The purpose of municipal taxes is to generate revenue for the municipality, with no corresponding regulatory obligation. Municipal taxes are not akin to abandonment and reclamation obligations (ARO) for oil and gas assets—nor do they share a parallel priority. Section 348(c) of the Municipal Government Act, RSA 2000, c M-26 (the MGA) specifically contemplates that municipal tax claims are subordinate to claims of the Crown.
  • In the circumstances where Trident's only business was exploration and production of oil and gas, the assets subject to the super priority for environmental remediation (including ARO for oil and gas operations) were not limited to licensed oil and gas assets. Real estate assets were also subject to the super priority.
  • In the circumstances where PricewaterhouseCoopers Inc., LIT, (the Receiver) had concluded that it would be uneconomic to operate Trident's assets, and upon its appointment, proceeded to shut-in all of Trident's assets, it was not legally or practically necessary for the Receiver to pay post-insolvency municipal taxes to preserve oil and gas assets for the overall benefit of Trident's creditors.
  • The Court identified a "structural unfairness", from a municipal taxation and finance perspective, as between the provincial government and rural municipalities. It noted that municipalities are required to include shut-in oil and gas wells in setting taxes for rate payers, but they have no opportunity to recoup taxes from the assets in question. The Court called upon the Province of Alberta to address this unfairness, if it indeed exists.


On April 30, 2019, following a failed attempt at restructuring, Trident's directors and management resigned and Trident ceased operations, terminating its employees and contractors. The AER, assisted by former (and unpaid) Trident employees and contractors attended to the immediate task of safely suspending Trident's field operations. At the time, Trident had ARO in the estimated amount of $407 million.

On May 3, 2019, the OWA applied for and was granted a receivership order. The primary objective of the receivership was to reduce the ARO that would otherwise ultimately rest with the OWA, by selling Trident's assets to solvent oil and gas companies that were willing and able to assume ARO for those assets. Upon determining that it was uneconomic to operate Trident's assets after considering the associated costs, the Receiver focused on the safe shut-in of Trident's assets, prior to initiating a sales process.

The sales process resulted in the transfer of an estimated $266 million (66 percent) of Trident's ARO to solvent oil and gas producers. An additional $5 million was received pursuant to the Federal Site Rehabilitation Program, which funded partial abandonment of approximately 300 more wells.


The Receiver applied to the Court seeking advice and directions regarding the distribution of the funds in the estate, including funds generated through the sale of licensed and non-licensed assets owned by Trident. The County of Kneehill, the County of Stettler and Woodlands County (the Municipalities) argued that they should share in the proceeds, on the basis of their assertion of a parallel priority arising out of the unpaid municipal taxes for Trident's assets, which accrued post-insolvency but pre-sale. The Municipalities agreed pre-insolvency taxes amounted to debts provable in bankruptcy—for which no proceeds would be available—and that purchasers would be liable for post-sale taxes, but argued that the post-insolvency, pre-sale taxes became non-provable claims subject to a super priority in their favour, similar to ARO. The Municipalities argued that they, like the AER/OWA, have a public interest mandate and that the municipal taxes, like ARO, should be paid outside and in advance of the insolvency regime.

Justice Neufeld rejected this proposition, stating that it was not clear that the payment of municipal taxes "has any higher public interest component than obligations such as paying a farmer surface lease rentals for an expropriated wellsite or pipeline right-of-way post insolvency, paying trade creditors for pre-insolvency debts, or even paying municipalities for outstanding pre-insolvency municipal taxes". The OWA's entitlement to the proceeds of sale was not a claim on the estate subject to the determination of priorities, but an entitlement addressed outside the insolvency regime because it is a non-monetary obligation which cannot be reduced to a provable claim. ARO costs are not levied to generate revenue for the OWA but are a public duty, whereas municipal taxes very much are for the purpose of generating revenue for the municipality.

Justice Neufeld noted that even if this was a matter of competing priorities, the MGA is very clear; the Municipalities take second to the Crown, which includes the AER. He held that "[t]he essence of the AER super priority is that it is not subject to prioritization because the obligation must be met before a distribution can be made to anyone else."

Where Trident's only business was the exploration and production of oil and gas, Justice Neufeld held that assets subject to the AER super priority are not limited to licensed oil and gas wells, pipelines and production facilities—it made no sense to differentiate real estate assets from other assets used in Trident's business.

On the issue of the payment of post-insolvency municipal taxes, Justice Neufeld found that in the circumstances where the Receiver had not operated any of Trident's assets, payment of municipal taxes was not necessary to preserve Trident's assets. On the contrary, the non-payment of such taxes made Trident's assets more marketable and more likely to generate economic benefits following the resumption of production.

Bennett Jones LLP is counsel to the Receiver in the Trident proceedings.