Canadian Securities Regulators Publish Amendments to Required Oil and Gas Disclosure

Written By Will Osler and Tessa E.J. Guenther

The Canadian Securities Administrators, or CSA, have published amendments (the Amendments) to National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities and Companion Policy 51-101 – Standards of Disclosure for Oil and Gas Activities (together, the Instrument). The Amendments are intended to enhance disclosure of resources other than reserves, to provide increased flexibility for oil and gas issuers that operate and report in various jurisdictions and recover product types not previously recognized by the Instrument, and to align the Instrument with the recently amended Canadian Oil and Gas Evaluation Handbook (the COGE Handbook).

Background

The Instrument sets out general and specific annual disclosure standards for reporting issuers with oil and gas activities. Under the Instrument, disclosure of resources other than reserves is voluntary; however, CSA has noted that disclosure of contingent and prospective resources has increased significantly in recent years.

The COGE Handbook was amended by the Calgary Chapter of the Society of Petroleum Evaluation Engineers in July 2014 to provide guidelines for estimation and classification of resources other than reserves.

CSA previously published the Amendments for comment in October 2013. Comments received were generally supportive of the Amendments.

Amendments

Alternative Resource Evaluation: Issuers have previously been required to obtain exemptive relief if they wish to provide disclosure on reserves prepared in accordance with U.S. requirements, in addition to their reserves prepared under the Instrument. Allowance is now made for disclosure derived pursuant to a regime which is comparable to that reflected in the COGE Handbook (such as the U.S. regime), has a scientific basis, is based on reasonable assumptions and is prepared or audited by a qualified reserves evaluator or auditor.

Product Type and Production Group: The product type definitions in the COGE Handbook are imported into the Instrument and the concept of production groups is removed in order to place emphasis on both the oil and gas sources and recovery processes, and away from grouping resources as conventional or unconventional.

Contingent and Prospective Resources: Clarity is provided for the disclosure of contingent resources data and prospective resources data in issuers' annual filings. Disclosure of risked net present value of future net revenue is now required to be set out in an appendix to an issuer's statement, and resources other than reserves estimates are now required to be prepared or audited by an independent qualified reserves evaluator or auditor.

Oil and Gas Metrics: Principle-based requirements are provided to describe the standard, methodology and meaning of a publicly disclosed oil and gas metric or, if there is no standard, an issuer is required to provide a description of parameters used in calculating oil and gas metrics, along with cautionary statements.

Marketability of Production and Reserves: The Instrument previously required disclosure regarding production and resources based on the price at the point at which the product type would or could be sold; however it has not always been appropriate, or even possible, to determine a price at the point of sale. The Instrument now provides that volumes and values may be reported at the point of sale to a third party, or may instead be measured at a point prior to the first point of sale. For example, measurement for gas may be reported either before or after the removal of natural gas liquids, and for bitumen or heavy oil, before the addition of diluents.

Abandonment and Reclamation Costs: Clarification is provided on what constitutes abandonment and reclamation costs, and disclosure is now required of both such costs in the future net revenue disclosure and in the significant factors or uncertainties disclosure in issuers' statements prepared in accordance with Form 51-101F1 of the Instrument.

Reserves Presentation: Form 51-101F1 requires the presentation of reserves data, and the Amendments direct issuers to the COGE Handbook for assistance with the preparation of such disclosure, specifically with determining ownership and presenting resources over which issuers do not control.

Other: The Amendments also provide guidance on: (i) the requirement to obtain consent of an independent qualified reserves evaluator as it relates to a report of independent qualified reserves evaluator or auditor required to be filed annually; (ii) the date on which an independent qualified reserves evaluator or auditor is responsible for changes in an issuer's reserves data; and (iii) disclosure required when an issuer has no reserves.

Next Steps

Subject to ministerial approval, the Amendments will come into force on July 1, 2015 in each jurisdiction of Canada; however reporting issuers are required to immediately following the requirements of the amended COGE Handbook. Bennett Jones is happy to assist clients with updating their oil and gas disclosure.