The Canadian Securities Administrators (CSA) have recently amended National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (NI 51-101). The amendments clarify various provisions of NI 51-101, codify existing CSA staff guidance and practice and add certain requirements designed to enhance the reliability of disclosures concerning reserves and resources other than reserves.
All reporting issuers will be required to comply with the amendments, as applicable, in public disclosures made on or after December 30, 2010. In light of the CSA (in particular the Alberta Securities Commission) continuing its ongoing review of oil and gas continuous disclosure, the amendments should be regarded as potential pitfalls for 2011 annual disclosure.
Consistent with existing rules which require that resources be disclosed in the most specific categories set out in the Canadian Oil and Gas Evaluation (COGE) Handbook, in the interest of promoting consistent and meaningful disclosure, the amendments expressly prohibit issuers from disclosing an estimated quantity or value of resources that represents a summation of two or more of the following resource categories:
A limited exception permits the disclosure of total petroleum initially-in-place (PIIP), discovered petroleum initially-in-place, or undiscovered petroleum initially-in-place, provided that proximate to this disclosure the issuer includes estimates of each of the underlying resource categories that comprise such combined estimates. For example, an issuer may disclose an estimate of discovered petroleum initially-in-place if the issuer provides proximate disclosure of the commercial and sub-commercial portions of such estimate, as well as the reserves, contingent resources and unrecoverable portion of discovered petroleum initially-in-place that comprise the estimate.
The amendments permit the disclosure of total petroleum initially-in-place, discovered petroleum initially-in-place, or undiscovered petroleum initially-in-place as the most specific category that an issuer can assign to its resources only if the issuer explains why a more specific category cannot be assigned to its resources and includes a prescribed cautionary statement.
Where reference to a more specific product type than “petroleum” is warranted in the context of PIIP, the amendments now clarify that issuers may use a more specific term (e.g., bitumen initially-in-place).
In an effort to prevent disclosure that paints a potentially misleading picture of an issuer's reserve or resource base, the amendments prohibit the use of high-cases alone in the context of estimates of reserves and estimates of resources other than reserves.
In the context of reserves, where an issuer discloses a combined total of proved plus probable plus possible reserves, the issuer must also disclose corresponding estimates of proved and proved plus probable reserves or proved and probable reserves.
In the context of resources other than reserves (e.g., contingent resources), an issuer may not disclose a high-case estimate without disclosing the corresponding best-case and low-case estimates. An issuer is not, however, required to disclose a high-case estimate and can choose to disclose only a best-case and/or low-case estimate.
Recognizing that issuers have been using Form 51-101F1 as a guide for voluntary supplemental disclosure concerning resources other than reserves, the amendments have clarified that the use of constant prices and costs as a basis for supplementary disclosure based upon the disclosure template is a permissible practice not only for reserves, but also for resources other than reserves. The amendments also have defined a constant price as the price at which the issuer is legally bound to supply the product. If there is no such legal commitment in place, the constant price is defined as the unweighted average of the first-day-of-the-month price of the product for each of the 12 months preceding the effective date of the disclosure, which is consistent with the calculation of constant prices under current U.S. SEC standards.
NI 51-101 already requires issuers to identify and provide disclosure concerning the size, location and interest of the issuer in and properties with no attributed reserves. However, the amendments will also require the issuer to identify and discuss significant economic factors or significant uncertainties that affect the anticipated development or production activities on such properties.
The amendments have replaced the requirement to announce by news release the filing of an issuer's annual oil and gas reports when such information is contained in one of the issuer's other continuous disclosure reports (e.g., in its annual information form) with the requirement to file a notice of filing on Form 51-101F4 on SEDAR.
The amendments also have revised the execution requirements for Form 51-101F3 – Report of Management and Directors on Oil and Gas Disclosure to permit the form to be signed by the CEO and any other officer (currently the form must be signed by the CEO and another senior officer).