Recent amendments to National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51- 101) clarify or streamline various provisions of NI 51-101, remove others that proved to be unnecessary or overly burdensome and introduce new requirements where industry consultation or CSA experience indicated that a need for new requirements existed. The amendments took effect on December 28, 2007. NI 51-101 had not been substantively amended since it was implemented in September 2003.
The amendments introduce new guidelines for voluntary disclosure of resources that cannot be classified as reserves. This development will be of significant interest to a number of oil sands issuers. While disclosure of resource information will, for the most part, remain voluntary under NI 51-101, if an issuer decides to disclose certain information, such as resource volumes or values, new requirements relating to categorization and qualified person review will be applicable.
One of the key NI 51-101 requirements that applies to the disclosure of resources is the use of the terminology and categories set out in the Canadian Oil and Gas Evaluation (COGE) Handbook. Disclosure of both reserves and resources must relate to the most specific COGE Handbook category in which the reserves or resources can be classified. A requirement to back up an estimate with a report or audit of a qualified reserves evaluator or auditor will apply to estimates of the quantity or value of resources. However, the usual NI 51- 101 requirement that the qualified reserves evaluator or auditor be independent of the issuer does not apply in the context of resource estimates. The definitions of “qualified reserves auditor” and “qualified reserves evaluator” are largely unchanged (except to confirm their applicability in respect of resources). For example, “qualified reserves evaluator” means an individual who:
The definition of “qualified reserves auditor” is similar. Recognized professional organizations include the Association of Professional Engineers, Geologists and Geophysicists of Alberta.
NI 51-101 also requires issuers that disclose a resource quantity or related value to disclose significant positive and negative factors relevant to the estimate. The Companion Policy to NI 51-101 provides examples of significant positive and negative factors, including a lack of transportation infrastructure and legal, capital, political, technological, business and other factors that may be relevant to an estimate.
NI 51-101 now establishes standards for the disclosure of reserves estimates (and other information) based on comparative “analogous information”, which is information about an area that an issuer does not have an interest in, but references for the purpose of drawing a comparison or conclusion to an area in which the issuer has an interest or intends to acquire an interest.
The disclosure required by NI 51-101 varies depending on the use the issuer makes of the analogous information. If the issuer's disclosure consists of an estimate of the issuer's own reserves or resources that is based on an extrapolation from analogous information, the estimate must be prepared by a qualified reserves evaluator or audited by a qualified reserves auditor and must otherwise comply with the requirements of NI 51-101, such as the use of COGE Handbook terminology and categories.
As part of the NI 51-101 amendments, the CSA have published the glossary that was previously appended to the Companion Policy as a separate notice, Staff Notice 51-324 Glossary to NI 51-101. New terms, particularly those relating to resource categories, have been added to the Glossary.
Issuers are no longer required to disclose reserves estimates using constant prices and costs. Although constant price disclosure more readily enables comparisons to companies that report in accordance with United States requirements, the CSA received industry feedback to the effect that use of constant prices and costs can be misleading if the price of a particular product tends to fluctuate widely during the course of the year. Issuers that wish to be compared to U.S. companies may voluntarily disclose constant prices and costs.
The requirement to provide a reconciliation of changes in estimates of future net revenue has been repealed. The CSA received feedback from industry that future net revenue reconciliations are complex, highly theoretical and not widely used.