Canada: From Guidance To Law - Amendments To NI 51-101 To Codify Prior Guidance And Supplement Existing Requirements

You may recall our post of March 2009 commenting on Canadian Securities Administrators (CSA) Staff Notice 51-327 – Oil and Gas Disclosure: Resources other than Reserves Data (the Staff Notice). With the Staff Notice, the CSA were attempting to plug what had previously been a rather significant hole in the disclosure requirements mandated by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) by providing guidance on the disclosure of, among other things, standalone possible reserves, high, best and low case category estimates, the addition of resources across resource categories and other related topics.

Unfortunately, the CSA's attempt to cut the flow of inadequate and potentially misleading resource reporting with the Staff Notice was unsuccessful. Misleading disclosure continues to pollute the capital markets and impair the ability of investors to compare issuers. As a result, the CSA took the next logical step by proposing amendments to NI 51-101 itself (the Amendments) on December 18, 2009 to codify the Staff Notice and make compliance mandatory, among other things.

The comment period for the proposed Amendments to NI 51-101 expired on March 19, 2010 with a limited number of comments received. As a result, the CSA published on October 15, 2010 a further notice advising that the Amendments (with immaterial adjustments) would become effective December 31, 2010.

The principle revisions to NI 51-101 contained in the Amendments are as follows:

1. Revisions Consistent with the Staff Notice

(a) Disclosure of High, Best and Low case category estimates

In keeping with the premise behind the original guidance in the Staff Notice, the Amendments will prohibit the reporting of a High estimate1 of recoverability at the exclusion of both low and best-case estimates on the basis that investors may not appreciate that the High estimate is not in fact the best measure of the volume of resources that will actually be recovered from the property and may overstate those resources beyond the expected range of outcomes. Further, and in the context of reserves disclosure, the Amendments will require that where disclosure is made of proved plus probable plus possible reserves, corresponding estimates of proved and proved plus probable reserves or proved and probable reserves will be required, minimizing the potential for investors to be misled by the presence of a large volume of possible reserves in the aggregated estimate.

(b) Adding Across Resource Categories

In an attempt to prevent the misleading disclosure that can result from the aggregation of different resource categories, each of which has a different chance of commerciality, the Amendments impose an outright prohibition on the summation of any estimated quantity or value of two or more of:

  • Reserves (whether proved, probable or possible);
  • Contingent resources;
  • Prospective resources;
  • Discovered Petroleum Initially-in-Place (or the unrecoverable portion thereof); and
  • Undiscovered Petroleum Initially-in-Place (or the unrecoverable portion thereof).

One limited exception to the foregoing prohibition permits the disclosure of Total Petroleum Initially-in-Place, Discovered Petroleum Initially-in-Place or Undiscovered Petroleum Initially-in-Place if the estimates of, as applicable: (a) reserves; (b) contingent resources; (c) prospective resources; (d) the commercial, sub-commercial and unrecoverable portions of Discovered Petroleum Initially-in-Place; and (e) the commercial, sub-commercial and unrecoverable portions of Undiscovered Petroleum Initially-in-Place are also disclosed. Further, the issuer must include certain cautionary language related to such disclosure.

2. Additional Amendments to NI 51-101

In addition to the foregoing amendments that are intended to compel disclosure in a manner consistent with what had previously been suggested by the guidance of the Staff Notice, the Amendments are also intended to introduce more meaningful and comprehensive disclosure, decrease the cost of compliance and address certain inconsistencies in NI 51-101. Those amendments can be summarized as follows:

(a) Supplemental Disclosure using Constant Prices and Costs

As seasoned issuers will recall, prior to the last set of amendments to NI 51-101 in December 2007, reporting issuers were mandated to annually provide reserves data based on both constant and forecast prices and costs. With the amendments in December 2007, however, reporting issuers were thereafter mandated only to provide reserves data based on forecast prices and costs, with constant case information becoming voluntary supplemental disclosure. The Amendments effectively maintain this optionality, though, in recognition of the fact that an increasing number of issuers are utilizing the Form 51-101F1 as a template for resource disclosures, now recognize that similar optionality is permissible for resource reporting.

In addition, and for greater certainty, the Amendments also introduce a defined concept of what constitute "constant prices". With amendments to the US Oil and Gas disclosure requirements that took effect January 1, 2010, the United States has moved to using a 12-month average price, excluding escalations based upon future conditions, for oil and gas reserves reporting. Recognizing that the most likely supplementary requirements that Canadian reporting issuers may be attempting to address for the benefit of their shareholders are those of the Securities and Exchange Commission, the Amendments define constant prices and costs for the purpose of such supplementary disclosure in a manner consistent with the relevant US oil and gas disclosure requirements.

(b) Supplemental Reporting of Reserves and Other Oil and Gas Information

Although reporting issuers are mandated to provide a summary of their reserves and other oil and gas information in the specified form annually, issuers have since the adoption of 51-101 and for a variety of reasons, routinely filed incremental oil and gas disclosure and at different periods. In the case of significant acquisitions or dispositions, mergers and capital raising activities, issuers have often released supplementary reserves and other oil and gas disclosure consistent with the obligations imposed by NI 51-101 on an annual basis.

The Amendments simply recognize this practice as acceptable, while noting that such incremental disclosure does not satisfy the annual filing obligation.

(c) Discussion of Significant Factors and Uncertainties Relevant to Properties with No Attributed Reserves

While, since its inception, NI 51-101 has mandated reporting issuers to identify and discuss those factors and uncertainties that might affect components of the reserves data being disclosed, it has been silent on the need to disclose similar factors and uncertainties as they relate to properties that have no attributed reserves. While reserves are arguably more relevant to the current and near term performance of an issuer and its production profile, and the economic considerations germane to the development of those reserves bear particular mention, the economic factors and uncertainties impacting properties with no attributed reserves may be just as significant in the longer term given the increasing importance of resources to an issuer's value.

As a result, the Amendments attempt to address this imbalance by mandating a discussion of economic factors and uncertainties in both instances.

(d) Filing of Form 51-101F4 in lieu of News Release

NI 51-101 has historically required that issuers file a news release upon filing the annual reserves disclosure. This obligation has been replaced in the Amendments with the requirement to simply file on SEDAR a notification that such filing has occurred to the extent that the 51-101F1 is contained in and filed with the issuer's annual information form, thereby saving issuers the associated costs of filing a press release while nonetheless identifying to the public that the filing has occurred and the obligation discharged.

Footnote

1. High estimate is, in relation to reserves, the aggregation of proved, probable and possible reserves. High estimate is, in relation to resources, an optimistic estimate of the quantity that will actually be recovered, it being unlikely that actual remaining quantities recovered will exceed that estimate. On a probabilistic basis, there is at least a 10% probability that the quantities actually recovered will equal or exceed the High estimate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions