Canada: Revised CSA Staff Notice 51-327 Guidance On Oil And Gas Disclosure

Last Updated: May 31 2012
Article by R. Greg Powers, Q.C.

On December 29, 2011, the securities commissions released a revision to Canadian Securities Administrators Staff Notice 51-327. It is significant that the title was changed from "CSA Staff Notice 51-327 - Oil And Gas Disclosure: Resources Other Than Reserves Data" to "Revised CSA Staff Notice 51-327 - Guidance On Oil And Gas Disclosure" (2011 Revision).

The word "Guidance" is intended to signal a heightened level of concern at the commissions regarding the adherence by Oil and Gas Issuers1 and their advisors to the spirit and intent of National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (NI 51-101), the forms under that instrument NI 51-101F1, NI 51-101F2, NI 51-101F3 and NI 51-101F4; and the disclosure obligations of Oil and Gas Issuers under the securities acts and related instruments.

Clearly, the commissions are sending a message to remind everyone involved in the preparation of oil and gas disclosure, that there is more to be considered than just the requirements of NI 51-101.

At the end of 2010 the CSA Staff revised NI 51-101 by moving a number of the items that were then included in Staff Notice 51-327 into the national instrument. The 2011 Revision is intended to complete the process of alerting those involved in oil and gas disclosure to the expectations of the commissions in the preparation of that disclosure.

Often there exists a balancing act within the securities laws and policies between rule-based and principle-based regulation and disclosure. NI 51-101 is one of those places where it is very evident. The 2011 Revision is an example of this. The CSA Staff is looking for not just strict adherence to the instrument and its forms, but also best professional judgement and practices in responding to Oil and Gas Issuers' disclosure requirements.

The 2011 Revision includes:

  • New guidance on the general responsibilities of Oil and Gas Issuers and the experts on whom they rely in formulating disclosure of oil and gas information;
  • New guidance on specific disclosure topics;
  • Expanded guidance on certain disclosure topics; and
  • guidance carried forward from the original version of the Staff Notice with little or no change on certain disclosure topics.

To assist, the 2011 Revision offers:

  • Context and cautions in NI 51-101 and the related forms:
  • Forms of cautionary wording for non-mandatory disclosure for resources other than proved and probable reserves;
  • Specific disclosure topics for discussion as examples of how general principles apply to specific situations, not to be taken as a check list but merely as guidance.

For purposes of clarity and consistency an alignment of definitions of classification and categorization of resources and reserves, between the COGE Handbook and the Handbook and the Society for Petroleum Engineers - Petroleum Resource Management System (SPE-PRMS). The CSA Staff proposes certain definitions from the SPE-PRMS be adopted:

  • "class" should be used in the same manner as used by the SPE-PRMS to describe the chance of commerciality (reserves, contingent resources, etc.);
  • "category" should be used in the same manner as used by the SPE-PRMS to describe the range of uncertainty within a class.  (Thus, for example, within the class of "reserves" are the categories of "proved", "probable" and "possible", and for other classes the estimation categories of "low case", "best case" and "high case");
  • "resources" should be consistent with the CSA Glossary as a general term that may refer to all or a portion of total resources, with "total resources" as equivalent to "total petroleum initially-in-place" as defined in the COGE Handbook;
  • "reserves data" should be used as defined in NI 51-101 as an estimate of proved reserves and probable reserves and related future net revenue; and
  • "resources other than proved or probable reserves" refers to all other classes of resources as classified in the COGE Handbook, including possible reserves.

Responsibility for Disclosure of Oil and Gas Information

The 2011 Revision brings into focus the scope of responsibility for the preparation of oil and gas information:

"All who are involved in Oil and Gas Issuers' disclosure – the issuers themselves, their management and directors, and those individuals or firms who provide professional services to them – should be mindful of both (i) the fundamental objectives of Canadian securities legislation, and (ii) the various sources of requirements, restrictions and standards that may apply to formulating disclosure."

The 2011 Revision comments go beyond just the issuer and its management to include the "experts" and "individuals or firms who provide professional services" who sign the Form 51-101F2 report and remind them that by signing the forms, qualified reserves evaluators and auditors are taking on a professional responsibility that reflects on their individual professionalism and the integrity of their profession.

The specific references to Canadian securities legislation is intended to remind those preparing oil and gas information that their scope of view should not be confined to just NI 51-101. The CSA Staff point out the areas of attention for both the issuers and their experts.

Oil and Gas Issuers – General Standards and Responsibilities

Oil and Gas Issuers must make their disclosure within the larger context of Canadian securities legislation and appropriate use of instructional guides in developing and reporting disclosure. There are four areas of guidance that are offered:

  • Canadian Securities Legislation, Generally – Not every topic of disclosure is discussed specifically in NI 51-101 or elsewhere in  Canadian securities legislation; therefore attention must be given to the broader purposes, principles and prohibitions of Canadian securities legislation, including:
    • Misrepresentations or Misleading Statements;
    • Material Changes;
    • Requirements Applicable to Disclosure of Oil and Gas Activities including the provisions of NI 51-10
  • COGE Handbook and Other Guides;
  • Specific Description Rather than Commonly-used Wording; and
  • Use of NI 51-101 Forms for Other Purposes.

Evaluators and Auditors – General Standards and Responsibilities

An independent qualified reserves evaluator or auditor who signs a report in Form 51-101F2 is representing that the disclosed information is not misleading and that the reserves data are free of material misstatement. The 2011 Revision contains guidance on views of the CSA Staff in such matters as:

  • Professional Responsibility;
  • Misrepresentations or Misleading Statements;
  • Use of COGE Handbook and Other Guides;
  • Expertise Required to Perform Evaluation; and
  • Consent to Disclose Information from Report.

Specific Disclosure Topics

The 2011 Revision then goes on to discuss, by way of example, some specific areas where the CSA Staff have encountered problems, such as:

  • Disclosure of After-Tax Net Present Values of Future Net Revenue (After-Tax NPV);
  • Use of Barrels of Oil Equivalent (BOEs);
  • Disclosure of Well-Flow Test Results;
  • Evaluation, Classification and Disclosure of Unconventional Hydrocarbons, including:
    • Known Accumulation Criterion,
    • Use of Analogous Information,
    • Extrapolation from Existing Data,
    • Project Maturity,
    • Contingencies, including:
      • Economic Contingency
      • Non-Technical Contingency
      • Technical Contingency (Established Technology and Technology Under Development)
    • Disclosure of Contingent Resources, including:
      • Identification (Economic, Non-Technical and Technical)
      • Itemizing Contingencies (Established Technology and Technology Under Development)
    • Classification to Most Specific Class and Category of Reserve;
    • Stand-Alone Possible Reserves;
    • Aggregation of Resource Estimates for Several Properties;
      • Probabilistic Aggregation of Resource Estimates for Several Properties
      • Arithmetic Aggregation of Resource Estimates for Several Properties
    • Use of the Term "Best Estimate"; and
    • Prospective Resources.

The message coming out of the 2011 Revision is that Oil and Gas Issuers and reserves evaluators or auditors will need to familiarize themselves with this Staff Notice and should assume that the CSA Staff will be paying much closer attention to oil and gas disclosure in the future.

While the content of NI 51-101 and its forms is very technical and requires the expertise of qualified evaluators or auditors, it should be remembered that it is part of the securities regulatory regime and that the interpretation and application of securities laws and policies cannot be ignored.

Footnote

1. Reporting issuers that are directly or indirectly engaged in oil and gas activities.

www.fasken.com

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
Stikeman Elliott LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Stikeman Elliott LLP
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