Canada: Proposed Amendments To National Instrument 51-101

The Canadian Securities Administrators (the "CSA") have published for comment proposed amendments (the "Proposed Amendments") to National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and the related companion policy to NI 51-101 (the "Companion Policy"). In its request for comments, the CSA noted that the Proposed Amendments will promote better disclosure of resources other than reserves and associated metrics while at the same time providing for increased flexibility for oil and gas reporting issuers that report in a variety of different locations worldwide, recover different product types and operate under different regulatory regimes.

To access a complete copy of the Proposed Amendments, please click here.


Set forth below is a summary of the key changes resulting from the Proposed Amendments.

Alternative Resources Evaluation Standard

Under the current rules, issuers are prohibited from making public disclosure of reserves other than estimates that have been prepared in accordance with the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook"). This is problematic for certain reporting issuers who are also subject to, or wish to comply with, the reserves disclosure requirements of other regulatory regimes, including the Securities and Exchange Commission of the United States (the "SEC"). In the past, certain issuers have obtained exemptive relief allowing them to disclose reserves prepared in accordance with U.S. requirements in addition to their reserves prepared under NI 51-101.

The Proposed Amendments will allow for supplementary disclosure of resources using evaluation standards other than the COGE Handbook (referred to in the Proposed Amendments as an "alternative regime"). The disclosure under the alternative regime must be accompanied by the disclosure required by NI 51-101 and, among other things, be made in respect of a regime which is comparable to the COGE Handbook. In addition, the estimates must be prepared by a qualified reserves evaluator. In the proposed revisions to the Companion Policy, the CSA has indicated that alternative resource evaluation standards that the CSA would consider acceptable include the SEC's oil and gas disclosure framework and the Petroleum Resource Management System prepared by the Society of Petroleum Engineers.

Product Types and Production Group

In recent years, there has been an increase of disclosure of what has traditionally been considered "unconventional" reserves and resources. In its request for comments, the CSA noted that shifting government policies and new recovery methods have led to uncertainty with the current definitions of product types contained in NI 51-101.

To address these issues, the Proposed Amendments have imported the product type definitions from the COGE Handbook including "bitumen", "coal bed methane", "conventional natural gas", "shale gas", "synthetic crude oil" and "synthetic gas" and have refined those definitions for securities disclosure purposes. In addition, the concept of "production group" has been deleted from NI 51-101 and accordingly, the requirement to disclose a reporting issuer's reserves by production group will no longer be required in the annual statement of reserves data prepared in accordance with Form 51-101F1 – Statement of Reserves Data and Other Oil and Gas Information ("Form 51-101F1"). In its request for comments, the CSA stated that the inclusion of the definitions and the removal of the concept of production group will give greater emphasis to the source and process for recovery of the oil and gas and move away from grouping unconventional resources.

Contingent and Prospective Resources

In its request for comments, the CSA noted that reporting issuers are increasingly providing disclosure of contingent and prospective resources and, in particular, providing such disclosure in their annual statement of reserves data prepared in accordance with Form 51-101F1. Under NI 51-101, when contingent or prospective resources are included in the annual statement prepared in accordance with Form 51-101F1, there is currently no requirement to provide discounted future net revenue projections with the estimates of volume or to have those estimates prepared and evaluated or audited by an independent qualified reserves evaluator.

Under the Proposed Amendments, if a reporting issuer chooses to include contingent and/or prospective resources in its annual statement of reserves data prepared in accordance with Form 51-101F1, the reporting issuer will be required to include a summary of the future net revenue associated with such resources based on forecast prices and costs (comparable to the summary provided for reserves data) and the estimates of the resources and related future net revenue must be evaluated or audited by an independent qualified reserves evaluator or auditor. In addition, Section 5.9 (Disclosure of Resources Other than Reserves) of NI 51-101 is proposed to be amended to require issuers to include a description of the project including each significant event in the project and the specific time period in which each event is expected to occur, the recovery technology and whether the project is a conceptual or pre-development study.

Oil and Gas Metrics

"Oil and gas metric" means a numerical measure of a reporting issuer's oil and gas activities and includes finding and development costs, BOEs, reserves replacement and netbacks. Under the Proposed Amendments, Sections 5.11 (Net Asset Value and Net Asset Value per Share), 5.12 (Reserve Replacement), 5.13 (Netbacks), 5.14 (BOEs and McfGEs) and 5.15 (Finding and Development Costs) of NI 51-101 are proposed to be deleted in their entirety and replaced with a "principle-based" approach to disclosure. Pursuant to the Proposed Amendments, if a reporting issuer discloses an oil and gas metric, the reporting issuer must identify the standard and source of the oil and gas metric, provide a description of the method used to determine the oil and gas metric, provide an explanation of the meaning of the oil and gas metric and caution readers as to the reliability of the oil and gas metric. If there is no identifiable standard for an oil and gas metric, the reporting issuer must also include a brief description of the parameters used in the calculation of the oil and gas metric and provide a cautionary statement that the oil and gas metric does not have any standardized meaning and should not be used to make comparisons.

Marketability of Production and Reserves

Under the current NI 51-101, reporting issuers are required to disclose production and reserves based on the price that was or would be used at the point at which the product type could be sold. However, the CSA noted in its request for comments that it may not be appropriate or even possible to allocate a price at a point of sale. In response, the Proposed Amendments will require disclosure of resources or of sales of product types or associated byproducts at the "first point of sale" provided that a reporting issuer may disclose resources or sales of product types or associated byproducts with respect to an "alternate reference point" if, to a reasonable person, the resources, product types or associated byproducts would be marketable at the alternate reference point. If a reporting issuer chooses to disclose resources or sales of product types or associated byproducts with respect to an alternate reference point, the reporting issuer must state that fact, disclose the location of the alternate reference point and explain why disclosure is not being made with respect to the first point of sale. Abandonment and Reclamation Costs

The CSA noted in its request for comments that there is inconsistency in the determination of what constitutes abandonment and reclamation costs for the purposes of oil and gas disclosure. In order to provide clarity, the Proposed Amendments include definitions of "abandonment costs" and "reclamation costs" in NI 51-101. Such costs will be required to be disclosed separately in the summary of total future net revenue required in the annual statement of reserves data prepared in accordance with Form 51-101F1. In addition, it is further proposed that Item 6.4 (Additional Information Concerning Abandonment and Reclamation Costs) of the current Form 51-101F1 be repealed in its entirety and reporting issuers will instead be required to include a discussion of any significant abandonment costs and reclamation costs in the significant factors and uncertainties disclosure in the annual statement of reserves data prepared in accordance with Form 51-101F1.

Other Amendments

With the introduction of IFRS 11, the Proposed Amendments point to the COGE Handbook for the purpose of determining ownership and allow for flexibility in the manner of presenting resources for which a reporting issuer does not have control. If the Proposed Amendments are implemented, Items 2.3 (Reserves Disclosure Varies with Accounting) and 2.4 (Future Net Revenue Disclosure Varies with Accounting) of Form 51-101F1 will be repealed.

Under the Proposed Amendments, the requirement to obtain the consent of the independent qualified reserves evaluator before disclosing results from the annual evaluation outside of the required annual filings has been removed.

Proposed Section 6.2 of NI 51-101 will require reporting issuers that cease to be engaged in oil and gas activities to file a notice in the form of Form 51-101F5 – Notice of Ceasing to Engage in Oil and Gas Activities not later than 10 days after ceasing to be engaged in oil and gas activities.

The revised Companion Policy includes new guidance with respect to the disclosure of after-tax net present value. In the revised guidance, the CSA has stated that if a reporting issuer discloses after-tax net present value, it should generally include, as appropriate, one or more of the following:

  • a general explanation of the method and assumptions used in the calculation of after-tax net present value, worded to reflect the reporting issuer's specific circumstances and the approach taken. The revised Companion Policy states that major aspects should be addressed, such as whether tax pools have been included in the evaluation; and
  • an explanatory statement to the effect that the after-tax net present value of the entity's oil and gas properties reflects the tax burden on the properties on a stand-alone basis, does not consider the business entity-level tax situation or tax planning, does not provide an estimate of the value at the business entity and that the financial statements and related MD&A of the entity should be consulted.


The CSA have requested feedback on specific questions related to the Proposed Amendments and also welcome feedback on all aspects of the Proposed Amendments. Comments are requested by the CSA on or before January 17, 2014.

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