Canada: CSA Implements Amendments To Oil And Gas Disclosure Requirements

The Canadian Securities Administrators (CSA) have implemented significant amendments to the oil and gas disclosure requirements contained in National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101), its Companion Policy (CP 51-101) and related forms and notices. The changes affect both general, ongoing disclosure relating to oil and gas activities and specific annual disclosure requirements. The amendments are effective July 1, 2015, meaning that the changes to the annual disclosure requirements will apply in respect of the year ending December 31, 2015 for issuers with a December 31 year end. The changes will, among other things:

  • Allow Canadian reporting issuers to provide supplemental oil and gas disclosure in accordance with alternative resource evaluation standards, such as U.S. Securities and Exchange Commission (SEC) rules, provided that certain accompanying disclosure is made and other conditions are satisfied
  • Provide clearer guidance and additional prescribed requirements for the disclosure of contingent and prospective resources data in an issuer's annual filings made under NI 51-101 (Annual Filings), including that such resource estimates:

    • Be prepared or audited by a qualified reserves evaluator or auditor (QRE) independent of the issue
    • Be included in an appendix to the Annual Filing
    • Include the risked net present value of future net revenue for certain types of contingent resources.
  • Amend and refine the various product types for which oil and gas disclosure must be made, to better align with the product type definitions in the COGE Handbook, while removing the concept of production groups
  • Replace the required form of disclosure for certain oil and gas metrics such as netbacks, reserve replacement, net asset value and finding and development (F&D) costs with a principle-based approach to describe the meaning and methodology of calculating any disclosed oil and gas metrics
  • Clarify the concept of "marketability" for the purposes of reporting oil and gas sales volumes and values
  • Clarify what constitutes abandonment and reclamation costs and require enhanced disclosure of these costs in the Annual Filings.

The amendments to NI 51-101 follow the amendments made to the COGE Handbook on July 17, 2014 relating to the guidelines for estimation and classification of resources other than reserves on April 1, 2014 containing detailed guidelines relating to the estimation and classification of bitumen resources. In conjunction with the amendments to NI 51-101 and CP 51-101, the CSA also published amended versions of CSA Staff Notice 51-324 Revised Glossary to NI 51-101 Standards of Disclosure for Oil and Gas Activities, which summarizes much of the terminology used in NI 51-101 and the COGE Handbook, and CSA Staff Notice 51-327 Revised Guidance on Oil and Gas Disclosure, which provides additional general and issue-specific guidance with respect to oil and gas disclosure.

DISCLOSURE UNDER ALTERNATIVE RESOURCE EVALUATION STANDARDS

Currently, certain Canadian reporting issuers who are either required or voluntarily desire to disclose reserves and other oil and gas information prepared in accordance with foreign disclosure standards (including the U.S. SEC reserves disclosure framework) have sought and obtained a limited form of exemptive relief from the NI 51-101 provisions that only permit public disclosure of oil and gas information that has been prepared in accordance with the COGE Handbook and NI 51-101. The amendments to NI 51-101 effectively codify the previously granted relief and allow for disclosure made under alternative resource evaluation standards provided certain conditions are met, including that the alternative standard has a comprehensive framework for the evaluation of resources and a scientific basis, defines resources using terminology and categories consistent with those in the COGE Handbook, and requires that estimates of the volume and value of resources is based on reasonable assumptions.

Additionally, the estimates made under the alternative standard must have been prepared or audited by a QRE. The issuer must also disclose the effective date of the estimate and describe any significant differences—and the reasons those differences exist—between the estimates prepared in accordance with the alternative standard and those prepared in accordance with the COGE Handbook. However, no actual reconciliation of the estimates between the two disclosure regimes is required.

The amendments to NI 51-101 also impose additional disclosure requirements depending on whether or not the alternative disclosure is "required" under the laws of a foreign jurisdiction, as opposed to being voluntarily made by the issuer. In CP 51-101, the CSA has stated that disclosure is "required" under the laws of a foreign jurisdiction when such information must be presented under the alternative standard in order to access the capital markets of a foreign jurisdiction. Where the disclosure is required under the laws of a foreign jurisdiction, the reporting issuer must disclose a reference to the location on its SEDAR website profile where the reserve or resource estimate prepared in accordance with NI 51-101 and the COGE Handbook may be found. However, where disclosure under an alternative resources evaluation standard is not required by a foreign jurisdiction, the issuer must instead disclose the actual reserve or resource estimate prepared in accordance with NI 51-101 and the COGE Handbook, and include a description of the alternative standard.

It should be noted that disclosure of resources under alternative resource evaluation standards is supplemental to, and not in replacement of, the disclosure that is required to be made in accordance with the COGE Handbook and NI 51-101.

DISCLOSURE OF RESOURCES OTHER THAN RESERVES

Perhaps the most impactful change made to NI 51-101 relates to the disclosure of contingent and prospective resources data in a Canadian reporting issuer's Annual Filings. Currently, disclosure of resources other than proved and probable reserves is not required but is often voluntarily made by reporting issuers, including on the basis that it constitutes material information that is important to investors. In order to better standardize this type of resource disclosure, NI 51-101 has been amended to provide that all such data must be contained in an appendix to the issuer's Annual Filings and evaluated or audited by an independent QRE, which is more onerous than the requirement that only 75 per cent of the proved and probable reserves value of a reporting issuer be evaluated or audited by an independent QRE. Forms 51-101F2 and 51-101F3 to be prepared by the independent QRE and management and directors of the issuer, respectively, have been amended to reflect the potential disclosure of resources other than reserves in the Annual Filings.

If a reporting issuer discloses contingent resources in its Annual Filings, the issuer must include, among other things:

  • The risked 2C (i.e. best estimate) contingent resource volumes for each product type and for each of four newly designated "project maturity sub-classes" of those contingent resources
  • Prescribed risked net present values of future net revenue for the 2C contingent resources in the "development pending project maturity sub-class" (generally those with a high chance of development where resolution of the final conditions for development is being actively pursued)
  • The numeric value of the chance of development risk and a description of the methods to quantify that risk and to determine the estimate of the risked contingent resources and net present value.

If a reporting issuer discloses prospective resources in its Annual Filings, it must disclose the best estimate of prospective resources for each product type, along with the numeric value of the chance of discovery and chance of development, the methodology relating to quantifying those chances, and the risked prospective resource estimates.

Any disclosure regarding the value of contingent or prospective resources that are not in the development pending project maturity sub-class must also be risked and include additional explanation relating to the viability of those resources. The CSA has provided guidance, in both CP 51-101 and the Alberta Securities Commission's Oil and Gas Review Report released in December 2014, on the methodology that can be used to quantify the risked volumes and values of resources other than reserves. The requirement to risk disclosure for resources other than reserves for chance of development and discovery, as applicable, for both volumes and values, as well as to include all contingent and prospective resources data in an appendix to the Annual Filings, represents changes from the amendments initially proposed in October 2013. However, the approved final amendments to NI 51-101 eliminated the previously proposed requirement to include estimated values for all classes and categories of resources other than reserves, other than contingent resources in the development pending project maturity sub-class.

Amendments were also made to the provisions of NI 51-101 that apply to all disclosure made with respect to resources other than reserves, which apply to any disclosure made by a reporting issuer (i.e. press releases, investor presentations, etc.) as well as the Annual Filings. In particular, enhanced disclosure is required relating to projects to which contingent or prospective resources have been attributed, including the estimated total cost required to achieve commercial production and the general timeline of the project.

CHANGES TO PRODUCT TYPES

The amended NI 51-101 generally incorporates the product type definitions in the revised COGE Handbook to give greater emphasis to both the source and recovery process for different oil and gas product types on the basis that the same physical product attracts the same price whatever the source but that different sources have significantly different cost and risk profiles and production characteristics. In particular, the new "product type" categories seek to move away from grouping resources into conventional and unconventional categories and include a refined definition of "bitumen" to better differentiate it from heavy oil, and a new category of "tight oil," which includes shale oil. The current definition of "production groups," for which certain disclosure is required to be made in the Annual Filings, has been deleted and replaced with the new definition of product types.

Reporting issuers should note that, for the purposes of the initial reserves reconciliations to be included in the Annual Filings (generally commencing with the Annual Filings for the year ending December 31, 2015), the CSA has advised that the same new product types to be included in the issuer's summary reserves tables should be used for both the opening and closing reserves balances, and the issuer should choose the closest product type for the opening balance (generally being December 31, 2014) if the substance produced did not exactly match one of the new product types or matched more than one of the new product types defined in revised NI 51-101.

DISCLOSURE OF OIL AND GAS METRICS

NI 51-101 currently prescribes mandatory methodology and disclosure when certain oil and gas metrics are disclosed, including netbacks, reserve replacement, net asset value and F&D costs. The CSA has revised NI 51 101 to replace this mandatory disclosure with principle-based requirements to instead require an issuer to include disclosure that identifies the standard and source of the metric, if any; provides a brief description of the method used to determine the metric; provides an explanation of the meaning of the metric; and cautions readers as to its reliability. To the extent that there is no identifiable standard for an oil and gas metric used, a reporting issuer must also include disclosure that provides a brief description of the parameters used in the calculation of the metric and a disclaimer that the particular metric does not have any standardized meaning and should not be used to make comparisons.

MARKETABILITY OF PRODUCTION AND RESERVES

NI 51-101 has been amended to clarify that disclosure of reserves or resources and sales of certain product types or associated by-products must now be made with respect to the price at the "first point of sale," which is newly defined as the first point after initial production at which there is a transfer of ownership of that product type. However, where this point is not relevant, an issuer may use an alternate reference point if it provides additional disclosure as to why the alternate reference point is more appropriate than the first point of sale. Additionally, NI 51-101 has been amended to require that disclosure of natural gas by-products, including NGLs and sulphur, be made only for volumes that have been or will be recovered prior to the first point of sale or alternate reference point, as applicable.

ABANDONMENT AND RECLAMATION COSTS

In response to inconsistency in the determination and disclosure of what constitutes abandonment and reclamation costs for the purposes of the Annual Filings, NI 51-101 has been amended to include a combined new definition of "abandonment and reclamation costs" and require disclosure of both in the estimated future net revenue and the significant factors or uncertainties relating to reserves data in an issuer's Annual Filings.

OTHER AMENDMENTS

Numerous other amendments were made to NI 51-101, CP 51-101 and the related forms, which will have varying impacts and importance on reporting issuers with oil and gas activities. Certain of the amendments in addition to those described above include:

  • A revised framework and additional disclosure requirements for resources over which a reporting issuer does not have ownership or control
  • The deletion of the requirement to obtain the consent of an independent QRE in order to use its report prepared in connection with the Annual Filings
  • A new form required to be filed when an issuer has ceased to be engaged in oil and gas activities
  • Revised or additional disclaimers and disclosure regarding risks and uncertainties relating to reserve and resource estimates

PLANNING FOR IMPLEMENTATION

The amendments to NI 51-101, CP 51-101 and the related forms are detailed and technical and will require careful review by reporting issuers with oil and gas activities. Although the amendments applicable to Annual Filings will generally not apply until the year ending December 31, 2015, the amendments applicable to an issuer's general oil and gas disclosure will apply on July 1, 2015, and will require advanced preparation by issuers, together with their legal and petroleum engineering consultants, in advance of that date.

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
Events from this Firm
23 Nov 2018, Other, Toronto, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

28 Nov 2018, Speaking Engagement, Toronto, Canada

Arbitration has a number of advantages and some disadvantages for the resolution of domestic and international commercial disputes.

 
In association with
Related Topics
 
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