Changes to National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities came into force December 28, 2007. For oil and gas issuers that are reporting issuers, these changes will affect this year's annual securities law filings and will affect disclosure you make to the public (including on your websites) of certain information, in particular, estimates of resources that cannot be classified as reserves.
For your annual filings, the following are the key changes to make:
- Reserves and related future net revenue estimated using constant prices and costs are no longer required, but you may still include them if you wish.
- A reconciliation of future net revenue estimates is no longer required.
- A reconciliation of reserves estimates must reconcile gross reserves (not net reserves as in previous years) estimated using forecast prices and costs (not constant prices and costs).
- The Future Net Revenue table and the Future Net Revenue by Production Group table require a new column disclosing the same information on a unit value basis (e.g. $/Mcf or $/bbl using net reserves).
- For disclosure concerning proved undeveloped reserves and probable undeveloped reserves, the period of time for which disclosure is required has been reduced from five to three years. You must also now discuss the basis on which you attribute those reserves, your plans for developing those reserves and, if applicable, your reasons for not developing particular reserves during the following two years (in previous years you did not have to disclose both the volumes and provide the discussion).
- The wording of the report of the reserves evaluator and the report of management and the board of directors, although substantively the same, has changed slightly.
Disclosure About Resources that are not Reserves
If you are going to voluntarily disclose estimates of resources that are not reserves, whether in the annual filing or in other disclosure to the public, you should review the new requirements of section 5.9 of NI 51-101 and related discussion in the Companion Policy and the relevant portion of the Canadian Oil and Gas Handbook. We anticipate that this year the Alberta Securities Commission staff will be closely monitoring compliance with these new requirements in their reviews of filings, press releases and websites. In particular, the requirements regarding disclosure of anticipated results from resources that are not reserves include the following:
- Estimates of resources can be prepared in-house provided they are prepared by a qualified reserves evaluator as defined in NI 51-101.
- Estimates of resources must be consistent with the resources terminology in the Canadian Oil and Gas Evaluation Handbook. The estimates must relate to the most specific category of resources in the Canadian Oil and Gas Evaluation Handbook in which the resources can be classified. You must disclose the definition of the resources category used, the effective date of the estimate and the significant positive and negative factors relevant to the estimate.
- You must disclose your interest in the resources, the location of the resources, the product types reasonably expected and the level of uncertainty associated with recovery of the resources.
- If you disclose a value for unproved property, you must disclose the basis of the calculation of the value and whether an independent party prepared it.
- In respect of contingent resources, you must disclose the specific contingencies that prevent the classification of the resources as reserves.
- If you disclose estimates of discovered resources, you must include the following statement with the disclosure: "There is no certainty that it will be commercially viable to produce any portion of the resources".
- If you disclose estimates of undiscovered resources, you must include the following statement with the disclosure: "There is no certainty that any portion of the resources will not be discovered. If discovered there is no certainty that it will be commercially viable to produce any portion of the resources."
- The Companion Policy states that terms such as "potential reserves", "undiscovered reserves", "reserves in place" or "in place reserves" or similar terms should not be used because they are incorrect and misleading. It explains that, by definition, reserves of any type, contingent resources and prospective resources are estimates of volumes that are recoverable or potentially recoverable and, as such, cannot be described as being "in-place".
Also new to NI 51-101 are requirements that apply to disclosure of "analogous information", which is information you give about an area outside the area in which you have an interest or intend to acquire an interest for the purpose of drawing a comparison or conclusion to an area in which you have an interest. In particular, you must disclose the relevance of the information to your oil and gas activities, the source and date of the information, whether the source was independent and, if you are unable to confirm that the analogous information was prepared by a qualified reserves evaluator or auditor or in accordance with the Canadian Oil and Gas Evaluation Handbook, a cautionary statement to that effect.
One final tip - use the standard abbreviations for measurement units listed in Appendix B to the Canadian Oil and Gas Evaluation Handbook. At seminars and in their continuous disclosure reviews comments, Alberta Securities Commission staff frequently state that issuers are often not using the correct abbreviations in their disclosure.
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.