Canada: SEC Modernizes Oil And Gas Disclosure Requirements


The U.S. Securities and Exchange Commission (SEC) recently issued its final rule to modernize and update oil and gas reserve disclosure requirements, following a year of active consultation and discussion. The SEC's final rule includes changes that reflect today's improved technologies and alternative extraction methods, which have developed in the 26 years since the SEC last enacted the existing reporting rules. The requirements of the final rule are intended to improve comparability between companies and provide investors with better information about a company's reserves.

What effect will the new requirements have on Canadian oil and gas companies?

Most Canadian companies that file registration statements or reports with the SEC do so under the Canada/United States Multijurisdictional Disclosure System (MJDS). The MJDS permits such companies to satisfy their US disclosure requirements by using their Canadian disclosure documents, which are prepared in accordance with Canadian law and practice. In its final rule, the SEC has clarified that the new disclosure requirements will not apply to foreign private issuers under the MJDS that use Form 40-F to file their annual reports or to register their securities and that comply with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities adopted by the Canadian Securities Administrators in Canada. This is because the Canadian disclosure requirements already are broadly consistent with the final rule. Accordingly, the amendments to the US oil and gas disclosure requirements will not affect the disclosure practices of most Canadian clients in the industry. However, the final rule does apply to certain foreign private issuers who rely on Form 20-F to file their annual reports.

Highlights of the SEC's Final Rule

The final rule made the following key changes to the definitions section of the oil and gas reserve requirements:

Twelve-month average price: The final rule changes the price used in calculating reserves from a single-day closing price measured on the last day of the company's fiscal year to an average price for the 12 months prior to the end of the company's fiscal year. This price is calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period. In order to prevent confusion amongst investors and improve comparability, the SEC also changed the full-cost accounting rules to use a single price based on a 12-month average.

Extraction of Bitumen and Other Non-Traditional Resources: The final rule expands the definition of "oil- and gas-producing activities" to include sources of oil and gas from "non-traditional" or "unconventional" sources, such as bitumen extracted from oil sands, as well as oil and gas extracted from coalbeds and shales. The change is intended to shift the focus of the definition of oil and gas activities to the final product of such activities, regardless of the extraction technology used. The new definition states specifically that oil- and gas-producing activities include the extraction of saleable hydrocarbons in the solid, liquid, or gaseous state, from oil sands, shale, coalbeds or other non-renewable natural resources that are intended to be upgraded into natural or synthetic oil or gas, as well as activities undertaken with a view to such extraction, thus permitting these to be counted as reserves. The final rule permits disclosure of the reserves based on the final product sold by the reporting company and the price for the processed product, which allows companies with their own on-site or local processing facilities to disclose reserves that take into account the advantages of their extraction and processing capabilities.

The new definition will continue to exclude activities relating to:

  • transporting, refining, processing (other than field processing of gas to extract liquid hydrocarbons), or marketing oil and gas;
  • the production of natural resources other than oil, gas, or natural resources from which natural or synthetic oil and gas can be extracted; and
  • the production of geothermal steam.

Definition of Proved Reserves: The final rule defines "proved oil and gas reserves" in part as "those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible." The final rule provides guidance in respect of the concept of "proved reserves" by defining the term "reasonable certainty" as meaning "much more likely to be achievable than not."

Probable and Possible Reserves: The final rule allows optional or voluntary disclosure of probable and possible reserves, which previously could not be disclosed in SEC filings unless required by state or foreign law. The final rule defines "probable reserves" as those additional reserves that are less certain to be recovered than proved reserves but are "as likely to be achieved as not to be achieved" and "possible reserves" as those additional reserves that are less certain to be recovered than probable reserves and "might be achieved, but only under more favourable conditions than are likely."

The SEC made disclosures of probable and possible reserves voluntary because although such disclosure may be beneficial to oil and gas reporting companies and to investors, it also may involve an increased risk of litigation.

New Technology: The final rule allows reporting companies to use new technologies to establish oil and gas reserves so long as the new technologies are "reliable" as defined by the final rule. The definition permits broader use of new technologies to establish the proper classification for reserves, and lessens the need for frequent updates to the reserves definition as technology changes.

The final rule requires companies to disclose the technology used to establish reserve estimates in a company's first filing with the SEC and for material additions to reserve estimates in subsequent filings. The level of disclosure required is limited to a concise summary of the technologies used to create the estimate.

Reserve Audits and the Contents of Third-Party Reports: Under the final rule, reporting companies who represent that a third party prepared the reserves estimate or conducted a reserves audit of the reserves estimate must file a report of the third party as an exhibit to the relevant registration statement or report. The final rule provides that these reports need not be the full "reserves report," but rather shorter reports that summarize the scope of the work performed by, and conclusions of, the third party.

Geographic Area: The final rule requires disclosure of reserves "by geographical area," meaning companies are required to disclose by individual country, by groups of countries within a continent, or by continent — as appropriate for meaningful disclosure under a company's particular circumstances. The final rule also requires specific percentage thresholds of the geographical breakdowns of reserve estimates and production.

Disclosure Requirements

Under the final rule, the SEC has added a new Subpart 1200 to Regulation S-K that codifies the disclosure requirements related to companies engaged in oil- and gas-producing activities. The new Subpart is largely based on the existing requirements of Industry Guide 2. Those requirements have been updated and revised to provide better clarity regarding the level of detail required in oil and gas disclosures, including the geographic areas by which disclosures need to be made, as well as to provide formats for tabular presentation of these disclosures. In addition, Subpart 1200 contains new disclosure requirements regarding disclosure of reserves from non-traditional sources (such as, bitumen, shale, coal) as oil and gas reserves, optional disclosure of probable and possible reserves, optional disclosure of oil and gas reserves' sensitivity to price, disclosure of the development of proved undeveloped reserves, disclosure of technologies used to establish additions-to-reserves' estimates, disclosure of the qualifications of the business entity or individual preparing or auditing the reserves' estimates, disclosure of a company's internal-controls-over-reserves' estimation process, and disclosure based on a new definition of the term "by geographic area."

MD&A Guidance for Companies Engaged in Oil-and Gas-Producing Activities

The final rule provides companies engaged in oil- and gas-producing activities guidance on topics that may be addressed as part of its Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) or discussed in a location close to the tables of disclosure required for the new Subpart 1200 of Regulation S-K. The SEC emphasized that a company should only discuss topics material to the company. These topics include:

  • changes in reserves, including changes made due to changes in price, technical revisions and changes in the status of any concessions;
  • technologies used to establish material additions to reserves estimates;
  • prices and costs, including the impact on depreciation, depletion and amortization, as well as the full-cost ceiling test;
  • performance of currently producing wells, including water production from such wells and the need to use enhanced recovery techniques to maintain production from such wells;
  • performance of any mining-type activities for the production of hydrocarbons;
  • the company's recent ability to convert proved undeveloped reserves to proved developed reserves, and if disclosed, its recent ability to convert probable reserves to proved reserves and possible reserves to probable or proved reserves;
  • the minimum remaining terms of leases and concessions;
  • material changes to any line item in the tables described in Items 1202 through 1208 of Regulation S-K;
  • potential effects of different forms of rights to resources; and
  • geopolitical risks that apply to material concentrations of reserves.


Companies will be required to begin complying with the new disclosure requirements for registration statements filed on or after January 1, 2010 and for annual reports on Forms 10-K and 20-F for fiscal years ending on or after December 31, 2009. A company may not apply the new rules to disclosure in its quarterly reports prior to filing its first annual report under the new rules. In order to ensure comparability, the SEC will not permit voluntary compliance with the final rule prior to the effective date.

A copy of the final rule can be found on the SEC's website at

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

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

In association with
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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