CSA/ACVM Canadian Securities Autorités canadiennes Administrators en valeurs mobilières Request for Comment Proposed Amendments to National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities, Form 51-101F1 Statement of Reserves Data and Other Oil and Gas Information, Form 51-101F2 Report on Reserves Data by Independent Qualified Reserves Evaluator or Auditor, Form 51-101F3 Report of Management and Directors on Oil and Gas Disclosure and Companion Policy 51-101CP Standards of Disclosure for Oil and Gas Activities Background We, the Canadian Securities Administrators (CSA), are publishing for comment proposed amendments to National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101), its related forms (the Forms) and companion policy (51-101CP) (collectively, the Instrument). 1 NI 51-101 sets out the annual filing requirements for reporting issuers who are involved in oil and gas activities to report their estimates of reserves and resources. In addition, NI 51-101 sets out the general disclosure standards for reporting issuers who are reporting on their oil and gas activities. The disclosure standards apply to any disclosure made by a reporting issuer throughout the year. Since the CSA implemented the Instrument in September 2003, we have monitored how it is working. We conducted a public consultation with representatives from various organizations representing petroleum producers, reserves evaluators and financial analysts. As a result of the consultation and CSA staff experience, we identified several areas in the Instrument which need to be amended. We are publishing the proposed amendments to the Instrument with this Notice. You can find them on websites of CSA members, including the following: • www.bcsc.bc.ca • www.albertasecurities.com • www.ssc.gov.sk.ca • www.msc.gov.mb.ca • www.osc.gov.on.ca • www.lautorite.qc.ca We are publishing • amending instruments for • NI 51-101 • the Forms • new version of 51-101CP 1 In Ontario, paragraphs 143(1) 22, 24 and 39 of the Securities Act provide the Ontario Securities Commission with authority to make the proposed amendments to NI 51-101.
We are also publishing a black-lined version of NI 51-101 and the Forms that integrates the proposed changes from the amending instrument. Substance and purpose of the amendments The proposed amendments to the Instrument fall into the following four broad categories: 1. Amendments to clarify some provisions of the Instrument. 2. Amendments to remove or amend certain requirements for the annual filing requirements where such requirements were determined to be burdensome for reporting issuers and of limited utility for investors and security holders. 3. Amendments to certain provisions to provide new guidelines for disclosure of resources that cannot currently be classified as reserves. 4. Amendments to streamline requirements in the Instrument. Summary of proposed amendments We have summarized the significant proposed amendments in the Appendix. This is not a complete list of all the amendments. We have added certain requirements for a reporting issuer which reports its resources which cannot currently be classified as reserves. These additional requirements are intended to improve disclosure of resources and to provide additional guidance to reporting issuers wishing to make meaningful and understandable disclosure of their oil and gas resources. We have removed the requirement to report reserves and the related future net revenue using constant prices and cost. We have also removed the requirement to do a reconciliation of future net revenue. Finally, we have changed the requirement to do a reserves reconciliation using net reserves to doing the reserves reconciliation using gross reserves. Alternatives considered As discussed above, many of the amendments are intended to clarify the Instrument or to streamline requirements. One alternative to amending the Instrument was to issue a CSA Staff Notice to provide additional guidance on reserve and resource disclosure. However, to provide the appropriate degree of certainty, clarity and consistency among affected reporting issuers, we considered it preferable to amend, replace and add provisions to the Instrument itself. The CSA has issued CSA Staff Notice 51-321 to provide guidance to reporting issuers wishing to disclose their resources prior to these amendments coming into force. Anticipated costs and benefits We believe that the proposed amendments to the Instrument will reduce issuers’ costs, as the amendments will address problems industry has had applying the Instrument. In addition, the amendments do not impose any additional mandatory requirements but only add requirements if a reporting issuer chooses to disclose certain items. We also believe that the amendments will make reporting issuers’ disclosure about oil and gas reserves and resources more meaningful and understandable to investors and security holders. 2
Related amendments We propose to repeal National Policy 22 Use of Information and Opinion Re Mining and Oil Properties by Registrants and Others as it is outdated and been largely replaced by guidance on use of information in Part 5 of Companion Policy 43-101 Standards of Disclosure for Mineral Projects and Companion Policy 51-101CP Standards of Disclosure for Oil and Gas Activities. (Note: National Policy 22 has already been repealed in the Province of Quebec) Unpublished materials In proposing amendments to the Instrument, we have not relied on any significant unpublished study, report, or other written materials, except the results of the public consultation we referred to above. Request for comments We welcome your comments on the proposed amendments to the Instrument. In addition to any general comments you may have, we also invite comments on the following specific topic: Section 3.2 of NI 51-101 requires that a reporting issuer appoint an independent qualified reserves evaluator or auditor and section 3.4 of NI 51-101 expressly requires that the board of directors (directly or through a reserves committee) review that appointment. The responsibility for making the appointment is not specified in the rule. Would there be a material enhancement to investor protection if the rule required the board to appoint the independent reserves evaluator or auditor in addition to the existing appointment review requirement? Please submit your comments on the proposed amendments to the Instrument in writing on or before April 19, 2007. If you are not sending your comments by email, you should also forward a diskette containing the submissions (in Windows format, Word). Address your submission to all of the CSA member commissions, as follows: British Columbia Securities Commission Alberta Securities Commission Saskatchewan Financial Services Commission – Securities Division Manitoba Securities Commission Ontario Securities Commission Autorité des marchés financiers New Brunswick Securities Commission Registrar of Securities, Prince Edward Island Nova Scotia Securities Commission Newfoundland and Labrador Securities Commission Registrar of Securities, Northwest Territories Registrar of Securities, Yukon Territory Registrar of Securities, Nunavut 3
Deliver your comments only to the addresses that follow. Your comments will be forwarded to the other CSA member jurisdictions. Blaine Young, Associate Director Alberta Securities Commission 4th Floor, 300-5th Avenue SW Calgary, Alberta T2P 3C4 Fax: (403) 297-4220 e-mail : blaine.young@seccom.ab.ca Anne-Marie Beaudoin Directrice du secrétariat de l’Autorité Autorité des marchés financiers 800, square Victoria, 22 e étage C.P. 246, Tour de la Bourse Montréal (Québec) H4Z 1G3 Fax: (514) 864-6381 E-mail: consultation-en-cours@lautorite.qc.ca We cannot keep submissions confidential because securities legislation in certain provinces requires publication of a summary of the written comments received during the comment period. 4
Questions Please refer your questions to any of: Blaine Young Associate Director, Corporate Finance Alberta Securities Commission (403) 297-4220 blaine.young@seccom.ab.ca Alex Poole Legal Counsel, Corporate Finance Alberta Securities Commission (403) 297-4482 alex.poole@seccom.ab.ca Dr. David Elliott Chief Petroleum Advisor Alberta Securities Commission (403) 297-4008 david.elliott@seccom.ab.ca Denise Duifhuis Senior Legal Counsel, Corporate Finance British Columbia Securities Commission (604) 899-6792 or (800) 373-6393 (if calling from B.C. or Alberta) dduifhuis@bcsc.bc.ca Gordon Smith Senior Legal Counsel, Corporate Finance British Columbia Securities Commission (604) 899-6656 or (800) 373-6393 (if calling from B.C. or Alberta) gsmith@bcsc.bc.ca Deborah McCombe Chief Mining Consultant Ontario Securities Commission (416) 593-8151 dmccombe@osc.gov.on.ca Pierre Martin Senior Legal Counsel Autorité des marchés financiers (514) 395-0558 (4375) pierre.martin@lautorite.qc.ca 5
Eric Boutin Analyste en valeurs mobilières Autorité des marchés financiers (514) 395-0558 (4447) eric.boutin@lautorite.qc.ca The text of the proposed amendments follows or can be found elsewhere on a CSA member website. January 19, 2007 6
Appendix Summary of proposed amendments NI 51-101 We propose to amend NI 51-101 as follows: Part 1 Definitions • by adding a definition of analogous information as the term is used in the to be amended section 5.10 of NI 51-101 • by adding a definition of anticipated results that includes any information indicating the potential value or quantities of resources to ensure that when such information is disclosed it is disclosed in accordance with section 5.9 • by deleting the definition of constant prices and costs as it will no longer be used in NI 51-101 • by changing the definition of independent to make it more consistent with other securities legislation • by changing the definition of reserves data to only include estimates of reserves and future net revenue using forecast prices and costs and not constant prices and costs Part 2 Annual Filing Requirements • in section 2.2 by clarifying that the notice to announce filing must be filed with the securities regulatory authority as well as disseminated Part 4 Measurement • in section 4.2 by deleting certain requirements that did not specifically relate to measurement Part 5 Requirements Applicable to all Disclosure • in section 5.2 by including all items deleted from section 4.2 in section 5.2; in addition, by adding a requirement to provide cautionary language when making disclosure of possible reserves • in section 5.3 by adding the requirement that reserves and resources must be classified in the most specific category or reserves or resources that is applicable • in section 5.9 by changing and clarifying the requirements for reporting issuers who choose to make disclosure of resources that cannot be currently classified as reserves • by deleting the old section 5.10 and by adding a new section 5.10 that allows reporting issuers to disclose comparative analogous information for an area outside of the area in which the reporting issuer has an interest or intends to acquire an interest even if the information does not meet all of the other requirements of NI 51-101 Part 6 Material Change Disclosure • in section 6.2 by clarifying the requirements when making disclosure of material changes with respect to reserves data or other information specified in Form 51-101F1 Part 8 Exemption • by adding section 8.2 to provide an automatic exemption from the requirements of NI 51-101 to exchangeable security issuers if they meet all of the requirements of a similar exemption in NI 51-102 7
Form 51-101F1 Statement of Reserves Data and Other Oil and Gas Information We propose to amend the Form 51-101F1 as follows: • by eliminating the requirement of providing reserves data estimated using constant prices and costs • by adding a requirement in the calculation of future net revenue to provide the information on a unit value basis • by changing the requirement of providing a reserves reconciliation using net reserves to a reconciliation using gross reserves • by eliminating the requirement to provide a future net revenue reconciliation Form 51-101F2 Report on Reserves Data by Independent Qualified Reserves Evaluator or Auditor We propose to amend Form 51-101F2 as follows: • by changing the statement to reflect the fact that reporting issuers are no longer required to report their reserves data estimating using constant prices and costs • by adding required language stating that variations between the estimates of reserves data and the actual results should be consistent with the fact that reserves are categorized according to the probability of their recovery Form 51-101F3 Report of Management and Directors on Oil and Gas Disclosure We propose to amend Form 51-101F3 as follows: • by changing the statement to reflect the fact that reporting issuers are no longer required to report their reserves data estimated using constant prices and costs • by adding required language stating that variations between the estimates of reserves data and the actual results should be consistent with the fact that reserves are categorized according to the probability of their recovery 51-101CP The proposed amendments to 51-101CP reflect the changes to NI 51-101 described above and provide further guidance on how to interpret and apply NI 51-101. In addition, 51-101CP was reorganized. Finally, we have removed the guidance on potential exemptions from the requirements of NI 51-101 as we believe these exemptions are not appropriate for many reporting issuers. #2288047 v5 8
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