Proposed Amendments to Standards of Disclosure for Oil and Gas Activities – National Instrument 51-101
May 31, 2007
Mark G. Eade
Oil and gas companies that are reporting issuers have specific reporting obligations for their various activities. National Instrument 51-101 Standards for Disclosure for Oil and Gas Activities (NI 51-101), its related forms and companion policy (collectively, the Instrument) contain the annual reporting requirements for estimates of reserves and resources for such issuers involved in oil and gas activities. It also sets out general disclosure standards when issuers report on their oil and gas activities.
Since implementation of the Instrument in September 2003, the Canadian Securities Administrators (CSA) has monitored its use and concluded that several areas in the Instrument require amendment. The CSA has accordingly published proposed amendments to NI 51-101.
The changes under the proposed amendments are discussed below.
Removal of Fair Value Estimates and Addition of Analogous Information
Under the proposed amendments, the existing disclosure rules relating to estimates of fair value for unproven properties, prospects or resources will be replaced. Reporting issuers will be able to disclose comparative analogous information for an area outside of the one in which they have or intend to acquire an interest, even if the analogous information does not meet all of the other requirements of NI 51-101.
For these purposes, "analogous information" will include information that the issuer references for the purpose of drawing a comparison or conclusion to an area in which the issuer either has an interest or intends to acquire an interest. Analogous information may include:
- historic reserve or resource information;
- volume or value estimates of reserves or resources;
- production history; and
- estimates or information concerning a specific well, basin or reservoir.
Removal of Requirement to Reconcile Future Net Revenues and Amendments to Reserve Reconciliation
The requirement to provide reserves data estimated using constant prices and costs has been removed (although issuers may still disclose such information for proved or proved plus probable), as has the requirement to provide a future net revenue reconciliation. In addition, the requirement to provide reserves reconciliation using net reserves has been changed to a requirement to provide a reconciliation using gross reserves.
The proposed amendments also require including more detailed disclosure in the reserves reconciliation, as "non-conventional oil and gas activities" will have to be broken down into more specific categories of bitumen, coal bed methane, hydrates shale oil and shale gas.
New Guidelines for Disclosure of Resources that Cannot Currently Be Classified as Reserves
The proposed amendments include the addition of certain requirements for a reporting issuer that reports its resources that 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.
Additional Amendments to Form Disclosures
The proposed amendments, if adopted, will require that applicable issuers include unit value basis information for the net present value of future net revenue in their reserve disclosures. The disclosure of undeveloped reserves has also been amended to reduce the annual disclosure obligation from the most recent five years to the most recent three years.
Lastly, the proposed amendments also include the addition of provisions that will 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 Continuous Disclosure Obligations. To use this exemption, the exchangeable security issuer must, among other requirements, have all of its voting securities held directly or indirectly by an SEC issuer with securities listed on a U.S. exchange.
McCarthy Tétrault Notes:
The CSA clearly expects the proposed amendments to reduce issuers’ costs by addressing problems issuers have had with applying NI 51-101 in the past. Time will tell whether this expectation is met in practice and whether the proposed amendments make issuers’ disclosure about their oil and gas reserves and resources more meaningful and understandable to investors.