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ASC Approves New Oil and Gas Disclosure Standards

Jun 23, 2003

NI 51-101 Highlights:

  • a focus on continuous public disclosure
  • enhanced corporate governance measures including
    - the involvement of independent reserves evaluators
    - specific responsibilities for company management and directors

Public companies will begin reporting their oil and gas reserves each year, beginning early in 2004, under new National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities, which has been approved by the Alberta Securities Commission (ASC).

At the same time as they release their annual financial statements, public companies will report estimates of their oil and gas reserves and related cash flow prepared by an independent reserves evaluator, comparisons to prior-year estimates and other information about their oil and gas activities. The oil and gas report must be consistent with industry-developed terminology and procedures and be reviewed and approved by company directors.

"These new disclosure standards are an important step forward, both for the oil and gas industry and for investors," says Stephen Sibold, ASC Chair. "The new standards are designed to give investors reliable, consistent and useful information, to build and sustain confidence in our capital markets that a thriving oil and gas sector depends upon."

NI 51-101 was developed by the ASC on behalf of the 13 provincial and territorial securities commissions, which together form the Canadian Securities Administrators (CSA). Other CSA members will consider adopting the rule over the next few months.

The new disclosure standards are the product of extensive public and industry consultation. NI 51-101 responds to, and is largely consistent with, the recommendations of the ASC's Oil and Gas Taskforce. It also addresses issues identified in public comments, for example by offering scope for the largest producing companies to continue to rely on in-house evaluation expertise, and for companies active in US capital markets to apply US-style oil and gas disclosure practices.

NI 51-101 can be found on the ASC website at www.albertasecurities.com.

The ASC is the industry-funded regulatory agency responsible for administering the Alberta Securities Act. Its mission is to foster a fair and efficient capital market in Alberta and, together with the other members of the CSA, develop and operate the Canadian securities regulatory system.

BACKGROUNDER - NI 51-101 – Standards of Disclosure for Oil and Gas Activities

Annual disclosure

  • statement of reserves data (reserves and "future net revenue" estimates) and other oil and gas information
  • report of independent qualified reserves evaluator or auditor
  • report of management and directors

Reserves evaluations or audits by independent qualified professionals

  • "qualified reserves evaluator or auditor"
  • appointed annually to report to directors

Prescribed role for directors

  • direct contact with reserves evaluators or auditors
  • review and approve filings
  • majority-independent "reserves committee" encouraged

General requirements and restrictions apply to all public disclosure

  • consistency with the reporting issuer's annual filings
  • Canadian Oil and Gas Evaluation Handbook reserves evaluation standards and definitions mandated
  • prescribed basis for specific types of voluntary disclosure

Material change disclosure

  • to include discussion of the effect of the material change on filed reserves data

Materiality standard

  • NI 51-101 applies only to information likely to affect an investment decision

Possible exemptions, on application

  • SEC filers may be permitted to apply US oil and gas disclosure standards
    - annual filing still required
    - differences from NI 51-101 to be explained for Canadian investors
  • senior producing issuers with demonstrated competence could use in-house rather than independent evaluations

Changes in Filing Procedure

  • unlike current requirements that require lengthy reserves evaluation reports to be filed with a prospectus, the streamlined NI 51-101 disclosure is filed each year, electronically on SEDAR
  • full reserves evaluation reports provided to securities regulatory authorities only on request

Prospectuses and other offering documents

  • prospectus, rights offering and other distribution disclosure requirements will adopt the oil and gas disclosure required under NI 51-101