COMPANION POLICY 51-101CP STANDARDS OF DISCLOSURE FOR OIL AND GAS ACTIVITIES
TABLE OF CONTENTS PART 1 APPLICATION AND TERMINOLOGY 1.1 Definitions 1.2 COGE Handbook 1.3 Applies to Reporting Issuers Only 1.4 Materiality Standard PART 2 ANNUAL FILING REQUIREMENTS 2.1 Annual Filings on SEDAR 2.2 Inapplicable or Immaterial Information 2.3 Use of Forms 2.4 Annual Information Form 2.5 Reporting Issuer Has No Reserves 2.6 Reservation in Report of Independent Qualified Reserves Evaluator or Auditor 2.7 Disclosure in Form 51-101F1 2.8 Form 51-101F2 PART 3 RESPONSIBILITIES OF REPORTING ISSUERS AND DIRECTORS 3.1 Reserves Committee 3.2 Responsibility for Disclosure PART 4 MEASUREMENT 4.1 Consistency in Dates PART 5 REQUIREMENTS APPLICABLE TO ALL DISCLOSURE 5.1 Application of Part 5 5.2 Disclosure of Reserves and Other Information 5.3 Reserves and Resources Classification 5.4 Written Consents 5.5 Disclosure of Resources 5.6 Analogous Information 5.7 Consistent Use of Units of Measurement 5.8 BOEs and McfGEs 5.9 Finding and Development costs 5.10 Prospectus Disclosure PART 6 MATERIAL CHANGE DISCLOSURE 6.1 Changes from Filed Information APPENDIX 1 – SAMPLE RESERVES DATA DISCLOSURE
- 2 -COMPANION POLICY 51-101CP STANDARDS OF DISCLOSURE FOR OIL AND GAS ACTIVITIES
This Companion Policy sets out the views of the Canadian Securities Administrators (CSA) as to the interpretation and application of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) and related forms.
NI 51-101 1 supplements other continuous disclosure requirements of securities legislation that apply to reporting issuers in all business sectors.
The requirements under NI 51-101 for the filing with securities regulatory authorities of information relating to oil and gas activities are designed in part to assist the public and analysts in making investment decisions and recommendations.
The CSA encourage registrants 2 and other persons and companies that wish to make use of information concerning oil and gas activities of a reporting issuer, including reserves data, to review the information filed on SEDAR under NI 51-101 by the reporting issuer and, if they are summarizing or referring to this information, to use the applicable terminology consistent with NI 51-101 and the COGE Handbook.
PART 1 APPLICATION AND TERMINOLOGY 1.1 Definitions (1) General - Several terms relating to oil and gas activities are defined in section 1.1 of NI 51-101. If a term is not defined in NI 51-101, NI 14-101 or the securities statute in the jurisdiction, it will have the meaning or interpretation given to it in the COGE Handbook if it is defined or interpreted there, pursuant to section 1.2 of NI 51-101.
For the convenience of readers, CSA Staff Notice 51-324 Glossary to NI 51-101 Standards of Disclosure for Oil and Gas Activities (the NI 51-101 Glossary) sets out the meaning of terms, including those defined in NI 51-101 and several terms which are derived from the COGE Handbook.
(2) Forecast Prices and Costs - The term forecast prices and costs is defined in paragraph 1.1(j) of NI 51-101 and discussed in the COGE Handbook. Except to the extent that the reporting issuer is legally bound by fixed or presently
1 For the convenience of readers, CSA Staff Notice 51-324 Glossary to NI 51-101 Standards of Disclosure for Oil and Gas Activities sets out the meanings of terms that are printed in italics in NI 51-101, Form 51-101F1, Form 51-101F2 or Form 51-101F3, or in this Companion Policy (other than terms italicized in titles of documents that are printed entirely in italics). 2 "Registrant" has the meaning ascribed to the term under securities legislation in the jurisdiction.
- 3 determinable future prices or costs and costs "generally accepted as being a reasonable outlook of the future".
The CSA do not consider that future prices or costs would satisfy this requirement if they fall outside the range of forecasts of comparable prices or costs used, as at the same date, for the same future period, by major independent qualified reserves evaluators or auditors or by other reputable sources appropriate to the evaluation.
(3) Independent - The term independent is defined in paragraph 1.1(o) of NI 51-101. Applying this definition, the following are examples of circumstances in which the CSA would consider that a qualified reserves evaluator or auditor (or other expert) is not independent. We consider a qualified reserves evaluator or auditor is not independent when the qualified reserves evaluator or auditor:
(a) is an employee, insider, or director of the reporting issuer; (b) is an employee, insider, or director of a related party of the reporting issuer;
(c) is a partner of any person or company in paragraph (a) or (b); (d) holds or expects to hold securities, either directly or indirectly, of the reporting issuer or a related party of the reporting issuer;
(e) holds or expects to hold securities, either directly or indirectly, in another reporting issuer that has a direct or indirect interest in the property that is the subject of the technical report or an adjacent property;
(f) has or expects to have, directly or indirectly, an ownership, royalty, or other interest in the property that is the subject of the technical report or an adjacent property; or
(g) has received the majority of their income, either directly or indirectly, in the three years preceding the date of the technical report from the reporting issuer or a related party of the reporting issuer.
For the purpose of paragraph (d) above, “related party of the reporting issuer” means an affiliate, associate, subsidiary, or control person of the reporting issuer as those terms are defined under securities legislation.
There may be instances in which it would be reasonable to consider that the independence of a qualified reserves evaluator or auditor would not be compromised even though the qualified reserves evaluator or auditor holds an interest in the reporting issuer's securities. The reporting issuer needs to
3 Refer to the discussion of financial instruments in subsection 2.7(5) below.
3 , forecast prices and costs are future prices
- 4 determine whether a reasonable person would consider such interest would interfere with the qualified reserves evaluator’s or auditor's judgement regarding the preparation of the technical report.
There may be circumstances in which the securities regulatory authorities question the objectivity of the qualified reserves evaluator or auditor. In order to ensure the requirement for independence of the qualified reserves evaluator or auditor has been preserved, the reporting issuer may be asked to provide further information, additional disclosure or the opinion of another qualified reserves evaluator or auditor to address concerns about possible bias or partiality on the part of the qualified reserves evaluator or auditor.
(4) Product Types Arising From Oil Sands and Other Non-Conventional Activities - The definition of product type in paragraph 1.1(v) includes products arising from non-conventional oil and gas activities. NI 51-101 therefore applies not only to conventional oil and gas activities, but also to non-conventional activities such as the extraction of bitumen from oil sands with a view to the production of synthetic oil, the in situ production of bitumen, the extraction of methane from coal beds and the extraction of shale gas, shale oil and hydrates.
Although NI 51-101 and Form 51-101F1 make few specific references to non-conventional oil and gas activities, the requirements of NI 51-101 for the preparation and disclosure of reserves data and for the disclosure of resources apply to oil and gas reserves and resources relating to oil sands, shale, coal or other non-conventional sources of hydrocarbons. The CSA encourage reporting issuers that are engaged in non-conventional oil and gas activities to supplement the disclosure prescribed in NI 51-101 and Form 51-101F1 with information specific to those activities that can assist investors and others in understanding the business and results of the reporting issuer.
(5) Professional Organization (a) Recognized Professional Organizations For the purposes of the Instrument, a qualified reserves evaluator or auditor must also be a member in good standing with a self-regulatory professional organization of engineers, geologists, geoscientists or other professionals.
The definition of "professional organization" (in paragraph 1.1(w) of NI 51-101 and in the NI 51-101 Glossary) has four elements, three of which deal with the basis on which the organization accepts members and its powers and requirements for continuing membership. The fourth element requires either authority or recognition given to the organization by a statute in Canada, or acceptance of the organization by the securities regulatory authority or regulator.
As at August 1, 2007, each of the following organizations in Canada is a professional organization:
- 5 -• Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA) • Association of Professional Engineers and Geoscientists of the Province of British Columbia (APEGBC) • Association of Professional Engineers and Geoscientists of Saskatchewan (APEGS) • Association of Professional Engineers and Geoscientists of Manitoba (APEGM) • Association of Professional Geoscientists of Ontario (APGO) • Professional Engineers of Ontario (PEO) • Ordre des ingénieurs du Québec (OIQ) • Ordre des Géologues du Québec (OGQ) • Association of Professional Engineers of Prince Edward Island (APEPEI) • Association of Professional Engineers and Geoscientists of New Brunswick (APEGNB) • Association of Professional Engineers of Nova Scotia (APENS) • Association of Professional Engineers and Geoscientists of Newfoundland (APEGN) • Association of Professional Engineers of Yukon (APEY) • Association of Professional Engineers, Geologists & Geophysicists of the Northwest Territories (NAPEGG) (representing the Northwest Territories and Nunavut Territory)
(b) Other Professional Organizations The CSA are willing to consider whether particular foreign professional bodies should be accepted as "professional organizations" for the purposes of NI 51-101. A reporting issuer, foreign professional body or other interested person can apply to have a self-regulatory organization that satisfies the first three elements of the definition of "professional organization" accepted for the purposes of NI 51-101.
In considering any such application for acceptance, the securities regulatory authority or regulator is likely to take into account the degree to which a foreign professional body's authority or recognition, admission criteria, standards and disciplinary powers and practices are similar to, or differ from, those of organizations listed above.
The list of foreign professional organizations is updated periodically in CSA Staff Notice 51-309 Acceptance of Certain Foreign Professional Boards as a “Professional Organization”. As at August 1, 2007, each of the following foreign organizations has been recognized as a professional organization for the purposes of NI 51-101:
• California Board for Professional Engineers and Land Surveyors, • State of Colorado Board of Registration for Professional Engineers and Professional Land Surveyors
- 6 -• Louisiana State Board of Registration for Professional Engineers and Land Surveyors, • Oklahoma State Board of Registration for Professional Engineers and Land Surveyors • Texas Board of Professional Engineers • American Association of Petroleum Geologists (AAPG) but only in respect of Certified Petroleum Geologists who are members of the AAPG’s Division of Professional Affairs • American Institute of Professional Geologists (AIPG), in respect of the AIPG’s Certified Professional Geologists • Energy Institute but only for those members of the Energy Institute who are Members and Fellows
(c) No Professional Organization A reporting issuer or other person may apply for an exemption under Part 8 of NI 51-101 to enable a reporting issuer to appoint, in satisfaction of its obligation under section 3.2 of NI 51-101, an individual who is not a member of a professional organization, but who has other satisfactory qualifications and experience. Such an application might refer to a particular individual or generally to members and employees of a particular foreign reserves evaluation firm. In considering any such application, the securities regulatory authority or regulator is likely to take into account the individual's professional education and experience or, in the case of an application relating to a firm, to the education and experience of the firm's members and employees, evidence concerning the opinion of a qualified reserves evaluator or auditor as to the quality of past work of the individual or firm, and any prior relief granted or denied in respect of the same individual or firm.
(d) Renewal Applications Unnecessary A successful applicant would likely have to make an application contemplated in this subsection 1.1(5) only once, and not renew it annually.
(6) Qualified Reserves Evaluator or Auditor - The definitions of qualified reserves evaluator and qualified reserves auditor are set out in paragraphs 1.1(y) and 1.1(x) of NI 51-101, respectively, and again in the NI 51-101 Glossary.
The defined terms "qualified reserves evaluator" and "qualified reserves auditor" have a number of elements. A qualified reserves evaluator or qualified reserves auditor must
• possess professional qualifications and experience appropriate for the tasks contemplated in the Instrument, and
• be a member in good standing of a professional organization.
- 7 -Reporting issuers should satisfy themselves that any person they appoint to perform the tasks of a qualified reserves evaluator or auditor for the purpose of the Instrument satisfies each of the elements of the appropriate definition.
In addition to having the relevant professional qualifications, a qualified reserves evaluator or auditor must also have sufficient practical experience relevant to the reserves data to be reported on. In assessing the adequacy of practical experience, reference should be made to section 3 of volume 1 of the COGE Handbook - "Qualifications of Evaluators and Auditors, Enforcement and Discipline".
1.2 COGE Handbook Pursuant to section 1.2 of NI 51-101, definitions and interpretations in the COGE Handbook apply for the purposes of NI 51-101 if they are not defined in NI 51-101, NI 14-101 or the securities statute in the jurisdiction (except to the extent of any conflict or inconsistency with NI 51-101, NI 14-101 or the securities statute).
Section 1.1 of NI 51-101 and the NI 51-101 Glossary set out definitions and interpretations, many of which are derived from the COGE Handbook. Reserves and resources definitions and categories developed by the Petroleum Society of the Canadian Institute of Mining, Metallurgy & Petroleum (CIM) are incorporated in the COGE Handbook and also set out, in part, in the NI 51-101 Glossary.
Subparagraph 5.2(a)(iii) of NI 51-101 requires that all estimates of reserves or future net revenue have been prepared or audited in accordance with the COGE Handbook. Under sections 5.2, 5.3 and 5.9 of NI 51-101, all types of public oil and gas disclosure, including disclosure of reserves and resources must be consistent with the COGE Handbook.
1.3 Applies to Reporting Issuers Only NI 51-101 applies to reporting issuers engaged in oil and gas activities. The definition of oil and gas activities is broad. For example, a reporting issuer with no reserves, but a few prospects, unproved properties or resources, could still be engaged in oil and gas activities because such activities include exploration and development of unproved properties.
NI 51-101 will also apply to an issuer that is not yet a reporting issuer if it files a prospectus or other disclosure document that incorporates prospectus requirements. Pursuant to the long-form prospectus requirements, the issuer must disclose the information contained in Form 51-101F1, as well as the reports set out in Form 51-101F2 and Form 51-101F3.
- 8 -1.4 Materiality Standard Section 1.4 of NI 51-101 states that NI 51-101 applies only in respect of information that is material.
NI 51-101 does not require disclosure or filing of information that is not material. If information is not required to be disclosed because it is not material, it is unnecessary to disclose that fact.
Materiality for the purposes of NI 51-101 is a matter of judgement to be made in light of the circumstances, taking into account both qualitative and quantitative factors, assessed in respect of the reporting issuer as a whole.
This concept of materiality is consistent with the concept of materiality applied in connection with financial reporting pursuant to the CICA Handbook.
The reference in subsection 1.4(2) of NI 51-101 to a "reasonable investor" denotes an objective test: would a notional investor, broadly representative of investors generally and guided by reason, be likely to be influenced, in making an investment decision to buy, sell or hold a security of a reporting issuer, by an item of information or an aggregate of items of information? If so, then that item of information, or aggregate of items, is "material" in respect of that reporting issuer. An item that is immaterial alone may be material in the context of other information, or may be necessary to give context to other information. For example, a large number of small interests in oil and gas properties may be material in aggregate to a reporting issuer. Alternatively, a small interest in an oil and gas property may be material to a reporting issuer, depending on the size of the reporting issuer and its particular circumstances.
PART 2 ANNUAL FILING REQUIREMENTS 2.1 Annual Filings on SEDAR The information required under section 2.1 of NI 51-101 must be filed electronically on SEDAR. Consult National Instrument 13-101 System for Electronic Document Analysis and Retrieval (SEDAR) and the current CSA "SEDAR Filer Manual" for information about filing documents electronically. The information required to be filed under item 1 of section 2.1 of NI 51-101 is usually derived from a much longer and more detailed oil and gas report prepared by a qualified reserves evaluator. These long and detailed reports cannot be filed electronically on SEDAR. The filing of an oil and gas report, or a summary of an oil and gas report, does not satisfy the requirements of the annual filing under NI 51-101.
2.2 Inapplicable or Immaterial Information Section 2.1 of NI 51-101 does not require the filing of any information, even if specified in NI 51-101 or in a form referred to in NI 51-101, if that information is inapplicable or not material in respect of the reporting issuer. See section 1.4 of this Companion Policy for a discussion of materiality.
- 9 -If an item of prescribed information is not disclosed because it is inapplicable or immaterial, it is unnecessary to state that fact or to make reference to the disclosure requirement.
2.3 Use of Forms Section 2.1 of NI 51-101 requires the annual filing of information set out in Form 51-101F1 and reports in accordance with Form 51-101F2 and Form 51-101F3. Appendix 1 to this Companion Policy provides an example of how certain of the reserves data might be presented. While the format presented in Appendix 1 in respect of reserves data is not mandatory, we encourage issuers to use this format.
The information specified in all three forms, or any two of the forms, can be combined in a single document. A reporting issuer may wish to include statements indicating the relationship between documents or parts of one document. For example, the reporting issuer may wish to accompany the report of the independent qualified reserves evaluator or auditor (Form 51-101F2) with a reference to the reporting issuer’s disclosure of the reserves data (Form 51-101F1), and vice versa.
The report of management and directors in Form 51-101F3 may be combined with management's report on financial statements, if any, in respect of the same financial year.
2.4 Annual Information Form Section 2.3 of NI 51-101 permits reporting issuers to satisfy the requirements of section 2.1 of NI 51-101 by presenting the information required under section 2.1 in an annual information form.
(1) Meaning of "Annual Information Form" - Annual information form has the same meaning as “AIF” in National Instrument 51-102 Continuous Disclosure Obligations. Therefore, as set out in that definition, an annual information form can be a completed Form 51-102F2 Annual Information Form or, in the case of an SEC issuer (as defined in NI 51-102), a completed Form 51-102F2 or an annual report or transition report under the 1934 Act on Form 10-K, Form 10-KSB or Form 20-F.
(2) Option to Set Out Information in Annual Information Form - Form 51-102F2 Annual Information Form requires the information required by section 2.1 of NI 51-101 to be included in the annual information form. That information may be included either by setting out the text of the information in the annual information form or by incorporating it, by reference from separately filed documents. The option offered by section 2.3 of NI 51-101 enables a reporting issuer to satisfy its obligations under section 2.1 of NI 51-101, as well as its obligations in respect of annual information form disclosure, by setting out the information required under section 2.1 only once, in the annual information form. If the annual information form is on Form 10-K, this can be accomplished by including the information in a supplement (often referred to as a "wrapper") to the Form 10-K.
- 10 -A reporting issuer that elects to set out in full in its annual information form the information required by section 2.1 of NI 51-101 need not also file that information again for the purpose of section 2.1 in one or more separate documents. A reporting issuer that elects to follow this approach should file its annual information form in accordance with usual requirements of securities legislation, and at the same time file on SEDAR, in the category for NI 51-101 oil and gas disclosure, a notification that the information required under section 2.1 of NI 51-101 is included in the reporting issuer’s filed annual information form. More specifically, the notification should be filed under SEDAR Filing Type: “Oil and Gas Annual Disclosure (NI 51-101)” and Filing Subtype/Document Type: “Oil and Gas Annual Disclosure Filing (Forms 51-101F1, F2 & F3)”. Alternatively, the notification could be a copy of the news release mandated by section 2.2 of NI 51-101. If this is the case, the news release should be filed under SEDAR Filing Type: “Oil and Gas Annual Disclosure (NI 51-101)” and Filing Subtype/Document Type: “News Release (section 2.2 of NI 51-101)”.
This notification will assist other SEDAR users in finding that information. It is not necessary to make a duplicate filing of the annual information form itself under the SEDAR NI 51-101 oil and gas disclosure category.
2.5 Reporting Issuer That Has No Reserves The requirement to make annual NI 51-101 filings is not limited to only those issuers that have reserves and related future net revenue. A reporting issuer with no reserves but with prospects, unproved properties or resources may be engaged in oil and gas activities (see section 1.3 above) and therefore subject to NI 51-101. That means the issuer must still make annual NI 51-101 filings and ensure that it complies with other NI 51-101 requirements. The following is guidance on the preparation of Form 51-101F1, Form 51-101F2, Form 51-101F3 and other oil and gas disclosure if the reporting issuer has no reserves.
(1) Form 51-101F1 - Section 1.4 of NI 51-101 states that the Instrument applies only in respect of information that is material in respect of a reporting issuer. If indeed the reporting issuer has no reserves, we would consider that fact alone material. The reporting issuer’s disclosure, under Part 2 of Form 51-101F1, should make clear that it has no reserves and hence no related future net revenue.
Supporting information regarding reserves data required under Part 2 (e.g., price estimates) that are not material to the issuer may be omitted. However, if the issuer had disclosed reserves and related future net revenue in the previous year, and has no reserves as at the end of its current financial year, the reporting issuer is still required to present a reconcilation to the prior-year’s estimates of reserves, as required by Part 4 of Form 51-101F1. The reporting issuer is also required to disclose information required under Part 6 of Form 51-101F1. Those requirements apply irrespective of the quantum of reserves, if any. This would include information about properties (items 6.1 and 6.2), costs (item 6.6), and exploration and development activities (item 6.7). The
- 11 disclosure should make clear that the issuer had no production, as that fact would be material.
(2) Form 51-101F2 - NI 51-101 requires reporting issuers to retain an independent qualified reserves evaluator or auditor to evaluate or audit the company’s reserves data and report to the board of directors. If the reporting issuer had no reserves during the year and hence did not retain an evaluator or auditor, then it would not need to retain one just to file a (nil) report of the independent evaluators on the reserves data in the form of Form 51-101F2 and the reporting issuer would therefore not be required to file a Form 51-101F2. If, however, the issuer did retain an evaluator or auditor to evaluate reserves, and the evaluator or auditor concluded that they could not be so categorized, or reclassified those reserves to resources, the issuer would have to file a report of the qualified reserves evaluator because the evaluator has, in fact, evaluated the reserves and expressed an opinion.
(3) Form 51-101F3 - Irrespective of whether the reporting issuer has reserves, the requirement to file a report of management and directors in the form of Form 51-101F3 applies.
(4) Other NI 51-101 Requirements - NI 51-101 does not require reporting issuers to disclose anticipated results from their resources. However, if a reporting issuer chooses to disclose that type of information, section 5.9 of NI 51-101 applies to that disclosure.
2.6 Reservation in Report of Independent Qualified Reserves Evaluator or Auditor A report of an independent qualified reserves evaluator or auditor on reserves data will not satisfy the requirements of item 2 of section 2.1 of NI 51-101 if the report contains a reservation, the cause of which can be removed by the reporting issuer (subsection 2.4(2) of NI 51-101).
The CSA do not generally consider time and cost considerations to be causes of a reservation that cannot be removed by the reporting issuer.
A report containing a reservation may be acceptable if the reservation is caused by a limitation in the scope of the evaluation or audit resulting from an event that clearly limits the availability of necessary records and which is beyond the control of the reporting issuer. This could be the case if, for example, necessary records have been inadvertently destroyed and cannot be recreated or if necessary records are in a country at war and access is not practicable.
One potential source of reservations, which the CSA consider can and should be addressed in a different way, could be reliance by a qualified reserves evaluator or auditor on information derived or obtained from a reporting issuer’s independent financial auditors or reflecting their report. The CSA recommend that qualified reserves evaluators or auditors follow the procedures and guidance set out in both sections 4 and
- 12 -12 of volume 1 of the COGE Handbook in respect of dealings with independent financial auditors. In so doing, the CSA expect that the quality of reserves data can be enhanced and a potential source of reservations can be eliminated.
2.7 Disclosure in Form 51-101F1 (1) Royalty Interest in Reserves - Net reserves (or "company net reserves") of a reporting issuer include its royalty interest in reserves.
If a reporting issuer cannot obtain the information it requires to enable it to include a royalty interest in reserves in its disclosure of net reserves, it should, proximate to its disclosure of net reserves, disclose that fact and its corresponding royalty interest share of oil and gas production for the year ended on the effective date.
Form 51-101F1 requires that certain reserves data be provided on both a "gross" and "net" basis, the latter being adjusted for both royalty entitlements and royalty obligations. However, if a royalty is granted by a trust’s subsidiary to the trust, this would not affect the computation of “net reserves”. The typical oil and gas income trust structure involves the grant of a royalty by an operating subsidiary of the trust to the trust itself, the royalty being the source of the distributions to trust investors. In this case, the royalty is wholly within the combined or consolidated trust entity (the trust and its operating subsidiary). This is not the type of external entitlement or obligation for which adjustment is made in determining, for example, “net reserves”. Viewing the trust and its consolidated entities together, the relevant reserves and other oil and gas information is that of the operating subsidiary without deduction of the internal royalty to the trust.
(2) Government Restriction on Disclosure - If, because of a restriction imposed by a government or governmental authority having jurisdiction over a property, a reporting issuer excludes reserves information from its reserves data disclosed under NI 51-101, the disclosure should include a statement that identifies the property or country for which the information is excluded and explains the exclusion.
(3) Computation of Future Net Revenue (a) Tax Form 51-101F1 requires future net revenue to be estimated and disclosed both before and after deduction of income taxes. However, a reporting issuer may not be subject to income taxes because of its royalty or income trust structure. In this instance, the issuer should use the tax rate that most appropriately reflects the income tax it reasonably expects to pay on the future net revenue. If the issuer is not subject to income tax because of its royalty trust structure, then the most appropriate income tax rate would be zero. In this case, the issuer could present the estimates of future net revenue in only one column and explain, in a note to
- 13 the table, why the estimates of before-tax and after-tax future net revenue are the same.
Also, tax pools should be taken into account when computing future net revenue after income taxes. The definition of “future income tax expense” is set out in the NI 51-101 Glossary. Essentially, future income tax expenses represent estimated cash income taxes payable on the reporting issuer’s future pre-tax cash flows. These cash income taxes payable should be computed by applying the appropriate year-end statutory tax rates, taking into account future tax rates already legislated, to future pre-tax net cash flows reduced by appropriate deductions of estimated unclaimed costs and losses carried forward for tax purposes and relating to oil and gas activities (i.e., tax pools). Such tax pools may include Canadian oil and gas property expense (COGPE), Canadian development expense (CDE), Canadian exploration expense (CEE), undepreciated capital cost (UCC) and unused prior year’s tax losses. (Issuers should be aware of limitations on the use of certain tax pools resulting from acquisitions of properties in situations where provisions of the Income Tax Act concerning successor corporations apply.)
(b) Other Fiscal Regimes Other fiscal regimes, such as those involving production sharing contracts, should be adequately explained with appropriate allocations made to various classes of proved reserves and to probable reserves.
(4) Supplemental Disclosure of Future Net Revenue Using Constant prices and costs - Form 51-101 F1 gives reporting issuers the option of disclosing future net revenue using constant prices and costs in addition to disclosing future net revenue using forecast prices and costs. Constant prices and costs are based on the reporting issuer’s prices and costs as at the reporting issuer’s financial year-end. In general, these prices and costs are assumed not to change, but rather to remain constant, throughout the life of a property, except to the extent of certain fixed or presently determinable future prices or costs to which the reporting issuer is legally bound by a contractual or other obligation to supply a physical product (including those for an extension period of a contract that is likely to be extended).
(5) Financial Instruments - The definition of "forecast prices and costs" in paragraph 1.1(j) of NI 51-101 and the term "constant prices and costs" as defined in the NI 51-101 Glossary refer to fixed or presently determinable future prices to which a reporting issuer is legally bound by a contractual or other obligation to supply a physical product. The phrase "contractual or other obligation to supply a physical product" excludes arrangements under which the reporting issuer can satisfy its obligations in cash and would therefore exclude an arrangement that would be a "financial instrument" as defined in Section 3855 of the CICA Handbook. The CICA Handbook discusses when a reporting issuer’s obligation would be considered a financial instrument and sets out the requirements for
- 14 presentation and disclosure of these financial instruments (including so-called financial hedges) in the reporting issuer’s financial statements.
(6) Reserves Reconciliation (a) If the reporting issuer reports reserves, but had no reserves at the start of the reconciliation period, a reconciliation of reserves must be carried out if any reserves added during the previous year are material. Such a reconciliation will have an opening balance of zero.
(b) The reserves reconciliation is prepared on a gross reserves, not net reserves, basis. For some reporting issuers with significant royalty interests, such as royalty trusts, the net reserves may exceed the gross reserves. In order to provide adequate disclosure given the distinctive nature of its business, the reporting issuer may also disclose its reserves reconciliation on a net reserves basis. The issuer is not precluded from providing this additional information with its disclosure prescribed in Form 51-101F1 provided that the net reserves basis for the reconciliation is clearly identified in the additional disclosure to avoid confusion.
(c) Clause 2(c)(ii) of item 4.1 of Form 51-101F1 requires reconciliations of reserves to separately identify and explain technical revisions. Technical revisions show changes in existing reserves estimates, in respect of carried-forward properties, over the period of the reconciliation (i.e., between estimates as at the effective date and the prior year’s estimate) and are the result of new technical information, not the result of capital expenditure. With respect to making technical revisions, the following should be noted:
• Infill Drilling: It would not be acceptable to include infill drilling results as a technical revision. Reserves additions derived from infill drilling during the year are not attributable to revisions to the previous year’s reserves estimates. Infill drilling reserves must either be included in the “extensions and improved recovery” category or in an additional stand-alone category in the reserves reconciliation labelled “infill drilling”.
• Acquisitions: If an acquisition is made during the year, (i.e., in the period between the effective date and the prior year’s estimate), the reserves estimate to be used in the reconciliation is the estimate of reserves at the effective date, not at the acquisition date, plus any production since the acquisition date. This production must be included as production in the reconciliation. If there has been a change in the reserves estimate between the acquisition date and the effective date other than that due to production, the issuer may wish to explain this as part of the reconciliation in a footnote to the reconciliation table.
- 15 -(7) Significant Factors or Uncertainties - Item 5.2 of Form 51-101F1 requires an issuer to identify and discuss important economic factors or significant uncertainties that affect particular components of the reserves data. Like a “subsequent event” note in a financial statement, the issuer should discuss this type of information even if it pertains to a period subsequent to the effective date.
For example, if events subsequent to the effective date have resulted in significant changes in expected future prices, such that the forecast prices reflected in the reserves data differ materially from those that would be considered to be a reasonable outlook on the future around the date of the company’s “statement of reserves data and other information”, then the issuer’s statement might include, pursuant to item 5.2, a discussion of that change and its effect on the disclosed future net revenue estimates. It may be misleading to omit this information.
(8) Additional Information - As discussed in section 2.3 above and in the instructions to Form 51-101F1, NI 51-101 offers flexibility in the use of the prescribed forms and the presentation of required information.
The disclosure specified in Form 51-101F1 is the minimum disclosure required, subject to the materiality standard. Reporting issuers are free to provide additional disclosure that is not inconsistent with NI 51-101.
To the extent that additional, or more detailed, disclosure can be expected to assist readers in understanding and assessing the mandatory disclosure, it is encouraged. Indeed, to the extent that additional disclosure of material facts is necessary in order to make mandated disclosure not misleading, a failure to provide that additional disclosure would amount to a misrepresentation.
(9) Sample Reserves Data Disclosure - Appendix 1 to this Companion Policy sets out an example of how certain of the reserves data might be presented in a manner which the CSA consider to be consistent with NI 51-101 and Form 51-101F1. The CSA encourages reporting issuers to use the format presented in Appendix 1.
The sample presentation in Appendix 1 also illustrates how certain additional information not mandated under Form 51-101F1 might be incorporated in an annual filing.
2.8 Form 51-101F2 (1) Negative Assurance by Qualified Reserves Evaluator or Auditor - A qualified reserves evaluator or auditor conducting a review may wish to express only negative assurance -- for example, in a statement such as “Nothing has come to my attention which would indicate that the reserves data have not been prepared in accordance with principles and definitions presented in the Canadian Oil and Gas Evaluation Handbook”. This can be contrasted with a positive statement such as an opinion that "The reserves data have, in all material respects, been
- 16 determined and presented in accordance with the Canadian Oil and Gas Evaluation Handbook and are, therefore, free of material misstatement".
The CSA are of the view that statements of negative assurance can be misinterpreted as providing a higher degree of assurance than is intended or warranted.
The CSA believe that a statement of negative assurance would constitute so material a departure from the report prescribed in Form 51-101F2 as to fail to satisfy the requirements of item 2 of section 2.1 of NI 51-101.
In the rare case, if any, in which there are compelling reasons for making such disclosure (e.g., a prohibition on disclosure to external parties), the CSA believe that, to avoid providing information that could be misleading, the reporting issuer should include in such disclosure useful explanatory and cautionary statements. Such statements should explain the limited nature of the work undertaken by the qualified reserves evaluator or auditor and the limited scope of the assurance expressed, noting that it does not amount to a positive opinion.
(2) Variations in Estimates - Form 51-101F2 (and Form 51-101F3) contains a statement that variations between reserves data and actual results may be material but that any variations should be consistent with the fact that reserves are categorized according to the probability of their recovery.
Reserves estimates are made at a point in time, being the effective date. A reconciliation of a reserves estimate to actual results is likely to show variations and the variations may be material. This variation may arise from factors such as exploration discoveries, acquisitions, divestments and economic factors that were not considered in the initial reserves estimate. Variations that occur with respect to properties that were included in both the reserves estimate and the actual results may be due to technical or economic factors. Any variations arising due to technical factors should be consistent with the fact that reserves are categorized according to the probability of their recovery. For example, the requirement that reported proved reserves “must have at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated proved reserves” (section 5 of volume 1 of the COGE Handbook) implies that as more technical data becomes available, a positive, or upward, revision is significantly more likely than a negative, or downward, revision. Similarly, it should be equally likely that revisions to an estimate of proved plus probable reserves will be positive or negative.
Reporting issuers must assess the magnitude of such variation according to their own circumstances. A reporting issuer with a limited number of properties is more likely to be affected by a change in one of these properties than a reporting issuer with a greater number of properties. Consequently, reporting issuers with few properties are more likely to show larger variations, both positive and negative, than those with many properties.
- 17 -Variations may result from factors that cannot be reasonably anticipated, such as the fall in the price of bitumen at the end of 2004 that resulted in significant negative revisions in proved reserves, or the unanticipated activities of a foreign government. If such variations occur, the reasons will usually be obvious. However, the assignment of a proved reserve, for instance, should reflect a degree of confidence in all of the relevant factors, at the effective date, such that the likelihood of a negative revision is low, especially for a reporting issuer with many properties. Examples of some of the factors that could have been reasonably anticipated, that have led to negative revisions of proved or of proved plus probable reserves are:
• Over-optimistic activity plans, for instance, booking reserves for proved or probable undeveloped reserves that have no reasonable likelihood of being drilled.
• Reserves estimates that are based on a forecast of production that is inconsistent with historic performance, without solid technical justification.
• Assignment of drainage areas that are larger than can be reasonably expected. • The use of inappropriate analogs. (3) Effective date of Evaluation - A qualified reserves evaluator or auditor cannot prepare an evaluation using information that relates to events that occurred after the effective date, being the financial year-end. Information that relates to events that occurred after the year-end should not be incorporated into the forecasts. For example, information about drilling results from wells drilled in January or February, or changes in production that occurred after year-end date of December 31, should not be used. Even though this more recent information is available, the evaluator or auditor should not go back and change the forecast information. The forecast is to be based on the evaluator’s or auditor’s perception of the future as of December 31, the effective date of the report.
Similarly, the evaluator or auditor should not use price forecasts for a date subsequent to the year-end date of, in this example, December 31. The evaluator or auditor should use the prices that he or she forecasted on or around December 31. The evaluator or auditor should also use the December forecasts for exchange rates and inflation. Revisions to price, exchange rate or inflation rate forecasts after December 31 would have resulted from events that occurred after December 31.
PART 3 RESPONSIBILITIES OF REPORTING ISSUERS AND DIRECTORS 3.1 Reserves Committee Section 3.4 of NI 51-101 enumerates certain responsibilities of the board of directors of a reporting issuer in connection with the preparation of oil and gas disclosure.
- 18 -The CSA believe that certain of these responsibilities can in many cases more appropriately be fulfilled by a smaller group of directors who bring particular experience or abilities and an independent perspective to the task.
Subsection 3.5(1) of NI 51-101 permits a board of directors to delegate responsibilities (other than the responsibility to approve the content or filing of certain documents) to a committee of directors, a majority of whose members are independent of management. Although subsection 3.5(1) is not mandatory, the CSA encourage reporting issuers and their directors to adopt this approach.
3.2 Responsibility for Disclosure NI 51-101 requires the involvement of an independent qualified reserves evaluator or auditor in preparing or reporting on certain oil and gas information disclosed by a reporting issuer, and in section 3.2 mandates the appointment of an independent qualified reserves evaluator or auditor to report on reserves data.
The CSA do not intend or believe that the involvement of an independent qualified reserves evaluator or auditor relieves the reporting issuer of responsibility for information disclosed by it for the purposes of NI 51-101.
PART 4 MEASUREMENT 4.1 Consistency in Dates Section 4.2 of NI 51-101 requires consistency in the timing of recording the effects of events or transactions for the purposes of both annual financial statements and annual reserves data disclosure.
To ensure that the effects of events or transactions are recorded, disclosed or otherwise reflected consistently (in respect of timing) in all public disclosure, a reporting issuer will wish to ensure that both its financial auditors and its qualified reserves evaluators or auditors, as well as its directors, are kept apprised of relevant events and transactions, and to facilitate communication between its financial auditors and its qualified reserves evaluators or auditors.
Sections 4 and 12 of volume 1 of the COGE Handbook set out procedures and guidance for the conduct of reserves evaluations and reserves audits, respectively. Section 12 deals with the relationship between a reserves auditor and the client's financial auditor. Section 4, in connection with reserves evaluations, deals somewhat differently with the relationship between the qualified reserves evaluator or auditor and the client's financial auditor. The CSA recommend that qualified reserves evaluators or auditors carry out the procedures discussed in both sections 4 and 12 of volume 1 of the COGE Handbook, whether conducting a reserves evaluation or a reserves audit.
- 19 -PART 5 REQUIREMENTS APPLICABLE TO ALL DISCLOSURE 5.1 Application of Part 5 Part 5 of NI 51-101 imposes requirements and restrictions that apply to all "disclosure" (or, in some cases, all written disclosure) of a type described in section 5.1 of NI 51-101. Section 5.1 refers to disclosure that is either
• filed by a reporting issuer with the securities regulatory authority, or • if not filed, otherwise made to the public or made in circumstances in which, at the time of making the disclosure, the reporting issuer expects, or ought reasonably to expect, the disclosure to become available to the public.
As such, Part 5 applies to a broad range of disclosure including • the annual filings required under Part 2 of NI 51-101, • other continuous disclosure filings, including material change reports (which themselves may also be subject to Part 6 of NI 51-101),
• public disclosure documents, whether or not filed, including news releases, • public disclosure made in connection with a distribution of securities, including a prospectus, and
• except in respect of provisions of Part 5 that apply only to written disclosure, public speeches and presentations made by representatives of the reporting issuer on behalf of the reporting issuer.
For these purposes, the CSA consider written disclosure to include any writing, map, plot or other printed representation whether produced, stored or disseminated on paper or electronically. For example, if material distributed at a company presentation refers to BOEs, the material should include, near the reference to BOEs, the cautionary statement required by paragraph 5.14(d) of NI 51-101.
To ensure compliance with the requirements of Part 5, the CSA encourage reporting issuers to involve a qualified reserves evaluator or auditor, or other person who is familiar with NI 51-101 and the COGE Handbook, in the preparation, review or approval of all such oil and gas disclosure.
5.2 Disclosure of Reserves and Other Information (1) General - A reporting issuer must comply with the requirements of section 5.2 in its disclosure, to the public, of reserves estimates and other information of a type specified in Form 51-101F1. This would include, for example, disclosure of such information in a news release.
- 20 -(2) Reserves - NI 51-101 does not prescribe any particular methods of estimation but it does require that a reserve estimate be prepared in accordance with the COGE Handbook. For example, section 5 of volume 1 of the COGE Handbook specifies that, in respect of an issuer’s reported proved reserves, there is to be at least a 90 percent probability that the total remaining quantities of oil and gas to be recovered will equal or exceed the estimated total proved reserves.
Additional guidance on particular topics is provided below. (3) Possible Reserves - A possible reserves estimate - either alone or as part of a sum - is often a relatively large number that, by definition, has a low probability of actually being produced. For this reason, the cautionary language prescribed in subparagraph 5.2(a)(v) of NI 51-101 must accompany the written disclosure of a possible reserves estimate.
(4) Probabilistic and Deterministic Evaluation Methods - Section 5 of volume 1 of the COGE Handbook states that "In principle, there should be no difference between estimates prepared using probabilistic or deterministic methods".
When deterministic methods are used, in the absence of a "mathematically derived quantitative measure of probability", the classification of reserves is based on professional judgment as to the quantitative measure of certainty attained.
When probabilistic methods are used in conjunction with good engineering and geological practice, they will provide more statistical information than the conventional deterministic method. The following are a few critical criteria that an evaluator must satisfy when applying probabilistic methods:
• The evaluator must still estimate the reserves applying the definitions and using the guidelines set out in the COGE Handbook.
• Entity level probabilistic reserves estimates should be aggregated arithmetically to provide reported level reserves.
• If the evaluator also prepares aggregate reserves estimates using probabilistic methods, the evaluator should explain in the evaluation report the method used. In particular, the evaluator should specify what confidence levels were used at the entity, property, and reported (i.e., total) levels for each of proved, proved + probable and proved + probable + possible (if reported) reserves.
• If the reporting issuer discloses the aggregate reserves that the evaluator prepared using probabilistic methods, the issuer should provide a brief explanation, near its disclosure, about the reserves definitions used for estimating the reserves, about the method that the evaluator used, and the underlying confidence levels that the evaluator applied.
- 21 -(5) Availability of Funding - In assigning reserves to an undeveloped property, the reporting issuer is not required to have the funding available to develop the reserves, since they may be developed by means other than the expenditure of the reporting issuer’s funds (for example by a farm-out or sale). Reserves must be estimated assuming that development of the properties will occur without regard to the likely availability of funding required for that property. The reporting issuer’s evaluator is not required to consider whether the reporting issuer will have the capital necessary to develop the reserves. (See section 7 of COGE Handbook and subparagraph 5.2(a)(iv) of NI 51-101.)
However, item 5.3 of Form 51-101F1 requires a reporting issuer to discuss its expectations as to the sources and costs of funding for estimated future development costs. If the issuer expects that the costs of funding would make development of a property unlikely, then even if reserves were assigned, it must also discuss that expectation and its plans for the property.
(6) Proved or Probable Undeveloped Reserves - Proved or probable undeveloped reserves must be reported in the year in which they are recognized. If the reporting issuer does not disclose the proved or probable undeveloped reserves just because it has not yet spent the capital to develop these reserves, it may be omitting material information, thereby causing the reserves disclosure to be misleading. If the proved or probable undeveloped reserves are not disclosed to the public, then those who have a special relationship with the issuer and know about the existence of these reserves would not be permitted to purchase or sell the securities of the issuer until that information has been disclosed. If the issuer has a prospectus, the prospectus might not contain full true and plain disclosure of all material facts if it does not contain information about these proved or probable undeveloped reserves.
(7) Mechanical Updates - So-called “mechanical updates” of reserves reports are sometimes created, often by rerunning previous evaluations with a new price deck. This is problematic since there may have been material changes other than price that may lead to the report being misleading. If a reporting issuer discloses the results of the mechanical update it should ensure that all relevant material changes are also disclosed to ensure that the information is not misleading.
5.3 Reserves and Resources Classification Section 5.3 of NI 51-101 requires that any disclosure of reserves or resources must be made using the categories and terminology as set out in the COGE Handbook. The definitions of the various reserves and resources categories, derived from the COGE Handbook, are provided in the NI 51-101 Glossary. In addition, section 5.3 of NI 51-101 requires that disclosure of reserves or resources must relate to the most specific category of reserves or resources in which the reserves or resources can be classified. For instance, there are several subcategories of discovered resources including reserves, contingent resources and discovered unrecoverable resources. Reporting issuers must classify discovered resources into one of the subcategories of discovered resources. In
- 22 exceptional circumstances, a reporting issuer may be unable to classify the resources in a subcategory of discovered resources, in which case it must provide a comprehensive explanation as to why the resources cannot be classified in a subcategory.
In addition, reserves can be estimated using three subcategories, namely proved, probable or possible reserves, according to the probability that such quantities of reserves will actually be produced. As described in the COGE Handbook proved, probable and possible reserves represent conservative, realistic and optimistic estimates of reserves, respectively. Therefore any disclosure of reserves must be broken down into one of the three subcategories of reserves, namely proved, probable or possible reserves. For further guidance on disclosure of reserves and resources please see sections 5.2 and 5.5 of this Companion Policy.
5.4 Written Consents Section 5.7 of NI 51-101 restricts a reporting issuer’s use of a report of a qualified reserves evaluator or auditor without written consent. The consent requirement does not apply to the direct use of the report for the purposes of NI 51-101 (filing Form 51-101F1; making direct or indirect reference to the conclusions of that report in the filed Form 51-101F1 and Form 51-101F3; and identifying the report in the news release referred to in section 2.2). The qualified reserves evaluator or auditor retained to report to a reporting issuer for the purposes of NI 51-101 is expected to anticipate these uses of the report. However, further use of the report (for example, in a securities offering document or in other news releases) would require written consent.
5.5 Disclosure of Resources (1) Disclosure of Resources Generally -The disclosure of resources, excluding proved and probable reserves, is not mandatory under NI 51-101, except that a reporting issuer must make disclosure concerning its unproved properties and resource activities in its annual filings as described in Part 6 of Form 51-101F1. Additional disclosure beyond this is voluntary and must comply with section 5.9 of NI 51-101 if anticipated results from the resources are voluntarily disclosed.
For prospectuses, the general securities disclosure obligation of “full, true and plain” disclosure of all material facts would require the disclosure of reserves or resources that are material to the issuer, even if the disclosure is not mandated by NI 51-101. Any such disclosure should be based on supportable analysis.
Disclosure of resources may involve the use of statistical measures that may be unfamiliar to a user. It is the responsibility of the evaluator and the reporting issuer to be familiar with these measures and for the reporting issuer to be able to explain them to investors. Information on statistical
- 23 measures may be found in the COGE Handbook (section 9 of volume 1 and section 4 of volume 2) and in the extensive technical literature 4 on the subject. (2) Disclosure of Anticipated Results under Subsection 5.9(1) of NI 51-101 - If a reporting issuer voluntarily discloses anticipated results from resources that are not classified as reserves, it must disclose certain basic information concerning the resources, which is set out in subsection 5.9(1) of NI 51-101. Additional disclosure requirements arise if the anticipated results disclosed by the issuer include an estimate of a resource quantity or associated value, as set out below in subsection 5.5(3).
If a reporting issuer discloses anticipated results relating to numerous aggregated properties, prospects or resources, the issuer may, depending on the circumstances, satisfy the requirements of subsection 5.9(1) by providing summarized information in respect of each prescribed requirement. The reporting issuer must ensure that its disclosure is reasonable, meaningful and at a level appropriate to its size. For a reporting issuer with only few properties, it may be appropriate to make the disclosure for each property. Such disclosure may be unreasonably onerous for a reporting issuer with many properties, and it may be more appropriate to summarize the information by major areas or for major projects. However, if a reporting issuer discloses an aggregate resource estimate (or associated value) referred to in subsection 5.9(2) of NI 51-101, the issuer must ensure that any aggregation of properties occurs within the most specific category of resource classification as required by paragraph 5.9(2)(b). A reporting issuer cannot aggregate properties across different categories of resources if a resource estimate referenced in subsection 5.9(2) is disclosed.
In respect of the requirement to disclose the risk and level of uncertainty associated with the anticipated result under paragraph 5.9(1)(d) of NI 51-101, risk and uncertainty are related concepts. Section 9 of volume 1 of the COGE Handbook provides the following definition of risk:
“Risk refers to a likelihood of loss and … It is less appropriate to reserves evaluation because economic viability is a prerequisite for defining reserves.”
The concept of risk may have some limited relevance in disclosure related to reserves, for instance, for incremental reserves that depend on the installation of a compressor, the likelihood that the compressor will be installed. Risk is often
4 For example, Determination of Oil and Gas Reserves, Monograph No. 1, Chapter 22, Petroleum Society of CIM, Second Edition 2004. (ISBN 0-9697990-2-0)) Newendorp, P., & Schuyler, J., 2000, Decision Analysis for Petroleum Exploration, Planning Press, Aurora, Colorado (ISBN 0-9664401-1-0). Rose, P. R., Risk Analysis and Management of Petroleum Exploration Ventures, AAPG Methods in Exploration Series No. 12, AAPG (ISBN 0-89181-062-1)
- 24 relevant to the disclosure of resource categories other than reserves, in particular the likelihood that an exploration well will, or will not, be successful.
Section 9 of volume 1 of the COGE Handbook provides the following definition of uncertainty:
“Uncertainty is used to describe the range of possible outcomes of a reserves estimate.”
However, the concept of uncertainty is generally applicable to any estimate, including not only reserves, but also to all other categories of resource.
In satisfying the requirement of paragraph 5.9(1)(d) of NI 51-101, a reporting issuer should ensure that their disclosure includes the risks and uncertainties that are appropriate and meaningful for their activities. This may be expressed quantitatively as probabilities or qualitatively by appropriate description. If the reporting issuer chooses to express the risks and level of uncertainty qualitatively, the disclosure must be meaningful and not in the nature of a general disclaimer.
If the reporting issuer discloses the estimated value of an unproved property other than a value attributable to an estimated resource quantity, then the issuer must disclose the basis of the calculation of the value, in accordance with paragraph 5.9(1)(e). This type of value is typically based on petroleum land management practices that consider activities and land prices in nearby areas. If done independently, it would be done by a valuator with petroleum land management expertise who would generally be a member of a professional organization such as the Canadian Association of Petroleum Landmen. This is distinguishable from the determination of a value attributable to an estimated resource quantity, as contemplated in subsection 5.9(2). This latter type of value estimate must be prepared by a qualified reserves evaluator or auditor.
The calculation of an estimated value described in paragraph 5.9(1)(e) may be based on one or more of the following factors:
• the acquisition cost of the unproved property to the reporting issuer, provided there have been no material changes in the unproved property, the surrounding properties, or the general oil and gas economic climate since acquisition;
• recent sales by others of interests in the same unproved property; • terms and conditions, expressed in monetary terms, of recent farm-in agreements related to the unproved property;
• terms and conditions, expressed in monetary terms, of recent work commitments related to the unproved property;
- 25 -• recent sales of similar properties in the same general area; • recent exploration and discovery activity in the general area; • the remaining term of the unproved property; or • burdens (such as overriding royalties) that impact on the value of the property. The reporting issuer must disclose the basis of the calculation of the value of the unproved property, which may include one or more of the above-noted factors.
The reporting issuer must also disclose whether the value was prepared by an independent party. In circumstances in which paragraph 5.9(1)(e) applies and where the value is prepared by an independent party, in order to ensure that the reporting issuer is not making public disclosure of misleading information, the CSA expect the reporting issuer to provide all relevant information to the valuator to enable the valuator to prepare the estimate.
(3) Disclosure of an Estimate of Quantity or Associated Value of a Resource under Subsection 5.9(2) of NI 51-101
(a) Overview of Subsection 5.9(2) of NI 51-101 Pursuant to subsection 5.9(2) of NI 51-101, if a reporting issuer discloses an estimate of a resource quantity or an associated value, the estimate must have been prepared by a qualified reserves evaluator or auditor. If a reporting issuer obtains or carries out an evaluation of resources and wishes to file or disseminate a report in a format comparable to that prescribed in Form 51-101F2, it may do so. However, the title of such a form must not contain the term “Form 51-101 F2” as this form is specific to the evaluation of reserves data. Reporting issuers must modify the report on resources to reflect that reserves data is not being reported. A heading such as “Report on Resource Estimate by Independent Qualified Reserves Evaluator or Auditor” may be appropriate. Although such an evaluation is required to be carried out by a qualified reserves evaluator or auditor, there is no requirement that it be independent. If an independent party does not prepare the report, reporting issuers should consider amending the title or content of the report to make it clear that the report has not been prepared by an independent party and the resource estimate is not an independent resource estimate.
The COGE Handbook recommends the use of probabilistic evaluation methods for making resource estimates, and although it does not provide detailed guidance there is a considerable amount of technical literature on the subject.
In addition, pursuant to section 5.3 and paragraph 5.9(2)(b) of NI 51-101, the reporting issuer must ensure that the estimated resource relates to the most specific category of resources in which the resource can be classified. As
- 26 discussed above in subsection 5.5(2) of this Companion Policy, if a reporting issuer wishes to disclose an aggregate resource estimate which involves the aggregation of numerous properties, prospects or resources, it must ensure that the disclosure does not result in a contravention of the requirement in paragraph 5.9(2)(b) of NI 51-101.
Subsection 5.9(2) requires the reporting issuer to disclose certain information in addition to that prescribed in subsection 5.9(1) of NI 51-101 to assist recipients of the disclosure in understanding the nature of risks associated with the estimate. This information includes a definition of the resource category used for the estimate, disclosure of factors relevant to the estimate and cautionary language.
(b) Definitions of Resource Categories For the purpose of complying with the requirement of defining the resource category, the reporting issuer must ensure that disclosure of the definition is consistent with the resource categories and terminology set out in the COGE Handbook, pursuant to section 5.3 of NI 51-101. Section 5 of volume 1 of the COGE Handbook and the NI 51-101 Glossary identify and define the various resource categories.
A reporting issuer may wish to report reserves or resources of oil or gas as “in-place volumes”. 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”. Terms such as “potential reserves”, “undiscovered reserves”, “reserves in place”, “in-place reserves” or similar terms must not be used because they are incorrect and misleading. The disclosure of reserves or resources must be consistent with the reserves and resources terminology and categories set out in the COGE Handbook, pursuant to section 5.3 of NI 51-101.
The reporting issuer can report other categories of resources, such as discovered and undiscovered resources, as in-place volumes. However, the issuer should caution the reader that this does not represent recoverable volumes.
(c) Application of Subsection 5.9(2) of NI 51-101 If the reporting issuer discloses an estimate of a resource quantity or associated value, the reporting issuer must additionally disclose the following:
(i) a definition of the resource category used for the estimate; (ii) the effective date of the estimate; (iii) significant positive and negative factors relevant to the estimate; (iv) the contingencies which prevent the classification of a contingent resource as a reserve; and (v) cautionary language as prescribed by subparagraph 5.9(2)(c)(v) of NI 51-101.
- 27 -The resource estimate may be disclosed as a single quantity such as a median or mean, representing the best estimate. Frequently, however, the estimate consists of three values that reflect a range of reasonable likelihoods (the low value reflecting a conservative estimate, the middle value being the best estimate, and the high value being an optimistic estimate).
Guidance concerning defining the resource category is provided above in section 5.3 and paragraph 5.5(3)(b) of this Companion Policy.
Reporting issuers are required to disclose significant positive and negative factors relevant to the estimate pursuant to subparagraph 5.9(2)(c)(iii). For example, if there is no infrastructure in the region to transport the resource, this may constitute a significant negative factor relevant to the estimate. Other examples would include a significant lease expiry or any legal, capital, political, technological, business or other factor that is highly relevant to the estimate. To the extent that the reporting issuer discloses an estimate for numerous properties that are aggregated, it may disclose significant positive and negative factors relevant to the aggregate estimate, unless discussion of a particular material resource or property is warranted in order to provide adequate disclosure to investors.
The cautionary language in subparagraph 5.9(2)(c)(v) includes a prescribed disclosure that there is no certainty that it will be commercially viable to produce any portion of the resources. The concept of commercial viability would incorporate the meaning of the word “commercial” provided in the NI 51-101 Glossary.
The general disclosure requirements of paragraph 5.9(2)(c) of NI 51-101 may be illustrated by an example. If a reporting issuer discloses, for example, an estimate of a volume of its bitumen which is a contingent resource to the issuer, the disclosure would include information of the following nature:
The reporting issuer holds a [●] interest in [provide description and location of interest]. As of [●] date, it estimates that, in respect of this interest, it has [●] bbls of bitumen, which would be classified as a contingent resource. A contingent resource is defined as [cite current definition in the COGE Handbook]. There is no certainty that it will be commercially viable to produce any portion of the resource. The contingencies which currently prevent the classification of the resource as a reserve are [state specific capital costs required to render production economic, applicable regulatory considerations, pricing, specific supply costs, technological considerations, and/or other relevant factors]. A significant factor relevant to the estimate is [e.g.] an existing legal dispute concerning title to the interest.
To the extent that this information is provided in a previously filed document, and it relates to the same interest in resources, the issuer can omit disclosure of
- 28 significant positive and negative factors relevant to the estimate and the contingencies which prevent the classification of the resource as a reserve. However, the issuer must make reference in the current disclosure to the title and date of the previously filed document.
5.6 Analogous Information A reporting issuer may wish to base an estimate on, or include comparative analogous information for their area of interest, such as reserves, resources, and production, from fields or wells, in nearby or geologically similar areas. Particular care must be taken in using and presenting this type of information. Using only the best wells or fields in an area, or ignoring dry holes, for instance, may be particularly misleading. It is important to present a factual and balanced view of the information being provided.
The reporting issuer must comply with the disclosure requirements of section 5.10 of NI 51-101, when it discloses analogous information, as that term is broadly defined in NI 51-101, for an area which includes an area of the reporting issuer’s area of interest. Pursuant to subsection 5.10(2) of NI 51-101, if the issuer discloses an estimate of its own reserves or resources based on an extrapolation from the analogous information, or if the analogous information itself is an estimate of its own reserves or resources, the issuer must ensure the estimate is prepared in accordance with the COGE Handbook and disclosed in accordance with NI 51-101 generally. For example, in respect of a reserves estimate, the estimate must be classified and prepared in accordance with the COGE Handbook by a qualified reserves evaluator or auditor and must otherwise comply with the requirements of section 5.2 of NI 51-101.
5.7 Consistent Use of Units of Measurement Reporting issuers should be consistent in their use of units of measurement within and between disclosure documents, to facilitate understanding and comparison of the disclosure. For example, reporting issuers should not, without compelling reason, switch between imperial units of measure (such as barrels) and Système International (SI) units of measurement (such as tonnes) within or between disclosure documents. Issuers should refer to Appendices B and C of volume 1 of the COGE Handbook for the proper reporting of units of measurement.
In all cases, in accordance with subparagraph 5.2(a)(iii) and section 5.3 of NI 51-101, reporting issuers should apply the relevant terminology and unit prefixes set out in the COGE Handbook.
- 29 -5.8 BOEs and McfGEs Section 5.14 of NI 51-101 sets out requirements that apply if a reporting issuer chooses to make disclosure using units of equivalency such as BOEs or McfGEs. The requirements include prescribed methods of calculation and cautionary disclosure as to the possible limitations of those calculations. Section 13 of the COGE Handbook, under the heading "Barrels of Oil Equivalent", provides additional guidance.
5.9 Finding and Development costs Section 5.15 of NI 51-101 sets out requirements that apply if a reporting issuer chooses to make disclosure of finding and development costs.
Because the prescribed methods of calculation under section 5.15 involve the use of BOEs, section 5.14 of NI 51-101 necessarily applies to disclosure of finding and development costs under section 5.15. As such, the finding and development cost calculations must apply a conversion ratio as specified in section 5.14 and the cautionary disclosure prescribed in section 5.14 will also be required.
BOEs are based on imperial units of measurement. If the reporting issuer uses other units of measurements (such as SI or "metric" measures), any corresponding departure from the requirements of section 5.15 should reflect the use of units other than BOEs.
5.10 Prospectus Disclosure In addition to the general disclosure requirements in NI 51-101 which apply to prospectuses, the following commentary provides additional guidance on topics of frequent enquiry.
(1) Significant Acquisitions - To the extent that an issuer engaged in oil and gas activities discloses a significant acquisition in its prospectus, it must disclose sufficient information for a reader to determine how the acquisition affected the reserves data and other information previously disclosed in the issuer’s Form 51-101F1. This requirement stems from Part 6 of NI 51-101 with respect to material changes. This is in addition to specific prospectus requirements for financial information satisfying significant acquisitions.
(2) Disclosure of Resources - The disclosure of resources, excluding proved and probable reserves, is generally not mandatory under NI 51-101, except for certain disclosure concerning the issuer’s unproved properties and resource activities as described in Part 6 of Form 51-101F1, which information would be incorporated into the prospectus. Additional disclosure beyond this is voluntary and must comply with sections 5.9 and 5.10 of NI 51-101, as applicable. However, the general securities disclosure obligation of “full, true, and plain” disclosure of all material facts in a prospectus would require the disclosure of resources that are material to the issuer, even if the disclosure is not mandated by NI 51-101. Any such disclosure should be based on supportable analysis.
- 30 -(3) Proved or Probable Undeveloped reserves - Further to the guidance provided in subsection 5.2(4) of this Companion Policy, proved or probable undeveloped reserves must be reported in the year in which they are recognized. If the reporting issuer does not disclose the proved or probable undeveloped reserves just because it has not yet spent the capital to develop these reserves, it may be omitting material information, thereby causing the reserves disclosure to be misleading. If the issuer has a prospectus, the prospectus might not contain full, true and plain disclosure of all material facts if it does not contain information about these proved undeveloped reserves.
(4) Reserves Reconciliation in an Initial Public Offering - In an initial public offering, if the issuer does not have a reserves report as at its prior year-end, or if this report does not provide the information required to carry out a reserves reconciliation pursuant to item 4.1 of Form 51-101F1, the CSA may consider granting relief from the requirement to provide the reserves reconciliation. A condition of the relief may include a description in the prospectus of relevant changes in any of the categories of the reserves reconciliation.
(5) Relief to Provide More Recent Form 51-101F1 Information in a Prospectus -If an issuer is filing a preliminary prospectus and wishes to disclose reserves data and other oil and gas information as at a more recent date than its applicable year-end date, the CSA may consider relieving the issuer of the requirement to disclose the reserves data and other information as at year-end.
An issuer may determine that its obligation to provide full, true and plain disclosure obliges it to include in its prospectus reserves data and other oil and gas information as at a date more recent than specified in the prospectus requirements. The prospectus requirements state that the information must be as at the issuer’s most recent financial year-end in respect of which the prospectus includes financial statements. The prospectus requirements, while certainly not presenting an obstacle to such more current disclosure, would nonetheless require that the corresponding information also be provided as at that financial year-end.
We would consider granting relief on a case-by-case basis to permit an issuer in these circumstances to include in its prospectus the oil and gas information prepared with an effective date more recent than the financial year-end date, without also including the corresponding information effective as at the year-end date. A consideration for granting this relief may include disclosure of Form 51-101F1 information with an effective date that coincides with the date of interim financial statements. The issuer should request such relief in the covering letter accompanying its preliminary prospectus. The grant of the relief would be evidenced by the prospectus receipt.
- 31 -PART 6 MATERIAL CHANGE DISCLOSURE 6.1 Changes from Filed Information Part 6 of NI 51-101 requires the inclusion of specified information in disclosure of certain material changes.
The information to be filed each year under Part 2 of NI 51-101 is prepared as at, or for a period ended on, the reporting issuer’s most recent financial year-end. That date is the effective date referred to in subsection 6.1(1) of NI 51-101. When a material change occurs after that date, the filed information may no longer, as a result of the material change, convey meaningful information, or the original information may have become misleading in the absence of updated information.
Part 6 of NI 51-101 requires that the disclosure of the material change include a discussion of the reporting issuer’s reasonable expectation of how the material change has affected the issuer’s reserves data and other information contained in its filed disclosure. This would not necessarily require that an evaluation be carried out. However, the reporting issuer should ensure it complies with the general disclosure requirements set out in Part 5, as applicable. For example, if the material change report discloses an updated reserves estimate, this should be prepared in accordance with the COGE Handbook and by a qualified reserves evaluator or auditor.
This material change disclosure can reduce the likelihood of investors being misled, and maintain the usefulness of the original filed oil and gas information when the two are read together.
APPENDIX 1 to COMPANION POLICY 51-101CP STANDARDS OF DISCLOSURE FOR OIL AND GAS ACTIVITIES
SAMPLE RESERVES DATA DISCLOSURE Format of Disclosure NI 51-101 and Form 51-101F1 do not mandate the format of the disclosure of reserves data and related information by reporting issuers. However, the CSA encourages reporting issuers to use the format presented in this Appendix.
Whatever format and level of detail a reporting issuer chooses to use in satisfying the requirements of NI 51-101, the objective should be to enable reasonable investors to understand and assess the information, and compare it to corresponding information presented by the reporting issuer for other reporting periods or to similar information presented by other reporting issuers, in order to be in a position to make informed investment decisions concerning securities of the reporting issuer.
A logical and legible layout of information, use of descriptive headings, and consistency in terminology and presentation from document to document and from period to period, are all likely to further that objective.
Reporting issuers and their advisers are reminded of the materiality standard under section 1.4 of NI 51-101, and of the instructions in Form 51-101F1.
See also sections 1.4, 2.2 and 2.3 and subsections 2.7(8) and 2.7(9) of Companion Policy 51-101CP.
Sample Tables The following sample tables provide an example of how certain of the reserves data might be presented in a manner consistent with NI 51-101.
These sample tables do not reflect all of the information required by Form 51-101F1, and they have been simplified to reflect reserves in one country only. For the purpose of illustration, the sample tables also incorporate information not mandated by NI 51-101 but which reporting issuers might wish to include in their disclosure; shading indicates this non-mandatory information.
SUMMARY OF OIL AND GAS RESERVES as of December 31, 2006
CONSTANT PRICES AND COSTS [OPTIONAL SUPPLEMENTAL DISCLOSURE]
LIGHT AND MEDIUM OIL Gross Net Gross RESERVES CATEGORY (Mbbl) (Mbbl) (Mbbl) PROVED Developed Producing xx xx xx Developed Non-Producing xx xx xx Undeveloped xx xx xx TOTAL PROVED xxx xxx xxx PROBABLE xx xx xx TOTAL PROVED PLUS PROBABLE xxx xxx xxx (1) Other product types must be added if material. (2) Estimates of reserves of natural gas may be reported separately for (i) associated and non-associated gas (combined), (ii) solution gas and (iii)coal bed methane.
OPTIONAL SUPPLEMENTAL
RESERVES (1) HEAVY NATURAL NATURAL GAS OIL GAS (2) LIQUIDS Net Gross Net Gross Net (Mbbl) (MMcf) (MMcf) (Mbbl) (Mbbl) xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xxx xxx xxx xxx xxx xx xx xx xx xx xxx xxx xxx xxx xxx
-2 -SUMMARY OF NET PRESENT VALUES OF FUTURE NET REVENUE as of December 31, 2006
CONSTANT PRICES AND COSTS [OPTIONAL SUPPLEMENTAL DISCLOSURE]
NET PRESENT VALUES OF FUTURE NET REVENUE BEFORE INCOME TAXES AFTER INCOME TAXES UNIT VALUE BEFORE INCOME DISCOUNTED AT (%/year) DISCOUNTED AT (%/year) TAX DISCOUNTED AT 10%/year
0 5 10 15 20 RESERVES CATEGORY (MM$) (MM$) (MM$) (MM$) (MM$) PROVED Developed Producing xx xx xx xx xx Developed Non-Producing xx xx xx xx xx
Undeveloped xx xx xx xx xx TOTAL PROVED xxx xxx xxx xxx xxx PROBABLE xx xx xx xx xx TOTAL PROVED PLUS PROBABLE xxxx xxxx xxxx xxxx xxxx OPTIONAL SUPPLEMENTAL
0 5 10 15 20 ($/Mcf) (MM$) (MM$) (MM$) (MM$) (MM$) ($/bbl) xx xx xx xx xx xx xx xx xx xx xx xx xx
xx xx xx xx xx xxx xxx xxx xxx xxx xx xx xx xx xx xx xx xxxx xxxx xxxx xxxx xxxx xxx Reference: Item 2.2 of Form 51-101F1
-3- TOTAL FUTURE NET REVENUE (UNDISCOUNTED) as of December 31, 2006
CONSTANT PRICES AND COSTS [OPTIONAL SUPPLEMENTAL DISCLOSURE]
OPERATING DEVELOPMENT RESERVES REVENUE ROYALTIES COSTS COSTS CATEGORY (M$) (M$) (M$) (M$) Proved Reserves xxx xxx xxx xxx Proved Plus Probable Reserves xxx xxx xxx xxx OPTIONAL SUPPLEMENTAL
FUTURE FUTURE NET NET ABANDONMENT REVENUE REVENUE AND BEFORE AFTER RECLAMATION INCOME INCOME INCOME COSTS TAXES TAXES TAXES (M$) (M$) (M$) (M$) xxx xxx xxx xxx xxx xxx xxx xxx Reference: Item 2.2 of Form 51-101F1
- 4 -FUTURE NET REVENUE BY PRODUCTION GROUP as of December 31, 2006
CONSTANT PRICES AND COSTS [OPTIONAL SUPPLEMENTAL DISCLOSURE] RESERVES CATEGORY PRODUCTION GROUP Proved Reserves Light and Medium Crude Oil (including solution gas and other by-products) Heavy Oil (including solution gas and other by-products) Natural Gas (including by-products but excluding solution gas from oil wells) Non-Conventional Oil and Gas Activities Proved Plus Probable Reserves Light and Medium Crude Oil (including solution gas and other by-products) Heavy Oil (including solution gas and other by-products) Natural Gas (including by-products but excluding solution gas from oil wells) Non-Conventional Oil and Gas Activities OPTIONAL SUPPLEMENTAL
FUTURE NET REVENUE BEFORE INCOME TAXES (discounted at 10%/year) (M$) xxx xxx xxx xxx xxx xxx xxx xxx Reference: Item 2.2 of Form 51-101 F1
- 5 -SUMMARY OF OIL AND GAS RESERVES as of December 31, 2006
FORECAST PRICES AND COSTS
LIGHT AND MEDIUM OIL Gross Net Gross RESERVES CATEGORY (Mbbl) (Mbbl) (Mbbl) PROVED Developed Producing xx xx xx Developed Non-Producing xx xx xx Undeveloped xx xx xx TOTAL PROVED xxx xxx xxx PROBABLE xx xx xx TOTAL PROVED PLUS PROBABLE xxx xxx xxx (1) Other product types must be added if material. (2) Estimates of reserves of natural gas may be reported separately for (i) associated and non-associated gas (combined), (ii) solution gas and (iii)coal bed methane.
RESERVES (1) HEAVY NATURAL NATURAL GAS OIL GAS (2) LIQUIDS Net Gross Net Gross Net (Mbbl) (MMcf) (MMcf) (Mbbl) (Mbbl) xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xxx xxx xxx xxx xxx xx xx xx xx xx xxx xxx xxx xxx xxx
- 6 -SUMMARY OF NET PRESENT VALUES OF FUTURE NET REVENUE as of December 31, 2006
FORECAST PRICES AND COSTS
NET PRESENT VALUES OF FUTURE NET REVENUE BEFORE INCOME TAXES AFTER INCOME TAXES UNIT VALUE BEFORE INCOME DISCOUNTED AT (%/year) DISCOUNTED AT (%/year) TAX DISCOUNTED AT 10%/year
0 5 10 15 20 RESERVES CATEGORY (MM$) (MM$) (MM$) (MM$) (MM$) PROVED Developed Producing xx xx xx xx xx Developed Non-Producing xx xx xx xx xx
Undeveloped xx xx xx xx xx TOTAL PROVED xxx xxx xxx xxx xxx PROBABLE xx xx xx xx xx TOTAL PROVED PLUS PROBABLE xxxx xxxx xxxx xxxx xxxx (1) A reporting issuer may wish to satisfy its requirement to disclose these unit values by inserting this disclosure for each category of proved reserves and for probable reserves, by production group, in the chart for item 2.1(3)(c) of Form 51-101F1 (see sample chart below entitled Future Net Revenue by Production Group). (2) The unit values are based on net reserve volumes.
Reference: Item 2.1(1) and (2) of Form 51-101F1
0 5 10 15 20 ($/Mcf) (MM$) (MM$) (MM$) (MM$) (MM$) ($/bbl) xx xx xx xx xx xx xx xx xx xx xx xx xx
xx xx xx xx xx xxx xxx xxx xxx xxx xx xx xx xx xx xx xx xxxx xxxx xxxx xxxx xxxx xxx
-7-TOTAL FUTURE NET REVENUE (UNDISCOUNTED) as of December 31, 2006
FORECAST PRICES AND COSTS
OPERATING DEVELOPMENT RESERVES REVENUE ROYALTIES COSTS COSTS CATEGORY (M$) (M$) (M$) (M$) Proved Reserves xxx xxx xxx xxx Proved Plus Probable Reserves xxx xxx xxx xxx
FUTURE FUTURE NET NET ABANDONMENT REVENUE REVENUE AND BEFORE AFTER RECLAMATION INCOME INCOME INCOME COSTS TAXES TAXES TAXES (M$) (M$) (M$) (M$) xxx xxx xxx xxx xxx xxx xxx xxx Reference: Item 2.1(3)(b) of Form 51-101F1
-8 -FUTURE NET REVENUE BY PRODUCTION GROUP as of December 31, 2006
FORECAST PRICES AND COSTS RESERVES CATEGORY PRODUCTION GROUP Proved Reserves Light and Medium Crude Oil (including solution gas and other by-products) Heavy Oil (including solution gas and other by-products) Natural Gas (including by-products but excluding solution gas and by-products from oil wells) Non-Conventional Oil and Gas Activities Total Proved Plus Probable Reserves Light and Medium Crude Oil (including solution gas and other by-products) Heavy Oil (including solution gas and other by-products) Natural Gas (including by-products but excluding solution gas from oil wells) Non-Conventional Oil and Gas Activities Total
FUTURE NET REVENUE BEFORE UNIT VALUE INCOME TAXES ($/Mcf) (discounted at 10%/year) ($/bbl) (M$) xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Reference: Item 2.1(3)(c) of Form 51-101F1
-9 -SUMMARY OF PRICING ASSUMPTIONS as of December 31, 2006
CONSTANT PRICES AND COSTS OIL (2) WTI Edmonton Par Cushing Price Hardisty Heavy Oklahoma 40 0 API 12 0 API Year ($US/bbl) ($Cdn/bbl) ($Cdn/bbl) Historical (Year End) 2003 xx xx xx 2004 xx xx xx 2005 xx xx xx 2006 (Year End) xx xx xx OPTIONAL SUPPLEMENTAL
(1) This disclosure is triggered by optional supplemental disclosure of item 2.2 of Form 51-101F1. (2) This summary table identifies benchmark reference pricing schedules that might apply to a reporting issuer. (3) The exchange rate used to generate the benchmark reference prices in this table. Reference: Item 3.1 of Form 51-101 F1
(1) NATURAL NATURAL GAS (2) Cromer GAS LIQUIDS EXCHANGE Medium AECO Gas FOB RATE (3) 29.3 0 API Price Field Gate ($Cdn/bbl) ($Cdn/MMBtu ($Cdn/bbl) ($US/$Cdn) xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx
-10 -SUMMARY OF PRICING AND INFLATION RATE ASSUMPTIONS as of December 31, 2006
FORECAST PRICES AND COSTS
OIL (1) Cromer WTI Cushing Edmonton Par Hardisty Heavy Medium 29.3 Oklahoma Price 40 0 API 12 0 API API Year $US/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl Historical (4) 2003 xx xx xx xx 2004 xx xx xx xx 2005 xx xx xx xx 2006 xx xx xx xx Forecast 2007 xx xx xx xx 2008 xx xx xx xx 2009 xx xx xx xx 2010 xx xx xx xx 2011 xx xx xx xx Thereafter xx xx xx xx (1) This summary table identifies benchmark reference pricing schedules that might apply to a reporting issuer. (2) Inflation rates for forecasting prices and costs. (3) Exchange rates used to generate the benchmark reference prices in this table (4) Item 3.2 (1)(b) of Form 51-101F1 also requires disclosure of the reporting issuer’s weighted average historical prices for the most recent financial year (2006, in this example). OPTIONAL SUPPLEMENTAL
Reference: Item 3.2 of Form 51-101 F1
NATURAL NATURAL GAS (1) GAS LIQUIDS INFLATION EXCHANGE 0 AECO Gas FOB RATES (2) RATE (3) Price Field Gate ($Cdn/MMBtu) ($Cdn/bbl) %/Year $US/$Cdn xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx
-11 -RECONCILIATION OF COMPANY GROSS RESERVES BY PRODUCT TYPE FORECAST PRICES AND COSTS LIGHT AND MEDIUM OIL Gross Gross Proved Gross Proved Probable Plus Probable Gross Proved FACTORS (Mbbl) (Mbbl) (Mbbl) (Mbbl) December 31, 2005 xxx xxx xxx xxx Extensions & Improved Recovery xx xx xx xx Technical Revisions xx xx xx xx Discoveries xx xx xx xx Acquisitions xx xx xx xx Dispositions xx xx xx xx Economic Factors xx xx xx xx Production xx xx xx xx December 31, 2006 xxx xxx xxx xxx (1) The reserves reconciliation must include other product types, including synthetic oil, bitumen, coal bed methane, hydrates, shale oil and shale gas, if material for the reporting issuer.
Reference: Item 4.1 of Form 51-101F1
(1) ASSOCIATED AND HEAVY OIL NON-ASSOCIATED GAS Gross Gross Proved Gross Gross Proved Probable Plus Probable Gross Proved Probable Plus Probable (Mbbl) (Mbbl) (MMcf) (MMcf) (MMcf) xxx xxx xxx xxx xxx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xxx xxx xxx xxx xxx