On February 27, 2009, the Canadian Securities Administrators (“CSA”) published CSA Staff Notice 51-327 – Oil and Gas Disclosure: Resources Other than Reserves Data (“Staff Notice 51- 327”). While the disclosure of “resources” not included in reserves data is not mandated by National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”), the CSA has seen a significant increase in the voluntary disclosure of possible reserves and other resource classes. In response, the CSA published Staff Notice 51-327 to provide guidance on recurring issues that have been found in reporting issuers’ disclosure of resources other than reserves data.
Particular items of note include:
Stand-Alone Possible Reserves
- The CSA is of the view that the disclosure of stand-alone possible reserves is only appropriate in certain instances, such as where project economics are such that no proved or probable reserves can be assigned, but on a proved + probable + possible reserves basis, the project is economically viable.
- In those limited circumstances where the disclosure of stand-alone possible reserves is proper, the reporting issuer should provide a clear explanation as to why the possible reserves have been disclosed on a stand-alone basis, and the issuer should have an intent to develop the stand-alone possible reserves within a reasonable time.
High and Low Case Category Estimates
- To ensure that disclosure is balanced and not misleading, the CSA advises that (i) if a reporting issuer discloses a proved + probable + possible reserves estimate, the proved and proved + probable estimates should also be disclosed, and (ii) if a reporting issuer discloses a high case estimate of other classes, the best and low case estimates should also be disclosed.
Adding Across Resource Classes
- As reserves, contingent resources and prospective resources each carry different risks associated with achieving commerciality, a failure to account for these different risks when adding different resource class estimates can result in highly misleading information. Accordingly, a reporting issuer should only disclose summations of different resource class estimates as follows:
- an unrisked summation of proved + probable + possible reserves and high estimates of contingent and prospective resources should be described as “remaining recoverable resources (unrisked)” and should be accompanied by a cautionary statement addressing the classes included in the summation; and
- a risked summation of resource classes should describe the disclosure as “remaining recoverable resources (risked)”, and (i) the disclosure should include the best estimate and, if other estimates are disclosed, corresponding higher and lower estimates, and (ii) the disclosure should be accompanied by a statement disclosing that the remaining recoverable resources (risked) were adjusted for risk.
Partially Risked Prospective Resources
- Reporting issuers will often disclose prospective resources which are risked for the chance of discovery, but not for the chance of development. Where such disclosure is made, the results should be accompanied by a cautionary statement disclosing that the partially risked prospective resources have not been risked for chance of development, and that if a discovery is made, there is no certainty that it will be developed, or if it is developed, there is no certainty as to the timing of such development.
Use of the Term “Best Estimate”
- The CSA is of the view that the term “best estimate”, as defined in the Canadian Oil and Gas Evaluation Handbook (“COGEH”), should not be used to describe the results of arithmetic or probabilistic aggregation of resource estimates, unless these are risked in such a manner that the aggregated value is strictly in accord with the COGEH definition of “best estimate”.
Technology Under Development for Contingent Resources
- When an evaluation cannot be carried out on the basis of established technology, contingent resources may be assigned on the basis of “technology under development”. The CSA is of the view that technology under development should only be used where:
- the existing technology has been developed in analogous reservoirs;
- there has been a successful pilot project in the reservoir of interest or a good, relevant analog; and
- careful examination and comparative analysis of the reservoir’s features has been conducted to confirm that the technology is specifically applicable to that reservoir.
Classification to the Most Specific Class and Category of Resource
- NI 51-101 requires resources to be classified to their most specific category, except in exceptional circumstances, such as where the reporting issuer is unable to define a project for the recovery of a resource from a petroleum accumulation. Where a reporting issuer is unable to define a project for the recovery of such an accumulation, the CSA is of the view that those accumulations are unrecoverable, and the CSA advises that the disclosure of such volumes is only appropriate where the reporting issuer is developing recovery projects, and the disclosure is accompanied by a discussion of significant positive and negative factors.
Classification of Unconventional Hydrocarbons as Discovered Petroleum- Initially-In-Place
- Where primary flow testing cannot be performed, the “known accumulation” requirement can be satisfied by a reliance on the following factors:
- a stimulation process which results in temporary flow;
- tests of existing core data that provide convincing evidence of the presence of significant moveable oil; and
- a good analogy to a nearby and geologically comparable known accumulation.
In light of an increase in the voluntary disclosure of resources other than reserves data by reporting issuers, the CSA issued Staff Notice 51-327 to provide guidance on recurring issues that have arisen in their review of such disclosure.
Staff Notice 51-327 emphasizes the need for reporting issuers to supplement the disclosure of resources other than reserves data with additional context, and it recommends the regular use of cautionary statements to assist reporting issuers in providing that context.