The Toronto Stock Exchange (the "TSX") has published for comment proposed changes to its Company Manual to create a new subcategory of minimum listing requirements for oil and gas companies. This new subcategory will facilitate the listing of development stage oil and gas companies that are unable to establish proved developed reserves, which is a requirement to obtain a TSX listing.
Existing TSX Rules
The existing TSX minimum listing requirements provide that an oil and gas company must establish minimum proved developed reserves of $3 million for Listing Non-Exempt Issuers and $7.5 million Listing-Exempt Issuers. Proved developed reserves are defined as those reserves that are expected to be recovered from existing wells and installed facilities, or if facilities have not been installed, that would involve a low expenditure, when compared to the cost of drilling a well, to put those reserves on production.
The current practice of the TSX is to grant informal exemptions to development stage oil and gas companies that are unable to establish sufficient proved developed reserves.
The proposed amendments will remove the requirement for an oil and gas company to establish its proved developed reserves. In order to obtain a listing, the proposed amendments require that an oil and gas company meets the following minimum listing requirements: (a) contingent resources of $500 million; (b) a minimum market value of the issued securities to be listed of $200 million; (c) a clearly defined development plan which will advance the property; (d) sufficient funds for an 18-month period or to bring the property into commercial production; and (e) an appropriate capital structure. "Contingent resources" is defined in accordance with the Canadian Oil and Gas Evaluation Handbook.
The requirement for an oil and gas company to establish contingent resources rather than proved developed reserves will facilitate the listing of development stage oil and gas companies. However, in addition to the foregoing, an applicant will also have to establish a market capitalization of $200 million of the securities to be listed in order to obtain a listing. This additional requirement is intended to maintain a high standard for companies that choose to list under this new subcategory and is consistent with the current practices of the TSX in granting exemptions to development stage oil and gas companies.