The first major overhaul in 2 decades of Canadian disclosure regulations for publicly traded oil and gas companies is now well under way.
The Alberta Securities Commission (ASC) is spearheading the project to develop new legislation that is expected to be adopted by other regulatory agencies across Canada.
New regulation objective
ASC spokesman Stephen Munson says the objective is to foster both investor protection and efficient capital raising by public companies by enhancing the quality, timeliness, and comparability of information provided by public oil and gas companies about reserves and other related estimates.
Munson says the new standards would replace a "somewhat limited and dated policy" that focuses on prospectus disclosure. He says the new rules would establish a continual disclosure regime involving annual public filings in the same fashion that annual financial statements are filed.
There have been a number of cases in the past where companies released information on reserves estimates or production forecasts that later proved to be inaccurate and misleading.
Industry groups, the public and others have had significant input in drafting of the new rules, known as N1-51-101, which ASC hopes will be introduced early in 2003 as national standards.
A task force with broad representation from the public and interested stakeholders made initial recommendations to ASC in January 2001.
Input was provided by oil and gas companies, reserves evaluators, institutional investors, business and professional organizations, law firms, investment brokers, and stock exchanges.
New reserves definitions are being developed by the Petroleum Society of CIM (Canadian Institute of Mining, Metallurgy, and Petroleum). Reserves evaluation standards are being developed by the Calgary chapter of the Society of Petroleum Evaluation Engineers (SPEE).
CAPP stance
The Canadian Association of Petroleum Producers (CAPP) says it has been supportive of the process for reviewing reporting standards.
"CAPP has not engaged directly in this. Many of our members have, due to their direct reporting responsibility," said CAPP Vice-Pres. Greg Stringham. "We know that there have been many recommendations that will help to assure investors and analysts of complete reporting and disclosure on a common basis."
Stringham says there is still an effort to try to reconcile US reporting standards with new ASC standards for companies that are required to report both. He says CAPP members and the ASC are continuing to work on details of acceptable standards to arrive at a new level of reporting and common definitions that will be workable and reasonable to implement.
New regs' function
ASC says the new regulations will:
Make clear the responsibility of a publicly traded company for its reserves and related disclosures.
Describe a role for company directors in relation to disclosure and encourage establishment of a reserves committee of directors.
Mandate the involvement of independent qualified reserves evaluators or auditors.
Set out standards that would apply if a company decides to publicly disclose certain types of information, even though the information is not mandatory. This would be primarily to enable readers to understand and compare that information and set out the information to be filed each year.
US-Canadian rules reconciliation
ASC says it would be willing to consider discretionary relief for certain categories of companies, active in capital markets in Canada and the US, to enable them to provide disclosure that would also satisfy US Securities and Exchange Commission requirements.
ASC is taking the lead for other regulators across the country in developing the new standards. Final approval is expected in mid-November, and approval will then be sought from regulatory bodies in other provinces.
ASC says it hopes to bring the new standards into effect in early 2003, but they will not be mandatory for companies with financial years ending before Dec. 31, 2003.The implementation date is intended to give companies time to become familiar with new standards and to develop additional guidance on reserves definitions and on evaluation standards being developed by SPEE.
Munson says there is no direct connection between consideration by ASC of the Sarbanes-Oxley Act and other US proposals governing corporate financial and operations disclosure (see related story, p. 22. "We are taking into account developments in securities regulations here and in other jurisdictions," Munson said. "But ASC does not believe Sarbanes-Oxley or any possible Canadian equivalent would take the place of N1-51-101 or cause it to be revised substantially."
