Value Added to the Membership of the Division of Professional Affairs
by Rick L. Ericksen, Chair
State Registration and Licensing Committee
The DPA has recently proposed guidelines to the AAPG Executive Committee related to the implementation and administration of Canadian National Instrument 51-101 (hereinafter referred to as CI 51-101) within the DPA membership. The DPA Council had earlier unanimously passed a resolution to contact the Canadian Securities Administrators (CSA) in late 2002, pending approval by the AAPG's Executive Committee. A letter issued earlier this year requested an opinion from the CSA as to whether the members of the DPA would be qualified to practice under CI 51-101. Instead of issuing the requested opinion, the CSA chose to issue a citation accepting the DPA/AAPG under CI 51-101.
Background — Related but Unrelated
One may remember the Canadian company, Bre-X Minerals Ltd. In short, Bre-X reported gold assays for a newly discovered gold deposit, located in the headwaters of the Busang River in the jungle of Borneo, which was touted as possibly the richest ever discovered in written history. Without going into all of the details, Freeport-McMoRan Copper & Gold was chosen to operate the mining activities and, as part of its due diligence, drilled confirmation coreholes. One such corehole was reportedly drilled a meter and a half from a Bre-X’s corehole and, instead of confirming the gold contents as reported by Bre-X, it instead contained insignificant amounts of gold. The rest of the story is history and shortly following these disclosures was the development and implementation of Canadian Instrument 43-101 by the CSA. Because Bre-X was a Canadian company whose stock was publicly traded on the Canadian stock exchanges, the CSA implemented guidelines under CI 43-101 that specified that those involved with the estimation of reserves, in this case solid minerals, would be required to meet certain professional standards and be subject to additional professional scrutiny and oversight.
Related to CI 43-101 was the subsequent development and implementation of CI 51-101 by the CSA for the purpose of avoiding a Bre-X type development in the oil and gas industry. Its development, however, also came on the heels of reported over-estimates of oil and gas reserves by some Canadian companies whose stocks were being traded in the Canadian exchanges. As implemented, CI 51-101 deals specifically with those who may perform oil and gas reserve analysis for companies whose stocks are traded on the Canadian stock exchanges. Under this document, those who perform oil and gas reserve analysis are termed “Qualified Reserve Evaluators” or QREs. Qualified Reserve Evaluators, in addition to determining the amount of oil and gas reserves under several scenarios, are also involved with activities which include production forecasts, determination of revenue, accounting of capital and operating costs (including royalties and income taxes), calculation of cash flow, and the determination of profitability indices. It is of further significance to note that a prospectus of a company with no oil and gas reserves, and only prospects, may also fall under CI 51-101 as it applies to projected oil and gas reserves of those prospects.
Of concern to the DPA Council and its leadership was that, since the implementation of this instrument, DPA members were not recognized as qualified to perform reserve analysis for oil and gas reserves of those Canadian companies trading on the Canadian exchanges, even if that production was located outside of Canada. It is of further concern that, not only the stocks of Canadian-based companies are subject to CI 51-101, but stocks of companies whose main offices lie outside of Canada but traded through the Canadian exchanges may be subject to CI 51-101. It has been reported that several multi-national companies have requested and been granted exemption from CI 51-101 and instead have relied on other reporting guidelines, e.g. the U.S. Security and Exchange Commission. At this juncture, it is important to note that current ongoing initiatives may alter this current situation and that CI 51-101 or similar guidance instrument(s) may be implemented in the future which will essentially forego these current Canadian exemptions. If this occurs, there will be a significant change in doing the business of oil and gas reserve forecasting resulting in the implementation of guidelines similar to CI 51-101 but based on global perspectives and benchmark requirements.
The Alberta exchange has a series of documents specifying reporting requirements related to CI 51-101 that the reader is referred to for further guidance which may be found at http://www.albertasecurities.com, as well as additional guidelines for reporting which may be found in the Canadian Oil and Gas Evaluation Handbook (COGEH), Volume 1 available at http://www.petsoc.org. The handbook (COGEH, Vol. 1) titled “Reserves Definitions and Evaluation Practices and Procedures” is incorporated by reference in CI 51-101 and is the standard currently being utilized for “Best Practices” in reserve evaluation practices and procedures. There is a yet to be published companion publication (COGEH Volume 2), titled “Detailed Evaluation Guidelines” which is designed to further elucidate the implementation of CI 51-101. COGEH, Vol. 2 is anticipated to be published sometime within the next year
Why did the DPA Executive Committee and Advisory Council unanimously endorse the proposal that the DPA seek recognition by the Canadian Securities Administrators?
As a self-regulatory organization of geologists, the DPA sought recognition by the Canadian Security Commission for the following reasons:
- Such recognition would enhance the public visibility and prestige of the DPA.
- Further, such recognition would provide additional value to DPA certification of those members who work for companies or for those consultants who provide reserve estimates for Canadian-based and other non-exempt companies whose stocks are traded on the Canadian stock exchanges. Furthermore, it promotes the salability of services that may be provided by DPA members.
- It places the DPA in a position to be able to capitalize on potential broadening of the Canadian Securities Administrators or other similar regulatory agencies’ potential requirements to similar stocks traded on the global stock exchanges.
What are the requirements of a ”Qualified Reserve Evaluator” under CI 51-101?
Under CI 51-101. in order to be a “Qualified Reserve Evaluator” (QRE), one is subject to the following requirements:
Requirement One:
Possesses professional qualifications and experience appropriate for the estimation, evaluation, review or audit of reserves data and related information.
Requirement Two:
Is a member in good standing of a self-regulatory organization of engineers, geologists, other geoscientists or other professionals whose profession is relevant for the applicable purpose under Requirement One that:
- admits members primarily on the basis of their educational qualifications;
- requires its members to comply with the professional standards of competence and ethics established by the organization;
- has disciplinary powers, including the power to suspend or expel a member; and
- is either:
- given authority or recognition by statute in a Canadian jurisdiction; or
- accepted for this purpose by the securities regulatory authority or the regulator.
Acceptance of DPA/AAPG Members as Qualified Reserve Evaluators
On June 8, 2004, upon the recommendation of the Canadian Securities Administrators staff committee responsible for CI 51-101, the securities regulatory authority in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, Newfoundland and Labrador, Yukon, Northwest Territories, and Nunavut (the Jurisdictions), accepted the DPA/AAPG membership as qualified to be QREs. Upon this acceptance, the AAPG Executive Committee directed the DPA to implement and administer this acceptance by the CSA through the DPA. As such, in order to be accepted under the Canadian regulations, you first must be a member of the DPA. In addition, because of the complexity and legal ramifications inherent in its implementation, the following guidelines have been proposed for consideration by the AAPG Executive Committee:
Proposed Guidelines
Since the acceptance of the Division of Professional Affairs/AAPG membership as QREs and the DPA having been designated to implement and administer CI 51-101 within the AAPG, the following guidelines have been suggested by the Division for approval by the AAPG Executive Committee. Note that in addition to reserve analysis, other QRE activities which are regulated under this Canadian document and under the purview of the DPA include production forecasts, determination of revenue, accounting of capital and operating costs (including royalties and income taxes), calculation of cash flow, and the determination of profitability indices.
- To be qualified under the terms and conditions of CI 51-101 as administered under the DPA, a Qualified Reserve Evaluator must:
- Be a member in good standing with the DPA;
- Possess a minimum of three (3) years of experience in evaluating oil and gas resources and reserves;
- Provide a written statement to the Division, attesting that said Certified Petroleum Geologist is knowledgeable and qualified to perform reserve evaluation activities pursuant to and in compliance with the terms and conditions specified herein and within CI 51-101.
- Upon verification of itema) and receipt of the item c) by the Division, it will send a letter to the DPA member acknowledging that the Division member is in compliance with the requirements as set forth and that the member may perform activities of a qualified reserve evaluator provided that they comply with all the terms and conditions as specified under CI 51-101.
Implementation by the Division
Once the member has received confirmation from the Division they will then be accepted to practice under CI 51-101.
For additional information please contact Rick Ericksen at (601) 354-6370 or
by email at [email protected].