EnCana Corporation
Headnote
National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions - exemption granted from the requirement to include three years of audited financial statements for a business for which securities are being distributed in connection with a restructuring transaction and from the requirement to provide reserves data and other oil and gas information as of the date of the most recent audited balance sheet in the information circular - alternative disclosure to be provided.
Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations , s. 13.1.
Form 51-102F5 Information Circular , Item 14.2.
Citation: EnCana Corporation, 2008 ABASC 495
August 25, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
(the Jurisdictions)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
ENCANA CORPORATION
(the Filer or EnCana)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Makers) has received an application from the Filer (the Application) for a decision under the securities legislation of the Jurisdictions (the Legislation) that EnCana be exempt, subject to certain conditions, from the requirement to provide, under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), and more specifically under Item 14.2 of Form 51-102F5 Information Circular (Form 51-102F5), in the information circular (the Information Circular) to be sent to certain securityholders of the Filer in connection with an Arrangement (as defined herein):
(a) certain financial disclosure in respect of the IOCo Assets (as defined herein), in accordance with Item 32 of Form 41-101F1 Information Required in a Prospectus (Form 41-101F1), for the financial year ended December 31, 2005 (the Financial Statements Relief); and
(b) certain reserves data and other oil and gas information in respect of the IOCo Assets, in accordance with Item 5.5 of Form 41-101F1 (the Reserves Disclosure Relief and collectively, with the Financial Statements Relief, the Requested Relief); and
that this decision and the Application (collectively, the Confidential Material) be kept confidential and not be made public until the earlier of: (i) the date on which the Filer mails the Information Circular; (ii) the date that the Filer advises the Decision Makers that there is no longer any need for the Confidential Material to remain confidential; and (iii) the date that is 90 days after the date of this decision.
Application of Principal Regulator System
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission is the principal regulator for this application;
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick, Newfoundland and Labrador, Northwest Territories and Nova Scotia, Nunavut, Prince Edward Island and Yukon; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented to the Decision Makers by the Filer:
EnCana Corporation
1. EnCana is a reporting issuer (or the equivalent thereof) in each of the provinces and territories of Canada.
2. To its knowledge, EnCana is not in default of any of the requirements of the applicable securities legislation in any of the provinces or territories in which it is a reporting issuer.
3. On December 16, 2003, EnCana obtained, from the securities regulatory authorities of each of the provinces and territories of Canada under the terms of an MRRS Decision Document of even date (the EnCana Order), exemptive relief from certain disclosure requirements of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) subject to certain conditions, including the condition to file, not later than the date on which it is required to file audited financial statements for its most recent financial year:
(a) a modified statement of reserves data and other information relating to its oil and gas activities containing the information contemplated by, and consistent with, the disclosure requirements related to its oil and gas activities under United States securities legislation (the U.S. Disclosure Requirements) and the disclosure practices concerning oil and gas activities routinely provided by issuers in the United States (the U.S. Disclosure Practices), which include:
(i) the information required by the FASB Standard;
(ii) the information required by SEC Industry Guide 2 Disclosure of Oil and Gas Operations, as amended from time to time; and
(iii) any other information concerning matters addressed in Form 51-101F1 that is required by FASB or the United States Securities and Exchange Commission;
(b) a modified report of independent qualified reserves evaluators in a form acceptable to the regulator; and
(c) except in British Columbia, a modified report of management and directors on reserves data and other information in a form acceptable to the regulator.
4. EnCana satisfies the basic qualification criteria as set out in Section 2.2 of National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) and has a "current AIF" and "current annual financial statements" as such terms are defined in Section 1.1 of NI 44-101. In particular, EnCana filed on February 22, 2008 its annual information form for the year ended December 31, 2007, and filed on February 22, 2008 its annual audited financial statements for the year ended December 31, 2007 and related management's discussion and analysis.
The Arrangement
5. On May 11, 2008, EnCana issued a press release which described its intention to split EnCana into two focused energy companies - one a natural gas company and the other a fully integrated oil company.
6. The transaction would be implemented through a plan of arrangement under Section 192 of the Canada Business Corporations Act (the Arrangement). The working names of the two entities are GasCo and Integrated OilCo (IOCo). GasCo will carry on business using the EnCana legal entity. It is anticipated that GasCo will retain the name EnCana Corporation as its permanent name while the permanent name of IOCo will be determined prior to the close of the Arrangement.
7. Pursuant to the Arrangement, among numerous other steps, EnCana's Integrated Oil and Canadian Plains divisions (the IOCo Assets), encompassing about one-third of EnCana's current production and proved reserves, will be transferred to IOCo. Upon completion of the Arrangement, EnCana's other major operating divisions, Canadian Foothills and USA, will be retained by EnCana and EnCana will be a pure-play natural gas company operating in Canada and the United States.
8. Other than in accordance with the steps of the Arrangement whereby the IOCo Assets are transferred to IOCo, the Arrangement does not contemplate the disposition of any operating assets of EnCana and no new or additional assets are being acquired pursuant to the Arrangement by any of the parties to the Arrangement other than those owned, directly or indirectly, by EnCana at the time of the Arrangement.
9. As a result of the Arrangement, holders of EnCana Shares (Shareholders) will receive, in exchange for each EnCana Share currently held, one common share of IOCo (the IOCo Shares) and one new common share in EnCana.
10. EnCana will be required to obtain approval for the Arrangement from the Shareholders. In order to obtain such approval, EnCana must prepare and send the Information Circular to all Shareholders and hold a meeting of Shareholders, which meeting is presently expected to be held in mid-December, 2008. It is presently expected that the Information Circular will be mailed to Shareholders in mid-November, 2008. The Arrangement is expected to be completed in January, 2009 (the Effective Date).
11. The Information Circular will contain a written opinion of CIBC World Markets, in its capacity as financial advisor to the board of directors of EnCana, that the consideration to be received pursuant to the transaction is fair, from a financial point of view, to Shareholders.
IOCo
12. IOCo will, prior to the mailing of the Information Circular, be incorporated as a corporation.
13. The head office of IOCo will be located in Calgary, Alberta.
14. Prior to the Effective Date, IOCo will not have any material assets and will not have conducted any active business activities, other than in respect of the Arrangement.
15. Prior to the filing of the Information Circular, IOCo will not be a reporting issuer (or the equivalent thereof) in any jurisdiction. Following completion of the Arrangement, IOCo anticipates that it will be a reporting issuer (or equivalent thereof) in each of the provinces and territories of Canada and will be an issuer engaged in oil and gas activities as defined in NI 51-101.
The Information Circular
16. Form 41-101F1 requires the Information Circular to contain, inter alia, three years of historical income statements, statements of retained earnings and cash flow statements for the IOCo Assets as well as certain reserves data and other oil and gas information prescribed by Form 51-101F1 in respect of the IOCo Assets as at the date of the most recent audited balance sheet of IOCo to be included in the Information Circular, which is expected to be September 30, 2008.
17. Audited statements of income, retained earnings and cash flows in respect of the IOCo Assets for the year ended December 31, 2005 do not exist. At that time, the IOCo Assets were held by EnCana in an organizational structure within which the IOCo Assets were intermingled with other assets of EnCana. As a result of significant divestitures in 2005 and divisional reorganizations subsequent to 2005, the financial information otherwise required for 2005 would not be relevant or assist in providing Shareholders with an accurate representation of the IOCo Assets that will be acquired by IOCo pursuant to the Arrangement.
18. IOCo will only be incorporated shortly before the date of the Information Circular. It is impracticable to prepare reserves data and other oil and gas information in respect of IOCo as at September 30, 2008 given the size and nature of the IOCo Assets and the quantity of information which would be required to be collected outside of the normal annual procedures of EnCana.
19. The Information Circular will contain the following disclosure regarding IOCo and EnCana:
IOCo Financial Statements
(a) IOCo audited balance sheet as at September 30, 2008 (being a date not more than 90 days prior to the date of the Information Circular);
(b) Audited statements of income, retained earnings and cash flows, if any, for the period from IOCo's formation to September 30, 2008;
Financial Statements in respect of the IOCo Assets
(c) Audited statements of income, retained earnings and cash flows for each of the years ended December 31, 2007 and 2006 and audited balance sheet as at December 31, 2007 and 2006 in respect of the IOCo Assets;
(d) Unaudited balance sheet as at September 30, 2008 and comparative statements of income, retained earnings and cash flows for the nine months ended September 30, 2008 in respect of the IOCo Assets;
IOCo Pro forma Financial Statements (giving effect to the Arrangement)
(e) IOCo Pro forma balance sheet as at September 30, 2008 and as at December 31, 2007 giving effect to the Arrangement;
(f) IOCo Pro forma statement of income for the nine months ended September 30, 2008 giving effect to the Arrangement, and including pro forma earnings per share information;
(g) IOCo Pro forma statement of income for the year ended December 31, 2007 giving effect to the Arrangement, and including pro forma earnings per share information;
Financial Statements of EnCana
(h) EnCana's audited comparative annual financial statements for the year ended December 31, 2007;
(i) EnCana's unaudited comparative interim financial statements for the nine months ended September 30, 2008;
EnCana (or GasCo) Pro forma Financial Statements (giving effect to the Arrangement)
(j) GasCo Pro forma balance sheet as at September 30, 2008 and as at December 31, 2007 giving effect to the Arrangement;
(k) GasCo Pro forma statement of income for the nine months ended September 30, 2008 giving effect to the Arrangement, and including pro forma earnings per share information; and
(l) GasCo Pro forma statement of income for the year ended December 31, 2007 giving effect to the Arrangement, and including pro forma earnings per share information;
(collectively, the Proposed Financial Disclosure)
IOCo Reserves Disclosure
(m) Reserves data and other oil and gas information in respect of the IOCo Assets presented in a manner that:
(i) provides reserves data and other oil and gas information in respect of all of the IOCo Assets, including the IOCo Assets located in each of the Borealis, Christina Lake and Foster Creek areas from which bitumen is extracted (the Bitumen Assets), in a form consistent with U.S. Disclosure Requirements and U.S. Disclosure Practices and with the form of disclosure permitted under the EnCana Order, as at December 31, 2007, together with comparative reserves data and other oil and gas information in respect thereof for 2006;
(ii) discloses probable reserves relating to the Bitumen Assets in accordance with the definitions and relevant categories set forth in the COGE Handbook and consistent with the terms of Section 7.1.6 of the EnCana Order as at December 31, 2007, together with comparative probable reserves information in respect thereof for 2006;
(iii) discloses contingent resources estimates relating to the Bitumen Assets in accordance with the definitions and relevant categories set forth in the COGE Handbook and consistent with the terms of Section 7.1.6 of the EnCana Order as at December 31, 2007;
(in each case presenting reserves and resources estimates prepared by independent qualified reserves evaluators and collectively, the IOCo Reserves Disclosure);
(n) the Report on Reserves Data by Independent Qualified Reserves Evaluators in respect of the IOCo Reserves Disclosure in substantially the same form (as amended to accurately reflect the form of IOCo Reserves Disclosure being the subject of such report) as provided by EnCana for its December 31, 2007 reserves in its February 22, 2008 AIF; and
(o) the Report of Management and Directors on Reserves Data and Other Information in respect of the IOCo Reserves Disclosure as executed by the appropriate officers and directors of EnCana, and in substantially the same form (as amended to accurately reflect the form of IOCo Reserves Disclosure being the subject of such report) as provided by EnCana for its December 31, 2007 reserves in its February 22, 2008 AIF;
EnCana Reserves Disclosure
(p) Reserves data and other oil and gas information in respect of EnCana as at December 31, 2007 presented in a form consistent with the terms of the EnCana Order (the EnCana Reserves Disclosure);
(q) the Report on Reserves Data by Independent Qualified Reserves Evaluators in respect of the EnCana Reserves Disclosure in a form consistent with the terms of the EnCana Order; and
(r) the Report of Management and Directors on Reserves Data and Other Information in respect of the EnCana Reserves Disclosure as executed by the appropriate officers and directors of EnCana and in a form consistent with the terms of the EnCana Order;
(collectively, the Proposed Reserves Disclosure).
20. In the event that subsequent to December 31, 2007 a material change occurs in respect of EnCana which, had such material change occurred on or before December 31, 2007, would have resulted in a significant change to the information contained in the Proposed Reserves Disclosure, the Proposed Reserves Disclosure will include the disclosure required under Part 6 of NI 51-101 in respect of such material change.
21. The Filer seeks a decision of the Decision Makers under section 13.1 of National Instrument 51-102 Continuous Disclosure Obligations granting the Requested Relief.
Decision
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that EnCana includes the Proposed Financial Disclosure and Proposed Reserves Disclosure in the Information Circular and that the Confidential Material will be kept confidential and not be made public until the earlier of: (i) the date on which the Filer mails the Information Circular; (ii) the date that the Filer advises the Decision Makers that there is no longer any need for the Confidential Material to remain confidential; and (iii) the date that is 90 days after the date of this decision.