PrairieSky Royalty Ltd.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from the requirements of section 2.2(d) of National Instrument 44-101 Short Form Prospectus Distributions requiring an issuer to have current annual financial statements and a current Annual Information Form in order to be eligible to file a short form prospectus -- exemption from the requirements under section 8.4 of National Instrument 51-102 Continuous Disclosure Obligations to include financial statements in a Business Acquisition Report -- issuer filed a long form prospectus which included carve-out financial statements.
Applicable Legislative Provisions
National Instrument 44-101 Short Form Prospectus Distributions, s. 2.2(d).
National Instrument 51-102 Continuous Disclosure Obligations, s. 8.4.
Citation: Re PrairieSky Royalty Ltd., 2014 ABASC 265
July 14, 2014
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 PRAIRIESKY ROYALTY LTD. (THE FILER)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (theDecision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from:
(a) Section 2.2(d) of National Instrument 44-101 Short-Form Prospectus Distributions (NI 44-101) (the Short Form Qualification Exemption Sought), which requires the Filer to have a current annual information form (AIF) and current annual financial statements in at least one jurisdiction in which the Filer is a reporting issuer, in order to qualify to file a short form prospectus under NI 44-101 (the AIF and Annual Financial Statement Requirement); and
(b) Section 8.4 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) (theBAR Exemption Sought), which requires an issuer to include certain audited annual financial statements, interim report and pro forma financial statements described therein in a business acquisition report (BAR) required to be filed by a reporting issuer under Section 8.2 of NI 51-102 in connection with a "significant acquisition" (the BAR Financial Statement Requirement).
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 each of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut; and
(c) this 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, MI 11-102 or NI 44-101 have the same meanings if used in this decision, unless otherwise defined herein.
Representations
The decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the Business Corporations Act (Alberta). It was incorporated under the name "1786071 Alberta Ltd." on November 27, 2013 and on April 11, 2014, the Filer amended its articles to change its name to "PrairieSky Royalty Ltd." and remove the restrictions on share transfers from its articles.
2. The principal and head office of the Filer is located in the City of Calgary in the Province of Alberta.
3. The financial year end of the Filer is December 31.
4. The Filer is a reporting issuer in each of the provinces and territories of Canada and the Filer is not in default of securities legislation in any such jurisdiction in which it is a reporting issuer.
The Acquisition
5. On May 27, 2014, the Filer completed the acquisition (the Acquisition) from Encana Corporation (Encana) of Encana's fee simple mineral title lands and associated royalty interests and related assets that form part of Encana's Clearwater business unit (the Acquired Business). As of the date hereof, the Acquired Business comprises the "primary business" of the Filer within the meaning of Section 32.1(1)(b) of Form 41-101F1 Information Required in a Prospectus (Form 41-101F1).
6. The Acquisition represents a "significant acquisition" of the Applicant within the meaning of NI 51-102.
The IPO
7. On May 22, 2014, the Filer filed and obtained a receipt for a final long form prospectus (the IPO Prospectus) in connection with its initial public offering of its common shares (the IPO) by way of secondary offering by Encana, which IPO was completed on May 29, 2014.
8. Annual and interim financial statements in respect of the Acquired Business as required by Sections 32.1, 32.2 and 32.3 of Form 41-101F1 would not reflect the nature of the Acquired Business, and the Filer was granted exemptive relief from such requirements in connection with the IPO as more particularly described in the IPO Prospectus and as excerpted in Appendix "A" hereto.
9. The Final IPO Prospectus instead included the following information:
(a) audited financial statements of the Filer as at and for the period commencing on November 27, 2013 and ending on December 31, 2013, and unaudited financial statements of the Filer as at and for the three months ending March 31, 2014, including in each case accompanying notes;
(b) carve-out audited financial statements for the Third Party Royalty Business (as such term is defined in the IPO Prospectus) as at December 31, 2013 and December 31, 2012 and for the three years ended December 31, 2013, 2012 and 2011, and unaudited carve-out interim financial statements for the Third Party Royalty Business as at March 31, 2014 and March 31, 2013 and for the three months ended March 31, 2014 and 2013, including in each case accompanying notes (the Third Party Royalty Business Financial Statements);
(together, 9(a) and 9(b) above, the Financial Statements);
(c) in respect of certain of the properties acquired from Encana Corporation on May 27, 2014 (the Encana Development Properties), (i) certain supplemental financial and production information, both historical and forward-looking, in respect of, and stand-alone and supplemental oil and gas reserves; and (b) operational information prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) for, the Encana Development Properties (the Encana Development Properties Information); and
(d) oil and gas reserves information in the form required by NI 51-101 (as at December 31, 2013), Form 51-101F2 and Form 51-101F3 in respect of the properties comprising the Acquired Business (the Acquired Business Reserves Report).
Short Form Prospectus Issuer
10. The Filer may wish to file a short form prospectus or short form prospectuses under NI 44-101 prior to the point at which the Filer will meet the AIF and Annual Financial Statement Requirement.
11. Under Section 2.7(1) of NI 44-101, an issuer that is not exempt from the requirement in the applicable CD rule to file annual financial statements but has not yet been required under the applicable CD rule to file same, and has filed and obtained a receipt for a final prospectus that included the issuer's or each predecessor entity's comparative annual financial statements for its most recently completed financial year or the financial year immediately preceding its most recently completed financial year (together with the auditor's report accompanying those financial statements), is exempt from the AIF and Annual Financial Statement Requirement (the New Reporting Issuer Exemption).
12. The Filer does not meet the criteria of the New Reporting Issuer Exemption because the Third Party Royalty Business Financial Statements and other disclosure were not the complete financial statements of a predecessor entity.
13. Except for not meeting the AIF and Annual Financial Statement Requirement, the Filer would otherwise be qualified to file a prospectus in the form of a short form prospectus pursuant to NI 44-101.
The BAR
14. Pursuant to Section 8.2 of NI 51-102, the Filer is required to file a BAR in respect of the Acquisition within 75 days after completion of it.
15. For the same reasons applicable to the financial information included in the IPO Prospectus, the Filer cannot comply with the requirements under Section 8.4 of NI 51-102 in respect of the annual and interim financial statements of the Acquired Business as a whole, prepared in accordance with IFRS, and the pro forma financial statements required to be included in a BAR in connection with the Acquisition.
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.
1. The decision of the Decision Makers under the Legislation is that the Short Form Qualification Exemption Sought is granted, provided that:
(a) the Filer is not exempt from the requirement in NI 51-102 to file annual financial statements within a prescribed period after its financial year end;
(b) the Filer has not yet been required under NI 51-102 to file annual financial statements;
(c) the Filer has not yet filed annual financial statements under NI 51-102; and
(d) the Filer includes or incorporates by reference in each preliminary short form prospectus and short form prospectus, if either is filed: (i) the Financial Statements (including the MD&A related thereto), the Encana Development Properties Information and the Acquired Business Reserves Report included in the IPO Prospectus, in each case for the periods required to be incorporated by reference therein under NI 44-101, and (ii) the information contained in the IPO Prospectus that would otherwise have been required to have been included in a current AIF.
2. The decision of the Decision Makers under the Legislation is that the BAR Exemption Sought is granted, provided that the Filer incorporates by reference into the BAR in connection with the Acquisition the Third Party Royalty Business Financial Statements, the Encana Development Properties Information and the Acquired Business Reserves Report.
Appendix "A" -- Excerpt from IPO Prospectus
"EXEMPTIONS FROM CERTAIN DISCLOSURE REQUIREMENTS
The Company has applied to the Alberta Securities Commission, as principal regulator on behalf of the securities regulatory authorities in the other provinces of Canada (other than Ontario), and to the Ontario Securities Commission, for exemptive relief from Sections 32.2 and 32.3 of Form 41-101F1 -- Information Required in a Prospectus (Form 41-101F1), as prescribed under National Instrument 41-101 -- General Prospectus Requirements. Those provisions require that the Company include in this prospectus: (i) annual financial statements for each of the three most recently completed financial years of the Acquired Business, being the years ended December 31, 2013, 2012 and 2011; and (ii) interim financial statements for the most recently completed interim period and corresponding interim period in the immediately preceding financial year for the Acquired Business, being the three months ended March 31, 2014 and March 31, 2013. The Company will acquire the Acquired Business pursuant to the Purchase and Sale Agreement. Initially, the Acquired Business will comprise the principal undertaking of the Company and may, therefore, be viewed as the primary businesses of the Company pursuant to Section 32.1(1)(b) of Form 41-101F1. The Company sought exemptive relief from the requirements to include in this prospectus the financial statements described above.
The Company has instead included: (i) audited financial statements of the Company as at and for the period commencing on November 27, 2013 and ending on December 31, 2013, and unaudited financial statements of the Company as at and for the three months ending March 31, 2014, in each case prepared in accordance with IFRS; (ii) audited financial statements for the Third Party Royalty Business as at December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011, and unaudited financial statements for the Third Party Royalty Business as at March 31, 2014 and for the three months ended March 31, 2014 and March 31, 2013; in each case prepared in accordance with IFRS; and (iii) certain supplemental financial and production information, both historical and forward-looking, in respect of the Encana Development Properties, prepared based on the assumption that the Lease Issuance and Administration Agreements proposed to be entered into between Encana and the Company upon completion of the Acquisition were in place during the relevant time periods. The issuance by the Alberta Securities Commission of a receipt for the final prospectus constitutes evidence of the granting of the Exemptive Relief."