Kelt Exploration Ltd.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from the requirement to file a business acquisition report -- acquisition is significant based on the optional profit or loss test -- the application of the optional profit or loss test produces an anomalous result as the acquisition is not significant from a practical, commercial, business or financial perspective.
Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations, Part 8 and s. 13.1.
Citation: Kelt Exploration Ltd., Re, 2013 ABASC 415
September 5, 2013
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
KELT EXPLORATION LTD.
(THE FILER)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief from the requirement under section 8.2 of National Instrument 51-102 -- Continuous Disclosure Obligations (NI 51-102) to file a business acquisition report for the Acquisition (as defined below) (the Exemption Sought).
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 subsection 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, Nova Scotia, Prince Edward Island and Newfoundland and Labrador; 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 51-102 have the same meaning if used in this decision, unless otherwise defined herein.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer was incorporated under the Business Corporations Act (Alberta) (the ABCA) on October 11, 2012 as "1705972 Alberta Ltd." On October 19, 2012, the Filer amended its articles to change its name to "Kelt Exploration Ltd." The registered and head offices of the Filer are located in Calgary, Alberta.
2. The Filer was incorporated as a wholly owned subsidiary of Celtic Exploration Ltd. (Celtic) for the purposes of participating in the Arrangement (as defined below). Prior to the completion of the Arrangement, the Filer did not carry on an active business, other than in connection with the Arrangement and related matters.
3. The financial year end of the Filer is December 31.
4. The Filer is a reporting issuer or the equivalent under the securities legislation of each of the provinces of Canada. The Filer is not, to its knowledge, in default of applicable securities legislation in any jurisdiction in Canada.
5. The shares of the Filer are listed on the Toronto Stock Exchange under the stock symbol "KEL".
The Arrangement
6. On February 26, 2013, the Filer, Celtic, ExxonMobil Canada Ltd. (Exxon) and ExxonMobil Celtic ULC (formerly 1690731 Alberta ULC) (the Purchaser) completed a plan of arrangement under section 193 of ABCA (the Arrangement) whereby the Purchaser acquired all of the issued and outstanding common shares of Celtic (Celtic Shares).
7. In addition, pursuant to the Arrangement and a conveyance agreement between the Filer and Celtic made effective as of February 26, 2013, Celtic transferred certain assets (the Kelt Assets) to the Filer on February 26, 2013.
8. As a result of the Arrangement, the Filer became a reporting issuer in each of the provinces of Canada as disclosed in the notice of change of corporate structure filed by the Filer on March 1, 2013.
9. A business acquisition report in respect of the acquisition of the Kelt Assets was filed on May 7, 2013 (the May 2013 BAR).
Fireweed Acquisition
10. On August 9, 2013, the Filer acquired certain natural gas assets located in northeastern British Columbia (the Fireweed Assets) from a Canadian oil and gas company for cash consideration of $15.5 million, before closing adjustments ($14.6 million after closing adjustments) (the Acquisition). The Acquisition had an effective date of April 1, 2013.
Business Acquisition Report Requirements
11. Pursuant to Part 8 of NI 51-102, an issuer must file a business acquisition report within 75 days after the date of an acquisition should it be determined that the acquisition was a "significant acquisition". The tests for determining whether an acquisition is a significant acquisition are set out in section 8.3 of NI 51-102, and are referred to as the asset test, the investment test and the profit or loss test. An acquisition is considered to be significant if any of the described tests are met.
12. As the Filer had not yet carried on an active business as at the end of its most recently completed financial year, being December 31, 2012, the Acquisition would constitute a "significant acquisition" of the Filer based on the significance tests in subsection 8.3(2) of NI 51-102.
13. Pursuant to subsection 8.3(3) of NI 51-102, despite subsection 8.3(1) of NI 51-102, and subject to subsections 8.10(1) and 8.10(2) of NI 51-102, if an acquisition of a business or related business is significant based on the significance tests in subsection 8.3(2) of NI 51-102, a reporting issuer that is not a venture issuer may re-calculate the significance using the optional significance tests in subsection 8.3(4) of NI 51-102.
14. Pursuant to subsection 8.10(1) of NI 51-102, the asset test is not applicable to an acquisition of a business that is an interest in an oil and gas property and is not an acquisition of securities of another issuer and therefore the asset test is not applicable to the Acquisition.
15. The Acquisition is not a significant acquisition under the optional investment test as the total consideration and costs for the Fireweed Assets was only approximately 6.4% of the assets of the Filer as at June 30, 2013.
16. The Acquisition would be a significant acquisition under the optional profit or loss test, which requires a comparison of the operating income from the Fireweed Assets and the operating income of the Filer. The application of the optional profit or loss test leads to an anomalous result in that the significance of the acquired business is exaggerated out of proportion to its significance on an objective basis and in comparison to the results of the optional asset test and the optional investment test.
17. In order to reflect the growth of the operating income of the Filer, a comparison of the operating income for the Fireweed Assets for the 12 months ended June 30, 2013 as compared to the operating income of the Filer for the 12 months ended June 30, 2013 (comprised of pro forma operating income from July 1, 2012 to December 31, 2012 and actual operating income from January 1, 2013 to June 30, 2013) (the Alternative Significance Test) would not result in the Acquisition being considered significant.
18. The Filer has provided the Decision Makers with additional measures which further demonstrate the insignificance of the Fireweed Assets to the Filer and which are generally consistent with the results of the Alternative Significance Test and the optional investment test.
19. The Filer is of the view that the Acquisition is not a significant acquisition to it from a practical, commercial, business or financial perspective.
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 Exemption Sought is granted.