Securities Law & Instruments

Headnote

Mutual Reliance Review Systemfor Exemptive Relief Applications - Relief from registrationand prospectus requirements in connection with a distributionof shares of subsidiary company to parent company shareholdersand third party in order to spin off and capitalize subsidiary.Issuer spun off from a reporting issuer in connection with aplan of arrangement deemed to be a reporting issuer where parentcompany has been a reporting issuer for more than 12 monthsand the assets that will make up the business of the spun offissuer have been subject to reporting in the continuous disclosurefilings of the parent company. Prospectus level disclosure ofthe spun off entity to be provided in the information circular.

Applicable Ontario Statutes

Securities Act, R.S.O. 1990,c. S.5, as am., ss. 74(1) - s. 25, s. 53 & ss. 83.1(1).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ALBERTA, SASKATCHEWAN, MANITOBA,

ONTARIO, QUEBEC, NOVA SCOTIA,NEW BRUNSWICK,

PRINCE EDWARD ISLAND, NEWFOUNDLANDAND LABRADOR,

NORTHWEST TERRITORIES, YUKONTERRITORY

AND NUNAVUT TERRITORY

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CANADIAN NATURAL RESOURCESLIMITED,

RIO ALTO RESOURCES INTERNATIONALINC. AND

RIO ALTO EXPLORATION LTD.

 

MRRS DECISION DOCUMENT

1. WHEREAS the localsecurities regulatory authority or regulator (the "DecisionMaker") in each of Alberta, Saskatchewan, Manitoba, Ontario,Quebec, Nova Scotia, New Brunswick, Prince Edward Island,Newfoundland and Labrador, the Northwest Territories, theYukon Territory and Nunavut Territory (the "Jurisdictions")has received an application from Rio Alto Exploration Ltd.("Rio Alto") and Rio Alto Resources InternationalInc. ("Newco") (collectively, the "Filer")for a decision under the securities legislation of the Jurisdictions(the "Legislation") that:

1.1 the registration andprospectus requirements of the Legislation shall not applyto certain trades made in connection with or subsequentto a proposed plan of arrangement (the "Arrangement")under the Business Corporations Act (Alberta) (the "ABCA")involving Canadian Natural Resources Limited ("CNQ"),Newco, Rio Alto and the securityholders of Rio Alto;

1.2. Newco be deemed ordeclared a reporting issuer at the time of the Arrangementbecoming effective for the purposes of the Legislation ofthe Jurisdictions, other than Saskatchewan, Manitoba, NewBrunswick, Prince Edward Island, Northwest Territories,Yukon Territory and Nunavut Territory; and

1.3 Newco shall be exemptedfrom the requirement of the Basic Qualification Criteriaset forth in National Instrument 44-101 (the "Instrument")from the time the Arrangement becomes effective, that itbe a reporting issuer in the respective Jurisdiction forthe 12 calendar months preceding the date of the filingof its most recent Annual Information Form;

2. AND WHEREAS underthe Mutual Reliance Review System for Exemptive Relief Applications(the "System"), the Alberta Securities Commissionis the Principal Regulator for this application;

3. AND WHEREAS theFiler has represented to the Decision Makers that:

Canadian Natural ResourcesLimited

3.1 CNQ is a corporationincorporated under the ABCA and is headquartered in Calgary,Alberta;

3.2 CNQ is a senior independentenergy company engaged in the acquisition, exploration,development, production, marketing and sale of oil and naturalgas. Its principal areas of operations are Western Canada,the United Kingdom sector of the North Sea and offshoreWest Africa;

3.3 the authorized capitalof CNQ consists of an unlimited number of common sharesand 200,000 Class 1 preferred shares. As of May 15, 2002,there were 122,927,720 common shares and no Class 1 preferredshares issued and outstanding. Also as of May 15, 2002,12,474,292 common shares were reserved for issuance in connectionwith the exercise of outstanding stock options;

3.4 CNQ has been, and currentlyis, a reporting issuer (where such concept exists) for aperiod of time in excess of 12 months under the securitieslegislation of the Jurisdictions. To the best of its knowledge,information and belief, CNQ is not in default of the requirementsunder the Legislation or the regulations made thereunder(the "Regulations");

3.5 the common shares ofCNQ are listed and posted for trading on both the TorontoStock Exchange (the "TSX") and the New York StockExchange (the "NYSE"), trading under the symbols"CNQ" and "CED", respectively;

Rio Alto ExplorationLtd.

3.6 Rio Alto is a corporationincorporated under the ABCA and is headquartered in Calgary,Alberta;

3.7 Rio Alto's businessis the acquisition of interests in petroleum and naturalgas rights and the exploration, development, production,marketing and sale of petroleum and natural gas. While havinginterests in properties outside Canada, the bulk of theCorporation's activities are concentrated in the Provinceof Alberta;

3.8 the authorized capitalof Rio Alto consists of an unlimited number of common shares(the "Rio Alto Shares"), an unlimited number offirst preferred shares and an unlimited number of secondpreferred shares. As of May 23, 2002, there were 75,926,702Rio Alto Shares and no first preferred or second preferredshares issued and outstanding. Also as of May 23, 2002,5,256,436 Rio Alto Shares were reserved for issuance inconnection with the exercise of outstanding stock options;

3.9 Rio Alto has been, andcurrently is, a reporting issuer (where such concept exists)for a period of time in excess of 12 months under the securitieslegislation of the Jurisdictions. To the best of its knowledge,information and belief, Rio Alto is not in default of therequirements under the Legislation or the Regulations;

3.10 the Rio Alto Sharesare listed and posted for trading on the TSX, trading underthe symbol "RAX";

Newco

3.11 Newco is a corporationincorporated under the ABCA and is headquartered in Calgary,Alberta;

3.12 Newco has not conductedany business to date, except for the entering into of theArrangement with CNQ and Rio Alto;

3.13 the authorized capitalof Newco consists of an unlimited number of common shares(the "Newco Shares") and an unlimited number offirst preferred shares. As of the date hereof, there isissued and outstanding 1 common share, this share beingowned by Rio Alto. There are no first preferred shares issuedand outstanding;

3.14 Newco is not a reportingissuer in any jurisdiction;

3.15 Newco will apply tolist the Newco Shares on the TSX;

The Arrangement

3.16 on May 13, 2002, CNQand Rio Alto announced the intention to enter into a Planof Arrangement (the "Arrangement"), the compositionof which is set forth below;

3.17 pursuant to the Arrangement,Rio Alto will transfer to Newco all of the issued and outstandingshares (the "Subsidiary Shares") it holds andinter-company receivables (the "Subsidiary Receivables")it holds of, certain directly and indirectly wholly-ownedsubsidiary companies ("the Subsidiaries") whichown certain properties in the Oriente Basin of Ecuador andthe San Jorge Basin of Argentina (collectively, the "NewcoProperties"), in exchange for that number of NewcoShares which (together with the Newco Shares issued to RioAlto pursuant to paragraph 3 below and any Newco Sharesowned by Rio Alto prior to the Arrangement) is equal tothe number of Rio Alto Shares then issued and outstanding.Rio Alto shall then distribute one (1) Newco Share to eachshareholder of Rio Alto for every Rio Alto Share held bysuch shareholder;

3.18 Rio Alto shall subscribefor and shall be issued, subject to adjustment, 4,210,526Newco Shares, each Newco Share having a subscription priceof $1.90, subject to adjustment. The Newco Shares issuedto Rio Alto hereunder shall be included and be part of theNewco Shares distributed to the shareholders of Rio Altoas described in paragraph 3.17 above;

3.19 CNQ shall acquire (the"Acquisition") all of the Rio Alto Shares currentlyissued and outstanding by offering the holders thereof thechoice to receive for each Rio Alto Share so tendered (i)0.3468 of a CNQ Share, (ii) $18.10 in cash or (iii) anycombination of items (i) and (ii) having a value equal tothe value of the Rio Alto Shares so tendered by such shareholder.The maximum number of CNQ Shares issuable under item (i)is 12,270,000, and the maximum aggregate amount payableunder item (ii) is $850,000,000, each amount being subjectto prorationing in the event that one or both 'maximums'are exceeded;

3.20 in lieu of fractionalCNQ Shares, each holder of a Rio Alto Share, who would otherwisebe entitled to receive a fractional CNQ Share, shall bepaid by CNQ an amount equal to the product of such fractionmultiplied by $52.20;

3.21 CNQ shall subscribefor and shall be issued 8,330,000 Newco Shares, each havinga subscription price of $1.90;

The Order

3.22 the Information Circularin connection with the Arrangement as provided to all securityholdersand filed in each of the Jurisdictions will contain, (or,to the extent permitted will have incorporated by referencetherein) prospectus-level disclosure of CNQ, Rio Alto andNewco;

3.23 the Newco Propertieshave been the subject of continuous disclosure on an ongoingbasis for more than 12 months, in accordance with Rio Alto'sresponsibilities as a reporting issuer;

3.24 Securityholders ofRio Alto shall have the right to dissent from the Arrangementunder Section 191 of the ABCA, and the Information Circularwill disclose full particulars of this right in accordancewith applicable law;

3.25 exemptions from registrationand prospectus requirements of the Legislation in respectof trades made in securities of Newco in connection withthe Arrangement and exemptions from prospectus requirementsof the Legislation in respect of first trades in Newco Sharesfollowing the Arrangement are not otherwise available inall Jurisdictions;

3.26 Newco will not be areporting issuer within the definitions of all of the applicableJurisdictions at the time of the Arrangement becoming effective;

3.27 Newco will not be qualifiedto file a prospectus in the form of a short form prospectusunder the Instrument at the time of the Arrangement becomingeffective;

4. AND WHEREAS underthe System, this MRRS Decision Document evidences the decisionof each Decision Maker (collectively, the "Decision");

5. AND WHEREAS, eachof the Decision Makers is satisfied that the test containedin the Legislation that provides the Decision Maker with theJurisdiction to make the Decision has been met;

6. THE DECISION ofthe Decision Makers under the Legislation is that:

6.1 all trades made in securitiesof Newco in connection with the Arrangement shall not besubject to the registration and prospectus requirementsof the Legislation;

6.2 except in Quebec, thefirst trade in a Jurisdiction of Newco Shares acquired byCNQ, Rio Alto or former shareholders of Rio Alto in connectionwith the Arrangement shall be distributions or primary distributionsunder the Legislation of such Jurisdiction except that where

6.2.1 Newco is a reportingissuer in a jurisdiction listed in Appendix B to MultilateralInstrument 45-102 Resale of Securities precedingthe trade;

6.2.2 the seller is ina special relationship with Newco, as the case may be,as defined in the Legislation, the seller has reasonablegrounds to believe that Newco is not in default of anyrequirement of the Legislation; and

6.2.3 no unusual effortis made to prepare the market or to create a demand forthe securities and no extraordinary commission or considerationis paid in respect of the first trades;

then such a first tradeshall be a distribution or primary distribution only ifit is from the holdings of any person, company or combinationof persons or companies holding a sufficient number of securitiesof Newco, as the case may be, to affect materially the controlof Newco, but any holding of any person, company or combinationof persons or companies holding more than 20% of the outstandingvoting securities of Newco shall, in the absence of evidenceto the contrary, be deemed to affect materially the controlof Newco;

6.3 the alienation in Quebecof Newco Shares acquired by CNQ, Rio Alto or former shareholdersof Rio Alto in connection with the Arrangement shall bedistributions under the legislation of Quebec except thatwhere

6.3.1 Newco is a reportingissuer in Quebec immediately preceding the trade;

6.3.2 no unusual effortis made to prepare the market or to create a demand forthe securities that are the subject of the trade;

6.3.3 no extraordinarycommission or consideration is paid to a person or companyin respect of the trade; and

6.3.4 if the selling shareholderis an insider or officer of Newco, the selling securityholderhas no reasonable grounds to believe that Newco is indefault of any requirement of securities legislation;

6.4 Newco shall be deemedor declared a reporting issuer at the time of the Arrangementbecoming effective for the purposes of the Legislation ofthe Jurisdictions, other than Saskatchewan, Manitoba, NewBrunswick, Prince Edward Island, Northwest Territories,Yukon Territory and Nunavut Territory; and

6.5 Newco shall be exemptedfrom the requirement of the Basic Qualification Criteriathat it be a reporting issuer in the applicable Jurisdictionfor the 12 calendar months preceding the date of filingof its most recent Annual Information Form.

June 26, 2002.

"Eric T. Spink"                    "ThomasG. Cooke"