Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- s. 13.1 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) -- exemption from the requirement under Part 8 of NI 51-102 to provide the financial statement disclosure in a business acquisition report (BAR) -- Filer would have been able to use exemption in s. 8.10(3) to file alternative disclosure except that the transaction was structured for tax reasons as an acquisition of securities of a company incorporated for the specific purpose of acquiring the oil and gas properties and related assets from the vendor. Filer will provide alternative disclosure on the basis that the acquisition was in substance an acquisition by the Filer of an interest in oil and gas properties.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations.

Citation: Southern Pacific Resource Corp., Re, 2009 ABASC 641

December 31, 2009

IN THE MATTER OF

SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS OF EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

SOUTHERN PACIFIC RESOURCE CORP.

(the Filer)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer from the requirement to include in a business acquisition report (BAR) certain financial information as required under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) in respect of a significant acquisition made by the Filer, on the condition that the Filer include in the BAR certain alternative financial information as more particularly described 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 section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Manitoba, and Saskatchewan, 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 by the Filer:

1. The Filer is a corporation amalgamated under the Business Corporations Act (Alberta). Its head office is located in Calgary, Alberta.

2. The Filer is an independent oil and gas company engaged in the business of exploring for, developing, and producing petroleum and natural gas reserves in the Western Canadian sedimentary basin.

3. The Filer is a reporting issuer in the provinces of Alberta, British Columbia, Saskatchewan, Manitoba and Ontario and is not, to its knowledge, in default of its obligations as a reporting issuer under the securities legislation of the Jurisdictions.

4. On October 9, 2009, the Filer entered into a share purchase and sale agreement (the Acquisition Agreement) with a major oil and gas company (the Vendor) providing for the indirect acquisition (the Acquisition) by the Filer of certain oil and gas properties, facilities, and related assets (the Assets). The Acquisition completed on November 3, 2009.

5. Pursuant to the Acquisition Agreement, the Filer acquired 100% of the issued and outstanding shares of Senlac Oil Ltd. (Senlac), a wholly-owned subsidiary of the Vendor incorporated on September 29, 2009 for the purpose of facilitating the Acquisition.

6. Subsequent to the entering into of the Acquisition Agreement and prior to the closing of the Acquisition, the Vendor transferred the Assets to Senlac. Accordingly, at the time of closing of the Acquisition, the Assets were held by Senlac.

7. The transfer of the Assets from the Vendor to Senlac was made for the purpose of facilitating the Acquisition in a manner that achieved certain tax efficiencies for the Vendor.

8. The Acquisition constitutes a "significant acquisition" for the Filer within the meaning of Part 8 of NI 51-102. Accordingly, the Filer is required to file a BAR in respect of the Acquisition.

9. The financial year end of the Filer is June 30 and the financial year end of the Vendor was December 31.

10. Pursuant to item 3 of Form 51-102F4 and Part 8 of NI 51-102, the Filer would, absent the Exemption Sought, be required to include in its BAR for the Acquisition, subject to the exemptions provided therein:

(a) an income statement, a statement of retained earnings and a cash flow statement for each of the two most recently completed financial years in respect of the Assets; a balance sheet as at the end of each such financial year, and notes to the financial statements;

(b) an auditors' report on the income statement, statement of retained earnings and cash flow statement for the most recently completed financial year in respect of the Assets and the balance sheet as at the end of such financial year;

(c) a pro forma balance sheet of the Filer as at September 30, 2009 that gives effect to the Acquisition as if it had taken place as at such date; and

(d) a pro forma income statement of the Filer for the financial year ended June 30, 2009 and for the three month interim period ended September 30, 2009, in each case giving effect to the Acquisition as if it had taken place at June 30, 2009, together with pro forma earnings per share.

11. Section 8.10(3) of NI 51-102 provides an exemption from the financial statement disclosure requirements that would otherwise apply under Part 8 of NI 51-102 if the significant acquisition is of a business that is an interest in an oil and gas property, provided that, among other things: (i) the acquisition is not an acquisition of securities of another issuer; and (ii) the Filer includes in the BAR for the Acquisition historical operating statements in respect of the Assets and pro forma operating statements of the Filer as required under section 8.10(3)(e) of NI 51-102.

12. All of the conditions set forth in section 8.10(3) of NI 51-102 are satisfied, except for the fact that the Acquisition is an acquisition of securities of another issuer.

13. The Filer proposes to include in the BAR to be filed in respect of the Acquisition:

(a) an audited statement of revenues, royalties and operating expenses in respect of the Assets for the year ended December 31, 2008;

(b) an unaudited statement of revenues, royalties and operating expenses in respect of the Assets for the year ended December 31, 2007;

(c) unaudited statements of revenues, royalties and operating expenses in respect of the Assets for the nine month period ended September 30, 2009 and September 30, 2008, respectively;

(d) an unaudited pro forma consolidated statement of revenues, royalties and operating expenses of the Filer for the year ended June 30, 2009 giving effect to the Acquisition as if it had taken place at July 1, 2008;

(e) an unaudited pro forma consolidated statement of revenues, royalties and operating expenses of the Filer for the three months period ended September 30, 2009 giving effect to the Acquisition as if it had taken place at July 1, 2008;

(f) a description of the Assets and disclosure regarding the annual oil and gas production volumes from the Assets, as contemplated in subparagraphs 8.10(3)(e)(iii) and (iv) of NI 51-102; and

(g) information regarding estimated reserves and related future net revenue attributable to the Assets and estimated oil and gas production volumes therefrom, as contemplated in section 8.10(3)(g) of NI 51-102.

(collectively, the Alternative Financial Disclosure)

14. The Acquisition was, in substance, an acquisition by the Filer of an interest in oil and gas properties constituting a business. For certain tax efficiencies, the transaction was structured as a purchase by the Filer of all of the issued and outstanding shares of Senlac with the Vendor transferring the Assets to Senlac prior to closing. Otherwise, the Filer would have acquired the Assets directly from the Vendor and availed itself of the exemption provided in section 8.10(3) of NI 51-102 with respect to the kind of financial disclosure to be included in the BAR.

15. The Filer seeks a decision of the Decision Makers under section 13.1 of NI 51-102 exempting the Filer from the requirement to include in the BAR to be filed in respect of the Acquisition the financial statements and other information required pursuant to item 3 of Form 51-102F4, provided that the BAR includes the Alternative Financial Disclosure.

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 provided that the Filer includes the Alternative Financial Disclosure in the BAR to be filed in respect of the Acquisition.

"Blaine Young"
Associate Director, Corporate Finance