Securities Law & Instruments

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption granted from the requirement to include financial statements and management's discussion and analysis in an information circular for an entity participating in an arrangement -- the information circular will be sent to the trust's unitholders in connection with a proposed internal reorganization pursuant to which its business operations will be conducted through a corporate entity -- the arrangement does not contemplate the acquisition of any additional interest in any operating assets or the disposition of any of the trust's existing interests in operating assets.

Exemption granted from the current annual financial statement and current annual information form short form prospectus qualification criteria and the requirement to file a notice declaring its intention to be qualified to file a short form prospectus at least 10 business days prior to the filing of a preliminary short form prospectus.

Exemption granted to a successor issuer from the requirement to deliver personal information forms for individuals for whom the trust previously delivered personal information forms.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, s. 13.1.

Form 51-102F5 -- Information Circular, Item 14.2.

National Instrument 44-101 Short Form Prospectus Distributions, s. 8.1.

Citation: Peyto Energy Trust, Re, 2010 ABASC 508

November 2, 2010

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

PEYTO ENERGY TRUST

(THE FILER)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation):

(a) exempting the Filer from the requirement under section 14.2 of Form 51-102F5 Information Circular (the Circular Form) to provide: (i) an income statement, a statement of retained earnings, and a cash flow statement of each of Peyto Energy Administration Corp. (Peyto AdminCo) and Peyto Exploration & Development Corp. (PEDC) for each of the financial years ended December 31, 2009, December 31, 2008 and December 31, 2007, as well as a balance sheet of each of Peyto AdminCo and PEDC as at the end of December 31, 2009 and December 31, 2008 (the Annual Financial Statements); (ii) a comparative income statement, a statement of retained earnings, and cash flow statement of each of Peyto AdminCo and PEDC for the interim period ended June 30, 2010, as well as a balance sheet of each of Peyto AdminCo and PEDC as at the end of June 30, 2010 and December 31, 2009 (the Interim Financial Statements); and (iii) the management's discussion and analysis of each of Peyto AdminCo and PEDC corresponding to each of the financial years ended December 31, 2009 and December 31, 2008 and the interim period of June 30, 2010 (the MD&A, and together with the Annual Financial Statements and Interim Financial Statements, the Financial Information), in the management information circular (the Circular) to be prepared by the Filer and delivered to the holders (Unitholders) of trust units of the Filer (Units) in connection with a special meeting (the Meeting) of Unitholders expected to be held December 8, 2010 for the purposes of considering a plan of arrangement under the Business Corporations Act (Alberta) (the Arrangement) resulting in the internal reorganization of the Filer's trust structure into a corporate structure (the Circular Relief);

(b) exempting the corporation, to be known as Peyto Exploration & Development Corp. (New Peyto), which will be the corporation resulting from the amalgamation of Peyto AdminCo, PEDC and Peyto Exploration (2011) Ltd. (Newco) pursuant to the terms of the Arrangement, from the requirement applicable to New Peyto contained in section 2.8 of National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) to file a notice declaring its intention to be qualified to file a short form prospectus at least 10 business days prior to the filing of its first preliminary short form prospectus after the notice (theProspectus Relief); and

(c) exempting New Peyto from the requirement under subsection 4.1(b) of NI 44-101 for New Peyto to file a Personal Information Form and Authorization to Collect, Use and Disclose Personal Information in the form attached as Appendix A to National Instrument 41-101 General Prospectus Requirements (NI 41-101) for each director and executive officer of New Peyto at the time of filing a preliminary short form prospectus for whom the Filer has previously delivered any of the documents described in paragraphs 4.1(b)(i)(E) through (G) of NI 44-101 at the time of filing such preliminary short form prospectus (the PIF Relief).

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, Québec, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island; 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:

The Filer, Peyto AdminCo, PEDC, Newco and New Peyto

The Filer

1. The Filer is an open-ended unincorporated investment trust established under the laws of Alberta pursuant to a trust indenture dated May 22, 2003 and amended and restated on January 1, 2008. The principal office of the Filer is located in Calgary, Alberta.

2. The Filer is a reporting issuer or the equivalent under the securities legislation of each of the provinces of Canada. The Filer is not in default of securities legislation in any jurisdiction of Canada.

3. The authorized capital of the Filer includes an unlimited number of Units. As at October 15, 2010, there were 122,581,236 Units outstanding.

4. The Units are listed on the Toronto Stock Exchange (TSX).

5. The Filer has filed a "current AIF" and "current annual financial statements" (as such terms are defined in NI 44-101) for the financial year ended December 31, 2009.

Peyto AdminCo

6. Peyto AdminCo is a corporation incorporated under the laws of Alberta. The principal office of Peyto AdminCo is located in Calgary, Alberta.

7. Peyto AdminCo is wholly-owned by the Filer.

8. Peyto AdminCo is not a reporting issuer in any jurisdiction and is not in default of applicable securities legislation in any jurisdiction of Canada.

9. The common shares of Peyto AdminCo are not listed or posted for trading on any exchange or quotation and trade reporting system.

PEDC

10. PEDC is a corporation amalgamated under the laws of Alberta. The principal office of PEDC is located in Calgary, Alberta.

11. PEDC is wholly-owned by the Filer.

12. PEDC is not a reporting issuer in any jurisdiction and is not in default of applicable securities legislation in any jurisdiction of Canada.

13. The common shares of PEDC are not listed or posted for trading on any exchange or quotation and trade reporting system.

Newco and New Peyto

14. Newco will be a corporation incorporated under the laws of Alberta. The principal office of Newco will be located in Calgary, Alberta.

15. Newco will be an indirect wholly-owned subsidiary of the Filer and will be incorporated solely to participate in the Arrangement, including to issue common shares of Newco to former Unitholders and to amalgamate with Peyto AdminCo and PEDC to form New Peyto, as a result of which the former Unitholders will hold common shares of New Peyto (New Peyto Shares) following the completion of the Arrangement.

16. Newco will not be a reporting issuer in any jurisdiction and will not be in default of applicable securities legislation in any jurisdiction of Canada. Following completion of the Arrangement, New Peyto, as amalgamation successor to Peyto AdminCo, PEDC and Newco, will be a reporting issuer in each of the provinces of Canada.

17. None of the common shares issued by Newco will be listed or posted for trading on any exchange or quotation system and trade reporting system. Application will be made to have the New Peyto Shares to be issued in connection with the Arrangement listed with the TSX.

Arrangement

18. As part of the Arrangement: (i) the Filer will be dissolved; (ii) the Units will be cancelled; (iii) common shares of Newco will be distributed to the Unitholders on a one-for-one basis; (iv) the common shares of Newco will continue as New Peyto Shares; and (iv) New Peyto will directly own all of the existing assets and assume all of the existing liabilities of the Filer, effectively resulting in the internal reorganization of the Filer's trust structure into a corporate structure.

19. Following the completion of the Arrangement: (i) the sole business of New Peyto will be the current business of the Filer; (ii) New Peyto will be a reporting issuer or the equivalent under the securities legislation in each of the provinces of Canada; and (iii) the New Peyto Shares will, subject to approval by the TSX, be listed on the TSX.

20. The Arrangement does not contemplate the acquisition of any additional operating assets or the disposition of any existing operating assets and will not result in a change in the ultimate beneficial ownership of the assets and liabilities of the Filer. The Arrangement will be an internal reorganization undertaken without dilution to the Unitholders or additional debt or interest expense.

21. Pursuant to the Filer's constating documents and applicable securities laws, the Unitholders will be required to approve the Arrangement at the Meeting. The Arrangement must be approved by not less than two-thirds of the votes cast by the Unitholders at the Meeting. The Meeting is anticipated to take place December 8, 2010 and the Circular is expected to be mailed in early November 2010.

22. The Arrangement will be a "restructuring transaction" under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) in respect of the Filer and therefore would require compliance with section 14.2 of the Circular Form.

23. The Arrangement is being undertaken to reorganize the Filer following the enactment by the federal government of rules in respect of the tax treatment of specified investment flow-through trusts. Pursuant to the Arrangement, the Filer will be reorganized into a dividend paying public oil and gas exploration and development corporation that will operate under the name "Peyto Exploration & Development Corp." and will directly own all of the existing assets and assume all of the existing liabilities of the Filer.

24. The rights of the Unitholders in respect of New Peyto following the Arrangement will be substantively equivalent to the rights the Unitholders currently have in respect of the Filer and their relative interest in and to the business carried on by New Peyto will not be affected by the Arrangement.

25. The only securities that will be distributed to the Unitholders pursuant to the Arrangement will be common shares of Newco, which will continue as New Peyto Shares.

26. While changes to the consolidated financial statements of New Peyto will be required to reflect the organizational structure of the Filer following the Arrangement, the financial position of New Peyto will be substantially the same as reflected in the Filer's audited annual consolidated financial statements most recently filed or required to have been filed under Part 4 of NI 51-102 prior to the date of the Circular and the Filer's unaudited interim consolidated financial statements most recently filed or required to have been filed under Part 4 of NI 51-102 prior to the date of the Circular. In particular, the entity that exists both before and subsequent to the Arrangement would be substantially the same given the fact that the assets and liabilities of the enterprise, from both an accounting perspective and economic perspective, are not changing based on the Arrangement. However, as the tax structure will be changing from that of an income trust to a corporation, the tax advantages of the income trust structure will be lost.

Financial Statement Disclosure in the Circular

27. Section 14.2 of the Circular Form requires that the Circular contain the disclosure (including financial statements) prescribed under securities legislation and described in the form of prospectus that Peyto AdminCo and PEDC would be eligible to use immediately prior to the sending and filing of the Circular for a distribution of their securities. Therefore, the Circular must contain the disclosure in respect of Peyto AdminCo and PEDC prescribed by NI 41-101 and, by extension, Form 41-101F1 Information Required in a Prospectus (Prospectus Form).

28. Paragraphs 8.2(1)(a) and (b) and subsection 8.2(2) of the Prospectus Form require the Filer to include the MD&A in the Circular.

29. Subsection 32.2(1) of the Prospectus Form requires the Filer to include the Annual Financial Statements in the Circular. Subsection 32.3(1) of the Prospectus Form requires the Filer to include the Interim Financial Statements in the Circular.

30. Subsection 4.2(1) of NI 41-101 requires that the Annual Financial Statements and the Interim Financial Statements be audited in accordance with National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107).

31. The Arrangement will not result in a change in beneficial ownership of the assets and liabilities of the Filer, from both an accounting perspective and an economic perspective. Accordingly, no acquisition will occur as a result of the Arrangement and therefore the significant acquisition financial statement disclosure requirements contained in the Prospectus Form are inapplicable.

32. The Arrangement will be an internal reorganization undertaken without dilution to the Unitholders or additional debt or interest expense.

Exemptions Sought

Circular Relief

33. The financial statements of the Filer are reported on a consolidated basis, which includes the financial results for Peyto AdminCo and PEDC. Peyto AdminCo and PEDC do not report their financial results independently from the consolidated financial statements of the Filer. The Financial Information, if prepared, would not include the accounts of the Filer. This would be misleading, since there are transactions between Peyto AdminCo and the Filer, and PEDC and the Filer, respectively, that are eliminated when consolidation is performed at the trust level. To present the Financial Information, which would exclude accounts of the Filer, would present the effects of only one side of the financing activities between Peyto AdminCo and the Filer, and PEDC and the Filer, respectively. This would result in significant intra-group balances and other intra-group expenses being reflected in the Financial Information. As a result, the presentation of these intra-group transactions, which will be eliminated upon completion of the Arrangement, would present a confusing (and potentially misleading) picture of financial performance.

34. The Financial Information is not relevant to the Unitholders for the purposes of considering the Arrangement as the Financial Information would be substantially and materially the same (other than as described above) as the consolidated financial statements of the Filer filed in accordance with Part 4 of NI 51-102 because the financial position of the entity that exists both before and after the Arrangement is substantially the same.

35. The Circular will contain prospectus level disclosure in accordance with the Prospectus Form (other than the Financial Information) and will contain sufficient information to enable a reasonable securityholder to form a reasoned judgement concerning the nature and effect of the Arrangement including information explaining how the tax position of New Peyto after the completion of the Arrangement will differ from the existing tax position of the Filer.

Prospectus Relief

36. The Filer is qualified to file a prospectus in the form of a short form prospectus pursuant to section 2.2 of NI 44-101 and is deemed to have filed a notice of intention to be qualified to file a short form prospectus under subsection 2.8(4) of NI 44-101.

37. The Filer anticipates that New Peyto may wish to file a preliminary short form prospectus following the completion of the Arrangement, relating to the offering or potential offering of securities (including common shares, debt securities or subscription receipts) of New Peyto.

38. Pursuant to the qualification criteria set forth in section 2.2 of NI 44-101 following the Arrangement, New Peyto will be qualified to file a short form prospectus pursuant to NI 44-101.

39. Notwithstanding section 2.2 of NI 44-101, subsection 2.8(1) of NI 44-101 provides that an issuer is not qualified to file a short form prospectus unless it has filed a notice declaring its intention to be qualified to file a short form prospectus at least ten business days prior to the issuer filing its first preliminary short form prospectus.

40. In anticipation of the filing of a preliminary short form prospectus, and assuming the Arrangement has been completed, New Peyto intends to file a notice of intention to be qualified to file a short form prospectus (the Notice of Intention) following the completion of the Arrangement. In the absence of the Prospectus Relief, New Peyto will not be qualified to file a short form prospectus until ten days from the date upon which the Notice of Intention is filed.

41. The short form prospectus of New Peyto will incorporate by reference the documents that would be required to be incorporated by reference under Item 11 of Form 44-101F1 Short Form Prospectus in a short form prospectus of New Peyto.

PIF Relief

42. Prior to April 9, 2010, the date of the most recently filed preliminary short form prospectus by the Filer, the Filer had previously delivered the documents described in subparagraphs 4.1(b)(i)(E) through (G) of NI 44-101 for each individual acting in the capacity of a director or executive officer of the Filer at such time (each, a Filer PIF).

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:

(a) the Circular Relief is granted;

(b) the Prospectus Relief is granted, provided that at the time New Peyto files its Notice of Intention, New Peyto meets the requirements of section 2.2 of NI 44-101; and

(c) the PIF Relief is granted, provided that:

(i) each individual who is a director or executive officer of New Peyto at the time of a prospectus filing by New Peyto and for whom the Filer has previously delivered a Filer PIF authorizes the Decision Makers, in respect of a prospectus filing by New Peyto, to collect, use and disclose the personal information that was previously provided in the Filer PIF;

(ii) New Peyto, if requested by the Decision Maker, promptly delivers such further information from each individual referred to in paragraph (i) above as the Decision Maker may require; and

(iii) the PIF Relief will terminate in any jurisdiction in which the decision is in effect on the effective date of any change to subsection 4.1(b)(i) of NI 44-101.

"Blaine Young"
Associate Director, Corporate Finance