Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from section 5.5 of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities -- disclosure of natural gas liquids after "first point of sale" where natural gas is transferred to facilitate transportation efficiencies.

Applicable Legislative Provisions

National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities, s. 5.5.

Citation: Re Seven Generations Energy Ltd., 2016 ABASC 18

January 25, 2016

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 SEVEN GENERATIONS ENERGY LTD. (THE FILER)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption from section 5.5 of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) to permit the Filer to disclose volumes of natural gas liquids (NGLs) extracted at the Aux Sable Facility (defined below) notwithstanding that such volumes are to be recovered after the "first point of sale" (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 section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-202) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, Québec, 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 and MI 11-202 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:

1. The Filer is a corporation incorporated under the Canada Business Corporations Act.

2. The principal offices of the Filer are located in Calgary, Alberta, Canada.

3. As of the date hereof, the Filer is a reporting issuer in each of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (the Passport Jurisdictions).

4. The Filer is not in default of securities legislation in any of the Passport Jurisdictions.

5. The Filer transports natural gas on the interprovincial pipeline owned and operated by Alliance Pipeline Limited Partnership that extends from northeast British Columbia to the Canada -- United States border near Elmore, Saskatchewan, and on the interstate pipeline owned and operated by Alliance Pipeline L.P. that extends from the Canada -- United States border near Sherwood, North Dakota to the Chicago, Illinois area (together, the Alliance Pipeline).

6. The Filer produces natural gas from its properties located in the Kakwa area of Northwest Alberta and delivers natural gas to the Alliance Pipeline through the Moose River entry point to the Alliance Pipeline and also intends to deliver natural gas to the Big Mountain Creek entry point to the Alliance Pipeline once it is commissioned, which is expected to occur in the first half of 2016 (the 7G Production).

7. The Filer is party to an asset management agreement among Tenaska Marketing Canada, a Nebraska corporation (TMC), Tenaska Marketing Ventures, a Nebraska partnership (TMV), the Filer and Seven Generations Energy (US) Corp., a Delaware corporation (7G US), effective August 11, 2015, as may be amended and restated from time to time (the Asset Management Agreement). TMC and TMV deal at arm's length with the Filer and 7G US.

8. The purpose of the Asset Management Agreement is to provide the Filer with a more efficient means of shipping the 7G Production into the United States than if the Filer shipped the 7G Production itself. Under the Asset Management Agreement the Filer sells 100% of the 7G Production to TMC on the Canada side of the Canada -- United States border, with title to such 7G Production passing to TMC at the Moose River or Big Mountain Creek entry points to the Alliance Pipeline. Such transactions occur pursuant to the North American Energy Standards Board base contract for sale and purchase of natural gas and the related special provisions, dated August 11, 2015, between TMC and the Filer. Subsequently, TMC sells all of the 7G Production to TMV at the Canada -- United States border, such that TMC is the exporter of record and TMV is the importer of record in respect of the 7G Production.

9. The Filer entered into a long-term rich gas premium agreement (RGP Agreement) with Aux Sable Canada LP (ASCLP). Pursuant to the RGP Agreement and the extraction agreements between Aux Sable Liquid Products LP (ASLP) and the Filer and 7G US, respectively, ASLP or Aux Sable Extraction LP (which, together with ASCLP and ASLP are referred to herein as Aux Sable) process and extract NGLs from the 7G Production at Aux Sable's Channahon, Illinois facility near the eastern terminus of the Alliance Pipeline (the Aux Sable Facility).

10. At the time of delivery of the 7G Production to Aux Sable through the Alliance Pipeline, TMV has title to the 7G Production.

11. Title to NGLs extracted from the natural gas stream of the 7G Production only passes to Aux Sable upon extraction thereof.

12. Section 5.5 of NI 51-101 provides that disclosure of product types or by-products, including NGLs, must be made in respect only of volumes that have been or are to be recovered prior to the "first point of sale" or an "alternate reference point". Section 5.4 of the Companion Policy 51-101CP Standards of Disclosure for Oil and Gas Activities interprets section 5.5 of NI 51-101 to prohibit the assignment of NGLs prior to the "first point of sale" unless the NGLs have been extracted from the natural gas stream. Section 1.1 of NI 51-101 defines "first point of sale" as the first point after initial production at which there is a transfer of ownership of a product type. The term "alternate reference point" allows for the use of a point other than the first point of sale, but it must be a location at which quantities and values of a product type are measured before the first point of sale.

13. With respect to the 7G Production, the first point of sale will be the Moose River or Big Mountain Creek entry point to the Alliance Pipeline, since title to the 7G Production will pass from the Filer to TMC at such point. As such, under NI 51-101, the Filer is only permitted to report the natural gas volumes shipped onto the Alliance Pipeline at Moose River or Big Mountain Creek (at which point the NGLs will not have been extracted from the natural gas stream) and without the Exemption Sought would be prohibited from reporting the NGL reserves to be processed and extracted by Aux Sable.

14. If not for transfer of the 7G Production from the Filer to TMC and from TMC to TMV pursuant to the Asset Management Agreement, the Filer would otherwise be able to disclose volumes of NGLs in compliance with NI 51-101.

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.

"Denise Weeres"
Manager, Legal
Corporate Finance