Iteration Energy Ltd. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- 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 as an acquisition of securities of a company incorporated for the purpose of acquiring the oil and gas properties from the vendor.

Citation: Iteration Energy Ltd., 2007 ABASC 830

November 12, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO (THE JURISDICTIONS)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

ITERATION ENERGY LTD.

(THE FILER)

MRRS DECISION DOCUMENT

Background

1. The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that the Filer be exempt from the requirements to include in a business acquisition report (a BAR) certain financial information in respect of a significant acquisition by the Filer (the Requested Relief), subject to the condition that the Filer include in the BAR certain alternative financial information as more particularly described below.

Application of Principal Regulator System

2. Under Multilateral Instrument 11-101 Principal Regulator System (MI 11-101) and Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Alberta Securities Commission is the principal regulator for the Filer under MI 11-101;

(b) the Filer is relying on the exemption in Part 3 of MI 11-101 in British Columbia Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Yukon, the Northwest Territories and Nunavut; and

(c) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

3. Defined terms in National Instrument 14-101 Definitions have the same meaning in this decision unless they are otherwise defined in this decision.

Representations

4. This decision is based on the following facts represented by the Filer:

Iteration Energy Ltd.

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

(b) The Filer is an Alberta-based, independent oil and gas company engaged in the business of exploring for and developing petroleum and natural gas reserves in western Canada and acquiring oil and natural gas properties.

(c) The Filer is a reporting issuer in each of the provinces and territories of Canada and is not, to its knowledge, in default of its obligations as a reporting issuer under the securities legislation of such provinces and territories.

Completion of Significant Acquisition

(d) On September 21, 2007, The filer and its wholly-owned subsidiary, Iteration Energy Inc., entered into an agreement for the purchase and sale of partnership interests (the Acquisition Agreement) with Pengrowth Corporation and its affiliates, 3220173 Nova Scotia Company and Stellar Resources Limited (collectively, the Vendors) providing for the indirect acquisition (the Acquisition) by the Filer of certain oil and gas properties and related assets (the Assets) from the Vendors. The Acquisition was completed on September 28, 2007.

(e) Pursuant to the Acquisition Agreement, the Filer acquired all of the partnership interests of the Peace River Arch Partnership (the Acquired Partnership), a general partnership formed for the purpose of facilitating the Acquisition.

(f) The Acquired Partnership was only formed on September 2, 2007, at which time the Assets were transferred to the Acquired Partnership. Prior to that time, the Assets were held by multiple affiliates of Pengrowth Corporation.

(g) The transfer of the Assets from the Vendors to the Acquired Partnership was made for the purpose of facilitating the Acquisition in a manner that achieved certain tax and commercial efficiencies for Pengrowth Corporation, one of the Vendors.

(h) he Acquisition constitutes a "significant acquisition" for the Filer within the meaning of Part 8 of NI 51-102 Continuous Disclosure Obligations (NI 51-102). Accordingly, the Filer is required under section 8.2 of NI 51-102 to file a BAR in respect of the Acquisition.

Financial Information in Business Acquisition Report

(i) The required content of the BAR is prescribed in Form 51-102F4.

(j) Pursuant to Item 3 of Form 51-102F4 and Part 8 of NI 51-102, the Filer would, absent the Requested Relief, be required to include in its BAR for the Acquisition, subject to the exemptions provided therein:

(i) audited financial statements as at and for the financial year ended December 31, 2006 in respect of the Assets, together with notes thereto;

(ii) unaudited financial statements as at and for the financial year ended December 31, 2005 in respect of the Assets, together with notes thereto;

(iii) unaudited financial statements as at and for the six month interim periods ended June 30, 2007 and 2006 in respect of the Assets;

(iv) a pro forma balance sheet of the Filer as at June 30, 2007 (or as at September 30, 2007 in the event the BAR is filed subsequent to the release of the Filer's interim financial statements for the nine month period ended September 30, 2007) giving effect to the Acquisition as if it had taken place as at such date; and

(v) pro forma income statements of the Filer for the financial year ended December 31, 2006 and for the six month period ended June 30, 2007 (or for the nine month period ended September 30, 2007 in the event the BAR is filed subsequent to the release of the Filer's interim financial statements for the nine month period ended September 30, 2007), in each case giving effect to the Acquisition as if it had taken place at January 1, 2007, together with pro forma earnings per share.

(k) Subsection 8.10(3) of NI 51-102 provides an exemption (the O&G Property 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, the acquisition is not an acquisition of securities of another issuer and the issuer includes in the BAR certain alternative financial disclosure in respect of the interests acquired.

(l) All of the conditions set forth in subsection 8.10(3) of NI 51-102 are satisfied in the circumstances of the Acquisition except that the Acquisition is an acquisition of securities of another issuer, specifically the acquisition of the partnership interests of the Acquired Partnership.

(m) The Acquisition is, in substance, an acquisition by the Filer of an interest in oil and gas properties constituting a business. But for certain tax and commercial efficiencies achieved by structuring the Acquisition as a purchase by the Filer of the partnership interests of the Acquired Partnership with the Vendors transferring the Assets to the Acquired Partnership prior to closing, the Filer would have acquired the Assets directly from the Vendors and availed itself of the O&G Property Exemption.

(n) If the O&G Property Exemption was available to the Filer in the circumstances of the Acquisition, then the Filer would be permitted to include in the BAR financial disclosure as at and for the six month period ended June 30, 2007.

Relief Sought

(o) 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 described below.

(p) The Filer proposes to include in the BAR to be filed in respect of the Acquisition:

(i) an unaudited schedule of revenues, royalties and operating expenses of the Assets for the six month periods ended June 30, 2007 and 2006;

(ii) an audited schedule of revenues, royalties and operating expenses of the Assets for the financial year ended December 31, 2006 and an unaudited schedule of revenues, royalties and operating expenses of the Assets for the financial year ended December 31, 2005;

(iii) unaudited pro forma schedule of revenues, royalties and operating expenses of the Filer as at and for the six months ended June 30, 2007 and for the year ended December 31, 2006;

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

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

(collectively, the Alternative Financial Disclosure).

(q) The Alternative Financial Disclosure is consistent with the financial disclosure in respect of the Assets and the Acquisition that was included in a short form prospectus filed in the Jurisdictions by the Filer dated Oct. 10, 2007.

Decision

5. Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met. The decision of the Decision Makers under the Legislation is that the Filer is granted the Requested Relief, provided that the Filer includes the Alternative Financial Disclosure in the BAR to be filed in respect of the Acquisition.