Celtic Exploration Ltd.

Decision

Headnote

Exemption granted from the requirement to include audited financial statements for acquired assets in an information circular for periods for which financial information required to prepare financial statements is not available -- financial statements do not exist and the issuer does not have access to information necessary to create the financial statements.

Applicable Legislative Provisions

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

Citation: Celtic Exploration Ltd., Re, 2012 ABASC 4826

November 16, 2012

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

CELTIC EXPLORATION LTD.

(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) exempting the Filer from:

(a) the requirement under section 14.2 of Form 51-102F5 Information Circular (the Information Circular Form) to include the Financial Statements (as defined below) in the management information circular (the Information Circular) to be prepared by the Filer and delivered to the holders (Shareholders) of common shares of the Filer (Common Shares) and the holders (Debentureholders) of 5.00% convertible unsecured subordinated debentures due 30 April 2017 of the Filer (Debentures) in connection with a special meeting (the Meeting) of Shareholders and Debentureholders (collectively, Securityholders) expected to be held on 14 December 2012 for the purposes of considering the Arrangement (as defined below); and

(b) the requirement under section 14.2 of the Information Circular Form to include disclosure in accordance with item 5.5(1) of Form 41-101F1 Information Required in a Prospectus (the Prospectus Form) in the Information Circular with an effective date of 31 October 2012.

(collectively, 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, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, 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, MI 11-102 and NI 51-102 Continuous Disclosure Obligations (NI 51-102) 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:

The Filer

1. The Filer is a corporation incorporated under the Business Corporations Act (Alberta) (the ABCA) on 16 April 2002. The registered and head offices of the Filer are located in Calgary, Alberta.

2. The Filer is engaged in the exploration for, and the development and production of, oil and natural gas in Alberta and British Columbia through its ownership of the SpinCo Assets (as defined below) and other assets which will be retained by the Filer following the completion of the Arrangement.

3. The authorized share capital of the Filer consists of an unlimited number of Common Shares and an unlimited number of preferred shares. As at 16 October 2012, 105,813,396 Common Shares and no preferred shares were issued and outstanding. In addition, as at 16 October 2012, the Filer had $172,500,000 aggregate principal amount of Debentures issued and outstanding.

4. The financial year end of the Filer is 31 December.

5. The Filer is a reporting issuer or the equivalent under the securities legislation of each of the provinces of Canada. The Filer is not, to its knowledge, in default of applicable securities legislation in any jurisdiction in Canada.

6. The Common Shares and Debentures are listed on the Toronto Stock Exchange (the TSX). Following completion of the Arrangement, the Filer intends to delist the Common Shares (and if the Debentures participate in the Arrangement, the Debentures) from the TSX.

SpinCo

7. Kelt Exploration Ltd. (formerly 1705972 Alberta Ltd.) (SpinCo) is a corporation incorporated under the ABCA on 11 October 2012. On 19 October 2012, SpinCo amended its articles to change its name to "Kelt Exploration Ltd." The registered and head offices of SpinCo are located in Calgary, Alberta.

8. SpinCo was incorporated for the purposes of participating in the Arrangement and acquiring the SpinCo Assets. SpinCo has not carried on any active business since the date of its incorporation up to the date of this Application, other than in connection with the Arrangement and related matters.

9. SpinCo is a wholly-owned subsidiary of the Filer. The authorized share capital of SpinCo consists of an unlimited number of common shares of SpinCo (SpinCo Shares) and an unlimited number of preferred shares. As at 16 October 2012, one SpinCo Share and no preferred shares were issued and outstanding.

10. The financial year end of SpinCo is 31 December.

11. SpinCo is not a reporting issuer or the equivalent under the securities legislation of any jurisdiction in Canada. SpinCo is not, to its knowledge, in default of applicable securities legislation in any jurisdiction in Canada.

12. No securities of SpinCo are listed or posted for trading on any stock exchange or quotation system.

ExxonMobil Canada and the Purchaser

13. ExxonMobil Canada Ltd. (ExxonMobil Canada) is a corporation existing under the laws of Canada. The head and registered offices of ExxonMobil Canada are located in Calgary, Alberta.

14. ExxonMobil Canada is an indirect wholly-owned subsidiary of Exxon Mobil Corporation. ExxonMobil Canada, directly and through subsidiaries, is engaged in the business of development and production of oil and gas in Canada.

15. ExxonMobil Celtic ULC (formerly 1690731 Alberta ULC) (the Purchaser) is an unlimited liability corporation incorporated under the ABCA. The registered and head offices of the Purchaser are located in Calgary, Alberta.

16. The Purchaser was incorporated for the sole purpose of completing the Arrangement and is an indirect wholly-owned subsidiary of ExxonMobil Canada.

17. Neither ExxonMobil Canada nor the Purchaser is a reporting issuer in any jurisdiction in Canada and are not, to their knowledge, in default of applicable securities legislation in any jurisdiction in Canada. No securities of ExxonMobil Canada or the Purchaser are listed or posted for trading on any stock exchange or quotation system in Canada.

The Arrangement

18. On 16 October 2012, the Filer entered into an arrangement agreement with SpinCo, ExxonMobil Canada and the Purchaser, pursuant to which the Purchaser agreed to acquire all of the issued and outstanding Common Shares for cash consideration of C$24.50 per Common Share (the Common Share Consideration). In addition, each Shareholder will receive one-half of one SpinCo Share. The transaction will be carried out by way of a plan of arrangement under the Business Corporations Act (Alberta) (the Arrangement).

19. Under the Arrangement and subject to the approval of the Debentureholders, the Debentures will be converted into that number of Common Shares that a Debentureholder would be entitled to receive upon the conversion of the Debentures in accordance with their terms immediately following the effective time of the Arrangement (including the "make whole premium" provided for in the Debenture Indenture (as defined below)). The Debentureholders would then receive, for each Common Share received upon such conversion, the Common Share Consideration and one-half of one SpinCo Share. The holders of Debentures which have been so converted will also receive for each C$1,000 principal amount of Debentures, a cash amount equal to the sum of: (i) accrued and unpaid interest on such principal amount to, but excluding, the effective date of the Arrangement (the Effective Date); and (ii) an amount equal to the amount of interest that would otherwise be payable thereon from and including the Effective Date to, but excluding, the date which is 32 days after the Effective Date, which aggregate amount shall be determined in accordance with the Arrangement.

20. Debentureholders will be asked to vote on the Arrangement; however, completion of the Arrangement is not conditional on their approval. If Debentureholder approval is not obtained, the Debentures will be excluded from the Arrangement and will remain outstanding following completion of the Arrangement and continue to be governed by the terms of the debenture indenture (the Debenture Indenture) dated 12 April 2012 between the Filer and Valiant Trust Company.

21. Pursuant to the Arrangement and a conveyance agreement to be entered into on the Effective Date between the Filer and SpinCo, the Filer will transfer certain assets (the SpinCo Assets) to SpinCo.

22. The SpinCo Assets include all of the Filer's right, title, estate and interest in the petroleum, natural gas and related hydrocarbon rights and related personal property interests within, upon or under the lands and leases in the following areas:

(a) the Inga area of British Columbia (the Inga Property);

(b) the Grande Cache area of Alberta (the Grande Cache Property); and

(c) the Karr area of Alberta lying north-east of the Smoky River (the Karr Property). There is no production attributable to the Karr Property.

23. The Arrangement will be submitted for approval by Securityholders at the Meeting, which is currently scheduled to take place on 14 December 2012. In connection therewith, the Filer will prepare and mail the Information Circular to Securityholders which will contain, among other things, detailed information regarding the Arrangement and the business and operations of SpinCo. It is currently expected that the Information Circular will be mailed to Securityholders during the week of 19 November 2012.

24. Following the completion of the Arrangement:

(a) the Filer will become an indirect wholly-owned subsidiary of ExxonMobil Canada;

(b) the SpinCo Assets will become the principal business of SpinCo; and

(c) SpinCo will become a reporting issuer, or the equivalent, in each of the provinces of Canada.

25. The Arrangement will be a "restructuring transaction" under NI 51-102 in respect of the Filer and would therefore require compliance with section 14.2 of the Information Circular Form.

26. The Filer confirms that the acquisition by SpinCo of the SpinCo Assets will not constitute a reverse takeover using the predecessor value method of accounting and does not involve the acquisition by SpinCo of the securities of another issuer.

Disclosure Requirements

Financial Statements

27. As the Arrangement falls within the definition of a "restructuring transaction" under NI 51-102 and Securityholders will have an interest in SpinCo following completion of the Arrangement (as Securityholders will receive SpinCo Shares as partial consideration pursuant to the Arrangement), the Filer must provide "prospectus-level" disclosure in respect of SpinCo in the Information Circular as required by section 14.2(c) of the Information Circular Form.

28. Pursuant to section 14.2 of the Information Circular Form, the disclosure in respect of SpinCo must be the disclosure (including financial statements) prescribed under securities legislation and described in the form of prospectus that SpinCo would be eligible to use immediately prior to the sending and filing of the Information Circular for a distribution of its securities.

29. As SpinCo will not be a reporting issuer in any jurisdiction immediately prior to the sending and filing of the Information Circular, it will at such time be eligible to use the Prospectus Form.

30. Pursuant to section 32.1(b) of the Prospectus Form and section 5.3 of the Companion Policy to NI 41-101, the SpinCo Assets will comprise the "primary business" of SpinCo upon completion of the Arrangement.

31. The Filer is required to include in the Information Circular certain annual and interim financial statements in respect of the SpinCo Assets pursuant to sections 32.1(b), 32.2(1) and 32.3(1) of the Prospectus Form, including:

Annual Financial Statements

(a) a statement of comprehensive income, a statement of changes in equity and a statement of cash flows for each of the financial years ended 31 December 2011, 2010 and 2009;

(b) a statement of financial position as at 31 December 2011 and 2010;

(c) a statement of financial position as at the beginning of the earliest comparative period for which financial statements that are included in the Information Circular comply with IFRS; and

(d) an opening IFRS statement of financial position at the date of transition to IFRS;

Interim Financial Statements

(a) a statement of comprehensive income, a statement of changes in equity and a statement of cash flows for the year-to-date interim period ended 30 September 2012 and the comparative period in the immediately preceding financial year (30 September 2011);

(b) a statement of financial position as at 30 September 2012 and 31 December 2011;

(c) a statement of comprehensive income for the three month period ending on 30 September 2012 and 30 September 2011;

(d) a statement of financial position as at the beginning of the earliest comparative period for which financial statements that are included in the Information Circular comply with IFRS; and

(e) an opening IFRS statement of financial position,

(collectively, the Financial Statements).

32. The financial statements for the Grande Cache Property and Inga Property do not exist, and it is impracticable to prepare carve-out financial statements, for periods prior to the acquisition of the Grande Cache Property and the Inga Property by the Filer in November 2011 and September 2010, respectively.

Reserves and Other Oil and Gas Disclosure Requirements

33. Pursuant to section 5.5(1) of the Prospectus Form, the Filer would be required to include reserves and other oil and gas information in the Information Circular in respect of SpinCo as at 31 October 2012 and for the period from the date of incorporation to 31 October 2012.

34. In accordance with its obligation to provide full, true and plain disclosure in respect of SpinCo and the SpinCo Assets, the Filer and SpinCo made the determination to provide the Reserves Information (as defined below) in respect of the SpinCo Assets as at 30 September 2012, being a recent date which coincides with the date of the interim financial statements, described in subparagraphs 35(b)(i) and (ii), below proposed to be included in the Information Circular and which reflects changes to the Reserves Information in respect of the SpinCo Assets that have occurred since 31 December 2011 (being the most recent financial year end for which the Filer has filed Forms 51-101F1, F2 and F3 in accordance with its obligations under NI 51-101).

Proposed Disclosure

35. The Information Circular will include the following alternative financial statements (the Alternative Financial Statements):

(a) an audited statement of financial position of SpinCo as at 31 October 2012 and audited statements of changes in equity and of cash flows for the period from the date of incorporation of SpinCo to 31 October 2012;

(b) the following financial statements in respect of the SpinCo Assets (Karr Property, Inga Property and Grande Cache Property) but only including the Inga Property and the Grande Cache Property subsequent to their respective acquisitions by the Filer, which will be presented in accordance with IFRS for all periods presented:

(i) an unaudited statement of financial position as at 30 September 2012 and 2011;

(ii) unaudited statements of changes in owner's net investment for the nine months ended 30 September 2012 and 2011 and unaudited statements of comprehensive income and cash flows for the three and nine months ended 30 September 2012 and 2011;

(iii) an audited statement of financial position as at 31 December 2011, 2010 and 2009;

(iv) audited statements of comprehensive income, changes in owner's net investment and cash flows for the years ended 31 December 2011, 2010 and 2009;

(v) an unaudited pro forma statement of financial position as at 30 September 2012; and

(vi) unaudited pro forma statements of comprehensive income for the nine months ended 30 September 2012 and the year ended 31 December 2011; and

(c) separate audited operating statements for the years ended 31 December 2011, 2010 and 2009 for the Inga Property and the Grande Cache Property (the Operating Statements). The Operating statements will:

(i) present information relating to gross revenue, royalty expenses, production and transportation costs and operating income;

(ii) provide a statement that the Operating Statements will be prepared using accounting policies that are permitted by IFRS and would apply to those line items and would apply to those line items if those line items were presented as part of a complete set of financial statements;

(iii) provide a description of the accounting policies used to prepare the operating statements; and

(iv) include an auditor's report that reflects the fact that the operating statements were prepared in accordance with the basis of presentation disclosed in the notes of the operating statements.

36. The Information Circular will include the following:

(a) a description of the SpinCo Assets;

(b) disclosure of the annual oil and gas production volumes from the SpinCo Assets (in respect of the Inga Property and the Grande Cache Property);

(c) the estimated reserves and related future net revenue attributable to the SpinCo Assets as at 30 September 2012 and the estimated oil and gas production volumes (in respect of the Inga Property and the Grande Cache Property); and

(d) a statement that the production, gross revenue, royalty expenses, production costs and operating income in respect of the Karr Property were nil for each of the relevant financial periods,

in addition to the Reserves Information (as defined below) and the other disclosure prescribed by the Prospectus Form (collectively, the Proposed Disclosure).

37. The Information Circular will include reserves and other oil and gas disclosure in respect of the SpinCo Assets in Forms 51-101F1, F2 and F3 (the Reserves Information) with an effective date of 30 September 2012.

38. The Alternative Financial Statements and the Proposed Disclosure will provide full, true and plain disclosure of all material facts relating to SpinCo and the SpinCo Assets and will provide information in respect of the SpinCo Assets that is sufficient to enable an investor to make an informed decision regarding the Arrangement and SpinCo.

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 Information Circular includes the Alternative Financial Statements and the Proposed Disclosure.

"Cheryl McGillivray"
Manager, Corporate Finance