Iteration Energy Ltd.

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions - issuer granted relief from the requirement in National Instrument 51-102 Continuous Disclosure Obligations to apply the asset test to determine the significance of a prior business acquisition such that the acquisition will not constitute a significant acquisition with the effect that the pro forma financial statements in a subsequent BAR are not required to give effect to the acquisition - the acquisition was in substance an acquisition of an interest in oil and gas properties.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, Part 8, s. 13.1.

Multilateral Instrument 11-102 Passport System.

Citation: Iteration Energy Ltd., 2008 ABASC 291

May 9,.2008

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

ITERATION ENERGY LTD.

(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) and, in particular, under section 13.1 of National Instrument 51-102 -- Continuous Disclosure Obligations (NI 51-102) excluding the application of the asset test in subsection 8.3(4) of NI 51-102 to the Pengrowth Acquisition (as defined below) such that the Pengrowth Acquisition will not constitute a significant acquisition under Part 8 of NI 51-102, with the effect that the pro forma financial statements in the Cyries BAR (as defined below) are not required to give effect to the Pengrowth Acquisition (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, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon Territory, Northwest Territories and Nunavut, 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:

Iteration Energy Ltd.

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

2. Iteration 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.

3. Iteration is a reporting issuer in each of the provinces and territories of Canada and is not, to its knowledge, in default of securities legislation in any jurisdiction.

Pengrowth Acquisition

4. On September 28, 2007, Iteration and its wholly-owned subsidiary, Iteration Energy Inc., acquired all of the partnership interests of the Peace River Arch Partnership (the Pengrowth Partnership), a general partnership, from Pengrowth Corporation and its affiliates (collectively, Pengrowth) providing for the indirect acquisition (the Pengrowth Acquisition) by Iteration of certain oil and gas properties and related assets from Pengrowth.

5. The Pengrowth Acquisition constituted a "significant acquisition" by Iteration within the meaning of Part 8 of NI 51-102. Accordingly, on November 12, 2007, Iteration filed a business acquisition report (the Pengrowth BAR) in respect of the Pengrowth Acquisition.

6. Notwithstanding that the Pengrowth Acquisition was an acquisition of securities of another issuer, specifically the acquisition of partnership interests, the Pengrowth Acquisition was, in substance, an acquisition by Iteration of an interest in oil and gas properties constituting a business.

7. The Alberta Securities Commission issued a MRRS Decision Document (the Pengrowth Decision Document) dated November 12, 2007 exempting Iteration from the requirement to include in the Pengrowth BAR the financial statements and other information required pursuant to Item 3 of Form 51-102F4. The Pengrowth Decision Document permitted the Pengrowth BAR to include schedules of revenues, royalties and operating expenses of the Pengrowth Partnership, rather than financial statements that would otherwise be required under Part 8 of NI 51-102, on the basis that the Pengrowth Acquisition was, in substance, an acquisition of an interest in oil and gas properties constituting a business (i.e. an acquisition of assets that would benefit from the exemption set forth in subsection 8.10(3) of NI 51-102).

Completion of Cyries Acquisition

8. On March 7, 2008, Iteration acquired all of the issued and outstanding securities of Cyries Energy Inc. (Cyries) pursuant to a plan of arrangement under the provisions of section 193 of the Business Corporations Act (Alberta) (the Cyries Acquisition).

9. The Cyries Acquisition constitutes a "significant acquisition" by Iteration within the meaning of Part 8 of NI 51-102 and, accordingly, Iteration is required to file a business acquisition report (Cyries BAR) in respect of the Cyries Acquisition within 75 days after the date of the Cyries Acquisition.

Pro Forma Income Statement Requirements in Cyries BAR

10. On March 17, 2008, paragraph 8.4(5)(b) of NI 51-102 was amended (referred to as the March Amendment). Prior to the March Amendment, paragraph 8.4(5)(b) of NI 51-102 required that a business acquisition report include a pro forma income statement of the reporting issuer that gives effect "to significant acquisitions completed after the ending date of the financial year referred to ... as if they had taken place at the beginning of that financial year." [emphasis added]. In respect of the Cyries Acquisition, paragraph 8.4(5)(b) would have required that the pro forma financial statements included in the Cyries BAR give effect to any significant acquisitions completed after December 31, 2007. Iteration has not completed any significant acquisition after December 31, 2007, other than the Cyries Acquisition.

11. On March 17, 2008, significantly after the completion of the Pengrowth Acquisition in September 2007, the March Amendment came into effect, with the effect of modifying the wording of paragraph 8.4(5)(b) of NI 51-102 to require that a pro forma income statement in a business acquisition report give effect "to significant acquisitions completed after the beginning of the financial year referred to ... as if they had taken place at the beginning of that financial year." Accordingly, the pro forma income statement included in the Cyries BAR is required to include any significant acquisition completed after January 1, 2007.

12. Iteration completed one significant acquisition after January 1, 2007, being the Pengrowth Acquisition in addition to the Cyries Acquisition. Accordingly, paragraph 8.4(5)(b) of NI 51-102 requires Iteration to include a pro forma income statement for the year ended December 31, 2007 in the Cyries BAR that gives effect to the Pengrowth Acquisition in addition to the Cyries Acquisition.

Significance of Pengrowth Partnership

13. The Pengrowth Acquisition was a "significant acquisition" based on the investment test in paragraph 8.3(2)(b) of NI 51-102, and Iteration filed the Pengrowth BAR on SEDAR, under section 8.3 of NI 51-102.

14. Iteration was unable to complete the asset significance test in paragraph 8.3(2)(a) of NI 51-102 because the net book value of the Pengrowth Assets was not available.

15. The Pengrowth Acquisition was close to the 20% threshold for the investment significance test set out in paragraph 8.3(2)(b) of NI 51-102.

16. The Pengrowth Acquisition was not significant based on the income test set out in paragraph 8.3(2)(c) of NI 51-102.

17. Subsection 8.3(6) of NI 51-102 provides that, despite the optional significance tests in subsection 8.3(3) of NI 51-102, the significance of an acquisition of a business may be re-calculated using financial statements for the period that ended after the date of the acquisition only if, after the date of the acquisition, the business or related business remained substantially intact and was not significantly reorganized, and no significant assets or liabilities have been transferred to other entities.

18. The conditions set out in subsection 8.3(6) of NI 51-102 are satisfied in respect of the Pengrowth Acquisition, as subsequent to the date of the Pengrowth Acquisition, the business forming the Pengrowth Partnership has remained substantially intact and was not significantly reorganized, and no significant assets or liabilities have been transferred to other entities.

19. Pursuant to paragraph 8.3(3)(a) of NI 51-102, a reporting issuer that is not a venture issuer may re-calculate the significance using the optional significance tests in subsection 8.3(4). The Pengrowth Acquisition does not satisfy the investment test or the income test in paragraphs 8.3(4)(b) or (c) of NI 51-102, being 18.9% and 7.7% respectively, but does satisfy, based on the financial statements for the year ended December 31, 2007 (as permitted under paragraph 8.3(3)(a) of NI 51-102) the asset test set out in paragraph 8.3(4)(a), being 26%.

20. As the Pengrowth Acquisition closed on September 28, 2007, Iteration does not have in its possession any financial information in respect of the Pengrowth Assets from July 1, 2007 until closing of the Pengrowth Acquisition on September 28, 2007, which represents nearly the entire third quarter 2007 interim period. Accordingly, Iteration does not have the requisite information to prepare a complete pro forma income statement for the year ended December 31, 2007 that would give effect to the Pengrowth Partnership as if it had been completed on January 1, 2007.

21. At the time of the Pengrowth Acquisition, Iteration was not required under NI 51-102 or any other applicable requirements to request such additional information from Pengrowth in respect of the Pengrowth Acquisition.

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.