Fortress Energy Inc.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from the requirement under Part 8 of NI 51-102 to include financial statements in a Business Acquisition Report -- the Filer will provide alternative disclosure on the basis that the acquisition was in substance an acquisition by the Filer of an interest in oil and gas properties.

Applicable Legislative Provisions

NI 51-102 Continuous Disclosure Obligations.

Citation: Fortress Energy Inc., Re, 2013 ABASC 67

February 25, 2013

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

FORTRESS ENERGY INC.

(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) for relief from the obligation to include financial statements in the business acquisition report (BAR), required by section 8.4 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) (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 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, 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 or MI 11-102 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:

1. The Filer was incorporated under the Business Corporations Act (Alberta) on 15 January 2007 and has its head offices in Calgary, Alberta.

2. The Filer is a reporting issuer in each of the provinces of Canada.

3. To its knowledge, the Filer is not in default of securities legislation in any jurisdiction of Canada.

4. On 1 March 2012, the Filer entered into a purchase and sale agreement (the Acquisition Agreement) to acquire (the Acquisition) from certain Brazilian and Portuguese entities (the Vendors) certain oil and gas properties and related assets in Brazil (the Assets) through the acquisition of the shares of a Brazilian private oil and gas company (Alvorada) by a subsidiary of the Filer (Brazil Holdco).

5. In order to facilitate the Acquisition, subsequent to the entering into of the Acquisition Agreement and prior to the closing of the Acquisition, Alvorada was reorganized by the Vendors with the Assets being transferred to a newly created Brazilian company Alvopetro S.A Extração de Petróleo E Gás Natural (Holding Subsidiary). The reorganization was completed on 1 December 2012.

6. Immediately prior to closing of the Acquisition, the Filer entered into an agreement (the Petrominerales Agreement) with Petrominerales Ltd. (Petrominerales) whereby Petrominerales acquired 75% of the shares of Brazil Holdco.

7. The Acquisition was completed on 11 December 2012.

8. As a result of the Acquisition Agreement and the Petrominerales Agreement, the Filer acquired through affiliated companies, 25% of the issued and outstanding shares of the Holding Subsidiary and an indirect 25% interest in the Assets (the Acquired Assets).

9. The Holding Subsidiary is a newly created company that was used by the Vendors for the purpose of facilitating the Acquisition. At the time of the closing of the Acquisition, the Holding Subsidiary had no assets or liabilities other than the Assets and carried on no other business.

10. The acquisition of the Assets by way of the purchase and sale of the issued and outstanding shares of the Holding Subsidiary was made due to foreign ownership considerations as well for the purpose of facilitating the Acquisition in a manner that achieved certain tax efficiencies for the Vendors and facilitated the governmental approval process for the Acquisition in Brazil.

11. The Filer has concluded that the Acquisition constitutes a "significant acquisition" for the Filer within the meaning of Part 8 of NI 51-102. Accordingly, the Filer is required to file a BAR in respect of the Acquisition.

12. The financial year end of the Filer is 31 December and the financial year end of the Holding Subsidiary is 31 December.

13. Pursuant to Item 3 of Form 51-102F4 Business Acquisition Report (Form 51-102F4) and Part 8 of NI 51-102, the Filer would, absent the Exemption Sought, be required to include in its BAR for the Acquisition, subject to the exemptions provided therein:

(a) a statement of comprehensive income, a statement of changes in equity and a cash flow statement of each of the two most recently completed financial years in respect of the Holding Subsidiary, a statement of financial position as at the end of each such financial year, and notes to the financial statements;

(b) an auditors' report on the statement of comprehensive income, statement of changes in equity and cash flow statements for the most recently completed financial year in respect of the Holding Subsidiary and the statement of financial position as at the end of such financial year;

(c) a statement of comprehensive income, a statement of changes in equity and a cash flow statement of each of the most recently completed interim period and a comparable period in the preceding financial year in respect of the Holding Subsidiary, a statement of financial position as at the end of each such periods, and notes to the financial statements;

(d) a pro forma statement of financial position of the Filer as at 30 September 2012 that gives effect to the Acquisition as if it had taken place as at such date; and

(e) a pro forma income statement of the Filer for the financial year ended 31 December 2011, and for the nine month interim period ended 30 September 2012 in each case giving effect to the acquisition as if it had taken place at 31 December 2011 together with pro forma earnings per share.

14. Subsection 8.10(3) of NI 51-102 provides an 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: (i) the acquisition is not an acquisition of securities of another issuer; and (ii) the Filer includes in the BAR for the Acquisition, historical operating statements in respect of the Assets and pro forma operating statements of the Filer as required under paragraph 8.10(3)(e) of NI 51-102.

15. All of the conditions set forth in subsection 8.10(3) of NI 51-102 are satisfied, except for the fact that the Acquisition is an acquisition of securities of another issuer.

16. The Filer does not have access to the source documents required to prepare audited financial statements for the Holding Subsidiary and cannot therefore fulfill the BAR requirements.

17. The Filer proposes to include in the BAR to be filed in respect of the Acquisition all of the information that would be required under paragraph 8.10(3)(e) of NI 51-102, being:

(a) an audited operating statement presenting gross revenue, royalty expenses, production costs and operating income of the Acquired Assets for the year ended 31 December 2011;

(b) an unaudited operating statement presenting gross revenue, royalty expenses, production costs and operating income of the Acquired Assets for the year ended 31 December 2010;

(c) unaudited operating statements presenting gross revenue, royalty expenses, production costs and operating income of the Acquired Assets for the three month periods ended 30 September 2012 and 30 September 2011, respectively;

(d) an unaudited pro forma operating statement of the Filer presenting gross revenue, royalty expenses, production costs and operating income for the year ended 31 December 2011 giving effect to the Acquisition of the Acquired Assets as if it had taken place at 1 January 2011;

(e) an unaudited pro forma operating statement of the Filer presenting gross revenue, royalty expenses, production costs and operating income for the nine months ended 30 September 2012 giving effect to the Acquisition of the Acquired Assets as if it had taken place at 1 January 2011;

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

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

(collectively, the Alternative Financial Disclosure).

18. The Acquisition of the Acquired Assets was, in substance, an acquisition by the Filer of an interest in oil and gas properties constituting a business. For certain tax, foreign ownership and governmental approval reasons, the transaction was structured by the Vendors as a purchase by the Filer and Petrominerales of the issued and outstanding shares of the Holding Subsidiary rather than the acquisition of the Acquired Assets directly from the Vendors. Absent these considerations, the Filer would have acquired its interest in the Acquired Assets directly from the Vendors and availed itself of the exemption provided in subsection 8.10(3) of NI 51-102 with respect to the financial disclosure to be included in the BAR.

19. The Alternative Financial Disclosure provides complete information regarding the business acquired by the Filer. The Holding Subsidiary was a newly created Brazilian company formed by the Vendors and used by the Vendors to facilitate the Acquisition, which had no assets or liabilities other than the Assets, which it acquired immediately before the Acquisition in connection with the Acquisition.

20. The Filer seeks a decision of the Decision Makers under section 13.1 of NI 51-102 exempting the Filer from the requirements 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.

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 Filer includes the Alternative Financial Disclosure in the BAR to be filed in respect of the Acquisition.