Securities Law & Instruments

Headnote

MI 11-102 and NP 11-203 -- relief from the requirement to disclose reserves associated with assets accounted for by the equity method of accounting separately from the reserves of the Filer -- relief granted provided that disclosure of the Filer's interest in the assets is provided proximate to the reserves disclosure.

Applicable Legislative Provisions

National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities, s. 8.1.

Citation: Husky Energy Inc., Re, 2013 ABASC 569

December 23, 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
HUSKY ENERGY INC.
(the Filer)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Makers) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief from the requirement of items 2.3(c) and 2.4(2) of Form 51-101F1 (theForm Requirements) to exclude the Filer's oil and gas reserves allocated to the Madura Strait Block (defined below) from the total disclosed reserves and future net revenue of the Filer and to disclose those oil and gas reserves separately because the Madura Strait Block is accounted for by the equity method of accounting (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 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:

Husky Energy Inc.

1. The Filer is incorporated under the Business Corporations Act (Alberta). The head office of the Filer is located in Calgary, Alberta.

2. The Filer is a reporting issuer under the securities legislation of each of the provinces of Canada and is not in default of securities legislation in such jurisdictions.

Madura Strait Block

3. The Filer has a 40% interest in approximately 621,700 acres (2,516 square kilometres) of the Madura Strait block, located offshore East Java, south of Madura Island, Indonesia (the Madura Strait Block).

4. As at 31 December 2012, the Filer reported gross oil and natural gas proved plus probable reserves of 2,915.3 mmboe, of which 43.3 mmboe of proved plus probable reserves were attributable to the Filer's interest in the Madura Strait Block.

5. The Madura Strait Block represents 100% of the Filer's reserves in Indonesia and 21% of the Filer's total proved undeveloped natural gas reserves.

6. The Filer's beneficial interest in the Madura Strait block is held by way of a 40% interest in Husky -- CNOOC Madura Limited (HCML), an entity that is party to a production sharing contract with the Government of Indonesia.

7. The Filer has entered into a unanimous shareholder agreement dated 8 April 2008 (the USA) with the other shareholders of HCML that provides for joint control of HCML.

Transition from IAS 31 to IFRS 11

8. In May 2011 the International Accounting Standards Board issued International Financial Reporting Standard 11 -- Joint Arrangements (IFRS 11). IFRS 11 superseded International Accounting Standard 31 -- Interests in Joint Ventures (IAS 31) and became effective for financial years beginning 1 January 2013.

9. IAS 31 permitted a "jointly controlled entity" to be accounted for either by way of the proportionate consolidation method of accounting or the equity method of accounting. HCML was a jointly controlled entity for purposes of IAS 31 and used the proportionate consolidation method of accounting. Accordingly, oil and gas reserves attributable to the Filer's interest in HCML have historically been included in total disclosed reserves and future net revenue in accordance with the Form Requirements.

10. The introduction of IFRS 11 has resulted in a change in accounting policy requiring the Filer to follow the equity method of accounting for its investment in the Madura Strait Block. IFRS 11 focuses on structure and legal form of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances. The Filer holds its interest in the Madura Strait Block through HCML and, although this has not changed, it is now required to use the equity method to account for this interest. Accordingly, the Form Requirements no longer permit oil and gas reserves attributable to the Filer's indirect interest in the Madura Strait Block to be included in total disclosed reserves and future net revenue.

11. Since 2008, there have not been any changes to the Filer's ownership of HCML or to its economic interest in the Madura Strait Block, other than the Filer's interest in HCML changing from 50% to 40% in 2011, when a portion of its working interest was sold to a third party which is now a partner in the joint venture. This sale would not have had any impact on the accounting treatment under IAS 31 or IFRS 11. The joint control of HCML has not changed. The Filer still has the same control and responsibilities as established through the board of directors and management agreement pursuant to the USA.

Disclosure

12. The Filer will include oil and gas reserves that are attributable to its interest in the Madura Strait Block (the Madura Reserves Disclosure) in the total reserves and future net revenue disclosed in the Filer's Statement of Reserves Data and Other Oil and Gas Information prepared, subject to the exemptive relief sought, in accordance with Form 51-101F1 and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities.

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 discloses its interest in the Madura Strait Block, and the treatment of that interest under IFRS 11, proximate to the Madura Reserves Disclosure for each year it relies on this relief.

This decision will terminate one year from the effective date of a change to the Form Requirements.

"Denise Weeres"
Manager, Legal
Corporate Finance