MI 11-102 and NP 11-203 -- issuer made acquisition that satisfied the asset test and the profit or loss test under Part 8 of NI 51-102, necessitating the filing of a business acquisition report -- prior to acquisition acquired company underwent reorganization resulting in it owning 10% of what it previously owned -- on a post-reorganization basis only the profit or loss test satisfied -- issuer submitted that acquisition not significant from a practical, commercial or financial perspective -- in addition to significance test results, issuer supplied oil and gas reserve and production information of acquired company versus itself -- issuer relieved from the obligation to file a business acquisition report.
Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.2(1), 8.4(5), 13.
Citation: Re Whitecap Resources Inc., 2014 ABASC 357
September 9, 2014
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 WHITECAP RESOURCES INC. (the Filer)
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision (the Exemptions Sought) under the securities legislation of the Jurisdictions (the Legislation) for an exemption from the requirement under subsection 8.2(1) of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) to file a business acquisition report (BAR) in connection with the Acquisition (as defined below), and from the requirement to disclose the Acquisition in any future pro forma statements prepared pursuant to subsection 8.4(5) of NI 51-102.
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 the Provinces of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, 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.
Terms defined in National Instrument 14-101 Definitions, NI 51-102 or MI 11-102 have the same meaning in this decision unless otherwise defined herein.
This decision is based on the following facts represented by the Filer:
1. The Filer, a corporation formed under the Business Corporations Act (Alberta) with its head office in Alberta, is a reporting issuer in each of the provinces of Canada other than Prince Edward Island. The Filer is not in default of securities legislation in any jurisdiction of Canada.
2. Pursuant to a share purchase agreement, the Filer acquired on June 27, 2014 (the Acquisition) all of the issued and outstanding shares of Trident Exploration Corp. (TEC) for a purchase price of $107 million. Prior to the Acquisition, TEC was a private company owned by five private and affiliated companies (the Sellers).
Significance of the Acquisition
3. Pursuant to subsection 8.2(1) of NI 51-102, if a reporting issuer makes a significant acquisition it must file a BAR within 75 days after the acquisition date. The tests for determining whether an acquisition is a significant acquisition are set out in section 8.3 of NI 51-102 and are referred to as the asset test, the investment test and the profit or loss test. An acquisition by the Filer is a significant acquisition if any of the three foregoing tests yield a result that exceeds 20%.
4. The Acquisition is not a significant acquisition under the investment test in paragraph 8.3(2)(b) of NI 51-102 as the Filer's consolidated investment in TEC represents approximately 5.2% of the consolidated assets of the Filer as stated on its Audited Financial Statements (as defined below).
5. The Acquisition is a significant acquisition under the asset test in paragraph 8.3(2)(a), as the consolidated assets of TEC represent approximately 20% of the Filer's consolidated assets as stated on its Audited Financial Statements.
6. The Acquisition is a significant acquisition under the profit or loss test in paragraph 8.3(2)(c) of NI 51-102 as loss from continuing operations of TEC represents approximately 389.8% of the Filer's income from continuing operations as stated on its Audited Financial Statements.
7. Prior to the Acquisition, on June 26, 2014, the Sellers completed an internal reorganization of various subsidiaries and affiliates of the Sellers, including TEC (the Reorganization). Immediately following the Reorganization, TEC had no business, no liabilities and no assets other than a 10% partnership interest in an Alberta limited partnership. This interest represents 10% of TEC's pre-Reorganization business.
8. Accordingly, TEC retained 10% of the consolidated assets of its pre-Reorganization business and is entitled to earn 10% of the consolidated specified profit (or loss) of its pre-Reorganization business.
9. The audited financial statements of TEC for the year ended December 31, 2013 (the Audited Financial Statements) do not reflect the Reorganization.
Significance Tests Post-Reorganization
10. On a post-Reorganization basis, the Acquisition does not satisfy the asset test, the results of such test being approximately 2%.
11. On a post-Reorganization basis, the Acquisition does not satisfy the investment test, the results of such test being approximately 5%.
12. On a post-Reorganization basis, the Acquisition satisfies the profit or loss test, the results of such test being approximately 39%.
The Significance of the Acquisition from a Practical, Commercial, or Financial Perspective
13. Overall, the Filer is of the view that the Acquisition is not a significant acquisition to it from a practical, commercial or financial perspective, due to the results on a post-Reorganization basis of the asset test and the investment test and other metrics put forward by the Filer, namely the Filer's proved and probable reserves and production in barrels of oil equivalent per day compared to those on a post-Reorganization basis of TEC.
Each of the Decision Makers is satisfied that decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted.