Oil and Gas Companies Listing on the Hong Kong Stock Exchange

by Dorsey & Whitney LLP

There is increasing interest by oil and gas companies to list on the Hong Kong Stock Exchange (“HKEx”). Sunshine Oilsands Ltd, based in Calgary, obtained a primary listing on the Main Board of the HKEx in March 2012. It became the first Canadian oil sands company to list on the HKEx. It sought a further listing on the Toronto Stock Exchange in November 2012. Other oil and gas companies, principally from Canada, are in the process of listing on the HKEx. This update sets out recent issues raised by the listings of these companies.

January 2013 Listing Decision

In January 2013, the HKEx published a new listing decision in relation to the disclosure by mineral companies of net present values (“NPV”) of various levels of reserves and resources. A company incorporated in Canada, engaged in the development and production of oil sands, sought a primary listing on the Main Board of the HKEx. The company proposed to disclose in the prospectus and on an ongoing basis the NPVs attributable to its (i) Proved Reserves, (ii) Proved plus Probable Reserves, (iii) Proved plus Probable plus Possible Reserves and Contingent Resources, on both a pre-tax and post-tax basis, in accordance with NI 51-101, the standard governing the reporting of petroleum reserves and resources for Canadian publicly traded oil and gas producers.

The Listing Rules require that if the NPVs attributable to Proved Reserves and Proved plus Probable Reserves are to be disclosed, they are to be presented on a post-tax basis at varying discount rates or a fixed discount rate of 10%. The Listing Rules prohibit economic values being attached to Possible Reserves, Contingent Resources or Prospective Resources.

The HKEx considered the following:

(i) proposed disclosure of NPVs on both pre-tax and post-tax bases was in accordance with the requirements of NI 51-101, provided additional information to investors and was in line with disclosure made by comparable companies listed in Canada;

(ii) the company’s competent person and the HKEx’s independent mineral consultant both opined that the existence or recoverability of oil sand resources was less uncertain than oil and gas resources. Because certainty on the location and quantum of bitumen volumes was generally very high in Canada, the company’s Contingent Resources were therefore largely dependent upon its commitment to develop the resources (such as filing of a regulatory application seeking approval to proceed with a development project) rather than uncertainty in recoverability. Upon filing of an application, the estimated volumes of Contingent Resources could be reclassified as Probable or Possible Resources; and

(iii) the proposed disclosure of Possible Reserves and Contingent Resources for oil sands (including the basis upon which the Contingent Resources were economically viable and the discount rate applied) were in accordance with NI 51-101 and in line with disclosure made by comparable companies listed in Canada.

The HKEx was thereafter of the view that disclosure of NPVs on both pre-tax and post-tax bases in the prospectus and on an ongoing basis was acceptable under the Listing Rules.

February 2013 Listing Decision

In February 2013, the HKEx published a listing decision determining that NI 51-101 was an acceptable reporting standard under the Listing Rules.

A company listed on an unnamed foreign stock exchange sought a secondary listing on the Main Board of the HKEx. The company reported its oil and gas reserves in accordance with NI 51-101 for its filings with the foreign exchange. The company submitted that:

(i) disclosure of oil and gas reserves under NI 51-101 provided a comparable standard of disclosure under the Listing Rules and a sufficient assessment of the company’s oil and gas reserves; and

(ii) as the company had already been subject to the high reporting standards under NI 51-101, reporting its oil and gas reserves under the Petroleum Resources Management System (“PRMS”, an acceptable reporting standard under the Listing Rules) only provided potential investors with minimal benefits from such additional disclosure compared with the cost and time to provide such information.

The Listing Rules require that a mineral company must disclose information on petroleum resources and reserves either under PRMS or other codes acceptable to the HKEx (if it is satisfied that they give a comparable standard of disclosure and sufficient assessment of the underlying assets).

The HKEx considered the following:

(i) the company's adoption of NI 51-101 was comparable to the requirements of the Listing Rules;

(ii) the prospectus was to include the company’s latest published reserves and resources information; and

(iii) the Company’s shares were listed on a foreign exchange. (The foreign exchange was unnamed in the listing decision and the issue of equivalent shareholder protection on the foreign exchange was not set out in the listing decision, so it was unclear as to the extent of weight given to this issue)

The HKEx was thereafter of the view that NI 51-101 was an acceptable reporting standard under the Listing Rules.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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