Key developments in Canadian public markets law for the oil and gas industry - fourth quarter 2014

The last quarter of 2014 saw a number of regulatory developments in Canadian capital markets that may specifically affect companies in the oil and gas industry. Below, we’ve compiled a list of key legal developments since October 21, 2014 that may be of particular interest, along with corresponding links to our securities blog.

Capital Markets

  • The OSC approves rules (expected to be effective in February) allowing TSX and TSXV companies to raise capital from existing holders without a prospectus in certain circumstances.
  • Canadian securities regulators propose sweeping amendments to the rights offering rules – including eliminating the requirement for prior regulatory clearance of the circular and increasing permitted dilution from 25% to 100%.
  • IIROC releases a comprehensive overview of best practices and recommendations regarding the underwriter diligence processes.
  • The ASC exempts certain foreign issuers conducting private placements in Alberta from becoming reporting issuers under Alberta law.
  • TSX Private Markets begins operation.
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BC LNG Export Licenses: An Update

Jonathan Drance and Cameron Anderson -

In a previous post , we discussed the National Energy Board (NEB) process for obtaining LNG Export Licenses and the status of the various proposed BC LNG Export Terminals in obtaining their Licences. The following provides an update as to the status of these LNG Export Licences:

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2015 Oil and gas M&A trends in Canada

Glenn Cameron - 

There was a significant increase in oil and gas M&A and related financing activity in 2014 compared to 2013. By the end of November the value of M&A transactions was over $46 billion, more than three times the aggregate value for the same period in the previous year. 

Reasons for this increase in activity included:

  • The extremely cold winter in North America increased natural gas prices and raised the values of natural gas producers.
  • Several large US producers, including Devon, Apache and EOG Resources, consolidated their Canadian operations, disposing of non core properties.  Devon’s sale of its Canadian conventional assets to Canadian Natural Resources for C$3.13 billion was the largest asset deal of the year.
  • The shale plays in the Montney, Duvernay and other areas of Alberta and BC continued to attract investors looking for significant reserves in close proximity to proposed LNG projects on the West Coast of British Columbia.  Kuwait Petroleum Corporation’s US$1.5 billion purchase of 30% of Chevron’s Duvernay assets and Apollo’s purchase of Encana’s Bighorn assets for C$1.9 billion were examples of these kinds of transactions.
  • Access to capital markets provided the financing required for energy M&A transactions.

This increased activity occurred despite growing concerns that proposed pipeline projects to key export markets may be further delayed or even prevented by increased opposition to those projects, and notwithstanding a lack of significant participation in M&A from Asian acquirors, including state owned enterprises (SOEs). However, the rapidly declining oil prices rapidly declined in Q3 and Q4 of 2014 slowed the M&A activity by year end and the capital markets window for energy issuers closed.

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Need and resistance: a review of the status of major Canadian pipeline projects in 2014

Allison Sears -

Pipeline capacity continues to lag North American production gains. Increased pipeline access to refineries in the U.S. and Eastern Canada and, particularly to the coasts and new international markets beyond, remains critical for the Canadian energy sector even with oil prices perilously low. Alberta’s Premier recently reported that lack of access to oil markets cost the federal and Alberta government about $6 billion last year alone. Access is needed to (i) reduce the impacts of the discount that Western Canada Select heavy crude sells for; and (ii) mitigate against the impacts of the increased reliance of U.S. markets on its own domestic production, particularly Marcellus and Utica shale gas and Bakken shale oil. We have seen this reality play out over the last number of years on TransCanada’s Canadian Mainline, where even the Ontario and Quebec markets are placing ever-increasing reliance on shorthaul capacity from the Dawn Hub in favour of historic reliance on longhaul capacity from the WCSB.

In this climate of much needed access, pipeline projects necessary to access  refineries and new markets are continuing to face fierce resistance. Opposition from First Nations and environmental groups continued throughout 2014; heading into 2015, the new source of resistance is political, and comes from our very own provinces and municipalities. While their jurisdictional and constitutional footing to make demands or impose certain conditions on particular pipeline projects is questionable, their influence is unmistakable and their concerns will have to be addressed. After all, public expressions of a lack of confidence in Canada’s federal energy regulator from provincial governments do little to instill confidence in Canadian energy sector investors. 

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Canada expands Russia sanctions

Shawn Neylan and Alan Kenigsberg -

On December 19, the Canadian government announced expanded economic sanctions against Russia, primarily directed at the Russian energy industry (the "Expanded Russia Sanctions").

As we recently discussed, the Expanded Russia Sanctions were imposed by way of an amendment to the pre-existing sanctions under the Special Economic Measures (Russia) Regulations.  In addition to adding new designated persons to the existing Regulations against Russia (and also adding new designated persons to the Special Economic Measures (Ukraine) Regulations) the Expanded Russia Sanctions now prohibit any person in Canada and any Canadian outside Canada from exporting, selling, supplying or shipping any specified good, wherever situated, to Russia or to any person in Russia for use in any of (i) offshore oil exploration or production at a depth greater than 500 meters, (ii) oil exploration or production in the Arctic or (iii) shale oil exploration or production (the "Specified Activities").   Activities relating to gas exploration are not specifically covered in the Expanded Russia Sanctions.

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Site C dam approved: troubled waters ahead?

Jonathan Drance and Rachel V. Hutton -

On December 16, 2014, the Province of BC made a Final Investment Decision to proceed with the development of Site C – an $8.335 billion dam project on the Peace River with the capacity to produce 1,100MW of electricity.

A Cheaper form of Clean EnergyThe Province’s analysis, released together with news of its FID, concludes that Site C will be a cost-effective alternative to help meet future electricity demands in BC and in particular, will be cheaper than developing gas-fired plants operated by BC Hydro, or any alternative projects by Independent Power Producers.

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Russia sanctions expanded

The Canadian government today announced it is expanding sanctions that target certain individuals and activities associated with Russia and Ukraine.

While a number of designated individuals were added to the Ukraine sanctions, the Russia sanctions were expanded to include prohibitions against supplying certain goods, financial services or technical services in respect of certain types of oil exploration and production.

Existing prohibitions concerning equity and debt financings were also clarified.

New Brunswick says no to fracking

Erin Dand-

On Thursday, December 18, the Minister of Natural Resources of New Brunswick, Hon. Donald Arseneault, introduced Bill 9, An Act to Amend the Oil and Natural Gas Act (the Bill) to the Legislative Assembly of New Brunswick. The Bill will create a moratorium on all forms of hydraulic fracking in the province of New Brunswick, regardless of whether the process uses water, propane or another substance to extract natural gas from shale rock beneath the earth’s surface. The Bill will also put an end to any fracking projects currently underway in the Province, as no “grandfathering” in of projects will be permitted outside of the moratorium.

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Quebec and California hold first joint auction of greenhouse gas allowances

P. Jason Kroft and Tamir Birk -

On November 25, 2014, the California Air Resources Board and Quebec’s Ministry of Sustainable Development, Environment and the Fight against Climate Change held the first joint auction of greenhouse gas allowances since the two governments linked carbon markets on January 1, 2014 (the Auction). The joint Quebec-California program allows companies to trade carbon allowances across jurisdictions to comply with greenhouse gas emission limits. For example, a Quebec company could purchase allowances from a certified greenhouse gas emissions reduction project in California to comply with provincial targets, and vice versa. Supporters of the program expect the linkage will improve trade liquidity in both markets.

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BC Approves the Pacific Northwest LNG Export Terminal, Federal Approval Pending

On November 25, 2014, the British Columbia Environmental Assessment Office (the BC EAO) approved the Pacific Northwest LNG Export Terminal (the Terminal), one of the twelve major BC LNG projects announced to date. The proponent of the Terminal is Pacific Northwest LNG Ltd. (Pacific Northwest), which is owned primarily by Malaysia’s PETRONAS. However, other minority shareholders such as China Petroleum & Chemical Corp., Japex and Indian Oil Corporation are also backing the development of the Terminal. 

In approving the Terminal, the BC EAO also approved two pipelines: (i) the Prince Rupert Gas Transmission pipeline (the Prince Rupert Pipeline), which is being developed by TransCanada Corp.,  and (ii) the Westcoast Connector Gas Transmission pipeline, proposed by Spectra Energy Corp. The Prince Rupert Pipeline will transport gas produced by PETRONAS’ subsidiary, Progress Energy Canada Ltd., in northeast B.C. to the Terminal on Lelu Island.

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