sk the man on the street to name the world's energy powerhouses and Saudi Arabia, Kuwait, or maybe Venezuela and Nigeria will spring to his mind. Yet it is Canada that is host to the world's second-largest proven reserves of oil and is currently the third-largest gas exporter in the world. The United States' northern neighbor is its largest source of foreign hydrocarbons and, as the rising price of oil and new technology combine to create more economically recoverable oil, the nation's production is set to grow exponentially.

But size is not everything for the oil and gas investor. With 45% of the world's oil companies based in Canada, it's one of the best places in the world for private capital to gain exposure to hydrocarbons.

The "Alberta Advantage," as the province's unique mix of entrepreneurial culture and business-friendly legislation is known, makes the province, which is the core of Canada's hydrocarbons industry, one of the easiest and most attractive places to invest in oil and gas. As the executive director of the Small Explorers and Producers Association (SEPAC) of Canada, Gary Leach, observes: "The unique equity culture goes right back to the first oil boom in 1914 when the local government created the stock exchange and the securities commission to regulate it. This created a public equity investing culture that's supportive of risk taking and has fostered a sophisticated collective of executives in our junior and mid-sized companies."

While Alberta remains the nation's largest producer and Calgary retains its title as the undisputed capital of Canadian oil, other provinces have watched and learnt from "The Wild Rose Country," and the nation as a whole remains arguably the best place in the world to establish and build an E&P company.

Geology is understandably diverse in Canada, the world's second-largest country. The heart of the Canadian oil and gas scene is the Western Canadian Sedimentary Basin, which covers the bulk of Alberta, southern Saskatchewan and northern British Columbia. To the east there exist various smaller deposits, including large shale acreages in Quebec. Meanwhile, off the eastern coast, the vast Hibernia GBS platform pumps up to 66 million barrels of oil per annum.

In this special report on the Canadian oil and gas sector, we consider how the industry has dealt with the combination of the global economic crisis, the price collapse in gas and volatility in oil prices, and Alberta's royalty fiasco between 2007-2010, and examine how the sector is recovering to become one of the world's most significant oil and gas jurisdictions.

Resource potential

Prior to reviewing the industry, it is worth understanding Canada's reserve estimate legislation and how it compares to its American equivalent.

"In Canada, standards for reserve estimates are set by the securities regulators," states Robin Mann, CEO of oil and gas consultant AJM. "The Alberta Securities Commission (ASC) administers and promotes changes to NI (National Instrument), which is the standard accepted by the Canadian Securities Commission (CSA).

"Canadian regulators have recognized the guidelines and definitions established by the Canadian oil and gas Evaluation Handbook (COGEH). In the U.S., the SEC is the securities regulator and they have recently updated the definitions and rules for reserve reporting. In Canada, companies must report both proved and probable reserves with an option to report 3P, which includes possible reserves.

"In the U.S., proved reserve reporting is mandatory and reporting probable and possible reserves is optional," continues Mann. "The overall reserve definitions used in the U.S. are relatively similar to those we have in Canada. One difference relates to the levels of confidence for proved reserves, where Canadian guidelines call for high certainty while the U.S. calls for reasonable certainty.

"For reserve estimation, the rules throughout North America have really developed over the past eight years and they are more standardized today than they were in the past. This standardization makes it possible to deliver reports that can be comparable in terms of reserves both in Canada and the U.S."

In recent years, "resource estimates" have started creeping into Canadian E&Ps' investor presentations and press releases. Barry Ashton, AJM's chief operating officer, explains that unfortunately, the terms "reserve" and "resource" have often been intertwined: "Over the last few years, a big part of our business has been in preparing 'resource' reports. These reports are different from 'reserve' reports as resource reports deal with developments in the exploration or early development stages.

"When evaluating resources, we need to make sure that there is economic value in large, undrilled areas and we clearly understand the resource base. Resource studies help investors to better understand their portfolio and enable them to make the decisions that allow them to get the most value from their assets." M

Comments