The Canadian Securities Administrators have issued guidance regarding the determination of prices for bitumen reserves under its rule setting out standards of disclosure for oil and gas activities, absent a mature market for the commodity.

In a CSA staff notice, the regulators provide additional guidance as to how, under the existing disclosure rules, the constant price used in estimating bitumen reserves and related future net revenue should be determined in the absence of a published market for bitumen.

“We understand that there is no generally recognized approach to determine the constant price for bitumen because the bitumen market is not yet mature and there are no published reference prices for bitumen,”

To price bitumen, marketers apply formulas that take as a reference point the prices published for crude oil of particular qualities such as “Edmonton light”, “Lloydminster blend”, or the more internationally known “West Texas Intermediate”.

“Some issuers propose to determine the constant price for bitumen by using, for the benchmark reference price, the published price for WTI after applying historical adjustments (meaning the average of the adjustments for the 12 months preceding the date of the estimate) for transportation and for quality, which create the price differential between WTI and bitumen.”

It suggests that this method satisfies the rule requirements and that it is generally consistent with how constant prices are determined for other product types for which there is no published market or benchmark reference price.

CSA staff will reconsider this matter when the market for bitumen is sufficiently mature to permit a more direct method of establishing the constant price for bitumen, it says.

In the meantime, it expects that the use of the approach set out in the notice, by reporting issuers and reserves evaluators, “should enhance the comparability of reporting issuers’ disclosure concerning bitumen reserves”.