Canadian Oil & Gas Market and Legal Update - Second Quarter 2016

Canadian Oil & Gas Quarterly Review
Second Quarter, 2016

Authors
Brad Ashkin
Erin Dand
Julie DAvignon
Chip Johnston
Jennifer McPherson
Doug Richardson
Carolyn Simpson
Brad Squibb
Janel Young
STIKEMAN ELLIOTT LLP

CALGARY MONTRAL TORONTO OTTAWA VANCOUVER NEW YORK LONDON SYDNEY
stikeman.com
Introduction
Thank you for taking the time to review this update. Weve
compiled a summary of activity in the energy market and an
overview of key legal developments in both the public and private
markets from April 1 to June 30, 2016. Our quarterly review now
also includes our key oil & gas strategy recommendations and a
checklist from our growing collection of transaction tools. In this
issue we have included our D&O Indemnity Checklist, which we
hope will be useful to directors and officers as a means of
ensuring that this vital element of their insurance coverage
satisfies their risk tolerances.
Stikeman Elliott was

named as the Energy
Law Firm of the Year by
the 2016 Chambers
Canada Awards.
About Stikeman Elliott

Stikeman Elliott is one of Canadas leading business law firms,
recognized for top tier services in each of our core practice areas
M&A, corporate finance, real estate, corporate-commercial law,
banking, structured finance, tax, insolvency, competition and
foreign investment, and employment and business litigation. We
have prominent cross-border expertise, as the first Canadian firm
to open offices in London and New York, and extensive
experience in the U.S., Europe, China, and South and Southeast
Asia, as well as in Latin America, the Caribbean and Africa.
Calgary Office
Our Calgary office is home to many of Albertas leading lawyers.
Opened in 1992, the office maintains a business law practice
focused on M&A, securities, banking, joint ventures, project
financings, real estate, tax and employment. In addition, our
Calgary office maintains a busy commercial litigation practice
recognized for its work on leading oil and gas cases, as well as a
renowned regulatory practice involving oil and gas and electricity
related matters.
Our Calgary lawyers have expertise in a variety of sectors, with a
focus on the oil and gas industry. We have acted as trusted
advisors on many of the energy sectors most complex
undertakings, from the financing and development of major
projects to ongoing operations. Businesses turn to us for expert
counsel relating to the exploration, production and refining of
conventional oil and gas, oil sands and shale gas, as well as the
extraction, transportation, processing and storage of crude oil,
bitumen, natural gas and liquefied natural gas (LNG) on a
worldwide basis. We also have extensive experience with respect
to energy trading and energy derivative products.
The office has a significant international dimension, advising on
foreign investment in the Canadian energy sector, cross-border
trade in energy resources and participation in international
energy projects.
Contact Us
We would be very pleased to hear your thoughts and feedback. Please feel free to contact any of the
authors of this update.
Brad Ashkin, bashkin@stikeman.com

Erin Dand, edand@stikeman.com
Julie DAvignon, jdavignon@stikeman.com
Chip Johnston, cjohnston@stikeman.com
Jennifer McPherson, jmcpherson@stikeman.com
Doug Richardson, drichardson@stikeman.com
Carolyn Simpson, csimpson@stikeman.com
Brad Squibb, bsquibb@stikeman.com
Janel Young, jyoung@stikeman.com
For additional copies of this publication in printed or digital form, or should you no longer wish to receive
these updates, please contact us at rsvp@stikeman.com
1.
Strategy Recommendations
Our strategy recommendations reflect our recent experience with the Canadian energy market and legal
developments. We believe that we should be working to provide proactive advice that helps clients to
prevent problems - or exploit opportunities.
Deflecting Activists in M&A
Boards and management engaging in M&A in the face of an activist campaign (or the prospect of
activism) should take the time and effort to effectively and fairly manage the procedural elements of
the process.
The result of recent Canadian litigation in Jaguar Financial and Chorus tends to suggest that although
activists are keen to try to use the courts and regulators to intervene in transactions both large and
small, good M&A process and accurate disclosure can defeat these efforts.
However, buyers must be aware that activists can get a hearing (and leverage) as a result of decisions
at the trial level, as was the case in Jaguar Financial and Alberta Oilsands. The presence of activists
should not be seen as a trivial issue and should be given an appropriate weighting in assessing
transaction alternatives. It can take a lot of time and money to demonstrate legal principles.
Bridging the Value Gap in Public M&A

Buyers trying to reach agreements with targets suffering weak performance in the face of bad
commodities markets should consider a mechanism that allows them to pay more for good future
performance in the target business.
In some cases these structures can take the form of contingent value rights which pay amounts to the
former shareholders based on future earnings or valuations. These mimic arrangements that are
often made in private M&A.
In other cases such as Rubicons recent purchase of Logan, the purchaser can agree to pay an
additional amount equal to the funds raised in an asset disposition program.
The firm acted as counsel to Rubicon in connection with its agreement to purchase of Logan.
Accessing Canadian Credit Opportunities
US non-bank lenders should consider seeking credit opportunities with small and mid-cap Canadian
E&P and oilfield service companies. In the current environment, a number of good quality balance
sheets are facing considerable borrowing base pressure from the Canadian chartered banks.
Management teams are increasingly willing to consider non-bank lending alternatives to supplement
or replace first lien credit.
Historically Canadian borrowers have been highly resistant to using non-bank credit and have
consistently used equity dilution as the preferred method of finding growth as asset valuations inflate.
The cost of that capital is now exceptionally high or it is not available to some firms, while at the same
time Canadian bank lenders are pulling back and the Canadian non-bank sector is underdeveloped.
US lenders with an appetite for spending time in the market and being willing to entertain warrants or
other equity sweeteners to bridge the gap on pricing will find more market opportunities than in
earlier cycles.
In order to be successful in that strategy we strongly recommend the use of a local advisor to support
the deal generation and asset valuation process. Having a Canadian face makes teams more willing to
take capital and supports effective management of the portfolio. Many foreign non-bank lenders take
hotel rooms. Not many place money.
Reducing the Cost of Capital for Large Caps
Large issuers with an investment grade rating, a relatively high cost of equity capital and a need to
pursue growth in order to expand earnings should consider the issuance of hybrids as alternative to
equity and debt finance.
Hybrids are treated as half debt and half equity for credit rating purposes but are treated as debt for
Canadian income tax purposes (with the result that interest be payable on the hybrid is deductible by
the issuer).
Hybrids are cost-effective because the after-tax cost of that capital is generally less than the aggregate
cost of the issuance of the same amount of capital by way of half debt and half equity (with the same
notional effect on the credit rating).
TransCanada completed an offering of C$1.2 billion of 60 year hybrid notes in August, following an
offering of the same size and term by Emera in June. Hybrids are fairly widely used in the US by
insurance and healthcare companies. Deal sizes are typically between US$500 million and US$1.5
billion.
The firm acted as special tax counsel to TransCanada with respect to its offering (and in connection
with a similar transaction in 2015) and as counsel to the underwriters in Emeras deal.
Protecting Directors Against Environmental Liability
Directors should confirm that the companys insurance protects them against claims made by
regulators against them in their personal capacity for environmental contamination costs which the
company fails to pay. This should also confirm that coverage applies to claims for similar failures by
entities that purchase assets from the company. Asset-owners can be held liable for the failure of
subsequent owners to pay clean-up costs.
Environmental regulators have exceptionally broad powers to compel owners, former owners and in
some cases their directors and officers to pay for the clean-up of contamination.
In M&A, directors should ensure that their management teams are careful about acquiring land with
unremediated contamination or a history of contamination problems. Buyers should consider
deducting the cost of remediating all environmental contamination (but not reclamation) into their
models.
2.
Canadian Oil & Gas M&A and Finance Transactions

The second quarter marked a continued effort to shore up balance sheets and increase cash flow. The
price of oil also rallied during Q2, with WTI climbing to a high of USD 51.67 per barrel on June 9.
Overall deal flow in Q2 increased compared to the prior quarter. We reported 45 publicly disclosed
transactions with a reported value in the first quarter and 67 in the second. However, the aggregate
value of these reported transactions was marginally lower.
Q2 saw a sharp rise in the number and aggregate value of E&P public offerings. E&P companies
collectively announced over $4.5 billion in public offerings of debt and equity in the quarter,
compared to only about $675 million in the first quarter. In contrast, the total dollar value of private
placements fell in Q2 compared to Q1.
On the M&A side, E&P companies announced a wave of private target & asset sales. We reported an
83% jump in the aggregate value of private M&A transactions announced and a 35% increase in the
number of M&A transactions announced, compared to the prior quarter.
In the midstream spaces public offerings slowed dramatically in Q2 compared to the surge of
offerings announced by midstreamers in Q1. The aggregate value of midstream public offerings of
debt and equity dropped more than 75% in Q2 compared to Q1.
After a quiet Q1 for service companies, the second quarter saw some M&A activity. We reported an
aggregate of roughly $315M in private asset sales announced in the quarter. There was no M&A
announced in the sector in Q1.
Value
(CAD)
Date
Transaction
E&P Acquisitions
Public Targets
$65M
June 8
Acquisition of Striker by Gear by arrangement
$35M
June 24
Acquisition of Twin Butte by Reignwood Resources by arrangement
$30M
June 24
Acquisition of Arsenal by Lone Pine by arrangement
$15M
June 1
Acquisition of Hawk Exploration by Kaisen (an Azimuth sponsored company)

by arrangement
Value
(CAD)
Date
Transaction
E&P Acquisitions
Private Targets & Assets
$975M
June 10
Acquisition of Saskatchewan assets from Penn West by Teine (a CPPIB

sponsored company)
$595M
May 10
Acquisition of southwest Saskatchewan assets from Husky by Whitecap
$200M
April 4
Acquisition of Canadian natural gas business from Spectra Energy by Plains

Midstream
$165M
May 2
Acquisition of certain assets from Husky by Freehold
$100M
June 27
Acquisition of west-central Saskatchewan assets from Husky by NAL

Resources
$95M
April 12
Acquisition of northwest Alberta assets from Enerplus by undisclosed

purchaser
$85M
June 22
Acquisition of Redwater, Wilson Creek and Penny assets from undisclosed

vendors by Tamarack Valley
$75M
May 13
Acquisition and leaseback of production facilities from Bellatrix by

undisclosed purchaser
$75M
May 19
Acquisition of Wyatt Oil + Gas by Spartan
$60M
June 29
Acquisition of Corning-Manor assets from undisclosed vendor by Spartan
$35M
April 1
Acquisition and leaseback of Cold Lake thermal oil co-generation facilities

from Pengrowth by Frog Lake Energy Resources
$30M
June 16
Acquisition of Ferrier assets from Grafton by Bellatrix
$25M
June 27
Acquisition of royalty interests from Pine Cliff by undisclosed purchaser
$20M
April 11
Acquisition of Progress assets from undisclosed vendor by Kelt
$15M
June 1
Acquisition of Cold Lake assets from Kasten by PetroFrontier
$10M
May 26
Acquisition of Gold Creek assets from Chinook by RMP Energy
Value
(CAD)
Date
Transaction
E&P Acquisitions
$10M
June 16
Acquisition of joint venture interest in Bourque Project from Petrolia by

Ressources Qubec
$10M
June 29
Acquisition of Winmore assets from undisclosed vendor by Spartan
$5M
June 7
Acquisition of Deventa by Stonehaven
Not
disclosed
April 8
Acquisition of Horn River assets from Quicksilver Resources by undisclosed

purchaser
Not
disclosed
April 12
Acquisition of Peace River leases from undisclosed vendor by Strata
Not
disclosed
June 13
Acquisition of Alberta assets from Chinook by Tournament
Not
disclosed
June 17
Acquisition of Peace River Arch assets from undisclosed vendor by

Longshore
Midstream Acquisitions
$1.7B
April 26
Acquisition of 65% interest in Canadian midstream assets from Husky by

Cheung Kong Infrastructure Holdings and Power Assets Holdings
Not
disclosed
May 16
Acquisition of Cangas Solutions from Trinidad Drilling by Certarus
Oilfield Services Acquisitions

$205M
April 27
Acquisition of XSR Coiled Tubing Services Segment from Xtreme by

Schlumberger
$55M
May 2
Acquisition of all of the operating assets of PetroLama by Secure
$55M
June 2
Acquisition of Completion Tools business from Trican by National Oilwell

Varco
Not
disclosed
April 4
Acquisition of certain Canadian assets of Sanjel by STEP Energy (an ARC

Financial sponsored company)
Value
(CAD)
Date
Transaction
Oilfield Services Acquisitions

Not
disclosed
April 4
Acquisition of intellectual property from Ivanhoe Energy by FluidOil
Not
disclosed
April 7
Acquisition of Meridian Environmental Consulting by Summit Liability

Solutions
Not
disclosed
May 11
Acquisition of Canadian wireline services business from FMC Technologies

by Reliance Oilfield Services
Not
disclosed
June 1
Acquisition of certain Canadian assets of Sanjel by 1961531 Alberta (an ARC

Financial sponsored company)
Not
disclosed
June 7
Acquisition of lands bordering the Obed Transloading Facility from

Athabasca Minerals by Wayfinder
E&P Finance
Prospectus Offerings of Equity
$2.5B
June 8
Suncor Bought deal offering of common shares co-led by TD, CIBC and J.P.
Morgan
$470M
May 10
Whitecap Bought deal offering of subscription receipts co-led by National

Bank and TD
$300M
May 17
Keyera Bought deal offering of common shares co-led by RBC and National
Bank
$200M
May 11
Enerplus Bought deal offering of common shares co-led by BMO, RBC and
TD
$200M
May 25
Gibson Bought deal offering of common shares co-led by BMO and RBC
$165M
May 2
Freehold Bought deal offering of common shares co-led by RBC, CIBC and
TD
$150M
April 29
Peyto Bought deal offering of common shares co-led by BMO and

FirstEnergy
$100M
May 27
Bonavista Bought deal offering of common shares co-led by CIBC and TD
$70M
June 22
Tamarack Valley Bought deal offering of subscription receipts and flowthrough common shares led by National Bank
Value
(CAD)
Date
Transaction
E&P Finance
$60M
May 25
Cardinal Bought deal offering of common shares led by CIBC
$25M
April 26
Blackbird Offering of common shares, warrants and flow-through common

shares co-led by Dundee and Haywood
$20M
June 8
Gear Bought deal offering of common shares led by Peters
$20M
June 8
PHX Bought deal offering of common shares led by Peters
$15M
April 18
US Oil Sands Rights offering of common shares, backstopped by ACMO
$15M
April 25
CWC Rights offering of common shares, backstopped by Brookfield Capital

Partners
$15M
May 26
Granite Bought deal offering of common shares co-led by National Bank

and Raymond James
$10M
May 5
Yangarra Bought deal offering of common shares led by AltaCorp Capital
$10M
June 13
Toro Overnight marketed offering of common shares and warrants led by

AltaCorp Capital
$10M
June 16
Toro Bought deal offering of common shares and warrants led by AltaCorp
Capital
Prospectus Offerings of Debt

$100M
May 25
Gibson Bought deal offering of 5-year convertible notes co-led by BMO and
RBC
$75M
April 11
Kelt Bought deal offering of 5-year convertible notes co-led by Peters and
FirstEnergy
$60M
May 30
Delphi Offering of 5-year notes and warrants
$30M
June 6
Keyera Offering of 7-year notes led by Prudential Capital
$30M
June 6
Keyera Offering of 10-year notes led by Prudential Capital
10
Value
(CAD)
Date
Transaction
E&P Finance
Private Placements of Equity
$10M
April 21
Manitok Placement of common shares and flow-through common shares

led by Integral
$10M
April 27
Ikkuma Resources Bought deal placement of flow-through common shares

led by Desjardins
Private Placements of Equity to Sponsors

$150M
June 17
Longshore Placement of common shares to ARC Financial
$20M
May 2
Freehold Placement of common shares to CN Pension Trust Funds
Private Placements of Debt

$15M
April 11
Kelt Placement of 5-year convertible notes
Midstream Finance
$500M
April 12
Enbridge Income Fund Offering of common shares co-led by Scotiabank,

BMO and CIBC
$500M
April 13
TransCanada Bought deal offering of preferred shares co-led by TD, BMO

and Scotiabank
$400M
May 27
AltaGas Bought deal offering of common shares co-led by TD, RBC and
BMO
$250M
April 18
Pembina Bought deal offering of preferred shares co-led by RBC and

Scotiabank
Prospectus Offerings of Debt

$350M
April 5
AltaGas Offering of 10-year notes co-led by CIBC and RBC

$145M
April 12
Enbridge Income Fund Placement of common shares to Enbridge (4.1% on

diluted basis)
11
Value
(CAD)
Date
Transaction
Oilfield Services Finance

$80M
May 18
CES Bought deal offering of common shares led by Scotiabank
$60M
June 1
Trican Bought deal offering of common shares co-led by RBC and

Scotiabank
$25M
April 1
Newalta Bought deal offering of common shares led by Scotiabank
Private Placements of Equity

$25M
April 1
Newalta Placement of common shares to certain institutional investors led

by Scotiabank

$200M
June 10
Calfrac Placement of warrants to AIMCo in exchange for grant of term loan

facility by AIMCo
Not
disclosed
June 7
Wayfinder Placement of undisclosed equity to ARC Financial
CCAA and Bankruptcy Proceedings

$3.485B
April 27
Pacific Exploration (formerly Pacific Rubiales) obtained creditor protection

under the CCAA to give effect to a debt for equity exchange - PWC
appointed as monitor
$835M
May 18
Connacher obtained creditor protection under the CCAA to give effect to a

debt for equity exchange - E&Y appointed as monitor
$75M
June 7
ATB obtained a consent receivership order against LGX Oil + Gas pursuant
to the Bankruptcy and Insolvency Act (Canada) - E&Y appointed as receiver
$40M
May 9
Anterra Energy obtained creditor protection under the CCAA in order to

pursue strategic alternatives - PWC appointed as monitor
Not
disclosed
April 4
Sanjel obtained creditor protection under the CCAA to effect the sale of its
assets - PWC appointed as monitor
Not
disclosed
April 26
National Bank obtained a receivership order against Mosaic Energy (a NGP

sponsored company) pursuant to the Bankruptcy and Insolvency Act
(Canada) - E&Y appointed as receiver
Not
disclosed
May 30
Endurance (a Warburg Pincus sponsored company) obtained creditor

protection under the CCAA to give effect to a sale process and interim
financing - FTI Consulting appointed as monitor
12
3.
Key Developments in Canadian Public Markets Law

The following is an overview of key developments in Canadian public markets law applicable to the oil and
gas industry from April 1 to June 30, 2016.
Mergers and Acquisitions
New rules subjecting take-over bids to a minimum 105-day deposit period (subject to a target right to
waive), a minimum tender condition of 50% of independent shareholders and a mandatory 10-day
extension to the bid period after the tender condition is satisfied came into effect in May.
In Catalyst Capital, the Ontario Securities Commission rejected Catalysts attempt to delay a vote on
Corus $2.6 billion purchase of Shaw Media. Catalyst had run a failed dissident campaign against the
deal (a related-party transaction that complied with MI 61-101 procedures). The OSC declined to use
its public interest jurisdiction to intervene because Catalysts objections to certain financial
disclosures made by Corus fell short of the high threshold for invoking that power.
In Jaguar Financial, the B.C. Court of Appeal reviewed a transaction in which a TSX Venture Exchangelisted cash shell acquired a private mining company over the objections of an activist fund led by the
colourful Vic Alboini. In another blow against the activists, the court rejected the trial courts
aggressive intervention in favour of the fund, upholding a variety of settled expectations regarding
M&A process and allowing the deal to proceed.
Capital Markets
Issuers now face heighted disclosure requirements as a result of a new form for reporting of private
placements which came into effect on June and harmonizes the reporting in all Canadian jurisdictions.
All reports must now be filed on SEDAR and will be publicly available.
Continuous Disclosure
Amendments to the early warning requirements mandating reporting of 2% decreases in ownership

and exit reporting upon ownership falling below the 10% reporting threshold came into effect in
May.
The TSX proposed new draft rules for dividend reinvestment plans (DRIPs) which would require,
among other things, that DRIPs and plan amendments be pre-cleared by TSX and would allow a
maximum discount of 5% on the market price on the price of securities issued under a DRIP. The new
rules came into effect on September 1, 2016.
The TSX proposed rules to require listed companies to maintain a website containing current
constating documents and other documents affecting share capital and to simplify annual
compensation disclosure required in materials for meetings of security holders. The new rules are not
yet in effect.
Litigation
In LBP Holdings, an Ontario court found that despite having professional expertise in the capital
markets, underwriters are not experts for purposes of attracting liability in secondary market
claims.
13
4.
Key Developments in Canadian Private M&A Law

The following is an overview of key developments in Canadian law and regulatory practice applicable to
private M&A in the oil and gas industry from April 1 to June 30, 2016.
Oil & Gas Regulatory
The federal government is reviewing the National Energy Board (the NEB) (responsible for the
regulation of pipelines) and related federal environmental laws with the stated purpose of
strengthening the environmental assessment process for pipelines. Recommendations for reform are
to be made public in January, 2017. It is generally expected that this will make pipeline approval more
difficult.
The NEB recommended that the federal government approve Kinder Morgans Trans Mountain pipeline
expansion project. Word on the status of federal approval is expected in December.
Purchasers of pipeline licenses are now required to confirm to the Alberta Energy Regulator (the AER)
their receipt of all required pipeline records. Purchasers should ensure they are familiar with the
record requirements and that the seller has complete records before completing an acquisition.
National Resources Canada has opened the enrollment process for companies that are subject to new
federal legislation requiring the disclosure of payments made to governments.
Litigation
The Federal Court of Appeal quashed the federal governments approval of Enbridges Northern
Gateway pipeline project, finding that it failed to meet its duty to consult with Aboriginal peoples. The
federal government and Enbridge will not appeal this decision.
In the Redwater decision, the Alberta Court of Queens Bench upheld existing law and found that a
trustee under federal bankruptcy law is entitled to renounce an insolvent companys unprofitable oil
and gas assets, defeating the AERs claim that the outstanding abandonment obligations for those
assets must be paid first.
In reaction to Redwater, the AER imposed more onerous asset coverage requirements applicable to the
acquisition of assets in Alberta (the new rules do not affect corporate acquisitions).
The Alberta Court of Queens Bench also recently confirmed that oil and gas companies can access
copyrighted seismic information once it has been published by the NEB.
Employment
The Ontario Court of Appeal found that where a fixed-term employment contract does not specify a
pre-determined notice period, early termination requires the employer to pay severance for the
unexpired term of the contract.
The Ontario Divisional Court held that termination of an employee during a probationary period
expressly provided for in the employment contract is a matter of the employers judgment and
discretion.
14
5.
Director & Officer Indemnity Agreement Checklist

This checklist is designed for use by Canadian energy companies and their directors and officers. It
does not address all of the issues that can arise in preparing an indemnity agreement, nor is it our
view that every agreement must address all of the issues presented in the checklist. The checklist is
only a menu of ideas for the parties to consider. Importantly, it does not address some of the
concepts that will appear in complex or specialized forms of indemnity agreements (such as those
employed by financial sponsors or strategics). This checklist assumes that the Corporation is
incorporated under the Business Corporations Act (Alberta).
In this agreement we use the term Corporation to refer to the party engaging the director or officer,
and the term Director to refer to the director or officer of the Corporation.
We look forward to receiving your comments and suggestions, and look forward to updating this
publication in the coming years.
Critical Path Terms for Corporation

Duties and Term of Service
Director will act honestly and in good faith with a view to the best interests of Corporation.
Director will immediately resign at the request of Corporation (not applicable to publics).
Limitations
Indemnification is available only if:
Director acted honestly and in good faith with a view to Corporations best interests;
the action is a criminal or administrative proceeding enforced by monetary penalty, Director had
reasonable grounds for believing the conduct was lawful; and
such costs were not suffered or incurred as a direct result of Directors own fraud or willful
misconduct.
Indemnification by Corporation of Director will not apply to claims Director initiated against Corporation.
Coverage in Time
The indemnity ceases to apply if Corporation directs Director to stop acting as a director of Corporation,
an affiliate or other body.
Corporation (or its insurer) is entitled to assume control of the defense and settlement of any claim under
the indemnity.
15
Retaining Counsel
Corporation (or its insurer) can retain counsel to represent Director in its sole discretion. This choice does
not need to be reasonably satisfactory to Director.
Information about the Claim

Director will cooperate with Corporation and provide all information required to defend a claim subject to
indemnification.
Settlement
Director will not settle any claim subject to the indemnity without the written consent of Corporation, not
to be unreasonably withheld.
Corporation can settle any claim subject to the indemnity without Directors consent as long as the
settlement does not attach any liability to Director.
Insurance Coverage
Corporation will obtain D&O insurance that it determines is reasonable.
Corporation may alter the terms of the insurance at its discretion.
Insurance Mechanics
Corporation is subrogated to all rights Director has under any insurance policies. Director must make
claims against the insurer first and Corporation may assert those rights on Directors behalf.
Other
Director has obtained independent legal advice regarding the obligations under the indemnity agreement,
or has declined such advice because of Directors degree of legal sophistication
16
Critical Path Terms for Director

At each Directors meeting, Corporation will certify that it has satisfied its current obligations to pay
insurance premiums, remit tax, pay employees and address known contamination.
Scope of Coverage
The scope of damages or costs should be broad and include any taxes Director pays as a result of
payments made to Director under the indemnity.
The indemnity applies in respect of service to any other body Director is appointed to by Corporation.
Affiliates should indemnify Director separately if Director serves an affiliate.
The indemnity applies no matter what the nature of Directors service, whether as director, officer,
consultant or other capacity.
Limitations
Remove the third requirement from (3) on Corporations list - such costs were not suffered or incurred as
a direct result of Directors own fraud or willful misconduct. This is not a requirement of law.
Director has the benefit of the contractual indemnity to the extent allowed. A partial allowance of
contractual indemnity does not undermine Directors remaining claim.
Directors right to indemnification is not limited in any way, even if the claim alleges that Director and
Corporation are jointly liable.
Director has benefit of a presumption that Director has satisfied any pre-requisites to engaging the
indemnity. Corporation must demonstrate that this is not the case.
If court approval of any matter covered by the indemnity is required, Corporation must promptly use its
best efforts to obtain that approval.
Indirect Protection
Corporation will provide Director with a copy of every other director or officer indemnity agreement.
Director will have the benefit of the most favourable protection provided for in those agreements.
Coverage in Time
Director is released from any claim by Corporation against Director two years after Director ceases to be a
Director.
Retaining Counsel
Corporation (or its insurer) must assume all costs related to counsel it retains for Director.
Director is entitled to retain other counsel to represent Director.
Director Costs and Payment

Corporation should have no ability to control the availability of the indemnity the scope of the indemnity
should be defined by the contract.
17
Corporation must pay amounts owing to Director within 30 days of Director providing invoices for these
costs.
All of Directors expenses related to indemnified claims are assumed to be reasonable and will be paid.
Information about the Claim

Corporation will cooperate with Director when claims are made against Director. Corporation will provide
information to Director regarding the status of the claim.
Insurance Coverage
The insurance must be acceptable to Director.
The insurance should be occurrence based (which applies to any claim made during the insured period).
Other
The term of the agreement is 10 years after Director ceases to be a director.
18
Detailed Checklist
Corporation Bias
Director Bias

1.
Director or officer (Director) of corporation

(Corporation) will act honestly and in good
faith with a view to Corporations best
interests for the term of service.
2.
Director will immediately resign at

Corporations request.
3.
Neither Corporation nor any affiliate is

obligated to continue Directors service.
4.
Directors resignation does not alter

Directors duties to Corporation or
obligations under other agreements between
Corporation and Director.
5.
Not if Corporation is public.
Director can resign at any time for any reason.
Corporation will certify at each directors meeting

that it has satisfied current obligations to pay
insurance premiums, remit tax, pay employees and
address known contamination.
Scope of Coverage
6.
Corporation will indemnify Director against

all damages or costs arising directly or
indirectly from having been a director of
Corporation or any affiliate.
The scope of damages or costs should be broad

and include all of Directors legal costs and
expenses, any fines or financial penalties paid by
Director and any income taxes Director pays as a
result of payments made to Director under the
agreement.
19
Corporation Bias
Director Bias
Scope of Coverage
7.
The indemnity applies in respect of any other body

Director is appointed to (or serves at Corporations
request), not just affiliates of Corporation.
Affiliates or other bodies should also indemnify
Director separately if Director serves with the
affiliate. Otherwise, Director does not have access
to the affiliates assets in a claim. Alternatively,
affiliates can become a party to the main agreement
with Corporation.
If the corporate structure involves multiple layers of
corporate entities which are at a distance from
Corporation, consider whether additional insurance
is required. At a minimum, an affiliate should give
its own indemnity, even if Director is not serving on
its board. Director may lose the benefit of the
assets of an affiliate for purposes of
indemnification if that affiliate becomes embroiled
in claims for which Director is deemed to be
responsible despite not being a director or officer
of that affiliate.
8.
9.
Directors heirs, successors and legal

representatives have the benefit of the indemnity.
The sponsor should pay claims under the
indemnity before Corporation.
If Director receives the indemnity from a sponsor

(in addition to Corporation), sponsor will pay any
claims arising from Directors service if Corporation
does not pay.
Director and sponsor may choose which entity
provides the indemnity.
Director should reject any limitation on sponsor
indemnity. Director has undertaken the risk of
service to the benefit of sponsor. The sponsor
should pay the costs of that service.
20
Corporation Bias
Director Bias
Scope of Coverage
10.
The indemnity applies no matter what the nature of

Directors service to Corporation or its affiliates
whether as a director, officer, consultant or other
capacity. Some directors end-up doing things for
Corporation that may be characterized as being
outside the scope of Directors remit these
activities should be covered.
Limitations
11.
Indemnification is available only if:

1)
Director acted honestly and in good

faith with a view to Corporations best
interests;
2)
if the action is a criminal or

administrative proceeding enforced by
monetary penalty, Director had
reasonable grounds for believing the
conduct was lawful; and
3)
such costs were not suffered or incurred

as a direct result of Directors own fraud
or willful misconduct.
12.
Remove the third test. It is not a requirement of

law. The concept arises from the commercial terms
of many indemnities. Director should not have
exposure to the argument that there was fraud or
willful misconduct.
The first two limitations are imposed by statute.
The third is not.
Director has the benefit of the contractual

indemnity to the extent allowed. A partial allowance
of contractual indemnity does not undermine
Directors claim.
Directors right to indemnification is not limited
even if the claim alleges that Director and
Corporation are jointly liable.
13.
Corporation should be entitled to determine

in its sole discretion whether tests for
indemnity have been met.
Director has benefit of the presumption that

Director met the tests in respect of any claim.
Corporation must demonstrate that this is not the
case.
Termination of a legal proceeding (for example, by
settlement) does not create a presumption that
Director has not met the requirements of
indemnification.
21
Corporation Bias
Director Bias
Limitations
14.
Indemnification by Corporation will not

apply to claims initiated by Director against
Corporation.
Indemnification applies to claims for the

enforcement of the indemnity agreement by
Director against Corporation.
15.
If an element of the indemnity requires court

approval, Corporation will use commercially
reasonable efforts to obtain that approval.
If court approval of any matter covered by the

indemnity is required, Corporation must promptly
use its best efforts to obtain that approval.
Under many corporate statutes, court approval is
required for indemnity against a claim by
Corporation against Director commenced by
shareholders. The obligation of Corporation to
obtain approval should apply to any matter which
may limit the indemnity.
Further, Director is entitled to seek this approval if
Corporation does not take this action. Corporation
will pay all costs of these proceedings.
16.
The indemnity agreement is intended to protect

Director to the greatest extent permitted by law. If
the law changes, at Directors request, the
agreement will be amended to afford that broader
indemnity to Director.
Indirect Protection
17.
If Corporation is to be continued under the laws of

another jurisdiction, Director is entitled to request
any changes to the agreement as are required to
give Director the maximum protection afforded by
that new governing law.
18.
Rights conveyed by (or payments made under) the

indemnity agreement will not take away from any
other rights Director has (under law, constating
documents, or otherwise to an indemnity or other
protection).
19.
If there is a conflict between the agreement and any

other arrangement for indemnity, Director will have
the benefit of the most favourable protection.
22
Corporation Bias
Director Bias
Indirect Protection
20.
Corporation will provide Director with a copy of

every other director or officer indemnity agreement.
Director will have the benefit of the most favourable
protection set out in those agreements.
21.
Corporation will not take any action (including

changing its charter documents or material
agreements) that would undermine the scope of the
indemnity.
Coverage in Time
22.
The indemnity ceases to apply if Corporation

directs Director to stop acting as a director
of Corporation, an affiliate or other entity.
If Director is an officer, the indemnity ceases
when Director stops being an officer, unless
Corporation agrees otherwise.
The indemnity becomes effective at the time

Director is appointed. It applies to all of Directors
acts until Director resigns, and continues after
resignation or removal, but not in respect of actions
after resignation.
All of Directors rights to indemnity under law,
whether arising from the agreement or otherwise
will continue after Director ceases to be a director.
23.
Reject this limitation allow the law of

limitations to govern the claims. A release is
appropriate in the event of a corporate sale,
but not if there is no change of control in
the equity.
Director is released from any claim by Corporation

against Director two years after Director ceases to
be a director, unless Director has engaged in fraud.
Director should have certainty on exposure to
Corporation.
24.
Director will give written notice to

Corporation if Director receives notice of a
claim (or becomes aware of a threatened
claim) against Director that will engage the
indemnity.
Corporation will give written notice to Director if

Corporation receives notice of a claim (or becomes
aware of a threatened claim) against Corporation
that will engage the indemnity.
25.
Corporation is not required to pay under the

indemnity to the extent that defense costs
have increased as a result of a delay in
giving notice.
A delay by Director in giving notice of a claim limits

the indemnity only to the extent that Corporation
has been materially prejudiced as a direct result of
the delay. Directors are not always in a position to
give timely notice of threatened claims.
23
Corporation Bias
Director Bias
Coverage in Time
26.
Corporation (or its insurers) is entitled to

assume control of the defense and
settlement of any claim under the indemnity.
If Corporation assumes control of the claim it is

obligated to pay all costs related to the defense for
Director. If an insurer assumes control, it must pay
all costs. To the extent it does not, Corporation
must pay any shortfall, as long the conditions of
the indemnity are met.
Retaining Counsel
27.
Corporation (or its insurer) can retain

counsel to represent Director in its sole
discretion. Its choice does not need to be
reasonably satisfactory to Director. This
counsel may be the same as the counsel that
represents Corporation.
If Corporation selects counsel, it will do so

promptly and its choice will be reasonably
satisfactory to Director.
If Directors consent to counsel retained for
Director is not required, Corporation (or its insurer)
must assume all costs related to the claim.
In any case, the choice of the insurer does

not require the reasonable consent of
Director. This is key to Corporation
managing its costs.
28.
Director has no right to retain separate

counsel from that selected by Corporation
unless:
1)
Corporation agrees to this arrangement;

or
2)
Corporation does not retain counsel

within 10 business days of Corporation
receiving notice of a claim.
Director is entitled to retain other counsel to

represent Director. Corporation has a strong
incentive to retain only one set of counsel in the
preceding, and that counsel takes its lead from
management. There are many circumstances in
which this may not be in Directors best interest.
Directors counsel has less to do and will not be
expensive. Director will be reasonable in exercising
this right.
As a step-down, Director has the right to meet
separately with the counsel retained by Corporation
(without management present) and have the
counsel respond to its requests for information and
advice without mediation by management.
Alternatively, Director should be entitled to
unilaterally appoint counsel to consider any claim
or potential claim under the agreement, whether or
not Corporation assumes the defense, up to a
maximum of $10,000 in fees. Director needs a
budget to assess the legal position.
Directors should have a contractual (not just
theoretical) right to independent counsel.
24
Corporation Bias
Director Bias
Retaining Counsel
29.
Director is allowed to choose other counsel,

but Director will pay all of those costs
unless:
1)
Director and Corporation agree that

Director should retain other counsel; or
2)
representation of both Corporation and

Director would be inappropriate because
of conflicting interests.
This is the least desirable outcome. Given the

considerable litigation risk assumed by directors, it
is unclear why Director would accept this
arrangement.

30.
Corporation is not required to pay any

expenses of Director if it determines in its
reasonable discretion that the terms of the
indemnity are not available to Director. If a
court determines later that Corporation
should have paid, Corporation must pay.
This creates a mechanism for escaping the
upfront burden of the indemnity if it is clear
that Director is a bad actor.
Corporation should not control the availability of

the indemnity, as specified by the contract. The
indemnity should not be available at Corporations
option. The agreement is a contractual mechanism
to determine whether the indemnity is available.
Corporation cannot be able to pre-empt the process
of determining its application. Only a court can do
that.
31.
Director will repay costs advanced to

Director if it is determined that Director is
not entitled to the indemnity pursuant to the
terms of the agreement.
Clarify that Corporation will pay Director to the

extent that Director succeeds on the claim. This
may be a difficult concept to apply in practice, but
it should be made clear that Director does not lose
the whole indemnity just because part of a claim is
not allowed.
32.
Corporation will pay amounts owing to

Director in a reasonable period of time.
Corporation must pay amounts owing to Director

within 30 days of Director providing invoices for
these costs.
Corporation must immediately advance payment for
retainers, deposits and other cash pre-payments
that Director is required to make. This is
particularly important in insolvencies, where
lawyers will insist on cash retainers.
33.
Corporation will only pay reasonable

expenses of Director.
All of Directors expenses related to indemnified

claims are assumed to be reasonable and will be
paid.
25
Corporation Bias
Director Bias

34.
If Corporation provides counsel for Director

in respect of a claim, Director is not entitled
to incur any costs related to the defense.
Director is entitled to receive all out-of-pocket costs

incurred in participating in the defense, including
time spent preparing for (and participating in)
discoveries based on a pre-agreed hourly fee, plus
all out-of-pocket costs.
Director is entitled to the same fees in respect of
any other proceeding Director is involved in as a
result of service as a director, whether or not
Director is personally subject to a claim.
Failure of the Indemnity

35.
If indemnification is unavailable to Director for any

reason, Corporation will contribute a reasonable
amount to Directors expenses in relation to the
proceeding, taking into account the event giving
rise to the proceeding (including the circumstances,
the benefit Corporation received, and the relative
fault of Corporation and Director).
Information About the Claim

36.
Director will cooperate with Corporation and

provide all information required to defend
the claim.
37.
Corporation will cooperate with Director when

claims are made against Director. Corporation will
provide information to Director regarding the status
of claim (including copies of material filings and
discovery materials) at Directors request.
Director will have access to all of Corporations

records which are relevant to Directors defense,
even if the defense is assumed by Corporation. If a
claim is made, Corporation will not destroy these
records. Director will maintain the confidentiality of
these records.
26
Corporation Bias
Director Bias
Settlement
38.
Director will not settle any claim without the

written consent of Corporation, not to be
unreasonably withheld.
Corporation will not settle any claim against

Director without the written consent of Director,
which consent will not be unreasonably withheld.
Corporation can settle the claim without

Directors consent as long as the settlement
does not attach any liability to Director.
Enforcement
39.
Corporation will only provide security to

Director if that security has been approved
by its board. Corporation may revoke or
release that security without Directors
consent.
40.
At Directors request, Corporation will provide

security to Director for Corporations obligations
through an irrevocable bank line of credit or funded
trust. Corporation cannot revoke that security
without Directors consent.
If Corporation fails to perform its obligations under

the Agreement, Director can seek an injunction
against Corporation requiring performance.
Corporation will waive its right to object.
D&O Insurance Coverage

41.
Corporation will obtain D&O insurance that

it determines is reasonable.
Corporation will obtain D&O insurance to Directors

satisfaction, acting reasonably. Directors should
review the terms of the insurance with the
Corporations broker before taking the
appointment.
42.
Corporation may alter the terms of the

insurance at its discretion.
Corporation will not alter the terms of insurance

without Directors consent, not to be unreasonably
withheld. Corporation to provide 30 days notice of
any proposed change.
43.
Corporation is not required to obtain

insurance coverage that is not permitted by
applicable law or that is not available on
commercially reasonable terms.
The insurance must be acceptable to Director. If

Corporation adopts a more favorable insurance
coverage for any director or officer, then
Corporation will make arrangements for Director to
have the benefit of the same coverage.
27
Corporation Bias
Director Bias

44.
Depends on costs. Corporation can agree to

occurrence coverage if costs are acceptable.
The insurance should be occurrence based (which

applies to any claim made during the insured
period, even if the insurance policy terminates) or
Corporation should pay for claims based coverage
(which applies only when premiums are being paid
under the policy) for 10 years after Director leaves
Corporation.
Claims based coverage becomes a critical issue if
Corporation becomes insolvent and Corporation no
longer pay premiums. Directors should always have
occurrence coverage or pre-payment for claimsbased coverage. Funding of insurance should be
the first priority of the balance sheet.
45.
Instead of occurrence-based insurance,

Corporation will purchase run off or tail
insurance. Post-service claims coverage
should end after two years.
Run-off insurance will be on terms extended
to the other directors and officers and will
only be purchased if the cost is reasonable,
as determined by Corporation.
Corporation will purchase claims coverage for 10

years after Director leaves Corporation.
Alternatively, provide for a maximum cost concept
allowing for run-off up to a cost of a maximum of
300% of the annual cost of the policy in the last
year of service.
28
Corporation Bias
Director Bias

46.
Although additional advice on the terms of

insurance is beyond the scope of this article,
Director should consider the following issues,
amongst others:
1) duration of coverage and interaction with
termination of service;
2) coverage of extended discovery;
3) coverage for breach of fiduciary duty;
4) coverage for acts not addressed by
Corporations indemnity;
5) coverage for service to affiliates;
6) treatment of separate loss, allocation and
priority of payment; and
7) Director ownership of the policy.
Any potential Director should discuss the coverage
and its similarity to prevailing coverages in the
industry with Corporations broker before accepting
the appointment.
D&O Insurance Mechanics

47.
Corporation will provide Director with

evidence and a summary of the insurance
policy at Directors request.
Corporation will provide the following to Director:

1) a copy of the insurance policy at the time
Director is appointed;
2) at Directors request, evidence and/or a
summary of the insurance policy; and
3) notice of any cancellation of any of the
insurance coverage.
29
Corporation Bias
Director Bias
D&O Insurance Mechanics

48.
Corporation will report on the status of the

payment of insurance premiums quarterly.
Corporation will invite insurers to a board meeting
annually to discuss the scope and status of
Corporations coverage.
49.
Corporation will indemnify Director for costs

incurred by Director in obtaining insurance, if
Corporation does not provide insurance.
50.
Corporation is subrogated to all rights

Director has under any insurance policies.
Director must make claims against the
insurer first and Corporation may assert
those rights on Directors behalf.
51.
52.
Only if the insurer pays the full amount of

Directors costs. Corporation must immediately pay
any short-fall and Director retains the rights to
make those claims against Corporation under the
agreement.
The insurance coverage will not be affected and will
remain in place for 10 years even after a transaction
involving the sale of Corporations equity or all or
substantially all of its assets.
Corporation is not obligated to pay any loss

of Director which has been collected under
the insurance.
53.
Corporation will pay the costs of any deductible

under the insurance.
Other Provisions
54.
The term of the agreement is two years after

Director ceases to be a director.
55.
The term of the agreement is 10 years after

Director ceases to be a director.
If Director is providing services to Corporation
pursuant to a consulting agreement, ensure the
consulting company has the benefit of the
indemnity under the consulting agreement.
30
Corporation Bias
Director Bias
Other Provisions
56.
Tax gross-up applies only when Director is

required to pay the tax amounts.
57.
If any payment made under the agreement is

taxable, Corporation will reimburse Director for the
amount of tax paid by Director.
The obligations under the agreement are not
affected by Corporations insolvency or dissolution.
58.
Director has obtained independent legal

advice regarding the obligations under the
agreement, or has declined such advice
because of Directors degree of legal
sophistication.
59.
The jurisdiction of incorporation of

Corporation determines the law of the
agreement.
Consider whether Director can obtain an advantage

by changing the law of the agreement. At a
practical level this is a concern only where the
agreement is an umbrella which covers many
entities (i.e. indemnities given by sponsors or
parents in complex structures).
60.
Disputes under the agreement are resolved

in the courts of the jurisdiction in which
Corporation is headquartered.
Disputes under the agreement should be resolved

by arbitration pursuant to procedures which result
in a swift decision.
31

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Canadian Oil & Gas Quarterly Review

Second Quarter, 2016

STIKEMAN ELLIOTT LLP

Stikeman Elliott was

About Stikeman Elliott

STIKEMAN ELLIOTT LLP

Brad Ashkin, bashkin@stikeman.com

STIKEMAN ELLIOTT LLP

Deflecting Activists in M&A

Bridging the Value Gap in Public M&A

STIKEMAN ELLIOTT LLP

Reducing the Cost of Capital for Large Caps

Protecting Directors Against Environmental Liability

STIKEMAN ELLIOTT LLP

Canadian Oil & Gas M&A and Finance Transactions

Acquisition of Striker by Gear by arrangement

Acquisition of Twin Butte by Reignwood Resources by arrangement

Acquisition of Arsenal by Lone Pine by arrangement

Acquisition of Hawk Exploration by Kaisen (an Azimuth sponsored company)

STIKEMAN ELLIOTT LLP

Acquisition of Saskatchewan assets from Penn West by Teine (a CPPIB

Acquisition of southwest Saskatchewan assets from Husky by Whitecap

Acquisition of Canadian natural gas business from Spectra Energy by Plains

Acquisition of certain assets from Husky by Freehold

Acquisition of west-central Saskatchewan assets from Husky by NAL

Acquisition of northwest Alberta assets from Enerplus by undisclosed

Acquisition of Redwater, Wilson Creek and Penny assets from undisclosed

Acquisition and leaseback of production facilities from Bellatrix by

Acquisition of Wyatt Oil + Gas by Spartan

Acquisition of Corning-Manor assets from undisclosed vendor by Spartan

Acquisition and leaseback of Cold Lake thermal oil co-generation facilities

Acquisition of Ferrier assets from Grafton by Bellatrix

Acquisition of royalty interests from Pine Cliff by undisclosed purchaser

Acquisition of Progress assets from undisclosed vendor by Kelt

Acquisition of Cold Lake assets from Kasten by PetroFrontier

Acquisition of Gold Creek assets from Chinook by RMP Energy

STIKEMAN ELLIOTT LLP

Acquisition of joint venture interest in Bourque Project from Petrolia by

Acquisition of Winmore assets from undisclosed vendor by Spartan

Acquisition of Deventa by Stonehaven

Acquisition of Horn River assets from Quicksilver Resources by undisclosed

Acquisition of Peace River leases from undisclosed vendor by Strata

Acquisition of Alberta assets from Chinook by Tournament

Acquisition of Peace River Arch assets from undisclosed vendor by

Acquisition of 65% interest in Canadian midstream assets from Husky by

Acquisition of Cangas Solutions from Trinidad Drilling by Certarus

Oilfield Services Acquisitions

Acquisition of XSR Coiled Tubing Services Segment from Xtreme by

Acquisition of all of the operating assets of PetroLama by Secure

Acquisition of Completion Tools business from Trican by National Oilwell

Acquisition of certain Canadian assets of Sanjel by STEP Energy (an ARC

STIKEMAN ELLIOTT LLP

Oilfield Services Acquisitions

Acquisition of intellectual property from Ivanhoe Energy by FluidOil

Acquisition of Meridian Environmental Consulting by Summit Liability

Acquisition of Canadian wireline services business from FMC Technologies

Acquisition of certain Canadian assets of Sanjel by 1961531 Alberta (an ARC

Acquisition of lands bordering the Obed Transloading Facility from

Whitecap Bought deal offering of subscription receipts co-led by National

Peyto Bought deal offering of common shares co-led by BMO and

Bonavista Bought deal offering of common shares co-led by CIBC and TD

STIKEMAN ELLIOTT LLP

Cardinal Bought deal offering of common shares led by CIBC

Blackbird Offering of common shares, warrants and flow-through common

Canadian Oil & Gas Market and Legal Update - Second Quarter 2016

Canadian Oil & Gas Market and Legal Update - Second Quarter 2016