In December 2006, after a lengthy hearing, the Alberta Securities Commission found that former officers and directors of Blue Range Resources Corp. had “failed to make fair, accurate, public disclosure of material information during 1997 and 1998.” Blue Range was an Alberta corporation engaged in exploring for and selling natural gas.
The defendants were found to have overstated physical quantities of reserves and production volumes. This was accomplished by adding a “heat adjustment” to actual volumes, on the grounds that the company’s natural gas had greater- than- average energy content. These practices were not disclosed and appeared to depart from industry practice.
The company had also announced a 30% increase in new natural gas production, without disclosing that its 1999 total production volume was expected to decline by 20%. A related charge was that the company over- contracted to deliver natural gas, but did not disclose the risks resulting from having to buy natural gas on the open market to meet its commitments.

Required
a. This episode contributed to the adoption of increased regulation of disclosures of oil and gas reserves in Canada (National Instrument 51- 101 of the Canadian Securities Administrators, 2003). The new regulations went considerably beyond the reserve recognition requirements in the United States at that time (see Chapter 2, Problem 28 and Section 2.4.2). What are the costs and benefits of increased regulation of oil and gas disclosures?
b. The new disclosure regulations allow firms to seek an exemption from the new regulations and instead report in accordance with U. S. reserve recognition accounting. Many large companies have applied for and received such exemption. Why would these companies do this?
c. In 2008, Suncor Energy Inc., a large integrated Canadian oil and gas company with extensive operations in Alberta, reported reserves information under National Instrument 51- 101 in place of its previous policy of reporting under U. S. reserve recognition accounting rules. Suggest reasons for this change in policy. Use the disclosure principle and signalling theory in your answer.