Canadian reserves are beginning to change hands as a result of National Instrument 51-101, a new rule on how Canadian reserves are defined, reports Calgary-based investment-banking and divestment-advisory firm Sayer Securities Ltd. The new rule affects categorization of proved and probable reserves. Seventh Energy Ltd. put itself up for sale after determining that its proved gas reserves were lower than its last independent evaluation, notes Alan W. Tambosso, Sayer vice president. PrimeWest Energy Trust purchased Seventh Energy. Negative reserve news may disappoint the market but be a boon to the buyer, he notes: PrimeWest paid C$1 per Seventh share, a discount from the pre-announcement price and a 40% premium to the low the shares reached after the news. Redwood Energy Ltd. has also been recently sold-to Compton Petroleum Corp. Redwood reported in January that a new evaluation of its proved plus probable reserves put the total lower-as much as 43%-and that this could affect its C$11 million of borrowing, Tambosso adds. Compton bought the company for C$0.20 per share-30% lower than the 52-week high. Oiltec Resources Ltd. released bad news in February-a 19% negative revision to its reserves-and is considering a sale. "Undoubtedly there will be more corporate sales or mergers falling out of this group," Tambosso says. "Proactive buyers should be surveying the landscape to see which companies in this group might be attractive takeover or merger targets." Toronto Stock Exchange-listed reserve-holders have until April 30 to report their reserves using NI 51-101, and junior producers on the Toronto Venture Exchange have until May 20. He expects some producers will attempt to sell before having to report reserves under NI 51-101. "Some companies might feel that they are at risk of negative market reaction to their reserves, as Seventh initially was; others might feel that they need to 'beat the bank' and sell before their new report puts them offside with their lender, as Redwood was; and others might be wisely attempting to beat the rush by attempting to sell before a flood of assets or companies hits the street." Among those may be Endev Energy Inc., which has hired an advisor to review strategic alternatives, he adds. "While Endev had not released its year-end third-party engineering estimates at the time of its announcement, the company publicly disclosed its internal estimates of reserves. Endev's share price has shown little movement since the announcement." Spearhead Resources Inc. is looking at divestment opportunities. "In a situation similar to that of Endev, Spearhead publicly announced its reserves based upon the internal reserves assessment completed by management." An attractive takeover target may be any late-filer with a weakened balance sheet, he adds. And buyers may get reserves on the cheap. "We are seeing that some astute buyers have already recognized that certain reserves and several companies have been too severely penalized by the new standards. These buyers are stepping up to the plate to purchase assets or companies for prices that exceed the values put on them by the independent engineers or the stock market." The divestment activity that results "should keep the M&A market lively for some time to come."