SEC Adopts Rule Requiring Resource Extraction Issuers to Disclose Payments to Governments
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On June 27th, the SEC adopted amendments to Exchange Act Rule 13q-1 and Form SD. The rule and form require resource extraction issuers to disclose information about certain payments made to United States and foreign governments for the commercial development of oil, natural gas, and minerals. The requirements were originally adopted in 2012 pursuant to the Dodd-Frank Act but were vacated after they were challenged in a federal court. In response, the SEC rewrote the requirements. The SEC’s press release announcing this rulemaking can be accessed here
, and the final rules can be accessed here
The rule applies to “resource extraction issuers,” defined as domestic and foreign issuers that are engaged in the commercial development of oil, natural gas, or minerals and required to file an annual report under the Exchange Act. The activities that constitute “commercial development of oil, natural gas, or minerals” include exploration, extraction, processing, export, or the acquisition of a license for any such activity.
Issuers are required to disclose on Form SD any payment (or series of related payments) to the U.S. government or foreign governments, including majority-owned entities of a foreign government, that is not de minimis (which the rule defines as equaling or exceeding $100,000 during a fiscal year) and has been made to further the commercial development of oil, natural gas, or minerals. The disclosures must be reported on a cash basis, do not need to be audited1
and are not subject to officer certifications.
Issuers must comply with the final rule for fiscal years ending on or after September 30, 2018. The disclosures will be filed annually in an XBRL-formatted exhibit to Form SD. The report will be due 150 days after the end of an issuer’s fiscal year. Alternatively, issuers may use a report prepared for foreign regulatory purposes if the SEC deems the requirements of the foreign regime to be substantially similar to the Commission’s requirements. An issuer may generally follow the due dates of the alternative regime.
The final rule is substantially consistent with the rule the SEC proposed in December 2015.2
The most significant changes reflected in the final rule are:
- The final rule provides a transition period for reporting payments by recently acquired entities that were not previously subject to reporting and a one year delay in reporting payments related to exploratory activities.
- In a separate order, the Commission recognized two EU Directives, Canada’s Extractive Sector Transparency Measures Act (ESTMA) and the U.S. Extractive Industries Transparency Initiative (USEITI) in their current forms as substantially similar disclosure regimes.
- Community and social responsibility payments required by law or contract were added to the comprehensive list of payments covered by the disclosure requirements.
For questions related to matters discussed above, please contact Jeff Lenz
or Brandon Landas
1 Moreover, since Form SD does not include audited financial statements, auditors would not need to read the disclosures and consider whether they are materially inconsistent with the audited financial statements.
2 BDO’s SEC Flash Report that discussed the proposed rule can be accessed here.