On December 11, the Securities and Exchange Commission proposed Rule 13q-1 of the Securities Exchange Act of 1934 (Exchange Act), often referred to as the “resource extraction rule,” which would require an issuer to disclose payments made to US federal or foreign governments if such issuer is required to file an annual report with the SEC and is engaged in the commercial development of oil, natural gas or minerals. Under the proposed rules, commercial development would include exploration, extraction, processing and exporting activities or acquiring a license to do any of the foregoing. The proposed rules would cover payments made by the issuer, its subsidiary or an entity under its control.
The SEC previously proposed and adopted the resource extraction rule; however, as discussed in the July 12, 2013 edition of the Corporate and Financial Weekly Digest, on July 2, 2013, the US District Court for the District of Columbia vacated the previously adopted resource extraction rule, remanding the rule to the SEC to correct two “substantial errors.”
On September 2, as discussed in the September 11 edition of the Corporate and Financial Weekly Digest, the US District Court for the District of Massachusetts ordered the SEC to file with the court an expedited schedule for promulgating the revised resource extraction rule, following a claim by Oxfam America, Inc. to compel the SEC to promulgate its resource extraction rule.
The following is a brief summary of the proposed resource extraction rule:
What Information is Required to be Disclosed
The proposed rules would require an issuer to disclose payments that are:
- not de minimis (meaning any payment or series of related payments equal to or greater than $100,000 in a single fiscal year);
- made as taxes, royalties, fees (which include license fees), dividends, production entitlements, bonuses or infrastructure improvement payments; and
- for the purpose of commercially developing oil, natural gas or minerals.
If the payment satisfies all three criteria, the issuer would be required to disclose the following about the payment(s):
the type and total amount of such payments made for each project of the resource extraction issuer relating to the commercial development of oil, natural gas, or minerals;
- the type and total amount of such payments for all projects made to each government;
- the total amounts of the payments by category;
- the currency used to make the payments;
- the financial period in which the payments were made;
- the business segment of the resource extraction issuer that made the payments;
- the government that received the payments, and the country in which the government is located;
- the project of the resource extraction issuer to which the payments relate;
- the particular resource that is the subject of commercial development; and
- the subnational geographic location of the project.
Under the proposed rules, the SEC could provide an exemption from the disclosure requirements on a case-by-case basis.
How and When Should the Information be Disclosed
The issuer would be required under the proposed rules to disclose the specified information about relevant payments on Form SD no later than 150 days after the conclusion of its fiscal year.
The comment period on the proposed resource extraction rule is open until January 25, 2016.
The full text of the proposed resource extraction rule can be viewed here.