On August 22, 2012, the Securities Exchange Commission ("SEC") adopted Section 13q-1 of the Securities Exchange Act of 1934 ("Exchange Act") as mandated by Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd Frank Act"). Section 13q-1 requires resource extraction issuers to disclose certain payments made to the U.S. government or foreign governments annually by filing a new form with the SEC called Form SD. A resource extraction issuer must comply with the new rule for fiscal years ending after September 30, 2013 and Form SD must be filed with the SEC no later than 150 days after the end of the issuer's fiscal year. Resource extraction issuers are defined as issuers who are required to file an annual report with the SEC and who engage in the commercial development of oil, natural gas, or minerals, and includes domestic and foreign issuers and smaller reporting companies. Further, the issuer is required to disclose payments made by a subsidiary or another entity controlled by the issuer.
Section 13q-1 requires that resource extraction issuers disclose payments that are (1) made to further the commercial development of oil, natural gas, or minerals, (2) "not de minimis", and (3) within the types of payments specified in the rules. "Commercial development of oil, natural gas, or minerals" is defined as including the exploration, extraction, processing, and export, or the acquisition of a license for any such activity. "Not de minimis" is defined to mean any payment (whether a single payment or a series of related payments) that equals or exceeds $100,000 during the most recent fiscal year. Section 13q-1 requires the disclosure of payments including taxes, royalties, fees (including license fees), production entitlements, bonuses, dividends, and infrastructure improvements. Resource extraction issuers are required to provide the following information related to the payments made to further the commercial development of oil, natural gas or minerals: (1) type and total amount of payments made for each project; (2) type and total amount of payments made to each government; (3) total amounts of the payments, by category; (4) currency used to make the payments; (5) financial period in which the payments were made; (6) business segment of the resource extraction issuer that made the payments; (7) the government that received the payment, and the country that such government is located in; and (8) the project of the resource extraction issuer to which the payments relate.
The SEC declined to provide interpretive guidance regarding the terms "extraction," "processing," and "export," which means that many downstream issuers who are not directly involved in extractive activities may nevertheless be included in such definitions. Further, the SEC did not define the term "project," with the stated intention of allowing flexibility for various types and sizes of businesses. As a result, resource extraction issuers whose activities may, directly or indirectly, be characterized as the commercial development of oil, natural gas or minerals should begin considering methods of complying with the requirements of Section 13q-1 as soon as possible. For the first report on Form SD, resource extraction issuers may provide a partial report disclosing only those payments made during their fiscal year after September 30, 2013. The rule became effective on November 13, 2012.