On August 22, 2012, the Securities and Exchange Commission ("SEC") adopted a final rule pursuant to Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") requiring resource extraction issuers (companies engaged in the development of oil, natural gas, or minerals) to disclose in an annual report information relating to any payment made by the issuer, a subsidiary of the issuer, or an entity under the control of the issuer, to a foreign government or the U.S. government for the purpose of the commercial development of oil, natural gas, or minerals. Section 1504 added Section 13(q) to the Securities Exchange Act of 1934 (the "Exchange Act"), which requires the SEC to promulgate rules requiring disclosure to be made by resource extraction issuers annually by filing a Form SD with the SEC.
Section 13(q) of the Exchange Act requires a resource extraction issuer to provide disclosure on Form SD to be filed with the SEC that includes (1) information about the type and total amount of such payments made for each project related to the commercial development of oil, natural gas, or minerals, (2) information about the type and total amount of payments made to each government, and (3) information regarding those payments in an interactive data format.
A resource extraction issuer must comply with the new rules and form for fiscal years ending after September 30, 2013. The Form SD must be filed with the SEC no later than 150 days after the end of its fiscal year.
The following is a Fact Sheet published by the SEC in its August 22, 2012 press release:
Disclosing Payments by Issuers Engaged in Resource Extraction
In 2010, Congress passed the Dodd-Frank Act, which directs the Commission to issue rules requiring the disclosure of certain payments made to the federal government or foreign governments by resource extraction issuers – companies engaged in the development of oil, natural gas, or minerals.
In particular, Section 1504 of the Act amends the Securities Exchange Act of 1934 by adding a new section, Section 13(q).
Who Must Disclose:
The new rules require a resource extraction issuer to disclose payments made to governments if:
- The issuer is required to file an annual report with the SEC.
- The issuer engages in the commercial development of oil, natural gas, or minerals.
The new disclosure requirements apply to domestic and foreign issuers and to smaller reporting companies that meet the definition of resource extraction issuer.
In addition, the issuer is required to disclose payments made by a subsidiary or another entity controlled by the issuer. A resource extraction issuer needs to make a factual determination as to whether it has control of an entity based on a consideration of all relevant facts and circumstances.
What Must Be Disclosed:
Under the new rules, a resource extraction issuer is required to disclose certain payments made to a foreign government (including subnational governments) or the U.S. government.
Resource extraction issuers need to disclose payments that are:
- Made to further the commercial development of oil, natural gas, or minerals.
- “not de minimis”
- Within the types of payments specified in the rules.
The rules define commercial development of oil, natural gas, or minerals to include exploration, extraction, processing, and export, or the acquisition of a license for any such activity. The rules define “not de minimis” 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.
The types of payments related to commercial development activities that need to be disclosed include:
- Fees (including license fees)
- Production Entitlements
- Infrastructure Improvements
The new requirements clarify the types of taxes, fees, bonuses, and dividends that are required to be disclosed. These types of payments generally are consistent with the types of payments that the Extractive Industries Transparency Initiative suggests should be disclosed. Congress specifically referenced the EITI in defining “payment” in the law.
The rules require a resource extraction issuer to provide the following information about payments made to further the commercial development of oil, natural gas, or minerals:
- Type and total amount of payments made for each project.
- Type and total amount of payments made to each government.
- Total amounts of the payments, by category.
- Currency used to make the payments.
- Financial period in which the payments were made.
- 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 new rules leave the term “project” undefined to provide resource extraction issuers flexibility in applying the term to different business contexts. However, the rule release provides some guidance on the Commission’s view of what a project would be.
How It Must Be Disclosed:
The new rules require a resource extraction issuer to disclose the information annually by filing a new form with the SEC (Form SD). The information must be included in an exhibit and electronically tagged using the eXtensible Business Reporting Language (XBRL) format.
When It Must Be Disclosed:
A resource extraction issuer would be required to file the form on the SEC public database EDGAR no later than 150 days after the end of its fiscal year.
A resource extraction issuer would be required to comply with the new rules for fiscal years ending after Sept. 30, 2013. For the first report, most resource extraction issuers may provide a partial report disclosing only those payments made after Sept. 30, 2013.