On May 30, 2013, the Securities and Exchange Commission (SEC) issued guidance on the rules regulating disclosure of government payments by resource extraction issuers. The disclosure rules were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Perhaps most significantly, the guidance clarifies that payments must be reported on an unaudited, cash basis, not an accrual basis. Reporting on a cash basis is expected to impose a substantial burden on many issuers. In addition, we separately spoke to the Staff to determine whether it viewed aboriginal groups as foreign governments for purposes of the disclosure rules.

The FAQs are available here.


These rules require resource extraction issuers to disclose certain payments made by them, their subsidiaries or entities they control, to the U.S. federal government and foreign governments, including sub-national governments. A resource extraction issuer is one engaged in the commercial development of oil, natural gas or minerals and which is required to file annual reports with the SEC. All categories of SEC reporting companies are covered by the new rules, including foreign private issuers and smaller reporting companies.

Disclosure is required for any payment, whether made as a single payment or a series of related payments, made to further the commercial development of oil, natural gas or minerals, in amounts equal to or exceeding $100,000 during the fiscal year. Commercial development includes exploration, extraction, processing and export, or the acquisition of a license for any of the foregoing. The term “payments” includes taxes, royalties, fees, production entitlements, bonuses, dividends and infrastructure improvements. There are no exemptions from disclosure as a result of confidentiality provisions in contracts, prohibitions on disclosure contained in foreign law or commercially or competitively sensitive information.

The annual disclosures on new SEC Form SD will be due no later than 150 days after the end of an issuer’s fiscal year, beginning with fiscal years ending after September 30, 2013. The initial report is only required to disclose payments made after September 30, 2013. For issuers with a December 31 year-end, the first report will be due by May 30, 2014 and will be required to cover the period from October 1 to December 31, 2013.

Due to the broad disclosure requirements and the inability of issuers to keep sensitive information confidential, there is a concern that the rules will place reporting issuers at a competitive disadvantage when bidding for government contracts and concessions. The rules are the subject of an ongoing lawsuit.

The final rule release is available here.

SEC Guidance

The FAQs provide much needed clarification on a wide range of topics.

What entities are considered resource extraction issuers?

  • A holding company that does not itself engage in the commercial development of oil, natural gas or minerals is still considered a resource extraction issuer if its subsidiaries or controlled entities engage in such activities.
  • Companies that provide services associated with exploration, extraction, processing and export are not considered to be resource extraction issuers. Services such as providing hardware and logistics to help companies explore for or extract resources or providing hydraulic fracturing services or drilling services for the operator do not result in the provider being a resource extraction issuer. The Staff stated that it considered this view to be consistent with the approach of the Extractive Industries Transparency Initiative (EITI), that disclosure of government payments is only required by companies directly engaged in the extraction or production of oil, natural gas or minerals.
  • An issuer that transports a resource from one country to another is generally considered to be “exporting,” resulting in the issuer being considered a resource extraction issuer, if the issuer has an ownership interest in the resource. Without an ownership interest in the resource being transported, the issuer would generally not be considered to be “exporting” and would not be a resource extraction issuer.

What types of payments are subject to disclosure?

  • Payments to a majority-owned government transportation service which supplies people or materials to a job site need not be reported. Those payments are considered to be in connection with an ancillary or preparatory activity.
  • Penalties and/or fines related to resource extraction are not reportable pursuant to these rules. Section 13(q) of the Securities Exchange Act of 1934 specifies that payments required to be disclosed include those payments and benefits that the SEC determines are part of the commonly recognized revenue stream for the commercial development of oil, natural gas or minerals, consistent with EITI guidelines. Penalties and fees are not mentioned in EITI guidelines and have not been determined to be a disclosable form of payment by the SEC. Depending on the materiality of the fines and penalties, other securities laws may require disclosure by the issuer.

Reporting Guidance

  • A “mineral” consists of any material commonly considered to be a mineral, including any material covered by Industry Guide 7, “Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations.”
  • For resource extraction issuers paying corporate level income tax on multiple sources of income in one country, including resource extraction activities, the issuer is not required to specify the taxes paid for resource extraction activities. The issuer may disclose the aggregate amount and indicate that the information includes payments made for purposes other than commercial development activities.
  • Issuers must report payment information on an unaudited, cash basis for the year in which the payments are made, and may not report the information on an accrual basis.
  • Failure to timely file a Form SD will not impact Form S-3 eligibility.

Treatment of Native American Tribes and Other Aboriginal Groups

Payments to Indian tribes that are recognized by the United States as governments are not covered by these disclosure requirements, because they are neither “federal” nor “foreign” governments within the meaning of the governing statute. Similarly, payments made to Alaska Native corporations would not require disclosure under the new rules.

Following the publication of the FAQs, we sought additional guidance on the treatment of aboriginal groups outside the United States (Aboriginal Groups). Specifically, we asked if Aboriginal Groups were considered to be foreign governments1 for purposes of the disclosure rules. We were informed that the Staff had considered this issue, but ultimately did not provide guidance as the Staff considered it to be inappropriate to express a view on a question they considered to be outside their expertise and also a matter of foreign law. Resource extraction issuers that make payments to Aboriginal Groups should consult with their local counsel to determine if the Aboriginal Groups would be considered a foreign government or a sub-national government for purposes of the disclosure rules.


The FAQs provide useful clarification on several points, but limited relief. In particular, issuers should ensure that their accounting and finance departments have reviewed the disclosure requirements and established the controls and procedures necessary to calculate the amount of any government payments on a cash basis as now specified by the Staff.