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SEC Adopts New Resource Extractive Industries Rule

Just in time, on June 27th the SEC adopted new resource extractive industry rules. The agency faced a June 27 adoption deadline after Oxfam America Inc. sued to speed up the rulemaking and a federal judge in September ordered the SEC to create an expedited rule schedule.  (see here).

The rules require resource extraction issuers to disclose payments made to governments for the commercial development of oil, natural gas or minerals.  The rules are the second attempt by the SEC to fulfill the mandate of Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That section directs the Commission to issue final rules that require each resource extraction issuer to include, in an annual report, information relating to any payment made by the resource extraction issuer, a subsidiary of the resource extraction issuer, or an entity under the control of the resource extraction issuer to a foreign government or the federal government for the purpose of the commercial development of oil, natural gas, or minerals. 

An earlier rule adopted pursuant to the section was adopted by the Commission on August 22, 2012, but was vacated by the U.S. District Court for the District of Columbia.  (see here and here

The final rules require an issuer to disclose payments made to the U.S. federal government or a foreign government if the issuer engages in the commercial development of oil, natural gas, or minerals and is required to file annual reports with the Commission under the Securities Exchange Act.  The issuer must also disclose payments made by a subsidiary or entity controlled by the issuer. 

Under the final rules, resource extraction issuers must disclose payments that are:  made to further the commercial development of oil, natural gas, or minerals; “not de minimis”—defined as any payment, whether a single payment or a series of related payments, which equals or exceeds $100,000 during the same fiscal year; and within the types of payments specified in the rules.

The final rules include two exemptions to the reporting obligations.  One provides that a resource extraction issuer that has acquired a company not previously subject to the final rules will not be required to report payment information for the acquired company until the filing of a Form SD for the first fiscal year following the acquisition. Another exemption provides a one-year delay in reporting payments related to exploratory activities. The required disclosure will be filed publicly with the Commission annually on Form SD no later than 150 days after the end of its fiscal year. 

Perhaps the most interesting requirement of the new rules is that the required disclosure must be filed publicly with the Commission annually on Form SD no later than 150 days after the end of its fiscal year.    Given that the public filing requirement that caused the court to strike down the first attempt at the resource extractive industries rule we might have expected to see a different approach this time around.  Perhaps there has been some backstage negotiation over this point.  If not, it seems likely that another legal challenge will be brought.

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