SEC Proposes Disclosure Rules for Resource Extraction Issuers

The Securities and Exchange Commission (SEC) on December 18, 2019, voted to “propose rules that would require resource extraction issuers to disclose payments made to foreign governments or the U.S. federal government for the commercial development of oil, natural gas, or minerals.” Similar rules had previously been implemented by the agency U.S. District Court for the District Columbia and then disapproved by a joint resolution of Congress in 2016. Likely due to the importance of disclosures in the resource extraction industry, the SEC continued to attempt to navigate the legal necessities and implement rules that would be allowed by the Courts and Congress. You can read more about the new rules below:

FACT SHEET

Disclosure of Payments by Resource Extraction Issuers

Dec. 18, 2019

The Securities and Exchange Commission today proposed rules to implement Section 13(q) of the Exchange Act, mandated by the Dodd-Frank Act.  The proposed rules would require resource extraction issuers to file a Form SD on an annual basis that includes information about payments related to the commercial development of oil, natural gas, or minerals that are made to a foreign government or the U.S. federal government.

Highlights

The proposed rules would require a domestic or foreign issuer to disclose payments made to a foreign government or the U.S. federal 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 would also be required to disclose payments made by a subsidiary or entity controlled by the issuer.

The proposed rules would require public disclosure of company-specific, project-level payment information.  The proposed rules include several changes compared to the 2016 rules vacated pursuant to the Congressional Review Act.  For example, the proposed rules would:

• revise the definition of the term “project” to require disclosure at the national and major subnational political jurisdiction, as opposed to the contract level;
• revise the definition of “not de minimis” to include both a project threshold and an individual payment threshold so that disclosure with respect to payments to governments  that equal or exceed $150,000 would be required when the total of the individual payments related to a project equal or exceed $750,000;
• add two new conditional exemptions for situations in which a foreign law or a pre-existing contract prohibits the required disclosure;
• add an exemption for smaller reporting companies and emerging growth companies;
• revise the definition of “control” to exclude entities or operations in which an issuer has a proportionate interest;
• limit the liability for the required disclosure by deeming the payment information to be furnished to, but not filed with, the Commission;
• permit an issuer to aggregate payments by payment type made at a level below the major subnational government level;
• add relief for issuers that have recently completed their U.S. initial public offerings; and
• extend the deadline for furnishing the payment disclosures.

This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

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