On December 18, the Securities and Exchange Commission voted to propose new rules to require resource extraction issuers to disclose payments made to foreign governments or the US government for the commercial development of oil, natural gas or minerals, as required by Section 13(q) of the Securities Exchange Act of 1934 (the Exchange Act).
These disclosure rules are mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and follow the SEC’s 2012 rules, which were vacated by the US District Court for the District of Columbia, and 2016 rules, which were disapproved in part by a joint resolution of Congress pursuant to the Congressional Review Act on the grounds that the compliance burden on issuers was viewed as too significant.
The new proposed rules, applicable to domestic and foreign issuers that engage in the commercial development of oil, natural gas or minerals and that are required to file annual reports with the SEC under the Exchange Act, would require annual disclosure on Form SD of applicable payments made to foreign governments or the US government. The new proposed rules differ from the 2016 rules in that they, among other things, allow for aggregation of payments by applicable jurisdiction, raise the thresholds for excluded de minimis payments and include an exemption from disclosure where such disclosure would conflict with applicable foreign law or pre-existing contract terms.
Issuers with a fiscal year ending on or before June 30 would be required to submit the Form SD no later than March 31 in the calendar year following its most recent fiscal year, while issuers with a fiscal year ending after June 30 would be required to submit the Form SD no later than March 31 in the second calendar year following its most recent fiscal year.
The new proposed rules also exempt smaller reporting companies and emerging growth companies from the disclosure requirements.
In addition, the new proposed rules provide that required disclosure be treated as “furnished” and not “filed” for purposes of liability under Section 18 of the Exchange Act and provide that a newly public company would not be required to furnish the resource extraction disclosure until its Form SD for the first fiscal year following the fiscal year in which its initial public offering is completed.
The full text of the SEC’s proposing release is available here.