With its initial rulemaking on the matter sent back for a rewrite after a successful lawsuit spearheaded by the American Petroleum Institute and other industry groups, the Securities and Exchange Commission this week finalized a rule that requires companies to disclose payments made to governments for the commercial extraction and development of oil, natural gas, or minerals..

The final rule, as mandated by the Dodd-Frank Act, requires an issuer to disclose payments made to the U.S. federal government or a foreign government if it engages in the commercial development of oil, natural gas, or minerals. Companies are also required to file annual reports with the SEC that include disclosures on payments made by a subsidiary or entity controlled by the issuer.

Covered companies must disclose payments that are: made to further the commercial development of oil, natural gas, or minerals; not de minimis; and within the types of payments specified in the rules. The final rules define commercial development of oil, natural gas, or minerals as exploration, extraction, processing, and export, or the acquisition of a license for any such activity.

The Commission defined “not de minimis” as any payment, whether a single payment or a series of related payments, that equals or exceeds $100,000 during the same fiscal year. Payments that must be disclosed are: taxes; royalties; fees (including license fees); production entitlements; bonuses; dividends; payments for infrastructure improvements; and, if required by law or contract, community and social responsibility payments.The disclosure must be made at the project level, similar to the approach adopted in the European Union and Canada.

There are two targeted exemptions to the reporting obligations. An issuer that has acquired a company not previously subject to the final rules will not be required to report payment information for that 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 Commission also could exercise its authority to provide exemptive relief from the requirements of the rules on a case-by-case basis.

The required disclosures will be filed publicly and annually on Form SD no later than 150 days after the end of a company’s fiscal year. The information must be included in an exhibit and electronically tagged using the eXtensible Business Reporting Language (XBRL) format. Resource extraction issuers are required to comply with the rules starting with their fiscal year ending no earlier than Sept. 30, 2018.

A resource extraction issuer may use a report prepared for other disclosure regimes to comply with the rules if the SEC determines that the requirements applicable to those reports are substantially similar. 

In a separate order, the Commission determined that the current reporting requirements of the European Union Accounting and Transparency Directives, Canada’s Extractive Sector Transparency Measures Act, and the U.S. Extractive Industries Transparency Initiative are substantially similar to the Commission’s rules.

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