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Appeals Court Dismisses Oil Industry Lawsuit Against SEC

Joe Mont | April 29, 2013

The U.S. Court of Appeals for the District of Columbia Circuit on Friday dismissed an oil industry lawsuit against the Securities and Exchange Commission that sought to overturn rulemaking requiring companies to disclose payments made to governments for oil, gas and mineral extraction rights.

The unanimous decision by a three-judge panel was issued on Friday afternoon. Meanwhile, as the case now heads to a lower court, Congress is considering a bill that would exempt oil and gas companies that drill in Mexico from the disclosure requirement.

The appeals court cited “lack of jurisdiction” for its dismissal of the petition for review, and said that because the petitioners simultaneously filed a complaint in U.S. District Court for the District of Columbia, there is no need for it to “consider transferring the petition to that court.” The dismissal, the judicial panel said, “is without prejudice to petitioners' suit in the district court.”

In August 2012, making good on a mandate contained in the Dodd-Frank Act, the SEC approved the disclosure rule for any payment, or series of related payments, totaling $100,000 or more, made during the course of a fiscal year to governments in exchange for extraction rights.

In legal challenges filed in October by American Petroleum Institute, the Independent Petroleum Association of America, the National Foreign Trade Council, and the U.S. Chamber of Commerce, the groups claimed the rule violates the Administrative Procedure Act, on the grounds that it is “arbitrary and capricious.” They also made the case that the SEC failed to conduct an adequate cost-benefit analysis, as required by law. The rule, they argued, would bring excessive compliance costs and cause “irreparable harm” on contract negotiations and competitiveness.

Defending the rule, Oxfam America, an intervenor in the case, argued in its brief that API's claims are “without merit.” Regarding oil industry claims that the statute violates the First Amendment, by compelling unwanted speech, it argued that oil companies have “no constitutional right to keep payments to foreign governments secret.”

Disclosure demands of extraction rights payments have started to gain some momentum globally. Norway-based oil company Statoil spoke out against the oil industry lawsuit in the U.S., issuing a statement that it has “explicitly withheld support” for the litigation. Earlier this month, the European Union agreed on similar payment disclosure rules. The European directive goes further than the U.S. rule by requiring both public and privately-held companies to disclose their payments. It was also expanded to include the timber industry.

More favorable to the oil industry is the legislative redress contained in H.R. 1613, the Outer Continental Shelf Transboundary Hydrocarbon Agreements Authorization Act, which was the subject of a hearing before the House Committee on Natural Resources on April 25. The bill, promoting the development of shared oil and natural gas resources between the U.S.  and Mexico, would lift the current moratorium on drilling along a section of the maritime border in the Gulf of Mexico. To encourage energy production in the region, it would exempt oil and gas projects in Mexico from the SEC disclosure requirement.