Some companies aren't waiting around for the Securities and Exchange Commission to write new rules to require oil, gas, and mining companies to disclose payments they make to governments for extraction rights. They are moving ahead with voluntary reports on the expenditures.

While a legal challenge has successfully delayed a Dodd-Frank Act requirement to report those payments in the United States, other countries are moving full-steam ahead with their own disclosure demands, and companies are getting on board.

“It is not going away. It is here, and companies have to deal with it,” says Dale Nijoka, global oil and gas sector leader for the audit firm EY. “There are some people out there laying false hope that they won't have to do anything. If you are a global company operating in multiple jurisdictions, you are going to be subject to similar rules abroad anyway.”  

The Dodd-Frank Act requires oil, gas, and mining companies to report aggregated project payments, exceeding $100,000, made to U.S. and foreign governments for natural resource extraction. The SEC issued a final rule to put the measure in place in August 2012, but shortly after that several groups, including the American Petroleum Institute and the U.S. Chamber of Commerce, sued to block implementation. In July 2013, Judge John Bates of the Federal District Court of the District of Columbia vacated the rule and remanded it back to the SEC.  

The SEC says it will reissue a version of the rule that addresses the court's concerns, but when it plans to do so is unclear. In its rulemaking agenda for the remainder of 2014, the extraction payments rule was notably absent.

The SEC, however, isn't the only regulator working on extraction payments rules. In April 2013, the European Union reached a preliminary agreement that would require companies in extraction businesses to disclose in their annual reports payments totaling more than €100,000 ($138,000) they have made to governments on a country-by-country and project-by-project basis.

The EU directive applies to all companies listed on EU stock exchanges that are active in the extractive and logging industries (the latter was not included in the U.S. rule).  Although the 28 member states of the European Union were given two years to craft their own legislation, indications are that Britain, France, and Italy may be ahead of schedule and could enact new laws by the end of the year.

The EU directive is more stringent than the American version, says Dominic Eagleton, a senior campaigner on the oil team for Global Witness, an international human rights organization that has championed such disclosures.  “It goes beyond the original Dodd-Frank rule,” he says. “That rule defined what a project wasn't—that a company couldn't just report by geographical area, or by an internal reporting unit it made up. The EU directive says companies would have to report all contracts they sign with governments.”

While debate rages in the United States as to whether the SEC rule should allow exemptions for governments that make it illegal to disclose payments, the EU refuses to allow any exemptions and “member states will have no leeway to amend the directive,” Eagleton says.

Tullow's Example

While some companies, notably Shell Oil, are vigorously battling U.S. disclosure requirements, others are already disclosing payments. Last month, London-listed Tullow Oil became the first oil company to disclose payments to foreign governments with the level of detail —on a project-by-project basis—demanded by anti-corruption groups and soon-to-be imposed by legislators. Other extractive companies, including the Australian miner Rio Tinto and Norwegian oil company Statoil, have also published revenue payments on a country-level basis; Tullow is the first to do so for all of its projects.

It wasn't as difficult as some had feared, says George Cazenove, a spokesperson for Tullow Oil. The decision built upon a 2013 corporate responsibility report that listed some payments to governments. “This year, we went one step further and decided to issue our payments to governments at the level required by the EU transparency directive,” he says. “The biggest change was a further breakdown of taxes by project. It's an entirely more comprehensive approach than we have taken in the past.”

“There are some people out there laying false hope that they won't have to do anything. If you are a global company operating in multiple jurisdictions, you are going to be subject to similar rules abroad anyway.”

—Dale Nijoka,

Global Oil & Gas Sector Leader,


Tullow executives are frequently asked what challenges they faced. In particular, were there concerns some countries would legally suppress payment disclosures? At least for his company, there was no foreign pushback, Cazenove says. “When we made these payments public for the first time last year, we didn't hear any feedback from the host countries in which we work,” he says. “When we did the same again this year, and notified them ahead of time, we still did not receive any negative feedback.”

Tullow produces 80,000 barrels of oil a day from 10 countries, including Equatorial Guinea, Gabon, and Ghana. “It required a considerable amount of work, but it was not impossible,” Cazenove says. “For some of the majors that produce up to 50 times more than we do, and from many more countries, I can see why, for them, it would be a logistical headache. They probably feel, perhaps not unreasonably, that they already give a great deal of detail. The point I would make, however, is that legislation is coming and whether they like it or not they are going to have to abide by it.”

A Canadian Initiative

Mining companies in Canada are also not waiting for regulations to begin work on reporting extraction payments to governments. In January, Canadian exploration and mining associations, partnering  with human rights organizations Publish What You Pay—Canada and the Revenue Watch Institute, released their own recommendations for a payment transparency standard for all publicly traded mining companies in Canada.

The framework requires mining companies in Canada to disclose project-level payments to domestic and foreign governments. The working group recommends that authorities require large mining companies to disclose all payments above $100,000CAD ($91,000), and venture issuers to disclose payments above $10,000CAD ($9,100). Nearly 60 percent of the world's mining companies are listed on Canadian stock exchanges, with more than 1,000 companies operating in over 100 countries. 

The mining industry in Canada saw global pressure mounting for these disclosures and saw the value of being proactive, says Ben Chalmers, vice president of sustainable development for the Mining Association of Canada. “This is an area where we agree with the NGOs in principle,” he added. “We were already pre-disposed to project level disclosure and transparency. We see it coming anyway. It is already on the doorstep in the U.S. and the Europeans are working on it, so let's get ahead of it and roll up our sleeves.”


The Mining Association of Canada is suggesting that its regulators, and possibly others, move toward a global standard by accepting each others' reporting requirements. The following are its suggested standards for regulatory equivalency:

Canadian disclosure requirements need to include explicit recognition and acceptance of equivalent reporting regimes. Any Canadian legislation implementing this framework needs to mandate that a company may comply with Canadian transparency requirements by submitting a report that it has prepared and filed in another jurisdiction to a standard equivalent to Canadian reporting requirements.

Such a report will fully satisfy any and all Canadian transparency reporting requirements. The Working Group recommends that equivalent regimes include the current requirements of Section 1504 of the U.S. Dodd-Frank Act and those established by the EU Transparency and Accounting Directives.

In the event that jurisdictions develop and adopt additional similar transparency disclosure requirements, or amend reporting requirements currently deemed equivalent, each would have to be evaluated on a case-by-case basis to determine whether they are sufficiently equivalent to the Canadian standard.

The Working Group suggests that equivalence be determined based on objective criteria, including: scope of reporting; definition of control; payment categories; minimum payment threshold; project definition; exemptions; format of disclosure; regularity of reporting; and standard of verification.

Source: The Resource Revenue Transparency Working Group.

Other Canadian extraction industries outside of mining, however, have yet to get on board with the disclosure standards. The difficulty in reaching a definition of what defines a “project,” for example, led Canadian oil companies to separate themselves from the mining sector effort. “It is pretty easy to look at a mine and decide that's a project,” Chalmers says. “It's a big hole in the ground. Whereas, when you have gas fields and oil fields that may be one to 100 wells, how do you define that as a single project? An ongoing challenge will be acknowledging the fundamental differences in how the oil and mining sectors work.”

Consistent Standards

Another problem is developing a framework consistent with those that are emerging internationally. Canadian miners support accepting compliance with equivalent regulatory regimes. A company reporting to multiple jurisdictions would only be required to submit one report that satisfies requirements in multiple jurisdictions. Striking a consistent approach among international regulators will be crucial, Chalmers says. Activists get the data they want, and companies will minimize the burden of multiple disclosure requirements. “It is important to have a level playing field,” he says. “The more we can move to global standards the better.” The framework already accepts whatever rules emerge from the United States and Europe.

For companies in these sectors that do want to move forward, how should they proceed?  EY offers the following suggestions as a starting point for companies:

Consider the risk of non-compliance with country laws or confidentiality agreements and steps to mitigate those risks.

Determine entities that meet the definition of a foreign government.

Evaluate which activities meet the definition of commercial development.

Determine the project level for reporting.

Identify differences between the cash basis and accrual reporting and create processes to compile information.

“Companies have looked at it, trying to see where the warts are,” EY's Nijoka says. One challenge will be determining who and what counts as “the government,” especially when it comes to private-public partnerships in another country. How should that ownership split be addressed? The SEC's demand for XBRL is also causing concern. “Yes, it is an SEC filing and that makes perfect sense to me,” he says. “That should be the least of their worries.”

“There are a lot of details companies have to work out and an awful lot of costs they will incur to implement whatever ultimately comes out,” Nijoka adds. “There are a whole lot of things they will struggle with as they begin the implementation, but it is here and it will be very hard to close the barn door.  It is a question of implementation now.”