SEC Proposes Rules Requiring Disclosure of Government Payments by Resource Extraction Issuers

Client Advisory

March 3, 2011

The SEC has proposed rules to implement Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires resource extraction issuers to disclose payments made to U.S. or foreign governments for the commercial development of oil, natural gas or minerals.

Companies Covered by the New Rules

The proposed rules would apply to both U.S. and foreign private issuers that (1) are required to file an annual report with the SEC and (2) engage in the commercial development of oil, natural gas or other minerals, regardless of the size or extent of their commercial development operations. “Commercial development of oil, natural gas or minerals” is defined to include exploration, extraction, processing, export, and other significant actions relating to oil, natural gas or minerals, or the acquisition of a license for any such activity.”

The proposed rules are intended to cover activities directly related to the commercial development of oil, natural gas and minerals. Accordingly, this would include companies that remove the impurities from natural gas after extraction but before its transport through the pipeline. In contrast, it would not include companies engaged in activities that are ancillary or preparatory to commercial development, such as a manufacturer of a product used in the commercial development of oil, natural gas or minerals (for example, a manufacturer of drill bits).

Payments to be Disclosed

Companies subject to the rules would be required to disclose the total amount of payments made by the company, a subsidiary or entities under its control to a foreign government or the U.S. federal government for each project related to the commercial development of oil, natural gas, or minerals that is “not de minimis”(i.e. lacking significance or importance or so minor as to merit disregard). This would include:

  1. host government’s production entitlement,
  2. national state-owned company production entitlement,
  3. profit taxes,
  4. royalties,
  5. dividends,
  6. bonuses,
  7. license fees, rental fees, entry fees and other considerations for licenses and/or concessions, and
  8. other significant benefits to host governments.

Here “foreign government” includes a non-U.S. national government, subnational or local government, department, agency or instrumentality of a non-U.S. government or a company majority owned by a national government.

Disclosure Required

The disclosure would be provided in an exhibit to the companies annual report on Form 10-K, 20-F or 40-F in HTML/ASCII and interactive data formats.

The required disclosure would include:

  1. type and total amount of payments made for each project;
  2. type and total amount of payments made to each government;
  3. total amounts of the payments, by category;
  4. currency used to make the payments;
  5. financial period in which the payments were made;
  6. business segment of the resource extraction issuer that made the payments;
  7. the government that received the payments, and the country in which the government is located; and
  8. the project of the resource extraction issuer to which the payments relate.

The proposed rules do not contain an exception that would allow companies to exclude payments that may not be disclosed under foreign laws or confidentiality agreements.

The disclosure of payments to the U.S. federal or foreign governments will by “furnished” rather than “filed” and therefore will not be subject to liability under Section 18 of the Exchange Act or incorporated by reference into an issuer’s Securities Act or Exchange Act reports unless the issuer expressly does so.

Effective Date

The disclosures would first be required in annual reports relating fiscal years ending on or after April 15, 2012.

Questions regarding this advisory should be addressed to Guy P. Lander (212-238-8619, or Steven J. Glusband (212-238-8605,

Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2020 Carter Ledyard & Milburn LLP.
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