The Securities and Exchange Commission (the "Commission") recently announced it adopted final rules to require resource extraction issuers to disclose payments made to governments for the commercial development of oil, natural gas or minerals.
The rules require an issuer to disclose payments made to the US federal government or a foreign government if the issuer engages in the commercial development of oil, natural gas, or minerals and is required to file annual reports with the Commission under the Securities Exchange Act of 1934 (the "Exchange Act"). The issuer must also disclose payments made by a subsidiary or entity controlled by the issuer.
Under the rules, resource extraction issuers 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 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 and "not de minimis" as any payment, whether a single payment or a series of related payments, which 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.
The rules include two targeted exemptions to the reporting obligations. One exemption provides that a resource extraction issuer that has acquired a company not previously subject to the rules will not be required to report payment information for the acquired company until the filing of a Form SD (a specialized disclosure report for conflict minerals disclosure) 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 existing Exchange Act authority to provide exemptive relief from the requirements of the rules on a case by case basis.
The required disclosure will be filed publicly with the Commission annually on Form SD no later than 150 days after the end of its 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 September 30, 2018.
A resource extraction issuer may use a report prepared for other disclosure regimes to comply with the rules if the Commission 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 (as implemented in a European Union or European Economic Area member country), Canada's Extractive Sector Transparency Measures Act, and the U.S. Extractive Industries Transparency Initiative are substantially similar to the Commission's rules, subject to certain conditions specified in the order and in the final rules.
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