SEC disclosure rule seen hurting US firms

New requirements for project-level disclosure of financial payments to governments put US oil and gas companies working abroad at a competitive disadvantage, an industry representative warned.

The requirements appear in the US Securities and Exchange Commission’s final rule on financial disclosures, mandated by Sec. 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (OGJ Online, Dec. 11, 2015).

“The SEC’s rule forces US companies to disclose proprietary information to its competitors while foreign entities do not,” said Stephen Comstock, American Petroleum Institute director of tax and accounting policy. “This can give some large industry players an advantage on future business projects and can fundamentally harm American jobs.”

The rule applies to extractive-industries issuers of stock that are required by the Securities Exchange Act to file annual reports with the SEC.

Affected companies must disclose single or sequential payments above $100,000 “made to further the commercial development of oil, natural gas, or minerals.”

Activities covered by the rule include exploration, extraction, processing, and export, as well as the acquisition of related licenses.

Payments that must be disclosed include taxes, royalties, fees (including license fees), production entitlements, bonuses, dividends, payments for infrastructure improvements, and payments required by law or contract related to community and social responsibility.

The rule allows for disclosure delays in acquisitions of companies not previously covered. It also provides for a 1-year delay in reporting payments related to exploration.

Court setback

The SEC reproposed disclosure requirements last December after an initial rule, adopted in 2012, was vacated by the US District Court for the District of Columbia in a case brought by a business coalition that included API and the Independent Petroleum Association of America.

At the time of the reproposal, SEC Chair Mary Jo White said requirements would be consistent with transparency regimes elsewhere.

When it issued the final rule, the commission issued a separate order saying it had determined its requirements are “substantially similar” to those of the European Union Accounting and Transparency Directives, Canada’s Extractive Sector Transparency Measures Act, and the US Extractive Industries Transparency Initiative.

The API isn’t persuaded.

“There appears to be no meaningful differences between this rule and the previous rule struck down by the courts, so our concern remains the same,” Comstock said.

He said the SEC “ignored industry efforts to disclose information but to do so in a way that doesn’t give competitors an unfair advantage.”

The central industry concern is the requirement that nonstate companies disclose payments project by project, rather than country totals. Project-level information is valuable to national oil companies not subject to the requirements, against which private companies compete for foreign investment opportunities.

“The industry actively supports the Extractive Industries Transparency Initiative, which takes a global approach and already includes 51 countries that promote transparency and puts all companies on equal footing,” Comstock said.

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