Audit, Compliance and Risk Blog

SEC Tries Again To Increase Resource Extraction Issuers’ Reporting

Posted by Jon Elliott on Tue, Jul 26, 2016

Oil_drilling_2.jpgThe Securities and Exchange Commission (SEC) has recently republished requirements for publicly listed “resource extraction issuers” to report payments they make to the U.S. federal government or foreign governments, related to commercial development of oil, natural gas, or minerals. These requirements fulfill one of many duties assigned SEC by the 2010 Dodd-Frank Act, this one codified in a new Section 13(q) of the Securities and Exchange Act of 1934 (1934 Act).

Background: SEC Struggles To Implement Statutory Requirements To Increase Transparency

Section 13(q) stretches the 1934 Act’s focus on regulation of securities for the protection of investors. The primary thrust of this provision is to leverage issuers’ public reporting in order to “empower citizens of those resource-rich countries to hold their governments accountable for the wealth generated by those resources,” in support of U.S. and international efforts to expand transparency in commercial-governmental relations. Depending on the political frameworks within each of these countries, the expectation is that transparency about government revenues will tend to discourage corruption and encourage better use of those revenues on behalf of the citizenry. Section 13(q) requires SEC to:

  • Require each resource extraction issuer to report specified information about payment made by the issuer (or any subsidiary or controlled entity), to a foreign government or the U.S. federal government “for the purpose of the commercial development of oil, natural gas, or minerals.”

  • Post “a compilation of the information” online “to the extent practicable.”

SEC first adopted requirements to implement Section 13(q) in 2012, adopting a new Rule 13q-1 and new Form SD for reporting. (I blogged about them here). The American Petroleum Institute (API) sued to overturn these requirements as unrealistically rigid, and a 2013 federal court decision did so. (I blogged about the decision here). The judge rejected SEC’s arguments that Section 13(q) prevented the agency from applying its discretion to ease the direct and indirect costs of detailed reporting, and to publish less than all the information required in Rule 13q-1 and Form SD. Instead, the judge identified statutory provisions allowing for exemptions and noting that posting should be “to the extent practicable.” He also parsed the definition of “compilation” and determined that the term can include summaries and aggregations, and allow for editing and abridgements. In the face of obvious flexibility, the judge decided that SEC’s mistakenly rigid approach was “arbitrary and capricious.” Accordingly, he vacated them, and remanded them to SEC for further rulemaking that meets the agency’s statutory responsibilities.

SEC Tries Again

SEC has just republished Rule 13q-1, and restored associated reporting to Form SD. The new versions respond to the federal court by providing flexibility in reporting. Form SD requires the following information:

  • Type and total amount of payments, by specified payment type, made for each issuer project relating to the commercial development of oil, natural gas, or minerals.

  • Type and total amount of such payments, by specified payment type, made to each government.

  • Total amounts of the payments, by payment type.

  • Currency used to make the payments.

  • Fiscal year in which the payments were made.

  • Issuer’s business segment that made the payments.

  • Governments (including the U.S. Government) that received the payments and the country in which each such government is located.

  • Issuer’s project to which payments relate.

  • Particular resource subject to the commercial development.

  • Sub-national geographic location of the project.

This detailed reporting regime repeats the one set forth in SEC’s overturned 2012 rules, but this time SEC has stated clearly that it recognized its discretion to reduce reporting requirements to address industry concerns for confidentiality, but rejected confidential reporting as antithetical to Section 13(q)’s thrust for publicity.

Rule 13q-1(b) also requires reporting of payments that related to commercial development of oil, gas or minerals that are not in one of the specified reporting categories, but are made as part of a plan or scheme to evade required reporting under this provision. This subjects attempts to channel money through other entities or individuals to reporting, and penalties if concealment is later discovered.

Rule 13q-1(c) allows issuers, governments, industry groups or trade associations to apply to SEC for recognition of a “substantially similar” alternative reporting regime, and to use those reports as “alternative reporting”. When Dodd-Frank was adopted, a voluntary industry effort called the Extractive Industries Transparency Initiative (EITI) was already underway, and since 2010 other governments have begun to adopt reporting requirements. Concurrent with adoption of this Rule, SEC issued an order finding that specific reporting regimes promulgated by the European Union, Canada, and EITI qualify as “substantially similar”

What Now?

SEC requires issuer’s to provide these reports for fiscal years ending on or after September 30, 2018 … which would be those beginning on or after October 1, 2017. This gives resource extraction issuers just over a year to prepare to comply, and/or to mount another court challenge.

Implementation Checklist

  • Is the organization publicly listed in the United States – the company itself, and/or a subsidiary, or a parent or holding company? 

  • Does the organization engage in “commercial development of oil, natural gas, or minerals” anywhere in the world? 

  • Does the organization report payments made to national and sub-national governments in each country (perhaps through voluntary participation in EITI)? 

  • Does the organization have internal procedures for itemization and reporting of payments to governments related to commercial development of oil, natural gas and/or minerals? 

Where Can I Go For More Information?

  • SEC’s final rule (6/27/16); publication in the Federal Register is pending, but it’s available on the SEC website here

  •  SEC order identifying EU, Canada and EITI reporting as substantially similar. 

  •  EITI website 

Specialty Technical Publishers (STP) provides a variety of single-law and multi-law services, intended to facilitate clients’ understanding of and compliance with requirements. These include:

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About the Author Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 25 years. He was involved in developing 12 existing products, including Environmental Compliance: A Simplified National Guide and The Complete Guide to Environmental Law.

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at:


photo credit: Oil derrick via photopin (license)

Tags: SEC, Environmental, Oil & Gas, directors, directors & officers