Payment Disclosures by Resource Extraction Issuers l Securities Lawyer 101 Blog

On August 22, 2012, the Securities and Exchange Commission (“SEC”) adopted a final rule pursuant to Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) that requires companies engaged in the development of oil, natural gas, or minerals (“Resource Extraction Issuers”) to disclose information.  

The rules require disclosure of any payment the issuer or any entity under its control, made to a foreign government or to the U.S. government for the purpose of the commercial development of oil, natural gas, or minerals.

Section 1504 added Section 13(q) to the Securities Exchange Act of 1934 (the “Exchange Act”), which requires the SEC to promulgate rules requiring disclosure by resource extraction issuers.  This disclosure msut be made annually on SEC Form SD.

Section 13(q) of the Exchange Act requires Resource Extraction issuers to provide disclosure on SEC Form SD that includes (i) information about the type and total amount of such payments made for each project related to the commercial development of oil, natural gas, or minerals, (ii)  information about the type and total amount of payments made to each government, and (iii) information regarding those payments in an interactive data format.

Every resource extraction issuer that qualifies must comply with the new rules and form for fiscal years ending after September 30, 2013.  The Form SD must be filed with the SEC no later than 150 days after the end of its fiscal year.

The following is a Fact Sheet published by the SEC in its press release announcing the final rules.

FACT SHEET

Disclosing Payments by Issuers Engaged in Resource Extraction

Background

In 2010, Congress passed the Dodd-Frank Act, which directs the Commission to issue rules requiring the disclosure of certain payments made to the federal government or foreign governments by resource extraction issuers – companies engaged in the development of oil, natural gas, or minerals.

In particular, Section 1504 of the Act amends the Securities Exchange Act of 1934 by adding a new section, Section 13(q).

The Rules

Who Must Disclose:

The new rules require a resource extraction issuer to disclose payments made to governments if:

♦The issuer is required to file an annual report with the SEC.

♦The issuer engages in the commercial development of oil, natural gas, or minerals.

The new disclosure requirements apply to domestic and foreign issuers and to smaller reporting companies that meet the definition of resource extraction issuer.

In addition, the issuer is required to disclose payments made by a subsidiary or another entity controlled by the issuer.  A resource extraction issuer needs to make a factual determination as to whether it has control of an entity based on a consideration of all relevant facts and circumstances.

What Must Be Disclosed:

Under the new rules, a resource extraction issuer is required to disclose certain payments made to a foreign government (including sub-national governments) or the U.S. government.

Resource extraction issuers need to disclose payments that are:

♦Made to further the commercial development of oil, natural gas, or minerals.

♦“not de minimis”

♦Within the types of payments specified in the rules.

The rules define commercial development of oil, natural gas, or minerals to include exploration, extraction, processing, and export, or the acquisition of a license for any such activity.  The rules define “not de minimis” to mean any payment (whether a single payment or a series of related payments) that equals or exceeds $100,000 during the most recent fiscal year.

The types of payments related to commercial development activities that need to be disclosed include:

♦Taxes

♦Royalties

♦Fees (including license fees)

♦Production Entitlements

♦Bonuses

♦Dividends

♦Infrastructure Improvements

The new requirements clarify the types of taxes, fees, bonuses, and dividends that are required to be disclosed.  These types of payments generally are consistent with the types of payments that the Extractive Industries Transparency Initiative suggests should be disclosed.  Congress specifically referenced the EITI in defining “payment” in the law.

The rules require a resource extraction issuer to provide the following information about payments made to further the commercial development of oil, natural gas, or minerals:

♦Type and total amount of payments made for each project.

♦Type and total amount of payments made to each government.

♦Total amounts of the payments, by category.

♦Currency used to make the payments.

♦Financial period in which the payments were made.

♦Business segment of the resource extraction issuer that made the payments.

♦The government that received the payments, and the country in which the government is located.

♦The project of the resource extraction issuer to which the payments relate.

The new rules leave the term “project” undefined to provide resource extraction issuers flexibility in applying the term to different business contexts.  However, the rule release provides some guidance on the Commission’s view of what a project would be.

How It Must Be Disclosed:

A resource extraction issuer must disclose the information annually by filing a new form with the SEC (Form SD).  The information must be included in an exhibit and electronically tagged using the eXtensible Business Reporting Language (XBRL) format.

When It Must Be Disclosed:

A resource extraction issuer will be required to file the form on the SEC public database EDGAR no later than 150 days after the end of its fiscal year.

The issuer will be required to comply with the new rules for fiscal years ending after Sept. 30, 2013.  For the first report, most may provide a partial report disclosing only those payments made after Sept. 30, 2013.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com.  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490, Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 , IPO’s, OTC Pink Sheet listings, Form 10 OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or [email protected].  Please note that the prior results discussed herein do not guarantee similar outcomes.

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