On June 27, 2016, the Securities and Exchange Commission (SEC) announced its adoption of rules which will require resource extraction issuers to disclose payments that are not de minimis made to governments for the commercial development of oil, natural gas, or minerals.

This includes payments made to the United States federal government as well as foreign governments.  The disclosures will appear in Form SD, which will be required to be filed annually within 150 days of the issuer’s fiscal year end beginning with fiscal years ending after September 30, 2018.

“We are adopting Rule 13q-1 and an amendment to Form SD to implement Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the disclosure of payments by resource extraction issuers,” the SEC memo states.

Key points included in the rules are:

  • The reporting requirements apply to all U.S. and foreign companies who are required to file annual reports pursuant to Sections 13 or 15d of the Securities Exchange Act of 1934 and are engaged in the commercial development of oil, natural gas or minerals.
  • “Commercial development of oil, natural gas or minerals” includes exploration, extraction, processing, and/or exporting of such material, as well as the acquisition of a license permitting such activities.
  • “Payments” include taxes, royalties, fees (including license fees), production entitlements, bonuses, community and social responsibility payments, dividends, and payments for infrastructure improvements.
  • Payments are de minimis if a single amount or a series of related amounts are less than $100,000 during a given fiscal year and need not be disclosed.
  • Issuers are required to disclosure payments made by any entity under its control, including consolidated subsidiaries and operations that are proportionally consolidated.
  • Each single contract, license, lease, concession or similar agreement constitutes a project which forms the basis for payment liabilities and related disclosure, though agreements that are both operationally and geographically interconnected may be combined into a single project.
  • In addition to the U.S. federal government and foreign governments, the term “government” includes departments, agencies, instrumentalities, or companies at least majority owned by a government. Further, these definitions apply to foreign national and subnational governments such as states, provinces, counties, districts, municipalities or territories.
  • Form SD is required to be filed on EDGAR complete with XRBL information, with specific identification of the issuer and the payment amounts and recipients. The SEC will publish a separate report summarizing the information.
  • There are two specific exemptive provisions for transitional relief and delayed reporting: (1) a longer transition period for recently acquired companies that were not previously subject to these rules; and (2) a one-year delay in reporting payments related to exploratory activities. The SEC will further consider specific requests for relief from these reporting requirements on a case-by-case basis.

Contact Hein for more information about resource extraction payments.

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