If at First You Don’t Succeed: SEC Adopts Revised Resource Extraction Disclosure Rule
On December 16, the SEC adopted rules that will require domestic or foreign SEC-reporting companies that engage in resource extraction to disclose payments made to the U.S. federal government or to foreign governments for the commercial development of oil, natural gas, or minerals. The rules implement Section 13(q) of the Securities Exchange Act, enacted by the Dodd-Frank Act in 2010. Although the rules take effect 60 days after publication in the Federal Register, there is a two-year transition period, after which affected companies will be required annually to disclose their extraction payments on Form SD no later than 270 days after the end of their fiscal year. The new rules contain “conditional exemptions” for situations in which a foreign law or a pre-existing contract prohibits the disclosure and for smaller reporting companies and emerging growth companies.
This is the SEC’s third attempt at rulemaking to implement Section 13(q). The first set of resource extraction payment rules, adopted in 2012, was invalidated by the U.S. Court of Appeals for the District of Columbia Circuit. The second version was invalidated by Congress pursuant to the Congressional Review Act in 2017. See Congress Invalidates Resource Extraction Payment Disclosure; SEC is Reconsidering Conflict Minerals and Pay Ratio Rules (January-February 2017 Update).
Audit committees of companies that engage in resource extraction should be aware of this new disclosure requirement and monitor management’s efforts to determine how it applies to the company and the steps necessary to prepare for implementation.