American Oil and Gas Reporter - October 2015 - 34

WASHINGTONWATCH
Dodd-Frank Act
Disclosure Requirements
Still Percolating
One of the remaining pieces of unfinished business from the
Dodd-Frank Wall Street Reform and Consumer Protection Act is
Section 1504, which requires disclosure of certain payments by
public companies to the federal government or foreign governments for resource extraction. The rule is intended to increase
the transparency of payments by oil, natural gas and mining companies to governments "to help empower citizens of those resourcerich countries to hold their governments accountable for the wealth
generated by those resources."
The Securities and Exchange Commission approved the final
rule in August 2012, but the U.S. District Court for the District
of Columbia rejected the rule in July 2013, finding that SEC's
public disclosure requirement and preclusion of exemptions rendered the rule arbitrary and capricious.
Should U.S. oil and natural gas producers care-particularly
those companies operating only domestically?
On the surface, the absence of a Section 1504 rule would seem
to be a win for producers. As initially proposed, the rule would
have been damaging to American publicly held production companies.
With an overarching aim to increase transparency in countries
lacking robust regulatory and oversight processes, Section 1504
would impose additional reporting on domestic-only producers,
many of whom already have reduced staff in light of lower oil and
natural gas prices. Section 1504 calls for reporting payments for
taxes, royalties, fees (including license fees), production entitlements, bonuses, dividends, and infrastructure improvements.
The initial rule would have placed companies operating in the
United States and overseas at a competitive disadvantage vis-àvis some international oil companies not subject to the SEC's jurisdiction. For all publicly held production companies with concentrated leaseholdings, a granular definition of "project-level reporting" could result in disclosing competitively sensitive information.
But there are risks that accompany a delay in SEC action.
Groups promoting greater disclosure from the oil and natural gas
industry are not waiting patiently while the SEC puts Section 1504
on the back burner. OxFam America filed suit against the SEC
to expedite the rule-making schedule. The U.S. District Court for
the District of Massachusetts agreed with Oxfam in an early September ruling that requires the SEC to submit to the court within 30 days an "expedited schedule" for issuing a final rule. The
SEC may either comply or appeal.
Transparency efforts are going forward in the effort led by the
U.S. Department of Interior to implement the Extractive Industries Transparency Initiative (EITI) in the United States, with a
focus this year on the largest 45 payers on federal lands. To ensure consistency among reporting requirements, IPAA has
pushed for U.S. EITI to wait for the SEC's actions. When the EITI
process began, SEC action was expected early in 2015. However, the SEC has focused on issues more closely aligned with its
mission, letting Section 1504, with its foreign policy implications,
get pushed back on a growing agenda faced with limited budg34 THE AMERICAN OIL & GAS REPORTER

"When SEC re-proposes a rule, industry
should focus on promoting the public's

ability to access data in a way that doesn't

"

harm the reporting companies.

et resources.
Proponents of greater transparency, such as Oxfam America
and EarthRights International, will not be content to wait. Thus,
the no-action option isn't viable. A number of international oil
companies must operate under European Union rules. For purely U.S. domestic producers, it will be critical for SEC and U.S.
EITI disclosures to minimize the reporting burden, and for the
level of disclosure to be reasonable.
Former U.S. Senator Richard Lugar, R-In., who co-authored
Section 1504, noted the amendment was intended to address the
so-called "resource curse:" when valuable resources are "a bane,
not a blessing, for poor countries, leading to corruption, wasteful spending, military adventurism, and instability." That intent
does not apply equally to the United States.
Even if the SEC appeals the Massachusetts District Court ruling, ultimately it must comply with Dodd-Frank. It is possible the
SEC can implement Section 1504 to give Congress what it wanted while allowing the data to be aggregated in a way that protects
confidentiality of project-level data. The American Petroleum Institute has proposed a computer model to meet those criteria.
"When," not if, the SEC re-proposes a rule to implement Section 1504, industry should focus on helping to shape a rule that
promotes the public's ability to access data in a way that doesn't harm the reporting companies by releasing competitively sensitive information or through overly burdensome requirements.
For companies operating only in the United States, the focus should
be even more targeted to minimize burden.
In the absence of a well-structured rule, civil society groups
will push for rules such as those developed by the European Union,
which do not take into account the U.S. open government policies and multiple layers of oversight for American energy producers. Such a default option will not work.
❒

SUSAN GINSBERG is vice
president of crude oil and natural gas regulatory affairs for
the Independent Petroleum
Association of America. She
covers legislation and regulation, focusing on the CFTC
and FERC. Her experience in
natural gas regulatory affairs
spans 25 years.



American Oil and Gas Reporter - October 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - October 2015

Contents
American Oil and Gas Reporter - October 2015 - Cover1
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