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Producers Handed Victory in SEC Disclosure Ruling

The U.S. District Court for the District of Columbia last week handed the energy industry a major victory by vacating and remanding an order that would require publicly traded producers to report to the Securities and Exchange Commission (SEC) how much they pay foreign governments for the commercial development of oil, natural gas and minerals.

U.S. District Judge John Bates said the SEC misinterpreted the section of the 2010 Dodd-Frank Wall Street reform law to mean public disclosure of reports by individual companies related to foreign payments. "Vacatur is the appropriate remedy," wrote Bates, who added that that the "rule's 'deficiencies'...are grave indeed."

In late March, the American Petroleum Institute, U.S. Chamber of Commerce, Independent Petroleum Association of America and the National Foreign Trade Council challenged the SEC mandate before the U.S. Court of Appeals for the District of Columbia, raising both constitutional and statutory claims (see NGI, April 1). But the appellate court dismissed the petition, saying it lacked authority to hear the suit in the first instance. It noted that jurisdiction rested with the U.S. District Court.

API applauded the last week's court ruling. "U.S. companies are leading the way to increase transparency, but the rule would have jeopardized transparency efforts already underway by making American firms less competitive against state-owned oil companies," said general counsel Harry Ng.

This rule damages the competitiveness of U.S. companies by requiring business-sensitive information to be shared with global competitors, such as those in China and Russia, API and the other groups said. Bates agreed that the rule would place a "burden on competition" and add costs to investors.

In a lawsuit filed last October, the groups had argued that the rule goes far beyond what Dodd-Frank required (see NGI, Oct. 15, 2012). "Section 1504 requires only that a 'compilation' or aggregation of payment information made by all U.S. companies to each foreign government and federal government be made publicly available. The SEC, however, grossly misinterpreted its statutory mandate to require that each U.S. company publicly file a report on the Commission's online electronic database, detailing each payment made to each and every foreign government, for each and every 'project' relating to extractive industry."

The SEC disclosure rule was approved by the agency in August 2012 (see NGI, Aug. 27, 2012). It requires producers to disclose in their annual reports information relating to their resource extraction payments, or those of a subsidiary or any other unit under their control, to a foreign government or to the U.S. government for the commercial development of oil, natural gas or minerals.

The disclosure rule defines commercial development of oil, gas and minerals to include exploration, extraction, processing and exports, according to the SEC. It would require the reporting of "any payment, whether [it is] a single payment or a series of related payments, that equal or exceeds $100,000 during the most recent fiscal year."

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