On August 22, 2012, the Securities and Exchange Commission (the “SEC”) approved regulations to implement Section 1504, or the Cardin-Lugar Amendment, of the Dodd-Frank Financial Reform and Consumer Protection Act. Section 1504 requires oil, gas and mining companies reporting to the SEC to disclose both their country- and project-level payments to their host governments annually.

Resource Extraction Issuers

Domestic and foreign oil and gas companies that engage in the commercial development of oil, natural gas, or minerals (“Resource Extraction Issuers”) that are reporting with the SEC are subject to the new regulations.  According to the SEC, there are approximately 1,101 oil, gas and mining companies subject to the new regulations.

The new regulations also apply to consolidated entities and entities under the control of the covered company. Consolidated entities are those that are included in a parent company’s financial information when it provides reports on its operations such as a subsidiary. Entities under the control of the covered company include companies subject to a joint venture in which the company has the right to control operations and policies. The SEC defines control as “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person whether through the ownership of voting securities, by contract, or otherwise.” Each covered company will determine which entities, besides consolidated subsidiaries, it controls according to SEC’s definition.

When Disclosure is Required

Issuers are required to comply with new rules for their fiscal years ending after Sept. 30, 2013.  Issuers must report no later than 150 days after the end of their fiscal year. For the initial report, most issuers may provide a partial report disclosing only those payments made after Sept. 30, 2013.

Disclosures Required

On an annual basis, the issuer must disclose the following in the specified report:

♦ 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;

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

♦ The project to which the payments relate;

♦ Currency used to make the payments;

♦ Financial period in which the payments were made; and

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

 

Types of Payments Requiring Disclosure

The following types of payments are required to be disclosed:

♦ Taxes;

♦ Royalties;

♦ Fees ;

♦ Production Entitlements;

♦ Bonuses;

♦ In-kind;

♦ Dividends; and

♦ Infrastructure Improvements.

 

Types of Activities

Disclosure is required for payments related to the commercial development of oil, natural gas, or minerals.  This includes:

♦ Exploration;

♦ Extraction;

♦ Processing; and

♦ Exporting.

 

Payments Subject to Rule

Payments to foreign governments are subject to the rule and defined as:

♦ a foreign government;

♦ a department;

♦ an agency;

♦ instrumentality; or

♦ a company owned by a foreign government.

 

Foreign subnational governments, including:

♦ states;

♦ provinces;

♦ counties;

♦ districts;

♦ municipalities; and

♦ territories.

 

Project Under Rule

The rules do not specifically define project. The SEC specifically prohibits the following definitions of project:

♦ Project as reporting unit;

♦ Project as country;

♦ Project as geologic basin; and,

♦ Project as material to the company.

 

In enacting the rule the SEC took the position that “project” reporting is linked to the “contractual arrangements” that define the relationship and payments made between companies and governments.  The SEC provided that, “…[W]e note that individual issuers routinely provide disclosure about their own projects in their Exchange Act reports and other public statements, and as such, we believe “project” is a commonly used term whose meaning is generally understood by resource extraction issuers and investors. In this regard, we note that resource extraction issuers routinely enter into contractual arrangements with governments for the purpose of commercial development of oil, natural gas, or minerals…The contract defines the relationship and payment flows between the resource extraction issuer and the government, and therefore, we believe it generally provides a basis for determining the payments, and required payment disclosure, that would be associated with a particular ‘project.'”

Payment Threshold

Companies are required to disclose all payments that are not de minimis.  Not de minimis means any payment, whether made as a single payment or a series of related payments that equals or exceeds $100,000 during the most recent fiscal year.

For more information about SEC disclosures please visit our blog post at:

http://www.securitieslawyer101.com/periodic-reporting-obligations-101/

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 info@securitieslawyer101.com or visit www.gopublic101.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 info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
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