Oil, gas, mining companies ask SEC to broaden disclosure proposal for extractive industries

17 Mar 2020 12:00 am by Robert Thomason

Major oil, gas and mining companies joined US lawmakers in telling the US Securities and Exchange Commission that a proposed disclosure rule should require publicly traded firms in the extractive sector to report government payments on a project-by-project basis. As written, the SEC proposal would only require that the firms report summaries of the payments.

But the American Petroleum Institute asked for a rule requiring far less transparency, one the trade group said would still protect competitive data.

The firms and lawmakers echoed arguments made by anti-corruption and transparency advocates that a rule – mandated by the Dodd-Frank Act – should make companies in the extractive sector disclose their payments to governments, both domestic and foreign, for each oil, gas or mining project in their jurisdictions.

The statements were made by yesterday's deadline for commenting on the proposed rule. But the SEC today said because of the Covid-19 public health emergency, “the Commission will not take final action before April 24th in order to allow commenters additional time if needed.”

The rule, also referred to as Section 1504, was intended to show the investing public how publicly-traded extractive companies are spending their money on projects, said US senators, some of whom voted for the 2010 Dodd-Frank Act.

Other jurisdictions, such as Canada and the EU, call for project-by-project disclosure. An international voluntary standard known as the Extractive Industries Transparency Initiative also require participants to report at the project level.

But the SEC, in a 3-2 vote along party lines, on Dec. 18 decided to propose a rule that would only require the reporting of aggregated costs (see here). Some commissioners cited industry concerns that project-by-project reporting would be costly and could reveal competitive information. Dissenting commissioners said this amounted to hiding information from the investing public.

API seeks non-public reporting

The American Petroleum Institute wants the payments to be reported to the SEC non-publicly and the agency to publish a compilation of payments made to governments without revealing company names.

The API said it would be sufficient simply to let the public know how much governments were receiving for oil, gas and mining operations within their borders, and nothing would be gained by revealing which companies were paying how much.

“Congress’s goal of enabling people to hold their governments accountable for the revenues generated from resource development is achieved so long as citizens know the amount of money the government receives, not the companies that make each individual payment,” the API comment letter said.

Ten senators support broader disclosure

A comment letter signed by 10 senators told the SEC the proposal to allow reporting of aggregated payments rather than detailing the payments by project is “inconsistent with the transparency, accountability and investor protection goals Congress intended in enacting Section 1504.”

“The proposed rule’s alternative approach to defining a ‘project,’ allowing significant aggregation across multiple separate projects and multiple resource types, would be a serious break with current practices in the international community and fall far short of what Section 1504 requires,” the senators wrote.

“It is inconsistent with how companies in the extractive resource sector refer to their projects, would substantially complicate the resulting disclosures, limit the utility of the information disclosed for investors, citizens, and other data users, and seriously undermines the rule’s ability to effectively deter and detect corruption,” they said.

BP, Rio Tinto chime in

BP also said it supports project-by-project reporting, according to Joe Ellis, BP’s vice president for US government affairs.

“Regulatory alignment on the approach to contract-level reporting already enshrined in the EU and Canada reporting requirements and the EITI Standard would be the most effective means of producing high-quality and comparable data,” Ellis wrote.

“In particular, we would welcome a standard definition of a ‘project’ for the purposes of disclosing contract-level payments,” Ellis continued. “This would provide meaningful, material data across the different reporting jurisdictions, in a manner that avoids commercial harm to companies, and would improve the quality and comparability of the information provided for the user of [such] data.”

“Rio Tinto supports the EITI’s position on project-by-project reporting,“ said Ann-Marie Wolff, head of tax for Australian-based miner Rio Tinto. “We believe that the creation of a consistent standard by which companies can report their contributions with integrity and responsibility is essential to promoting confidence in business.”

Big gaps in disclosure

Maryati Abdullah, the national coordinator of Publish What You Pay in Indonesia, outlined what she called large gaps in the disclosure of oil and gas revenues to the public. She told the SEC that Chevron Canada and BP report their payments to governmental agencies. But ExxonMobil and ConocoPhillips do not follow suit. Publish What You Pay is a civil society advocacy group.

“By not reporting their payments to governments, US companies serve to obfuscate the data that other companies disclose,” Abdullah wrote in her comments.

“The US should aim to adopt rules that align with existing disclosure regimes — most notably the EU regime,” wrote Gine Wang-Reese, vice president of Norwegian oil producer Equinor.

“Such alignment is particularly important for companies such as Equinor, which is subject to disclosure obligations in several jurisdictions,” Wang-Reese said. “Alignment will ensure that companies such as ours can keep compliance costs at a reasonable and proportional level.”

Competitive harm argument disputed

Yale law professor and scholar Susan Rose-Ackerman disputed that project-by-project reporting would be overly expensive.

“Opponents of a disaggregated approach argue that it would be costly for firms to provide such information,” said Rose-Ackerman. “But that cannot be correct. Any well-run firm must keep records at the project level, taking appropriate account of joint expenses spread out over several projects. In fact, it might be more expensive to calculate aggregate data than to report disaggregated information.”

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