The Securities and Exchange Commission adopted rules Wednesday mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring companies engaged in extracting oil, natural gas or minerals to disclose any payments they make to the U.S. government or foreign governments.

The regulatory reform law directed the SEC to issue rules requiring companies known as “resource extraction issuers” to disclose the information annually by filing a new form with the SEC called Form SD.

A resource extraction issuer is required to comply with the new rules for fiscal years ending after Sept. The new rules require a resource extraction issuer to disclose payments made to governments if the issuer is required to file an annual report with the SEC, and the issuer engages in the commercial development of oil, natural gas or minerals.

The new disclosure requirements apply to both domestic and foreign issuers and to smaller reporting companies that meet the definition of resource extraction issuer.

In addition, the issuer is required to disclose payments made by a subsidiary or another entity controlled by the issuer. A resource extraction issuer needs to make a factual determination as to whether it has control of an entity based on a consideration of all relevant facts and circumstances.

Under the new rules, resource extraction issuers need to disclose payments that are made to further the commercial development of oil, natural gas, or minerals, “not de minimis,” and within the types of payments specified in the rules.

The rules define commercial development of oil, natural gas, or minerals to include exploration, extraction, processing, and export, or the acquisition of a license for any such activity. The rules define “not de minimis” to mean any payment (whether a single payment or a series of related payments) that equals or exceeds $100,000 during the most recent fiscal year.

The types of payments related to commercial development activities that need to be disclosed include taxes, royalties, fees (including license fees), production entitlements, bonuses, dividends and infrastructure Improvements.

The new requirements clarify the types of taxes, fees, bonuses and dividends that are required to be disclosed. These types of payments generally are consistent with the types of payments that the Extractive Industries Transparency Initiative suggests should be disclosed. Congress specifically referenced the EITI in defining “payment” in the law.

The rules require a resource extraction issuer to provide the following information about payments made to further the commercial development of oil, natural gas, or minerals:

• 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.
• Currency used to make the payments.
• Financial period in which the payments were made.
• Business segment of the resource extraction issuer that made the payments.
• The government that received the payments, and the country in which the government is located.
• The project of the resource extraction issuer to which the payments relate.

The new rules leave the term “project” undefined to provide resource extraction issuers flexibility in applying the term to different business contexts. However, the rule release provides some guidance on the SEC's view of what a project would be.

The new rules require a resource extraction issuer to disclose the information annually by filing a new form with the SEC, known as Form SD. The information must be included in an exhibit and electronically tagged using the eXtensible Business Reporting Language, or XBRL, format.

A resource extraction issuer would be required to file the form on the SEC public database EDGAR no later than 150 days after the end of its fiscal year. Issuers would be required to comply with the new rules for fiscal years ending after Sept. 30, 2013. For the first report, most resource extraction issuers may provide a partial report disclosing only those payments made after Sept. 30, 2013.

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