Oil disclosure proponent criticizes SEC proposal

A proposal by the US securities regulator to require oil companies to disclose payments to foreign governments will harm the competitiveness of US firms, a proponent of oil payments transparency said.

The Securities and Exchange Commission (SEC) on 11 December proposed a rule that would require companies to report annually, on a project by project basis, what they pay to federal and sub-national government agencies to develop oil and natural gas resources or to obtain exploration licenses.

The SEC modeled its proposal, which was mandated by the 2010 Dodd-Frank Act, on regulations the EU adopted last year. The US agency said it would accept disclosure reports filed in Europe in compliance of the US regulations.

But the EU model of proposed payment disclosures results in a stream of data that will be hard to access and analyze, defeating the intent of the rule, think tank American Security Project director of studies Andrew Holland said in a comment filed with the SEC.

And the SEC definition of an oil and natural gas project subject to disclosure requirements is so broad that it could force US companies to release detailed contract-level operational information, Holland said.

The SEC defines a project as operational activities governed by a single contract, license, lease, concession or a legal agreement. That definition, which matches the EU disclosure mandate, provides sufficient granularity to fulfill the objective of the Dodd-Frank mandate, the SEC said.

Holland suggested using three attributes to define a project: what resource is being extracted, the type of extraction technology and the locality where the resource development takes place. Defining a project along those lines will enable easy cross-country and cross-company payment comparisons in a way that the proposed model cannot achieve, according to Holland.

Holland suggested using a database model that the American Petroleum Institute (API) has created, although he suggests modifications to ensure that the public can easily figure out payments made by individual companies to each jurisdiction. The API instead advocates protecting the names of companies making the payments, but allowing external observers to sort payments by jurisdiction and project.

API, which helped to defeat an earlier version of the SEC rule in federal court in 2013, said the newest proposal would harm US firms by placing them at a competitive disadvantage against foreign government-controlled oil companies not subject to the disclosure requirements. The oil lobby group has yet to submit comments on the proposal and asked the SEC to extend the comment period that ended on 25 January. The SEC today granted that request, giving members of the public until 16 February to submit comments and to provide replies until 8 March.

The SEC says that 471 companies may have to file annual disclosure reports as a result of the rule. The 471 companies could face initial compliance costs of $262mn-$725mn and subsequent average filing costs of $105mn-$601mn/yr.

The US securities agency has to finalize the rule by late June to comply with an order by a federal judge. Anti-poverty activist group Oxfam America, which filed the lawsuit that resulted in a mandate for finalizing the rule in June, said the proposal would help activists around the world who seek disclosures to hold their governments to account.

The State Department has backed the proposal, saying it advances US foreign policy interests by increasing transparency and reducing corruption in oil, natural gas and minerals sectors.