SEC Adopts Final Rules (Again) For Resource Extraction Issuers

SEC Adopts Final Rules (Again) Requiring Resource Extraction Issuers to Disclose Government Payments


On December 16, 2020, the US Securities and Exchange Commission (the “SEC”) adopted final rules requiring domestic and foreign reporting companies engaged in “resource extraction” (i.e., the commercial development of oil, natural gas or minerals) to disclose certain payments made to the US federal government or foreign governments (the “Rules”). In doing so, the SEC seeks to end a decade-long struggle over the implementation of Section 13(q) of the Securities Exchange Act of 1934 (the “Exchange Act”), a controversial addition made by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Whether the Rules are the last word remains to be seen.

The Rules will become effective 60 days after publication in the Federal Register. Following a two-year transition period, issuers required to comply with the Rules must furnish to the SEC an amended Form SD no later than 270 days following the end of their most recently completed fiscal year. For issuers using the calendar year as their fiscal year, this means furnishing their first amended Form SD in September 2024.

Section 13(q) of the Exchange Act

Section 13(q) directs the SEC to issue final rules requiring the disclosure of certain payments made to the US federal government or foreign governments by resource extraction issuers, subsidiaries of resource extraction issuers or entities under the control of resource extraction issuers for the purpose of the commercial development of oil, natural gas or minerals.

In light of its obligations under Section 13(q), the SEC first adopted rules in August 2012. In 2013, however, an alliance of trade organizations successfully challenged the rules in federal court, sending the SEC back to the drawing board. The SEC made a second attempt in June 2016. However, shortly after the Republican Party took control of the Senate in 2016, Congress rescinded the SEC’s new rules pursuant to its authority under the Congressional Review Act (“CRA”). The SEC proposed new rules on December 19, 2019, which closely track the final rules adopted on December 16, 2020.

The Rules are intended both to achieve Dodd-Frank’s statutory objective of increasing the transparency of payments to governments for the purpose of the commercial development of oil, natural gas and minerals and to comply with the CRA, which prohibits the SEC from adopting final rules that are “substantially the same” as the those rescinded by Congress.

The Rules

The following summary identifies key points for resource extraction issuers to consider when evaluating the potential impact of the Rules.

Information Required by Amended Form SD

The Rules amend Form SD to implement Section 13(q) of the Exchange Act. Item 2.01 of amended Form SD requires resource extraction issuers to report the following information:

  • the type and total amount of payments, by payment category, made for each project;
  • the type and total amount of payments, by payment category, for all projects made to each government;
  • the total amounts of the payments, by payment category;
  • the currency used to make the payments;
  • the fiscal year in which the payments were made;
  • the 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 to which the payments relate;
  • the particular resource that is the subject of commercial development;
  • the method of extraction used in the project; and
  • the country and major subnational political jurisdiction of the project.

This information must be included as an exhibit to Form SD.

Definition of “Payments”

The Rules require resource extraction issuers to report certain payments to the US federal and foreign governments. A “payment,” for the purposes of the Rules, is defined as any payment that:

  • is made to further the commercial development of oil, natural gas or minerals;
  • is not de minimis; and
  • includes taxes, royalties, fees (including license fees), production entitlements, bonuses, and other material benefits, that the SEC, consistent with the Extractive Industries Transparency Initiative guidelines (to the extent practicable), determines are part of the commonly recognized revenue stream for the commercial development of oil, natural gas, or minerals.

Under, the proposed rules, the SEC suggested a de minimis threshold of $150,000 but only if total payments for any one project equaled or exceeded $750,000. The Rules, by contrast, designate payments “not de minimis” if they, either as single payments or series of payments, equal or exceed $100,000.

Definition of “Project”

Disclosure is required on a per-project basis, with “project” defined according to three criteria:

  • the type of resource being commercially developed;
  • the method of extraction; and
  • the major subnational political jurisdiction where the commercial development of the resource is taking place.

Issuers will benefit from this high level definition of project, as it requires less granular disclosure that past iterations of the Rules.

Disclosure “Furnished” to the SEC

The Rules do not require issuers to file Form SD with the SEC. Instead, issuers need only “furnish” it to the SEC. This distinction is significant as it protects from liability under Section 18 of the Exchange Act persons who make or cause to be made any false or misleading statement of material fact in any document required to be filed under the Exchange Act. However, disclosure furnished to the SEC on Form SD remains subject to the Exchange Act’s general antifraud provisions.


The Rules exempt emerging growth companies and smaller reporting companies from the requirement to furnish Form SD to the SEC. The Rules also provide two conditional exemptions where the required disclosure is prohibited by a foreign law or by a pre-existing contract.

In Summary

Time will tell whether the Rules stand up to congressional and judicial scrutiny. However, reporting issuers engaged in resource extraction should begin putting in place procedures to gather information required by Form SD. Such issuers should also alert their compliance teams to the Rules. Fortunately and as noted, the Rules are subject to a two-year transition period, meaning that issuers using the calendar year as their fiscal year need not furnish their first amended Form SD to the SEC until September 2024.