A Review of the Nigerian Energy Industry

Chevron, ExxonMobil, others now to disclose payments abroad

23 August 2012, Sweetcrude, HOUSTON – UNDER new rules adopted by US regulators that aim to reduce bribery and corruption risks, US-listed oil, gas and mining companies will be required to publicly reveal payments they make to foreign governments, including those for drilling or exploration licenses.

The US Securities and Exchange Commission, SEC, included more flexibility in the rule, approved by a 2-1 vote on Wednesday, but industry groups said it will put them at a competitive disadvantage, Reuters reported.

“Unfortunately, disclosure would not be a two-way street,” John Felmy, chief economist at oil lobbying group the American Petroleum Institute, said according to the news wire.

“State-owned foreign companies would have to reveal nothing and might even be favored for projects in host countries reluctant to have financial information disclosed.”

The rule was put in place as a last-minute additions to the 2010 Dodd-Frank financial reform law.

The SEC did bend to some industry pleas for less onerous rules.

The resource extraction rule will apply to any payment to further exploration, extraction, processing, and export of oil, natural gas or minerals or the acquisition of a license for related activity, the SEC said.

It would apply to any payment, including a series of related payments, over $100,000, the agency said.

The payments that need to be disclosed include taxes and royalties, but also dividends and infrastructure improvements, and other types of fees.

The rule requires companies to provide information on a project-by-project basis, but gives companies the ability to define exactly what constitutes a “project.”
Companies will be required to report the resource payments information for fiscal years that end after 30 September 2013.

The SEC made a point of detailing the costs of the reforms before voting on both rules. The agency has seen prior rules successfully challenged in court based on allegations it did not adequately weigh costs and benefits.

An SEC official estimated the total industry-wide cost of implementing the new conflict minerals rule for companies would be around $3 billion to $4 billion. The annual cost could run between $206 million and $609 million.

On the resource extraction rule, the SEC pegged initial compliance costs at close to $1 billion, and said ongoing compliance costs could run between $200 million and $400 million.

“We have taken those critiques very seriously,” SEC commissioner Elisse Walter said, referring to the cost-benefit challenges.

The SEC on Wednesday also adopted a rule, by a 3-2 vote, that requires US-listed manufacturers to disclose whether their products include certain minerals from the war-torn country of the Democratic Republic of the Congo.

The final conflict mineral rule gives firms leeway on recycled or scrap minerals they use, and provides more time to assess the source of minerals.
Companies subject to the conflict minerals rule would have until 31 May 2014, to file the first report.

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