API, others sue SEC over Dodd-Frank payment disclosure rule

The American Petroleum Institute and other business groups have filed a lawsuit on Oct. 10 against the US Securities and Exchange Commission its implementation of Section 1504 of the Dodd-Frank Act. SEC’s new rule would require publicly traded US oil and gas companies to release sensitive, detailed payment information about projects that potentially could benefit their overseas national oil companies, API said.

“The oil and natural gas industry strongly supports payment transparency,” API Pres. Jack N. Gerard said. “We’ve been working hard to increase transparency for a decade, but this rule could interfere with ongoing efforts by making US firms less competitive against state owned firms in China and Russia that have no interest in transparency.”

The Independent Petroleum Association of America, US Chamber of Commerce, and National Foreign Trade Council joined in the action,which was filed in US District Court for the District of Columbia.

“This rule is harmful to our energy security and to American consumers, and should not stand,” Karen Harbert, president of the US Chamber’s Institute for 21st Century Energy, said on Oct. 11.

“The SEC’s ‘extraction rule’ will require them to turn over their playbooks for how they bid and compete,” she explained. “Their competitors are under no such obligation to do so, and compliance with this rule violates the law in several countries in which US firms do business. Yet the SEC refused to craft an exception for that circumstance and has dramatically underestimated the impact to businesses and consumers.”

Working on EITI

Gerard said the US oil and gas industry is working with civil society groups and the Obama administration to implement the Extractive Industries Transparency Initiative (EITI), which would more effectively increase transparency without harming competitiveness. The initiative has already been established in 36 countries and continues to grow, he indicated.

The SEC rule, on the other hand, requires publicly traded energy firms to release commercially sensitive, detailed payment information about foreign and US projects, according to API. It said the requirement would compel US firms to reveal extensive data about how much they pay in licenses, taxes, royalties and other fees.

By the SEC’s own estimate, developing and operating the systems to gather, validate, and report this extraordinarily detailed information will cost the industry $1 billion up front and hundreds of millions of dollars more in the future, API said.

“With reasonable changes, the SEC could have achieved the goal of increased transparency while also remaining faithful to its core mission to protect American investors,” Gerard said. “The rule should allow our companies to report their payments confidentially to the SEC and allow the agency to aggregate that information and publicly report payments by country.”

The SEC’s rule also should contain a reporting exception for payments to governments that prohibit disclosure, he added.

Contact Nick Snow at [email protected].