Thank you, Chairman Schapiro.
Next, we will consider adoption of final rules to implement Section 1504 of the Dodd-Frank Act. Section 1504 added Section 13(q) to the Exchange Act, which requires the Commission to issue final rules that require each resource extraction issuer to include in an annual report information relating to any payment made by the resource extraction issuer, a subsidiary of the resource extraction issuer, or an entity under the control of the resource extraction issuer to a foreign government or the Federal Government for the purpose of the commercial development of oil, natural gas, or minerals.
Based on the legislative history, we understand that Congress enacted Section 1504 to increase the transparency of payments made by oil, natural gas, and mining companies to governments for the purpose of the commercial development of their oil, natural gas, and minerals. A goal of such transparency is to help empower citizens of those resource-rich countries to hold their governments accountable for the wealth generated by those resources. To help accomplish this goal, Congress created a disclosure regime under the Exchange Act that would support the commitment of the U.S. Federal Government to international transparency promotion efforts relating to the commercial development of oil, natural gas, or minerals
As numerous commentators noted, the information disclosed pursuant to Section 13(q) will also benefit investors, by among other things, helping investors model project cash flows and assess political risk, acquisition costs, and management effectiveness. Moreover, investors and other market participants, as well as civil society in countries that are resource-rich, may benefit from any increased economic and political stability and improved investment climate that transparency promotes.
Since Congress adopted Section 13(q) in July 2010, we have had extensive public input on this provision. In response to the suggestion by some commentators we extended the comment period to provide the public with additional time to thoroughly consider the matters addressed in the proposing release. The Commission received over 150 unique comment letters on the proposal.
The rules, which would apply to approximately 1100 issuers, would require a resource extraction issuer to disclose certain payments made to foreign governments, including subnational governments, or the U.S. federal government. The issuer would be required to disclose payments made by a subsidiary or another entity controlled by the issuer. A resource extraction issuer would disclose this information on new Form SD. We recognize that the rule will impose a burden on competition, but we believe that any such burden that may result is necessary in furtherance of the purposes of Exchange Act Section 13(q).
Resource extraction issuers would need to disclose payments that are:
The rules would 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 would 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 would need to be disclosed include:
The types of payments that must be disclosed 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 staff will provide additional details about the types of payments that must be disclosed.
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 guidance on our view as to what a project would be.
A >resource extraction issuer would be required to comply with the new rules for fiscal years ending after September 30, 2013. But only partial year reporting would be required for the first year if the issuer´s fiscal year began before September 30, 2013. Thus a calendar year end company would first provide the information for the period beginning October 1, 2013 through December 31st.
Before I turn the meeting over to Paula Dubberly, a Deputy Director of the Division of Corporation Finance, I would like to thank the staff members who have worked so hard for so many months to bring the resource extraction provision before us.
From the Division of Corporation Finance, thank you to Paula Dubberly, Tamara Brightwell, Eduardo Aleman, Elliot Staffin, George Schuler, Brad Skinner, Ron Winfrey, Heather Mackintosh and Blair Petrillo.
From our General Counsel´s Office, thanks to Michael Conley, Richard Levine, David Fredrickson, and Bryant Morris.
Thank you also to our colleagues in the Division of Risk, Strategy and Financial Innovation, specifically Craig Lewis, Kathleen Hanley, Vladimir Ivanov, and Vanessa Countryman as well as Walter Hamscher, Susan Yount, and Virginia Meany.
From the Office of the Chief Accountant, thank you to Paul Beswick, Jeff Minton, Anne Marie Ettinger, Jenifer Minke-Girard, and Jon Duersch.
And last, but not least, thanks to the Commissioners, all of their counsels, and particularly to my counsel, Lesli Sheppard.