The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), passed by Congress on July 15, 2010, and signed into law by President Obama on July 21, 2010, significantly expands SEC disclosures for oil, gas, and mining companies relating to payments to foreign governments and the United States federal government and, for mining companies, mine safety violations and actions.

Disclosure of Payments to Foreign Governments and the United States Federal Government Will Be Required for Resource Extraction Issuers
Section 1504 of the Act requires “resource extraction issuers” to disclose in annual reports filed with the U.S. Securities and Exchange Commission (the “SEC”) information relating to any payment made during the reported fiscal year to foreign governments or the United States federal government for the purpose of the commercial development of oil, natural gas, or minerals. Resource extraction issuers are defined as companies that are required to file annual reports with the SEC and are engaged in the “commercial development of oil, natural gas, or minerals.” This important latter phrase includes “exploration, extraction, processing, export, and other significant actions relating to oil, natural gas, or minerals, or the acquisition of a license for any such activity,” as determined by rules the SEC is required to adopt. “Foreign governments” are defined as a foreign government, a department, agency, or instrumentality of a foreign government, or a company owned by a foreign government, as determined by rules the SEC is required to adopt.

Resource extraction issuers that make any payments to foreign governments or the United States federal government will be required to include information relating to those payments in their annual reports if the payments are made by the issuer, a subsidiary of the resource extraction issuer, or an entity under the control of the resource extraction issuer for the purpose of the commercial development of oil, natural gas, or minerals. The annual report must include the type and total amount of such payments made for each project relating to the commercial development of oil, natural gas, or minerals, as well as the type and total amount of such payments made to each government. “Payment” is defined broadly to include “taxes, royalties, fees (including license fees), production entitlements, bonuses, and other material benefits, that the [SEC], consistent with the guidelines of the Extractive Industries Transparency Initiative (to the extent practicable), determines are part of the commonly recognized revenue stream for the commercial development of oil, natural gas, or minerals.” The Act contains an otherwise undefined exception for de minimis payments. Payments are required to be disclosed without regard to legality, including payments prohibited by the Foreign Corrupt Practices Act. Concerns have been expressed about the potential anticompetitive effect these provisions may have on SEC reporting companies in countries where competitors for resource development projects may not be subject to such disclosure requirements (for example, state-owned oil companies control over 75 percent of crude oil production worldwide).

The Act requires the establishment by the SEC of an interactive data standard for the information to be disclosed in the annual reports of resource extraction issuers. The interactive data standard must include electronic tags that identify, for any payments made by a resource extraction issuer to a foreign government or the United States federal government, the following matters: (1) the total amounts of the payments, by category; (2) the currency used to make the payments; (3) the financial period in which the payments were made; (4) the business segment of the resource extraction issuer that made the payments; (5) the government that received the payments, and the country in which the government is located; (6) the project of the resource extraction issuer to which the payments relate; and (7) such other information as the SEC may determine is necessary or appropriate in the public interest or for the protection of investors.

The interpretation of Section 1504 and its implementation details will be highly dependent upon rules the SEC is required to adopt under the Act by April 17, 2011. The new disclosures will not apply to reported years earlier than the first fiscal year ending one year after the date of the SEC’s issuance of final rules. It is possible that these rules could be adopted by year-end 2010 and thus require calendar-year reporting companies to disclose government payments made in 2011 in the annual report on Form 10-K or other applicable form filed for such year. In light of the interpretive issues and scheduling challenges facing the SEC, it may be more likely that the final rules will not be adopted until some time in 2011, making 2012 the earliest possible calendar year for reporting such disclosures.

Companies facing these disclosure requirements should consider developing the data gathering and reporting procedures necessary to track the payments and other information that will be required to be disclosed and should prepare to include those procedures and related controls in their disclosure controls and procedures.

Disclosure of Federal Mine Safety and Health Violations and Notices Will Be Required for Coal and Other Mining Companies
Under Section 1503(a) of the Act, each SEC reporting company that operates, or has a subsidiary that operates, a “coal or other mine” will be required to include in all periodic reports filed under the Securities Exchange Act of 1934 specific mine safety compliance information for each mine “for the time period covered by such report.” These SEC reporting operators must now disclose, in annual or quarterly periodic reports filed with the SEC, for each mine for which the company or its subsidiary is an operator: 

• The total number of various violations, orders, and citations issued pursuant to certain mandatory health or safety standards under the Federal Mine Safety and Health Act of 1977 (FMSHA), including those pertaining to various provisions of Sections 104, 110, and 107;
• The total dollar value of proposed assessments from the Mine Safety and Health Administration (MSHA) under FMSHA;
• The total number of mining-related fatalities;
• The receipt of written notice from MSHA that the coal or other mine has a pattern of violations¹ under Section 104(e) of FMSHA (or has the potential to have such a pattern); and
• Any pending legal action before the Federal Mine Safety and Health Review Commission.

Unless the SEC adopts rules to the contrary, companies should note the Act’s requirement to disclose mine safety compliance information “for the time period covered by such report,” which may include periods before adoption of the Act.

Section 1503(b) of the Act also requires such companies to file a current report on Form 8-K to report the occurrence of certain specific events, including the receipt of an imminent danger order issued under Section 107(a) of FMSHA and the receipt of written notice from MSHA that the coal or other mine has a pattern of violations under Section 104(e) of FMSHA (or has the potential to have such a pattern).

The effective date of these new mining disclosure requirements is uncertain because of an inconsistency in Section 1503 between immediate effectiveness and effectiveness on August 20, 2010. 

For more information about the disclosure requirements applicable to coal and other mines, please contact Vinson & Elkins lawyers Casey Hopkins, Kevin Lewis, James Prince, Robert Kimball, or Shelley Barber. To learn more about the new requirements relating to resource extraction, please contact Vinson & Elkins lawyers Bill Lawler, Craig Margolis, or Yousri Omar.