Cardin, Exxon lock horns over SEC oil payment disclosure regulations

There’s a behind-the-scenes battle afoot over upcoming federal rules that will force oil and mining companies to disclose payments to foreign governments in connection with projects in their countries.
 
The rules will implement a provision — Section 1504 — that Sens. Ben Cardin (D-Md.) and Richard Lugar (R-Ind.) added to the Wall Street reform law passed by Congress last summer.

The measure will force many companies to provide the SEC information on payments for production licenses, taxes, royalties and other aspects of energy and mineral projects.

Advocates of the disclosure say increased transparency of payments will help reverse the “resource curse” in which energy- and mineral-rich nations in Africa and elsewhere are plagued by high levels of corruption, conflict and poverty.

Cardin is urging the Securities and Exchange Commission to refrain from carving out exemptions that powerful multinational oil companies are seeking from the rules, which the SEC will float in draft form as early as next week.
 
“Some industry comments have cited the need for broad reporting exemptions if a company has a confidentiality agreement or the law in the country in which they operate prohibits this reporting,” Cardin wrote in a letter earlier this month to SEC Chairwoman Mary Schapiro.
 
“The language of Sec. 1504 is very clear: there should be no exemptions for confidentiality or for host-country restrictions. It would be too easy for countries who want to avoid disclosures to simply pass their own law against disclosure. The purpose of Sec. 1504 is to not allow for exemptions for confidentiality or other reasons that undermine the principle of transparency and full disclosure,” the letter adds.
 
But oil companies say the provision will put them at a disadvantage compared to state-backed Russian and Chinese firms when competing for production contracts.
 
Officials from the American Petroleum Institute, Exxon Mobil Corp. and Royal Dutch Shell met with SEC representatives Nov. 19 to lay out their concerns with the provision. They allege it could force companies to disclose commercially sensitive contractual information and create conflicts with foreign laws.
 
The companies, in a memo to the SEC, warn the measure could cause “substantial harm” to U.S.-listed companies and undermine transparency efforts.
 
The memo urges the SEC to provide an exemption from payment disclosure when “foreign laws, regulations, and orders prohibit such disclosure, or where such disclosure would result in breach of an existing government contract.”
 
It also calls for an exemption from disclosing information that would result in “competitive harm.”
 
Oil companies say they back increased transparency.
 
The industry points to its work with an existing multilateral effort called the Extractive Industries Transparency Initiative (EITI) to make the case that they are already tackling the issue. The industry argues the Cardin-Lugar measure creates onerous requirements that go well beyond the EITI standards.
 
But Cardin says it’s appropriate to require companies to provide project-level information that’s not captured by the EITI minimum standards, noting the measure is designed to “complement” that initiative.
 
“EITI is a minimum reporting standard, and the intent of Sec. 1504 was to go beyond these requirements,” Cardin wrote, while also noting that EITI encourages countries to innovate.