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The US Wants to Make Oil, Gas, and Mining Companies More Transparent About Their Deals

The Securities and Exchange Commission has proposed rules that will require companies to disclose how much they pay for the right to drill and mine for resources around the world.

by Ari Paul
Feb 2 2016, 7:35pm

Photo by Federico Gambarini/EPA

Environmentalists and transparency activists are feuding with energy and mining interests over a proposed US Securities and Exchange Commission (SEC) regulation that would require companies to disclose how much they pay for the right to extract minerals around the world.

Isabel Munilla, a senior policy advisor at international relief and development organization Oxfam America, said oil, natural gas, and mining companies generate an incredible amount of revenue for governments in exchange for the opportunity to drill or blast into valuable mineral deposits.

But resource extraction also brings about environmental impacts and the potential for social unrest, she said. And citizens have a stake in how revenues are allocated.

"People want to know how much that mine or oil and gas operation is paying their government, so they can lobby for more social services, more health care, and more education," she said.

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The regulation will require companies to disclose how much they pay in taxes, fees, and royalties, or for mineral leases, to the US or foreign governments. The SEC is required to implement the rule under the Dodd-Frank Act, passed by Congress in the wake of the 2008 financial crisis.

The agency was slow to enact the regulation, which prompted Oxfam to sue the commission in late 2014, alleging that it was dragging its feet on fulfilling the wishes of Congress. A federal court in Massachusetts agreed, forcing the agency to issue a draft regulation this past December.

Stephen Comstock is the director of tax and accounting policy at the American Petroleum Institute (API), the oil and gas industry trade organization. In a statement, he said the industry "strongly supports" holding governments accountable for how revenues are spent, but added that the regulation as written unfairly targeted US companies.

"The SEC rule would only apply to US firms, placing them at a competitive disadvantage against government-owned oil giants not subject to the rule," Comstock said. "Not only could the rule hurt the millions of Americans who own shares in oil and natural gas companies, it could also cost jobs and damage America's energy security by making it more difficult for US firms to gain access to resources abroad."

The proposed SEC rule does cover foreign companies that are publically traded in the United States, such as Royal Dutch Shell and British Petroleum, but excludes nationally owned companies, like Saudi Aramco. 

Munilla countered API's assertion that the rule would put American companies at a disadvantage. The European Union has issued a similar rule and Norway, the United Kingdom, and Canada have issued regulations on the national level.

The Norwegian oil giant Statoil voluntarily disclosed its payments last year.

And, said Munilla, the amount that companies pay to governments for the right to extract minerals isn't the only factor that makes one company more competitive over another. Technological sophistication, access to lines of credit, and reputation can also weigh on whether or not a government awards a mining or drilling contract to a particular company.

"We tried to take their arguments on their face, and see if we could find a nugget of truth in there," she said. "We have been digging and we can really find no evidence that transparency would be the thing that would make you lose your bid."

Related: The Environmental Protection Agency Says Fracking Is Safe — But Its Scientific Advisors Disagree

For its part, API is promoting a program of voluntary agreements between companies, governments, and civil society organizations that it says are already underway in 49 countries.

"API has provided the SEC a model that can be used to achieve the goal of increased transparency while also remaining faithful to its core mission to protect American investors," Comstock said. "We think that is the better approach and have encouraged the SEC to adopt it."

The public has until March to comment on the proposed SEC rule.

Follow Ari Paul on Twitter: @aripaul