On July 2, 2013, U.S. District Judge John Bates of the U.S. District Court for the District of Columbia issued an opinion that vacated SEC Rule 13q-1, which would have required oil and gas companies to disclose payments made to foreign governments in connection with the commercial development of oil, natural gas and minerals. The case was brought by the American Petroleum Institute and the U.S. Chamber of Commerce. The Court based its ruling on findings that the SEC misread the statute to require public disclosure of the reports, and the SEC's decision to deny any exemption, given the limited explanation provided, was arbitrary and capricious.
It is not yet known whether the SEC will appeal the ruling or whether it will conduct new rulemaking which takes into account the Court's concerns. Under either scenario, the rule's deadline of reporting payments starting October 1, 2013 is expected to be delayed. However, since a provision of the Dodd-Frank Act requires the SEC to conduct rulemaking on this issue, oil and gas companies should expect the SEC to continue to implement rulemaking in this area pursuant to its statutory directive.
It also remains to be seen how this will affect the conflict minerals rule which also originated out of the Dodd-Frank Act and for which a court challenge is before a different judge in the same U.S. District Court. Oral arguments in that case were held on July 1, 2013. According to news reports, the judge in that case suggested that federal courts should consider deferring to Congress on the matter, but also questioned whether the SEC properly used its powers to minimize any negative impacts when drafting the rule. Because of the uncertainty surrounding the conflicts minerals rule, and the rapidly approaching May 31, 2014 deadline for filing reports required under those rules, issuers should continue their efforts to gather the necessary information to complete the currently required reports while monitoring the ongoing legal proceedings regarding the rule.
If you have any questions regarding the issues addressed in this Corporate and Securities Law Alert, please contact either of the authors.