Jane Van Ryan
Posted December 14, 2010
Tomorrow, the Securities and Exchange Commission (SEC) is set to vote on newly proposed rules stemming from Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules could have serious impacts on the competitiveness of SEC-listed oil and natural gas companies in the quest for global energy resources.
Section 1504 requires oil and natural gas companies to disclose payments made to foreign governments for projects involving extraction activities. It also orders the SEC to promulgate rules that "shall support the commitment of the Federal Government to international transparency promotion efforts relating to the commercial development of oil, natural gas, or minerals."
Transparency is a good thing. It is the keystone of the financial reform law, which is aimed at preventing another financial meltdown and putting the U.S. economy at risk. API supports transparency, but this measure could cause serious problems:
- Section 1504 places U.S.-listed companies at a competitive disadvantage to their foreign competitors. All U.S. companies and only 14 foreign companies would be required to report the confidential terms of negotiated contracts. Most nationally-owned energy companies--the U.S. energy companies' largest competitors--would not have to file reports. These foreign nationally-owned companies control 78 percent of the world's oil reserves.
- By disclosing the particular details of projects, Section 1504 provides a roadmap to U.S. facilities around the globe, thus jeopardizing the safety of U.S. citizens working abroad. Additionally, disclosing the terms of contracts could cause U.S.-listed companies to break nondisclosure agreements with host countries and potentially laws requiring nondisclosure.
Ultimately, Section 1504 could undermine transparency by encouraging governments to shift business to companies that are not subject to the reporting requirements. The loss of business opportunities could do financial harm to U.S. oil company shareholders, many of whom are retirees who hold stock in 401k and pension plans.
The Extractive Industries Transparency Initiative (EITI) would be a better way to capture information about foreign investments. This multi-lateral, multi-stakeholder global program would apply equally to all companies operating in a country, thereby placing all companies on a level playing field. The EITI approach protects global competitiveness while furthering transparency.
The SEC should keep in mind the importance of protecting competition when it considers its Section 1504 rules tomorrow.
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