The People of America's Oil and Natural Gas Indusry

Section 1504 Vote Tests Balance Between Jobs, Economy and Regulation

Mark Green

Mark Green
Posted August 21, 2012

Applying the jobs test to the Securities and Exchange Commission’s proposed transparency rule, which the panel is scheduled to vote on Wednesday:

Q: Could the Section 1504 provision of the 2010 Dodd-Frank financial reform law cost U.S. jobs?

A: Yes. Section 1504 would require publicly traded energy firms to release commercially sensitive, detailed payment information about every foreign and U.S. project. Although the provision’s intent is to provide citizens of other countries with information on revenues received by their governments, the unintended result could be an unbalanced playing field that could put U.S. companies at a competitive disadvantage – ultimately threatening U.S. jobs. API Chief Economist John Felmy, during a conference call with reporters:

“Firms would have to reveal extensive data about how much they pay in licenses, taxes, royalties and other fees. With a few clicks of a mouse, state-owned foreign firms – companies like the China National Petroleum Company and Russia’s Gazprom – could plunder information, which could help them determine their rivals’ strategies and resource levels.”  

Q: How much of a competitive disadvantage looms for U.S. energy companies if Section 1504 is approved as proposed?

A: State-owned companies control the vast majority of energy assets and 78 percent of all oil and natural gas reserves. These companies – which include the 16 biggest oil companies in the world – aren’t subject to the SEC and would escape its rule. Felmy:

“Disclosure would not be a two-way street.  State-owned foreign companies would have to reveal nothing – and might even be favored for projects in host countries reluctant to have financial information disclosed…Without appropriate changes to the final rule, its imposition would harm the U.S. economy.  U.S. firms would lose business.  U.S. jobs would not be created.  And potential revenue to our government would not be generated.”   

Q: Is there a way to foster financial transparency that doesn’t harm the U.S. economy and jobs?

A: Yes. The Extractive Industries Transparency Initiative (EITI) launched in 2002 creates a workable framework for payment disclosures that wouldn’t disadvantage an individual company. Under EITI companies submit information about payments made to the governments of the countries where they operate. The data is aggregated and listed on a countrywide basis. Operational details for specific companies aren’t publicized, and proprietary information is protected. Felmy:

“A structure already exists to provide greater financial transparency, one that’s endorsed both by the Obama administration and the World Bank…The (EITI) is already being implemented in the U.S. through the Interior Department.  It makes participating governments publicly accountable for how they spend tax dollars.  Regulators and average citizens alike are given access to information that can tell them where their money went, how much was spent, and toward what purpose. This approach would increase disclosure of financial information without harming job creation and our economy.  It should be the basis for the rule the SEC is about to issue.”

Unfortunately, Felmy said, it appears the administration (through the SEC) will take a “draconian approach to disclosure” that would “unnecessarily harm U.S. competitiveness and jobs.”

The oil and natural gas industry supports financial transparency. Yet, at a time when job creation and economic growth are critically important, the Section 1504 proposal would work against those overarching goals. Felmy said the SEC vote is a test of the administration’s ability to “balance the goals of regulation with the needs of our economy, job creation and competitiveness.” Approving Section 1504 as written would fail that test.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.