Oil industry set to battle Dodd-Frank mandate in courts, Congress

The oil industry is poised to take its battle against new financial disclosure rules from the courts to the new Congress.

American Petroleum Institute President Jack Gerard said his group was considering an array of options to turn back the new Securities and Exchange Commission requirements that publicly traded U.S. companies reveal what they pay to harvest crude, natural gas and minerals from other countries.

The oil industry has already launched its first strike, with a lawsuit challenging the rules filed Oct. 10 in federal district court in Washington, D.C. But the industry also could look to the new Congress for relief, once lawmakers are sworn in next January.

“We will pursue the legal routes, we will pursue congressional routes,” Gerard told reporters after an API-sponsored energy event. “We will pursue whatever routes are necessary to correct this ill-informed approach to transparency.”

Mandated by the 2010 Dodd-Frank financial law but delayed amid intense lobbying, the rule adopted by the SEC in August requires some 1,100 publicly traded oil, gas and mining companies to report payments exceeding $100,000 made to other countries “to further the commercial development” of the host nations’ resources.

The requirement has been championed by human rights activists who insist the transparency could discourage graft, expose bribes and deter corruption in resource-rich nations where oil and mineral wealth isn’t trickling down.

On Capitol Hill, the mandate was the brainchild of Sens. Ben Cardin, D-Md., and Dick Lugar, R-Ind., who insist it is key to empowering citizens in resource-rich countries to hold their leaders accountable.

But the U.S. oil industry argues the SEC went further than Cardin and Lugar’s Dodd-Frank provision required by requiring project-level reporting that could give their rivals a competitive advantage.

After unsuccessfully lobbying the SEC for latitude to disclose payments on a country-level basis, API, the Independent Petroleum Association of America, the Chamber of Commerce and the National Foreign Trade Council filed a legal challenge to the mandate earlier this month. Last week, the API filed a stay request with the SEC asking that the rule be blocked.

Gerard insisted that the SEC could have worked with an existing voluntary program known as the Extractive Industries Transparency Initiative, and that even if regulators accepted project-level stats, they could aggregate the numbers before disclosing them.

“If they had just gone to the transparency question and just asked us for transparency, it wouldn’t be a problem,” Gerard said. “What the SEC did was go one step further and is now in the position to compel us to disclose proprietary information that not only impacts us economically but puts us at a competitive disadvantage with our competition around the world.”

“When we’re competing with the Russians (and) with other foreign nationally owned oil companies, we essentially have to show . . . here is what we expect on a rate of return,” Gerard added. “They get the benefit of looking at all that data and then come back to compete with us.”

Cardin and Lugar called the industry lawsuit expected — but out of touch.

Lugar noted that while the U.S. economy and American values benefit when U.S. firms work in oil, gas and mineral-rich countries, “but the benefits will not be realized if investments serve to entrench authoritarianism, corruption and instability.”

Ian Gary, a senior policy manager with Oxfam America, an anti-poverty group that supports the requirement, said the oil industry “is fighting to keep investors and communities in the dark” by seeking a stay.

According to an SEC cost analysis, the payment disclosure mandate will carry an initial price tag of up to $1 billion for all covered companies, plus an additional $200 million to $400 million annually.

It is unclear whether Congress — even with a new House and Senate make up next year — would be willing to turn back the payment disclosure provision, which is part of Lugar’s legacy on Capitol Hill. After being defeated in a Republican primary, Lugar will not be returning to the Senate in 2012.

Gerard said he thinks lawmakers can be convinced.

“I expect at the appropriate time we will be talking to a lot of people about how to fix this problem,” Gerard said. “When people truly understand its adverse impact — particularly as it relates to job creation in a tough economic time — I think there will be a lot of sympathetic people who understand our views.”