with not requiring an audit is that users of the information may
perceive non-audited information as less reliable than audited
information.
---------------------------------------------------------------------------

    \609\ See note 405 and accompanying text.
---------------------------------------------------------------------------

6. Exhibit and Interactive Data Requirement
    Section 13(q) requires the payment disclosure to be electronically
formatted using an interactive data standard. Under the proposed rules,
a resource extraction issuer would have been required to provide the
disclosure in two exhibits--one in HTML and one in XBRL. The final
rules require a resource extraction issuer to provide the required
payment disclosure in one exhibit to Form SD. The exhibit must be
formatted in XBRL and provide all of the electronic tags required by
Section 13(q) and the final rules. We have decided to require only one
exhibit formatted in XBRL because we believe that we can achieve the
goal of the dual presentation with only one exhibit. Issuers will
submit the information on EDGAR in XBRL format, thus enabling users of
the information to extract the XBRL data, and at the same time the
information will be presented in an easily-readable format by rendering
the information received by the issuers.\610\ We believe that requiring
the information to be provided in this way may reduce the compliance
burden for issuers as compared to requiring a second exhibit formatted
in HTML. In addition, we believe that, to the extent requiring the
specified information to be presented in XBRL format promotes
consistency and standardization of the information, increases the
usability of the payment disclosure, and reduces compliance costs, a
benefit results to both issuers and users of the information.
---------------------------------------------------------------------------

    \610\ Users of this information should be able to render the
information by using software available on our Web site at no cost.
---------------------------------------------------------------------------

    Our choice of XBRL as the required interactive data standard may
increase compliance costs for some issuers; however, Congress expressly
required interactive data tagging. The electronic formatting costs will
vary depending upon a variety of factors, including the amount of
payment data disclosed and an issuer's prior experience with XBRL.
While most issuers are already familiar with XBRL because they
currently use XBRL for their annual and quarterly reports filed with
the Commission, issuers not already filing reports using XBRL (i.e.
foreign private issuers that report pursuant to International Financial
Reporting Standards (IFRS)) will incur some start-up costs associated
with XBRL. We do not believe that the ongoing costs associated with
this data tagging would be greater than filing the data in XML.
    Consistent with the statute, the final rules require a resource
extraction issuer to include an electronic tag that identifies the
currency used to make the payments. The statute does not otherwise
specify how the resource extraction issuer should present the type and
total amount of payments for each project or to each government. We
understand that resource extraction issuers may make payments in any
number of currencies, and as a result, providing total amounts may be
difficult. If multiple currencies are used to make payments for a
specific project or to a government, a resource extraction issuer may
choose to provide the total amount per project or per government in
U.S. dollars or the issuer's reporting currency. A resource extraction
issuer could incur costs associated with converting payments made in
multiple currencies to U.S. dollars or its reporting currency. Given
the statute's tagging requirements and requirements for disclosure of
total amounts, we believe reporting in one currency is required. The
final rules provide flexibility to issuers in how to perform the
currency conversion, which may result in lower compliance costs because
it enables issuers to choose the option that works best for them. To
the extent issuers choose different options to perform the conversion,
it may result in less comparability of the payment

information and, in turn, could result in costs to users of the
information.

D. Quantified Assessment of Overall Economic Effects

    As noted above, Congress intended that the rules issued pursuant to
Section 13(q) would increase the accountability of governments to their
citizens in resource-rich countries for the wealth generated by those
resources.\611\ In addition, commentators and the sponsors of Section
13(q) also have noted that the United States has an interest in
promoting accountability, stability, and good governance.\612\
Congress' goal of enhanced government accountability through Section
13(q) is intended to result in social benefits that cannot be readily
quantified with any precision. We also note that while the objectives
of Section 13(q) do not appear to be ones that will necessarily
generate measurable, direct economic benefits to investors or issuers,
investors have stated that the disclosures required by Section 13(q)
have value to investors and can ``materially and substantially improve
investment decision making.'' \613\ As noted previously, the benefits
are inherently difficult to quantify and thus our quantitative
assessment of the overall economic effects focuses on the costs of
complying with the rules.
---------------------------------------------------------------------------

    \611\ See note 7 and accompanying text.
    \612\ See note 499 and accompanying text.
    \613\ See letter from Calvert. See note 498 and accompanying
text.
---------------------------------------------------------------------------

    To assess the economic impact of the final rules, we estimated the
initial and ongoing costs of compliance using the quantitative
information supplied by commentators using two different methods. In
the first method, we estimate the cost of compliance for the average
company and then multiply this number by the total number of affected
issuers (1,101). In the second method, we separately estimate the costs
of compliance for small issuers (issuers with less than $75 million in
market capitalization) and for large issuers (issuers with $75 million
or more in market capitalization). For initial compliance costs, we
received estimates from Barrick Gold and ExxonMobil.\614\ We use these
numbers to estimate a lower and an upper bound, respectively, on
initial compliance costs.
---------------------------------------------------------------------------

    \614\ See letter from Barrick Gold and ExxonMobil 1. NMA also
provided initial compliance hours that are similar to Barrick Gold.
See letter from NMA 2.
---------------------------------------------------------------------------

    Our methodology to estimate both initial and ongoing compliance
costs takes the specific company estimates from Barrick Gold and
ExxonMobil and applies these costs, as a percentage of total assets, to
the average issuer and small and large issuers. Both Barrick Gold and
ExxonMobil are very large issuers and their compliance costs may not be
representative of other types of issuers. Thus, we believe it is
appropriate to scale these costs to the size of the issuer. While a
portion of the compliance costs will most likely be fixed (i.e., they
will not vary with the size of the issuer), we expect that a portion of
those costs will be variable. For example, we expect larger,
multinational issuers to have more complex payment tracking systems
compared to smaller, single country based issuers. Thus, in our
analysis we assume that compliance costs will tend to increase with
firm size. Commentators did not provide any information regarding what
fraction of compliance costs would be fixed versus variable.
    Barrick Gold estimated that it would require 500 hours for initial
changes to internal books and records and processes, and 500 hours for
ongoing compliance costs. At an hourly rate of $400,\615\ this amounts
to $400,000 (1,000 hours x $400) for hourly compliance costs. Barrick
Gold also estimated that it would cost $100,000 for initial IT/
consulting and travel costs for a total initial compliance cost of
$500,000. As a measure of size, Barrick Gold's total assets as of the
end of fiscal year 2009 were approximately $25 billion.\616\ As a
percentage of Barrick Gold's total assets, initial compliance costs are
estimated to be 0.002% ($500,000/$25,075,000,000).
---------------------------------------------------------------------------

    \615\ This is the rate we use to estimate outside professional
costs for purposes of the PRA. Although we believe actual internal
costs may be less in many instances, we are using this rate to
arrive at a conservative estimate of hourly compliance costs.
    \616\ All data on total assets is obtained from Compustat, which
is a product of Standard and Poor's. In addition to considering
total assets as a measure of firm size, we also considered using
market capitalization. Although both measures will fluctuate, we
believe that market capitalization will fluctuate more and the
resulting percentage would then be sensitive to the measurement date
chosen. As a result, we believe that using total assets as a measure
of size is more appropriate.
---------------------------------------------------------------------------

    A similar analysis for ExxonMobil estimated initial compliance
costs using its estimate of $50 million. ExxonMobil's total assets as
of the end of 2009 were approximately $233 billion and the percentage
of initial compliance costs to total assets is 0.021% ($50,000,000/
$233,323,000,000). Therefore, the lower bound of initial compliance
costs to total assets is 0.002% based upon estimates from Barrick Gold
and the upper bound is 0.021% based upon estimates from ExxonMobil.
    Below is a summary of how we calculated the initial compliance
costs as a percentage of total assets:

----------------------------------------------------------------------------------------------------------------
            Initial compliance cost estimates                                                Calculation
----------------------------------------------------------------------------------------------------------------
Total number of affected issuers........................                     1,101  ............................
Barrick Gold compliance costs (lower bound):
    Number of hours for initial changes to internal                            500  ............................
     books and records and processes....................
    Number of hours for annual compliance costs.........                       500  ............................
    Initial number of compliance hours..................                     1,000                     500 + 500
    Hourly cost.........................................                      $400  ............................
    Initial hourly compliance costs.....................                  $400,000                  1,000 * $400
    Initial IT/consulting/travel costs..................                  $100,000  ............................
    Total initial total compliance costs................                  $500,000           $400,000 + $100,000
Barrack Gold's 2009 total assets (Compustat)............           $25,075,000,000  ............................
Initial compliance costs as a percentage of total assets                    0.002%      $500,000/$25,075,000,000
 using Barrick Gold (lower bound).......................
ExxonMobil compliance costs (upper bound):
    Initial compliance costs............................               $50,000,000  ............................
    ExxonMobil's 2009 total assets (Compustat)..........          $233,323,000,000  ............................
Initial compliance costs as a percentage of total assets                    0.021%  $50,000,000/$233,323,000,000
 using ExxonMobil (upper bound).........................
----------------------------------------------------------------------------------------------------------------

     We apply these two ratios to the average issuer (Method 1) and to
small and large issuers (Method 2). In Method 1, we calculate the
average total assets of all affected issuers to be approximately $4.4
billion.\617\ Applying the ratio of initial compliance costs to total
assets (0.002%) from Barrick Gold, we estimate the lower bound of total
initial compliance costs for all issuers to be $97 million (0.002% x
$4,422,000,000 x 1,101). Applying the ratio of initial compliance costs
to total assets (0.021%) from ExxonMobil, we estimate the upper bound
of total initial compliance costs for all issuers to be $1 billion
(0.021% x $4,422,000,000 x 1,101). The table below summarizes the upper
and lower bound of total initial compliance costs using Method 1:
---------------------------------------------------------------------------

    \617\ We determined this average by identifying the SIC codes
that will be affected by the rulemaking and then obtaining from
Compustat the total assets for fiscal year 2009 of all affected
issuers. We then calculated the average of those total assets.

----------------------------------------------------------------------------------------------------------------
       Method 1: Average company compliance costs                                            Calculation
----------------------------------------------------------------------------------------------------------------
Average total assets of all affected issuers (Compustat)            $4,422,000,000  ............................
Average initial compliance costs per issuer using                           88,440         $4,422,000,000*0.002%
 Barrick Gold percentage of total assets (lower bound)..
Total initial compliance costs using Barrick Gold (lower                97,372,440                 $88,440*1,101
 bound).................................................
Average initial compliance costs per issuer using Exxon                    928,620          4,422,000,000*0.021%
 Mobil's percentage of total assets (upper bound).......
Total initial compliance costs using ExxonMobil (upper               1,022,410,620               928,620 * 1,101
 bound).................................................
----------------------------------------------------------------------------------------------------------------

     In Method 2, we conduct a similar analysis for small and large
issuers. We estimate the proportion of issuers that are small issuers
(63%) and the proportion of issuers that are large issuers (37%).\618\
Next, we calculate the average total assets of small issuers in 2009
($509 million) and large issuers ($4.5 billion) and apply the ratios of
initial compliance costs to total assets estimated using the estimates
from Barrick Gold (lower bound) and ExxonMobil (upper bound) for each
type of issuer. In this analysis, we assume that the ratio of initial
compliance costs to total assets does not vary by size. Therefore,
small issuers have a lower bound estimate of initial compliance costs
of $7 million (0.002% x $509,000,000 x 63% x 1,101) and an upper bound
of $74 million (0.021% x $509,000,000 x 63% x 1,101). Large issuers
have a lower bound estimate of initial compliance costs of $37 million
(0.002% x $4,504,000,000 x 37% x 1,101) and an upper bound of $385
million (0.021% x $4,504,000,000 x 37% x 1,101). The sum of these two
numbers provides an estimate of $44 million ($7,061,153 + $36,704,037)
for the lower bound and $460 million ($74,142,111 + $385,306,841) for
the upper bound of initial compliance costs.
---------------------------------------------------------------------------

    \618\ For purposes of this analysis, we classify as small
issuers those whose market capitalization is less than $75 million
and we classify the rest of the affected issuers as large issuers.

----------------------------------------------------------------------------------------------------------------
          Method 2: By small and large issuers
----------------------------------------------------------------------------------------------------------------
Percentage of small issuers (market capitalization                             63%  ............................
 <$75m).................................................
Percentage of large issuers (market capitalization =                           37%  ............................
 >$75m).................................................
Average total assets of small issuers in 2009                         $509,000,000  ............................
 (Compustat)............................................
Average total assets of large issuers in 2009                       $4,504,000,000  ............................
 (Compustat)............................................
Initial compliance costs for average small issuer:
    Initial compliance costs for a small issuer using                      $10,180           0.002%*$509,000,000
     Barrick Gold (lower bound).........................
    Total initial compliance costs for small issuers                    $7,061,153             $10,180*1,101*63%
     using Barrick Gold (lower bound)...................
    Initial compliance costs for a small issuer using                     $106,890           0.021%*$509,000,000
     ExxonMobil (upper bound)...........................
    Total initial compliance costs for small issuers                   $74,142,111            $106,890*1,101*63%
     using ExxonMobil (upper bound).....................
Initial compliance costs for average large issuer:
    Initial compliance costs for a large issuer using                      $90,080         0.0020%*4,504,000,000
     Barrick Gold (lower bound).........................
    Total initial compliance costs for large issuers                   $36,695,890             $90,080*1,101*37%
     using Barrick Gold (lower bound)...................
    Initial compliance costs for a large issuer using                     $945,840          0.021%*4,504,000,000
     ExxonMobil (upper bound)...........................
    Total initial compliance costs for large issuers                  $385,306,841            $945,840*1,101*37%
     using ExxonMobil (upper bound).....................
Total initial compliance costs for small and large                     $43,757,043      $7,061,153 + $36,695,890
 issuers using Barrick Gold (lower bound)...............
Total initial compliance costs for small and large                    $459,448,952    $74,142,111 + $385,306,841
 issuers using ExxonMobil (upper bound).................
----------------------------------------------------------------------------------------------------------------

    In summary, using the two methods, the range of initial compliance
costs is as follows: \619\
---------------------------------------------------------------------------

    \619\ The total estimated compliance cost for PRA purposes is
$234,829,000 ([332,164 hrs * $400/hr] + $101,963,400). The
compliance costs for PRA purposes would be encompassed in the total
estimated compliance costs for issuers. As discussed in detail
below, our PRA estimate includes costs related to tracking and
collecting information about different types of payments across
projects, governments, countries, subsidiaries, and other controlled
entities. The estimated costs for PRA purposes are calculated by
treating compliance costs as fixed costs, so despite using similar
inputs for calculating compliance costs under Methods 1 and 2 above,
the PRA estimate differs from the lower and upper bounds calculated
above. The PRA estimate is, however, within the range of total
compliance costs estimated using commentators' data.

----------------------------------------------------------------------------------------------------------------
                                                          Method 1: Average issuer    Method 2: Small and large
                Initial compliance costs                          analysis                 issuer analysis
----------------------------------------------------------------------------------------------------------------
Using Barrick Gold (lower bound)........................               $97,372,440                   $43,757,043
Using ExxonMobil (upper bound)..........................             1,022,410,620                   459,448,952
----------------------------------------------------------------------------------------------------------------

    We acknowledge limitations on our analysis. First, the analysis is
limited to two large issuers' estimates from two different industries,
mining and oil and gas, and the estimates may not accurately reflect
the initial compliance costs of all affected issuers. Second, we assume
that compliance costs are a constant fraction of total assets, but
there may be substantial fixed costs to compliance that are
underestimated by using a variable cost analysis. Third, commentators
mentioned other potential compliance costs not necessarily captured in
this discussion of compliance costs.\620\ Because of these limitations,
we believe that total initial compliance costs for all issuers are
likely to be near the upper bound of approximately $1 billion. This
estimate is consistent with two commentators' qualitative estimates of
initial implementation costs.\621\
---------------------------------------------------------------------------

    \620\ Those could include, for example, costs associated with
the termination of existing agreements in countries with laws that
prohibit the type of disclosure mandated by the rules, or costs of
decreased ability to bid for projects in such countries in the
future, or costs of decreased competitiveness with respect to non-
reporting entities. Commentators generally did not provide estimates
of such costs. As discussed further below, we have attempted to
estimate the costs associated with potential foreign law
prohibitions on providing the required disclosure. See Section
III.D.
    \621\ See letters from API 1 and ExxonMobil 1. ``Total industry
costs just for the initial implementation could amount to hundreds
of millions of dollars even assuming a favorable final decision on
audit requirements and reasonable application of accepted
materiality concepts.''
---------------------------------------------------------------------------

    We also estimated ongoing compliance costs using the same two
methods. We received quantitative information from three commentators,
Rio Tinto, National Mining Association, and Barrick Gold, that we used
in the analysis. Rio Tinto estimated that it would take between 5,000
and 10,000 hours per year to comply with the requirements, for a total
ongoing compliance cost of between $2 million (5,000*$400) and $4
million (10,000*$400). We use the midpoint of their estimate, $3
million, as their expected ongoing compliance cost. The National Mining
Association (NMA), which represents the mining industry, estimated that
ongoing compliance costs would be 10 times our initial estimate,
although it did not state specifically the number to which it referred.
We believe NMA was referring to our proposed estimate of $30,000.\622\
Although this is the dollar figure for total costs, NMA referred to it
when providing an estimate of ongoing costs, so we do the same here,
which would result in $300,000 (10*$30,000). Finally, Barrick Gold
estimated that it would take 500 hours per year to comply with the
requirements, or $200,000 (500*$400) per year. As with the initial
compliance costs, we calculate the ongoing compliance cost as a
percentage of total assets. Rio Tinto's total assets as of the end of
fiscal year 2009 were approximately $97 billion and their estimated
ongoing compliance costs as a percentage of assets is 0.003%
($3,000,000/$97,236,000,000). We calculated the average total assets of
the mining industry to be $1.5 billion,\623\ and using NMA's estimated
ongoing compliance costs, we estimate ongoing compliance costs as a
percentage of assets of 0.02% ($300,000/$1,515,000,000). Barrick Gold's
total assets as of the end of fiscal year 2009 were approximately $25
billion and their estimated ongoing compliance costs as a percentage of
assets is 0.0008% ($200,000/$25,075,000,000). We then average the
percentage of ongoing compliance costs to get an estimate of 0.0079% of
total assets.
---------------------------------------------------------------------------

    \622\ The $30,000 estimate was calculated as follows:
[(52,931*$400) + $11,857,600]/1,101 = $30,000.
    \623\ We estimated this number by selecting only mining issuers,
based on their SIC codes, obtaining their total assets as of the end
of fiscal year 2009 from Compustat, and averaging the total assets
of those issuers.

----------------------------------------------------------------------------------------------------------------
                Ongoing compliance costs                                                     Calculation
----------------------------------------------------------------------------------------------------------------
Rio Tinto estimate of yearly compliance costs...........     $2,000,000-$4,000,000           (5,000-10,000)*$400
Average Rio Tinto estimate..............................                $3,000,000  ............................
Rio Tinto's 2009 total assets (Compustat)...............           $97,236,000,000  ............................
Ongoing compliance costs as a percentage of Rio Tinto's                     0.003%    $3,000,000/$97,236,000,000
 total assets...........................................
NMA estimate of 10 times SEC estimate in proposing                        $300,000                    10*$30,000
 release................................................
Average total assets for all mining issuers (Compustat).            $1,515,000,000  ............................
Ongoing compliance costs as a percentage of all mining                       0.02%       $300,000/$1,515,000,000
 issuers total assets (NMA).............................
Barrick Gold estimate of 500 hours per year.............                  $200,000                      500*$400
Barrick Gold's 2009 total assets (Compustat)............           $25,075,000,000  ............................
Ongoing compliance costs as a percentage of Barrick                        0.0008%      $200,000/$25,075,000,000
 Gold's total assets....................................
Average ongoing compliance costs as a percentage of                        0.0079%  ............................
 total assets for all three estimates: Rio Tinto, NMA
 and Barrick Gold.......................................
----------------------------------------------------------------------------------------------------------------

    We use the same two methods used to estimate initial compliance
costs to estimate ongoing compliance costs: Method 1 for the average
affected issuer and Method 2 for small and large issuers separately. In
Method 1, we take the average total assets for all affected issuers,
$4,422,000,000, and multiply it by the average ongoing compliance costs
as a percentage of total assets (0.0079%) to get total ongoing
compliance costs of approximately $385 million.

----------------------------------------------------------------------------------------------------------------
   Method 1: Average company ongoing compliance costs                                        Calculation
----------------------------------------------------------------------------------------------------------------
Average 2009 total assets of all affected issuers                   $4,422,000,000  ............................
 (Compustat)............................................
Average ongoing compliance costs per issuer using                         $349,338        0.0079%*$4,422,000,000
 average percentage of total assets (lower bound).......
Total ongoing compliance costs..........................              $384,621,138                $349,338*1,101
----------------------------------------------------------------------------------------------------------------

    In Method 2, we estimate ongoing compliance costs separately for
small and large issuers using the same proportion of issuers as in the
analysis on initial compliance costs: small issuers (63%) and large
issuers (37%). For small issuers, we take the average total assets in
2009 ($509,000,000) \624\ and multiply it by the average ongoing
compliance costs as a percentage of total assets (0.0079%) to get total
ongoing compliance costs of approximately $28 million. For large
issuers, we take the average total assets in 2009 ($4,504,000,000)
\625\ and multiply it by the average ongoing compliance costs as a
percentage of total assets (0.0079%) to get total ongoing compliance
costs of approximately $145 million. The sum of these two numbers
provides an estimate of $173 million ($27,891,556 + $144,948,764) for
total ongoing compliance costs for affected issuers. Comparing these
two methods suggests that the ongoing compliance costs are likely to be
between $200 million and $400 million.
---------------------------------------------------------------------------

    \624\ We calculate this number by selecting all small issuers
according to our classification scheme (market capitalization less
than or equal to $75 million) and then averaging their total assets
as of the end of fiscal year 2009.
    \625\ We calculate this number by selecting all large issuers
according to our classification scheme (market capitalization $75
million or more) and then averaging their total assets as of the end
of fiscal year 2009.

----------------------------------------------------------------------------------------------------------------
          Method 2: By small and large issuers
----------------------------------------------------------------------------------------------------------------
Percentage of small issuers (market capitalization <                           63%  ............................
 $75m)..................................................
Percentage of large issuers (market capitalization = >                         37%  ............................
 $75m)..................................................
Average total assets of small issuers in 2009                         $509,000,000  ............................
 (Compustat)............................................
Average total assets of large issuers in 2009                       $4,504,000,000  ............................
 (Compustat)............................................
Yearly ongoing compliance costs for a small issuer......                   $40,211          0.0079%*$509,000,000
Total yearly ongoing compliance costs for small issuer..               $27,891,556             $40,211*1,101*63%
Yearly ongoing compliance costs for a large issuer......                  $355,816        0.0079%*$4,504,000,000
Total yearly ongoing compliance costs for large                       $144,948,764            $355,816*1,101*37%
 companies..............................................
Total yearly ongoing compliance costs for small and                   $172,840,320      $27,891,556+$144,948,764
 large issuers..........................................
----------------------------------------------------------------------------------------------------------------

    As discussed above in Section III.B., host country laws that
prohibit the type of disclosure required under the final rules could
lead to significant additional economic costs that are not captured by
the compliance cost estimates above. We have attempted to assess the
magnitude of these costs to the extent possible. We base our analysis
on the four countries that, according to commentators, currently have
some versions of such laws (although we do not know if such countries
would, in fact, prohibit the required disclosure or whether there might
be other countries).\626\ We searched (through a text search in the
EDGAR system) the Forms 10-K and 20-F of affected issuers for years
2009 and 2010 for any mention of Angola, Cameroon, China, or Qatar. An
examination of many of the filings that mentioned one or more of these
countries indicate that most filings did not provide detailed
information on the extent of their operations in these countries.\627\
Thus, we are unable to determine the total amount of capital that may
be lost in these countries if the information required to be disclosed
under the final rules is, in fact, prohibited by laws or regulations.
---------------------------------------------------------------------------

    \626\ See letters from API 1 and ExxonMobil 1 (mentioning
Angola, Cameroon, China, and Qatar); see also letter from RDS 1
(mentioning Cameroon, China, and Qatar). Other commentators disputed
the assertion that there are foreign laws that specifically prohibit
disclosure of payment information. See, e.g., letters from ERI 3,
Global Witness 1, PWYP 1, Publish What You Pay (December 20, 2011)
(``PWYP 3''), and Rep. Frank et al.
    \627\ We note that some issuers do not operate in those four
countries, and thus, would not have any such information to
disclose. Other issuers may have determined that they were not
required to provide detailed information in their filings regarding
their operations in those countries.
---------------------------------------------------------------------------

    We can, however, assess if the costs of withdrawing from these four
countries are in line with one commentator's estimate of tens of
billions of dollars. We estimate the potential loss from terminating
activities in a country with such laws by the present value of the cash
flows that a firm would forgo. We assume that a firm would not suffer
any substantial losses when redeploying or disposing of its assets in
the host country under consideration. We then discuss how the presence
of various opportunities for the use of those assets by the firm itself
or another firm would affect the size of the firm's potential losses.
We also discuss how these losses would be affected if a firm cannot
redeploy the assets in question easily, or it has to sell them with a
steep discount (a fire sale). In order to estimate the lost cash flows,
we assume that the cash flows from the projects in one of these
countries are a fraction of the firm's total cash flows, and this
fraction is equal to the ratio of total project assets in the given
country to the firm's total assets. Also, we assume that the estimated
cash flows grow annually at the rate of inflation over the life of the
project.
    We were able to identify a total of 51 issuers that mentioned that
they have operations in these countries (some operate in more than one
country). The table below provides information from 19 of the 51
issuers with regard to projects disclosed in their Forms 10-K and 20-
F.\628\
---------------------------------------------------------------------------

    \628\ As we noted, we identified 51 issuers that disclosed
operations in at least one of the four countries, but only 19 of the
issuers provided information with regard to projects in those
countries that was specific enough to use in our analysis.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Project assets   Project term   Investments ($    Revenues ($     Expenses ($
                  Issuer                       ($ mil)          (yrs)           mil)            mil)            mil)                  Country
--------------------------------------------------------------------------------------------------------------------------------------------------------
Issuer 1.................................           7,320              25  ..............  ..............  ..............  Angola.
Issuer 2.................................  ..............              20            18.8  ..............  ..............  Angola.
Issuer 3.................................  ..............              21            1853  ..............  ..............  Angola.
Issuer 4.................................             724               4  ..............           322.3  ..............  Angola.
Issuer 5.................................            51.1  ..............  ..............              22  ..............  Cameroon.
Issuer 6.................................  ..............              16  ..............  ..............  ..............  Cameroon.
Issuer 7.................................  ..............  ..............            11.4  ..............  ..............  Angola.
Issuer 8.................................  ..............  ..............  ..............            66.2              14  Angola.
Issuer 9.................................            91.7  ..............  ..............            78.8  ..............  Qatar.

Issuer 10................................           364.7  ..............  ..............           158.1  ..............  Qatar.
Issuer 11................................             2.8  ..............  ..............             2.7  ..............  Qatar.
Issuer 12................................            86.1  ..............  ..............            27.1  ..............  Angola.
Issuer 13................................             722              25  ..............  ..............  ..............  Qatar.
Issuer 14................................  ..............  ..............            0.33  ..............  ..............  China.
Issuer 15................................  ..............              23  ..............  ..............  ..............  China.
Issuer 16................................             155  ..............              59              45  ..............  China.
Issuer 17................................           261.5  ..............  ..............  ..............  ..............  China.
Issuer 18................................  ..............  ..............  ..............             2.1            11.7  China.
Issuer 19................................           605.2  ..............  ..............           177.6  ..............  China.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    From the issuers with information on projects in Angola, Cameroon,
China, or Qatar, we select Issuer 1's and Issuer 4's Angola projects
and Issuer 13's Qatar project because they reported data on both the
firm assets involved in the projects in these countries and the terms
of these projects. Other issuers reported some relevant information,
but not enough, in our opinion, to meaningfully evaluate the cash flows
of their projects. We supplemented the Angola data for the two issuers
with firm financial information for the 2008 and 2009 fiscal years from
Compustat. In addition, we obtained Issuer 1's and Issuer 13's
weighted-average cost of capital (WACC) from Bloomberg, although data
was not available on Issuer 4's WACC.\629\ Instead, we assumed for
these purposes it has a similar WACC as another issuer of a similar
size for which WACC was available from Bloomberg. We assume that the
purchasing power parity holds and thus use the U.S. inflation rate for
2009 as a constant growth rate for the projects' cash flows.\630\
---------------------------------------------------------------------------

    \629\ In 2011, Issuer 4 was acquired by another issuer.
    \630\ Data on the U.S. inflation rate is obtained from the
Bureau of Labor Statistics.
---------------------------------------------------------------------------

    In the table below we estimate the cash flows of Issuer 1's and
Issuer 4's Angola projects and Issuer 13's Qatar project using a
standard valuation methodology--the present value of discounted cash
flows--and assuming a corporate tax rate of 30% for all three issuers.
For Issuer 1, we estimate that a termination of its projects in Angola
would result in lost cash flows of approximately $12 billion. For
Issuer 4, the loss would be approximately $119 million. For Issuer 13,
the loss would be approximately $392 million.

----------------------------------------------------------------------------------------------------------------
  Financial information FY2009  ($
                mil)                    Issuer 1        Issuer 4        Issuer 13            Calculation
----------------------------------------------------------------------------------------------------------------
Earnings before interest and taxes           26,239             469           3,689  ...........................
 (EBIT).
Depreciation/Amortization..........          11,917             159             830  ...........................
Change in deferred taxes...........          -1,472             -59               0  ...........................
Capital expenditures...............          17,770             301           1,914  NetPP&E2009-Net PP&E2008
Change in working capital..........         -19,992            -188             277  Working capital = Current
                                                                                assets - Current
                                                                                liabilities.
Tax rate (%).......................             30%             30%             30%  ...........................
Company free cash flow (FCF).......          31,034             314           1,221  EBIT*(1 - tax rate) +
                                                                                Depreciation/Amortization
                                                                                + Change in Deferred taxes
                                                                                - Capital Expenditures -
                                                                                Change in Working Capital.
Firm total assets..................         233,323           6,143          19,393  ...........................
Angola/Qatar total assets..........           7,320             724             722  ...........................
Angola/Qatar FCF...................             974              37              45  Company FCF*(Angola or
                                                                                Qatar TA/Firm TA).
Term of Angola/Qatar project                     25               4              25  ...........................
 (years).
Company cost of capital (WACC).....            0.09          0.1098          0.1329  ...........................
U.S. 2009 inflation rate (i).......           0.027           0.027           0.027  ...........................
Present value of Angola/Qatar FCFs.          11,966             119             392  Angola or Qatar FCF * [1/
                                                                                (WACC - i) - (1+ i)
                                                                                [supcaret] term of project/
                                                                                (WACC - i)*(WACC + 1)
                                                                                [supcaret] term of
                                                                                project].
----------------------------------------------------------------------------------------------------------------

    Even though our analysis was limited to just three issuers, these
estimates suggest commentators' concerns that the impact of such host
country laws could add billions of dollars of costs to affected
issuers, and hence have a significant impact on their profitability and
competitive position, appear warranted. The assumption underlying these
estimates is that each firm either sells its assets in that particular
country at their accounting value or holds on to them but does not use
them in other projects. The losses could be larger than the estimates
in the table above if these firms are forced to sell their assets in
the above-mentioned host countries at fire sale prices. In that case,
the price discount will add to the loss of cash flows. While we do not
have data on fire sale prices for the industries of the affected
issuers, financial studies on other industries could provide some
estimates. For example, a study on the airline industry \631\ finds
that planes sold by financially distressed airlines bring 10 to 20
percent lower prices than those sold by undistressed airlines. If we
apply those percentages to the accounting value of the three issuers'
assets in these host countries, this would add hundreds of millions of
dollars to their potential losses. These costs also could be
significantly higher than our estimates if we allow the cash

flows of the project to grow annually at a rate higher than the rate of
inflation.
---------------------------------------------------------------------------

    \631\ See Todd Pulvino 1998. ``Do Fire-Sales Exist? An Empirical
Study of Commercial Aircraft Transactions.'' Journal of Finance,
53(3): 939-78.
---------------------------------------------------------------------------

    Alternatively, a firm could redeploy these assets to other projects
that would generate cash flows. If a firm could redeploy these assets
relatively quickly and without a significant cost to projects that
generate similar rates of returns as those in the above-mentioned
countries, then the firm's loss from the presence of such host country
laws would be minimal. The more difficult and costly it is for a firm
to do so, and the more difficult it is to find other projects with
similar rates of return, the larger the losses of the firm would be.
Unfortunately, we do not have enough data to quantify more precisely
the potential losses of firms under those various circumstances.
Likewise, if the firm could sell those assets to a buyer (e.g., a non-
reporting issuer) that would use them for similar projects in the host
country or elsewhere, then the buyer would likely pay the fair market
value for those assets, resulting in minimal to no loss for the firm.
    Overall, the results of our analysis concur with commentators that
the presence of host country laws that prohibit the type of disclosure
required under the final rules could be very costly. The size of the
potential loss to issuers will depend on the presence of other similar
opportunities, third parties willing to buy the assets at fair-market
values in the above-mentioned host countries, and the ability of
issuers to avoid fire sale of these assets.
    As noted above, we considered alternatives to the approach we are
adopting in the final rules, including providing certain exemptions
from the disclosure requirements mandated by Section 13(q), but we
believe that adopting any of the alternatives would be inconsistent
with Section 13(q) and would undermine Congress' intent to promote
international transparency efforts. To faithfully effectuate
Congressional intent, we do not believe it would be appropriate to
adopt provisions that would frustrate, or otherwise be inconsistent
with, such intent. Consequently, we believe the competitive burdens
arising from the need to make the required disclosures under the final
rules are necessary by the terms of, and in furtherance of the purposes
of, Section 13(q).
    A number of factors may serve to mitigate the competitive burdens
arising from the required disclosure. We note there were differences in
opinion among commentators as to the applicability of host country
laws.\632\ Moreover, the widening global influence of the EITI and the
recent trend of other jurisdictions to promote transparency, including
listing requirements adopted by the Hong Kong Stock Exchange and
proposed directives of the European Commission, may discourage
governments in resource-rich countries from adopting new prohibitions
on payment disclosure.\633\ Reporting companies concerned that
disclosure required by Section 13(q) may be prohibited in a given host
country may also be able to seek authorization from the host country in
order to disclose such information, reducing the cost to such reporting
companies resulting from the failure of Section 13(q) to include an
exemption for conflicts with host country laws.\634\
---------------------------------------------------------------------------

    \632\ See note 84 and accompanying text.
    \633\ See notes 15 and 48 and accompanying text.
    \634\ See note 584.
---------------------------------------------------------------------------

IV. Paperwork Reduction Act

A. Background

    Certain provisions of the final rules contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\635\ We published a notice requesting
comment on the collection of information requirements in the Proposing
Release for the rule amendments. An agency may not conduct or sponsor,
and a person is not required to comply with, a collection of
information unless it displays a currently valid control number. The
title for the collection of information is:
---------------------------------------------------------------------------

    \635\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

     ``Form SD'' (a new collection of information).\636\
---------------------------------------------------------------------------

    \636\ As previously noted, in another release we are issuing
today, we are adopting rules to implement the requirements of
Section 1502 of the Dodd-Frank Act and requiring issuers subject to
those requirements to file the disclosure on Form SD. See note 30
and accompanying text (referencing the Conflict Minerals Adopting
Release, Release 34-67716 (August 22, 2012).
---------------------------------------------------------------------------

    We are amending Form SD to contain disclosures required by Rule
13q-1, which will require resource extraction issuers to disclose
information about payments made by the issuer, a subsidiary of the
issuer, or an entity under the control of the issuer to foreign
governments or the U.S. Federal Government for the purpose of the
commercial development of oil, natural gas, or minerals. Form SD will
be filed on EDGAR with the Commission.\637\
---------------------------------------------------------------------------

    \637\ The information required by Rule 13q-1 and Form SD is
similar to the information that would have been required under the
proposal in Forms 10-K, 20-F, or 40-F and Item 105 of Regulation S-
K. We do not believe that requiring the information to be filed in a
Form SD, rather than furnishing it in an issuer's Exchange Act
annual reports, will affect the burden estimate.
---------------------------------------------------------------------------

    The new rules and amendment to the form implement Section 13(q) of
the Exchange Act, which was added by Section 1504 of the Act. Section
13(q) requires the Commission to ``issue final rules that require each
resource extraction issuer to include in an annual report of the
resource extraction issuer information relating to any payment made by
the resource extraction issuer, a subsidiary of the resource extraction
issuer, or an entity under the control of the resource extraction
issuer to a foreign government or the Federal Government for the
purpose of the commercial development of oil, natural gas, or minerals,
including--(i) the type and total amount of such payments made for each
project of the resource extraction issuer relating to the commercial
development of oil, natural gas, or minerals, and (ii) the type and
total amount of such payments made to each government.'' \638\ Section
13(q) also mandates the submission of the payment information in an
interactive data format, and provides the Commission with the
discretion to determine the applicable interactive data standard.\639\
We are adopting the requirement regarding the presentation of the
mandated payment information substantially as proposed, except that a
resource extraction issuer will be required to present the mandated
payment information in only one exhibit to new Form SD instead of two
exhibits, as proposed. We have decided to require only one exhibit
formatted in XBRL because we believe that we can achieve the goal of
the dual presentation with only one exhibit. The disclosure
requirements apply equally to U.S. issuers and foreign issuers meeting
the definition of a resource extraction issuer. As discussed in detail
above, in adopting the final rules, we have made significant changes to
the rules that were proposed.
---------------------------------------------------------------------------

    \638\ 15 U.S.C. 78m(q)(2)(A).
    \639\ 15 U.S.C. 78m(q)(2)(C) and (D).
---------------------------------------------------------------------------

    Compliance with the rules by affected issuers is mandatory.
Responses to the information collections will not be kept confidential
and there is no mandatory retention period for the collection of
information.

B. Summary of the Comment Letters

    As proposed, the required disclosure would have been included in a
resource extraction issuer's Form 10-K, Form 20-F, or Form 40-F, as
appropriate. We estimated in the Proposing Release the number of
issuers filing each of the forms that would likely be resource
extraction issuers totaled 1,101

issuers.\640\ We estimated the total annual increase in the paperwork
burden for all affected companies to comply with our proposed
collection of information requirements to be approximately 52,932 hours
of company personnel time and approximately $11,857,200 for the
services of outside professionals. We also estimated in the Proposing
Release that the annual incremental paperwork burden for each of Form
10-K, Form 20-F, and Form 40-F would be 75 burden hours per affected
form.\641\
---------------------------------------------------------------------------

    \640\ For purposes of the PRA, we estimated that the number of
resource extraction issuers that would annually file Form 10-K would
be approximately 861, the number of such issuers that would annually
file Form 20-F would be approximately 166, and the number of such
issuers that would annually file Form 40-F would be approximately
74. We derived these estimates by determining the number of issuers
that fall under SIC codes that pertain to oil, natural gas, and
mining companies and, thus, are most likely to be resource
extraction issuers. The estimate for Form 10-K was derived by
subtracting from the total number of resource extraction issuers the
number of issuers that file annual reports on Form 20-F and Form 40-
F.
    \641\ In estimating 75 burden hours, we looked to the burden
hours associated with the disclosure required by the oil and gas
rules adopted in 2008, which estimated an increase of 100 hours for
domestic issuers and 150 hours for foreign private issuers.
---------------------------------------------------------------------------

    In the Proposing Release we requested comment on the PRA analysis.
We received ten comment letters that addressed PRA-related costs
specifically; \642\ we also received a number of comment letters that
discussed the costs and burdens to issuers generally that we considered
in connection with our PRA analysis.\643\ Section III.B.2 contains a
detailed summary of these comments. As described above, some
commentators disagreed with our industry-wide estimate of the total
annual increase in the paperwork burden and argued that it
underestimated the actual costs that would be associated with the
rules.\644\ Some commentators also stated that, depending upon the
final rules adopted, the compliance burdens and costs caused by
implementation and ongoing compliance with the rules would be
significantly greater than those estimated by the Commission.\645\
---------------------------------------------------------------------------

    \642\ See letters from API 1, API 2, Barrick Gold, ERI 2,
ExxonMobil 1, ExxonMobil 3, NMA 2, Rio Tinto, RDS 1, and RDS 4.
    \643\ See letters from BP 1, Chamber Energy Institute, Chevron,
Cleary, Hermes, and PWYP 1.
    \644\ See letters from API 1 and ExxonMobil 1.
    \645\ See letters from API 1, Barrick Gold, ExxonMobil 1, NMA 2,
Rio Tinto, and RDS 1.
---------------------------------------------------------------------------

    We note that commentators did not object, or suggest alternatives,
to our estimate of the number of issuers who would be subject to the
proposed rules. As discussed below, we have made several changes to our
estimates in response to comments on the estimates contained in the
Proposing Release that are designed to better reflect the burdens
associated with the new collection of information.

C. Revisions to PRA Reporting and Cost Burden Estimates

    After considering the comments, and the changes we are making from
the proposal, we have revised our PRA estimates for the final rules. As
discussed above, we are adopting new Rule 13q-1 and an amendment to new
Form SD to require resource extraction issuers to disclose the required
payment information in a new form rather than including the disclosure
requirements in existing Exchange Act annual reports. As described
above, Rule 13q-1 requires resource extraction issuers to file the
payment information required in Form SD. The collection of information
requirements are reflected in the burden hours estimated for Form SD.
Therefore, Rule 13q-1 does not impose any separate burden.
    For purposes of the PRA, we continue to estimate that 1,101 issuers
will be subject to Rule 13q-1. We have derived our burden estimates by
estimating the average number of hours it would take an issuer to
prepare and file the required disclosure. In deriving our estimates, we
recognize that the burdens will likely vary among individual issuers
based on a number of factors, including the size and complexity of
their operations. We believe that some issuers will experience costs in
excess of this average in the first year of compliance with the rules,
and some issuers may experience less than these average costs. When
determining these estimates, we have assumed that 75% of the burden of
preparation is carried by the issuer internally and 25% of the burden
of preparation is carried by outside professionals retained by the
issuer at an average cost of $400 per hour.\646\ The portion of the
burden carried by outside professionals is reflected as a cost, while
the portion of the burden carried by the issuer internally is reflected
in hours. As discussed above, we received estimates from some
commentators expressed in burden hours and estimates from other
commentators expressed in dollar costs. For purposes of this analysis
and consistent with our approach with respect to the estimates provided
in burden hours, we assume 25% of the dollar costs provided by
commentators relate to costs for outside professionals.\647\ We expect
that the rules' effect will be greatest during the first year of their
effectiveness and diminish in subsequent years. To account for this
expected diminishing burden, we believe a three-year average of the
expected burden during the first year with the expected ongoing burden
during the next two years is a reasonable estimate. After considering
the comments we received, we are revising our estimate of the PRA
compliance burden hours and costs associated with the disclosure
requirements.\648\
---------------------------------------------------------------------------

    \646\ We recognize that the costs of retaining outside
professionals may vary depending on the nature of the professional
services, but for purposes of this PRA analysis we estimate that
such costs would be an average of $400 per hour. This is the rate we
typically estimate for outside legal services used in connection
with public company reporting. We note that no commentators provided
us with an alternative rate estimate for these purposes.
    \647\ The comment letters providing dollar estimates did not
explain how they arrived at such estimates, or provide any
calculations as to the cost per hour. As such, we have included 25%
of the dollar cost estimate in our calculation of costs of outside
professionals, but we were not provided with sufficient data to
convert commentators' dollar cost estimates into burden hour
estimates.
    \648\ Although the comments we received with respect to our PRA
estimates related to the proposal to include the disclosure
requirements in Forms 10-K, 20-F, and 40-F, we have considered these
estimates in arriving at our estimate for Form SD because, although
the disclosures will be provided pursuant to a new rule and in a new
form, the disclosure requirements themselves are generally not
impacted by moving the disclosure to a different form. In the
Proposing Release we requested comment on whether the required
disclosure should be provided in a new form. We believe that any
additional burden created by the use of a new form, rather than
existing annual reports, will be minimal. See also letters from API
1 and Cleary.
---------------------------------------------------------------------------

    In arriving at our initial estimate in the Proposing Release we
looked to the burden hours associated with the disclosure required by
the oil and gas rules adopted in 2008, and estimated that the burden
would be less based on our belief that the disclosure required by the
proposed rules was less extensive than the oil and gas rules adopted in
2008. As discussed above, some commentators believed that our initial
estimates did not adequately reflect the actual burden associated with
complying with the proposed disclosure requirements.\649\ Based on the
comments we received, we have increased our estimate of the total
annual compliance burden for all affected issuers to comply with the
collection of information in our final rules to be approximately
332,123 hours of company personnel time and approximately $144,967,250
for the services of outside professionals, as discussed in detail
below.
---------------------------------------------------------------------------

    \649\ See notes 526 and 527 and accompanying text.
---------------------------------------------------------------------------

    Some commentators estimated implementation costs of tens of
millions

of dollars for large filers, and millions of dollars for smaller
filers.\650\ These commentators did not describe how they defined
``small'' and ``large'' filers. One commentator provided an estimate of
$50 million in implementation costs if the definition of ``project'' is
narrow and the level of disaggregation is high across other reporting
parameters, though it did not provide alternate estimates for different
definitions of ``project,'' leaving project undefined, or different
levels of disaggregation.\651\ We note that the commentator that
provided this estimate is among the largest 20 oil and gas companies in
the world,\652\ and we believe that the estimate it provided may be
representative of the costs to companies of similar large size, though
it is likely not a representative estimate of the burden for resource
extraction issuers that are smaller than this commentator. While we
received estimates for smaller filers and an estimate for one of the
largest filers, we did not receive data on companies of varying sizes
in between the two extremes.
---------------------------------------------------------------------------

    \650\ See letters from API 1 and ExxonMobil 1.
    \651\ See letter from ExxonMobil 1. Although the rules we are
adopting differ from the assumptions made by the commentator, we do
not believe we have a basis for deriving a different estimate.
    \652\ See letter from API (October 12, 2010) (pre-proposal
letter) (ranking the 75 largest oil and gas companies by reserves
and production).
---------------------------------------------------------------------------

    Similar to our economic analysis above, to account for the range of
issuers who will be subject to the final rules, for purposes of this
analysis, we have used the cost estimates provided by these issuers to
calculate different cost estimates for issuers of different sizes based
on either assets or market capitalization. We have estimated costs for
small issuers (issuers with less than $75 million in market
capitalization) and larger issuers (issuers with $75 million or more in
market capitalization). We believe that initial implementation costs
will be lowest for the smallest issuers and incrementally greater for
larger issuers. Based on a review of market capitalization data of
Exchange Act registrants filing under certain Standard Industry
Classification codes, we estimate that there are approximately 699
small issuers and 402 large issuers.
    We use Method 2 from our Economic Analysis above \653\ for our
estimate of total compliance burden. Barrick Gold's estimate \654\ of
1,000 hours for compliance (500 hours for initial changes to internal
books and records and 500 hours for initial compliance) is the starting
point of the analysis.\655\ Barrick Gold is a large accelerated filer,
so we use 1,000 hours as the burden estimate for large issuers. In
order to determine the number of hours for a small issuer, we scale
Barrick Gold's estimate of the number of hours by the relative size of
a small issuer. In the Economic Analysis above, the ratio of all small
issuer total assets, $353 billion ($509,000,000 x 63% x 1,101), to all
large issuer total assets, $1,835 billion ($4,504,000,000 x 37% x
1,101), is 19%. In order to be conservative, rather than using 19%, we
estimate that the number of burden hours for small issuers will be 25%
of the burden hours of large issuers, resulting in 250 hours.
---------------------------------------------------------------------------

    \653\ Method 2 estimates compliance costs separately for small
and large issuers. See Section III.D. above. Because 63% of the
issuers estimated to be subject to the final rules are small
issuers, we believe that, for PRA purposes, Method 2 provides for a
more accurate assessment of Form SD's compliance costs than Method
1, which is based on deriving an average of costs.
    \654\ We use Barrick Gold's estimate because it is the only
commentator that provided a number of hours and dollar value
estimates for initial and ongoing compliance costs. Although in the
Economic Analysis section we used ExxonMobil's dollar value estimate
to calculate an upper bound of compliance costs, we are unable to
calculate the number of burden hours for purposes of the PRA
analysis using ExxonMobil's inputs.
    \655\ As noted above, the costs for PRA purposes are only a
portion of the costs associated with complying with the final rules.
---------------------------------------------------------------------------

    We received comments and estimates on the PRA analysis both in
hours necessary to comply with the rules and dollar costs of
compliance, as discussed above. In the Economic Analysis above, we
assume that the commentators' estimates represent total implementation
costs, including both internal costs and outside professional costs.
For purposes of this PRA analysis, we assume, as we have throughout the
analysis, that 25% of this burden of preparation represents the cost of
outside professionals.
    We believe that the burden associated with this collection of
information will be greatest during the implementation period to
account for initial set up costs, but that ongoing compliance costs
will be less than during the initial implementation period once
companies have made any necessary modifications to their systems to
capture and report the information required by the rules. Two
commentators provided estimates of ongoing compliance costs: Rio Tinto
provided an estimate of 5,000-10,000 burden hours for ongoing
compliance,\656\ while Barrick Gold provided an estimate of 500 burden
hours for ongoing compliance. Based on market capitalization data, Rio
Tinto is among the top five percent of resource extraction issuers that
are Exchange Act reporting companies. We believe that, because of the
size of this commentator, the estimate it provided may be
representative of the burden for resource extraction issuers of a
similar size, but may not be a representative estimate for resource
extraction issuers that are smaller than this commentator. We believe
that Barrick Gold is more similar to the average large issuer than Rio
Tinto, and as such, we believe that Barrick Gold's estimate is a
conservative estimate of the ongoing compliance burden hours because a
comparison of the average total assets of a large issuer to Barrick
Gold's total assets is 18% ($4,504,000,000/$25,075,000,000).\657\ As
discussed above, commentators' estimates on the burdens associated with
initial implementation and ongoing compliance varied widely, with
commentators noting that the estimates varied based on the size of
issuer.\658\ We note that some estimates may reflect the burden to a
particular commentator, and, as such, may not be a representative
estimate of the burden for resource extraction issuers that are smaller
or larger than the particular commentator.\659\ Accordingly, we have
revised our estimate using an average of the figures provided to
produce a reasonable estimate of the potential burden associated with
the rules, recognizing they would apply to resource extraction issuers
of different sizes. We are using 500 burden hours (Barrick Gold's
estimate) for our estimate of ongoing compliance costs for large
issuers and 125 (25% x 500) for small issuers. Thus, we estimate that
the incremental collection of information burden associated with the
final rules and form amendment will be 667 burden hours per large
respondent [(1,000 + 500 + 500)/3 years] and 250 per small respondent
[(500 + 125 +125)/3 years]. We estimate the final rules and form
amendment will result in an internal burden to small resource
extraction issuers of 131,063 hours (699 forms x 250 hours/form x .75)
and to large resource extraction issuers of

201,101 hours (402 forms x 667 hours/form x .75) for a total
incremental company burden of 332,164 hours. Outside professional costs
will be $17,475,000 (699 forms x 250 hours/form x .25 x $400) for small
resource extraction issuers and $26,813,400 (402 forms x 667 hours/form
x .25 x $400). As discussed above, one commentator, Barrick Gold,
indicated that its initial compliance costs also would include $100,000
for IT consulting, training, and travel costs. To account for these
costs, we have used Barrick Gold's estimate and applied the same 25%
factor to derive estimated IT costs of $100,000 for large issuers and
$25,000 for small issuers. Thus, we estimate total IT compliance costs
for small issuers to be $17,475,000 (699 issuers x $25,000) and for
large issuers to be $40,200,000 (402 issuers x $100,000). We have added
the estimated IT compliance costs to the cost estimates for other
professional costs discussed above to derive total professional costs
of $34,950,000 for small issuers and $67,013,400 for large issuers. The
estimated overall professional cost for PRA purposes is $101,963,400.
---------------------------------------------------------------------------

    \656\ See letter from Rio Tinto. This commentator estimated 100-
200 hours of work at the head office, an additional 100-200 hours of
work providing support to its business units, and a total of 4,800-
9,600 hours by its business units. We arrived at the estimated range
of 5,000-10,000 hours by adding the estimates provided by this
commentator (100 + 100 + 4,800 = 5,000, and 200 + 200 + 9,600 =
10,000).
    \657\ The average large issuer's total assets compared to Rio
Tinto's total assets ($97 billion) is 4.5%. See note 625 for an
explanation of the average large issuer's total assets.
    \658\ See letter from API 1 (estimating implementation costs in
the tens of millions of dollars for large filers and millions of
dollars for many smaller filers). This commentator did not explain
how it defined small and large filers.
    \659\ We note, for example, one commentator's letter indicating
that it had approximately 120 operating entities. See letter from
Rio Tinto.
---------------------------------------------------------------------------

D. Revised PRA Estimate

    The table below illustrates the annual compliance burden of the
Form SD collection of information.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Increase in                          Total increase
              Issuer size                Annual responses     Incremental        Increase in        professional      Increase in IT    professional and
                                                           burden hours/form     burden hours          costs           costs/issuer         IT costs
                                                      (A)                (B)   (C) = (A*B)*0.75                (D)                (E)    (F) = (D) + (E)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small.................................                699                250            131,063        $17,475,000        $17,475,000        $34,950,000
Large.................................                402                667            201,101         26,813,400         40,200,000         67,013,400
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................              1,101  .................            332,164  .................  .................        101,963,400
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Our PRA estimate is within the range of our estimates in the
Economic Analysis section above.\660\
---------------------------------------------------------------------------

    \660\ Despite using Barrick Gold's estimate, our revised
estimate of PRA professional costs of $101,963,400 is higher than
the lower bound of compliance costs ($43,757,043) estimated under
Method 2 in the Economic Analysis section, which is also based on
Barrick Gold's estimate. This is mainly because we estimate the PRA
costs as fixed costs for smaller and larger issuers, whereas in the
Economic Analysis section, because of the nature of the data
provided by commentators, we estimate the total compliance costs as
variable costs.
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V. Final Regulatory Flexibility Act Analysis

    This Final Regulatory Flexibility Act Analysis (``FRFA'') has been
prepared in accordance with the Regulatory Flexibility Act.\661\ This
FRFA relates to the final rules we are adopting to implement Section
13(q) of the Exchange Act, which concerns certain disclosure
obligations of resource extraction issuers. As defined by Section
13(q), a resource extraction issuer is an issuer that is required to
file an annual report with the Commission, and engages in the
commercial development of oil, natural gas, or minerals.
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    \661\ 5 U.S.C. 601.
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A. Reasons for, and Objectives of, the Final Rules

    The final rules are designed to implement the requirements of
Section 13(q) of the Exchange Act, which was added by Section 1504 of
the Dodd-Frank Act. Specifically, the new rule and form amendment will
require a resource extraction issuer to disclose in an annual report
certain information relating to payments made by the issuer, a
subsidiary of the issuer, or an entity under the control of the issuer
to a foreign government or the United States Federal Government for the
purpose of the commercial development of oil, natural gas, or minerals.
A resource extraction issuer will have to disclose the required payment
information annually in new Form SD and include an exhibit with the
required payment information formatted in XBRL.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on any aspect of the
Initial Regulatory Flexibility Act Analysis (``IRFA''), including the
number of small entities that would be affected by the proposed rules,
the nature of the impact, how to quantify the number of small entities
that would be affected, and how to quantify the impact of the proposed
rules. We did not receive comments specifically addressing the IRFA;
however, several commentators addressed aspects of the proposed rules
that could potentially affect small entities. Some commentators
supported an exemption for a ``small entity'' or ``small business''
having $5 million or less in assets on the last day of its most
recently completed fiscal year.\662\ Other commentators opposed an
exemption for small entities and other smaller companies. Those
commentators noted that, while smaller companies have more limited
operations and projects, and therefore fewer payments to disclose as
compared to larger companies, they generally take on greater risks due
to the nature of their operations.\663\
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    \662\ See letters from API 1, Chevron, ExxonMobil 1, and RDS 1.
    \663\ See letters from Calvert, Global Witness 1, Oxfam 1, PWYP
1, Sen. Cardin et al. 1, and Soros 1.
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C. Small Entities Subject to the Final Rules

    The final rules will affect small entities that are required to
file an annual report with the Commission under Section 13(a) or
Section 15(d) of the Exchange Act, and are engaged in the commercial
development of oil, natural gas, or minerals. Exchange Act Rule 0-10(a)
\664\ defines an issuer to be a ``small business'' or ``small
organization'' for purposes of the Regulatory Flexibility Act if it had
total assets of $5 million or less on the last day of its most recent
fiscal year. We believe that the final rules will affect some small
entities that meet the definition of resource extraction issuer under
Section 13(q). Based on a review of total assets for Exchange Act
registrants filing under certain Standard Industry Classification
codes, we estimate that approximately 196 oil, natural gas, and mining
companies are resource extraction issuers and that may be considered
small entities.
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    \664\ 17 CFR 240.0-10(a).
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D. Reporting, Recordkeeping, and Other Compliance Requirements

    The final rules will add to the annual disclosure requirements of
companies meeting the definition of resource extraction issuer,
including small entities, by requiring them to file the payment
disclosure mandated by Section 13(q) and the rules issued thereunder in
new Form SD. The disclosure must include:

     the type and total amount of payments made for each
project of the issuer relating to the commercial development of oil,
natural gas, or minerals; and
     The type and total amount of those payments made to each
government.
    A resource extraction issuer must provide the required disclosure
in Form SD and in an exhibit formatted in XBRL. Consistent with the
statute, the rules require an issuer to submit the payment information
using electronic tags that identify, for any payments made by a
resource extraction issuer to a foreign government or the U.S. Federal
Government:
     The total amounts of the payments, by category;
     The currency used to make the payments;
     The financial period in which the payments were made;
     The business segment of the resource extraction issuer
that made the payments;
     The government that received the payments, and the country
in which the government is located; and
     The project of the resource extraction issuer to which the
payments relate.

In addition, a resource extraction issuer will be required to provide
the type and total amount of payments made for each project and the
type and total amount of payments made to each government in XBRL
format. The disclosure requirements will apply equally to U.S. and
foreign resource extraction issuers.

E. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs us to consider significant
alternatives that would accomplish the stated objectives, while
minimizing any significant adverse impact on small entities. In
connection with adopting the final rules, we considered, as
alternatives, establishing different compliance or reporting
requirements that take into account the resources available to smaller
entities, exempting smaller entities from coverage of the disclosure
requirements, and clarifying, consolidating, or simplifying disclosure
for small entities.
    The final rules are designed to implement the payment disclosure
requirements of Section 13(q), which applies to resource extraction
issuers regardless of size. While a few commentators supported an
exemption from the disclosure requirements for small entities,\665\
numerous other commentators opposed exempting small entities because
that would be inconsistent with the statute and would contravene
Congress' intent of creating a level playing field for all affected
issuers.\666\ We do not believe that exempting resource extraction
issuers that are small entities, many of which are mining companies
engaged in exploration activities that require payments to
governments,\667\ or adopting different disclosure requirements or
additional delayed compliance for small entities, would be consistent
with the statutory purpose of Section 13(q). For example, we do not
believe that adopting rules permitting small entities to disclose
payments at the country level would be consistent with the statutory
purpose of Section 13(q). The statute is designed to enhance the
transparency of payments by resource extraction issuers to governments.
Adoption of different disclosure requirements for small entities would
impede the transparency and comparability of the disclosure mandated by
Section 13(q). In addition, it is not clear that adopting different
standards or a delayed compliance date would provide small entities
with a significant benefit. For example, small entities may have a
limited number of projects in a limited number of countries and in some
cases small entities may have only one project in a country.
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    \665\ See note 42 and accompanying text.
    \666\ See note 34 and accompanying text.
    \667\ See letters from Calvert and PWYP 1.
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    We also have considered the alternative of using performance
standards rather than design standards. We generally have used design
rather than performance standards in connection with the final rules
because we believe the statutory language, which requires the
electronic tagging of specific items, contemplates the adoption of
specific disclosure requirements. We further believe the final rules
will be more useful to users of the information if there are specific
disclosure requirements. Such requirements will help to promote
transparent and comparable disclosure among all resource extraction
issuers, which should help further the statutory goal of promoting
international transparency of payments to governments. At the same
time, we have determined to leave the term ``project'' undefined to
give issuers flexibility in applying the term to different business
contexts depending on factors such as the particular industry or
business in which the issuer operates, or the issuer's size.

VI. Statutory Authority and Text of Final Rule and Form Amendments

    We are adopting the rule and form amendments contained in this
document under the authority set forth in Sections 3(b), 12, 13, 15,
23(a), and 36 the Exchange Act.

List of Subjects in 17 CFR Parts 240 and 249b

    Reporting and recordkeeping requirements, Securities.

    In accordance with the foregoing, we are amending Title 17, Chapter
II of the Code of Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
1. The authority citation for part 240 is amended by adding an
authority for Sec.  240.13q-1 in numerical order to read as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78p, 78q,
78s, 78u-5, 78w, 78x, 78dd(b), 78dd(c), 78ll, 78mm, 80a-20, 80a-23,
80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq. and 8302; 18
U.S.C. 1350; 12 U.S.C. 5221(e)(3); and Pub. L. 111-203, Sec. 712,
124 Stat. 1376, (2010) unless otherwise noted.
* * * * *
    Section 240.13q-1 is also issued under sec. 1504, Pub. L. 111-
203, 124 Stat. 2220.
* * * * *

0
2. Add Sec.  240.13q-1 to read as follows:

Sec.  240.13q-1  Disclosure of payments made by resource extraction
issuers.

    (a) A resource extraction issuer, as defined by paragraph (b) of
this section, shall file a report on Form SD (17 CFR 249b.400) within
the period specified in that Form disclosing the information required
by the applicable items of Form SD as specified in that Form.
    (b) Definitions. For the purpose of this section:
    (1) Resource extraction issuer means an issuer that:
    (i) Is required to file an annual report with the Commission; and
    (ii) Engages in the commercial development of oil, natural gas, or
minerals.
    (2) Commercial development of oil, natural gas, or minerals
includes exploration, extraction, processing, and export of oil,
natural gas, or minerals, or the acquisition of a license for any such
activity.

PART 249b--FURTHER FORMS, SECURITIES EXCHANGE ACT OF 1934

0
3. The authority citation for part 249b is amended by adding an
authority for Sec.  249b.400 to read as follows:

    Authority: 15 U.S.C. 78a et seq., unless otherwise noted.
* * * * *
    Section 249b.400 is also issued under secs. 1502 and 1504, Pub.
L. No. 111-203, 124 Stat. 2213 and 2220.
* * * * *

0
4. Amend Sec.  249b.400 by:
0
a. Designating the existing text as paragraph (a); and
0
b. Adding paragraph (b).
    The addition reads as follows:

Sec.  249b.400  Form SD, Specialized Disclosure Report

    (a) * * *
    (b) This Form shall be filed pursuant to Rule 13q-1 (Sec.  240.13q-
1) of this chapter by resource extraction issuers that are required to
disclose the information required by Section 13(q) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(q)) and Rule 13q-1 of this chapter.

0
5. Amend Form SD (as referenced in Sec.  249b.400) by:
0
a. Adding a check box for Rule 13q-1;
0
c. Revising instruction A. under ``General Instructions'';
0
d. Redesignating instruction B.2. as B.3 and adding new instructions
B.2. and B.4. under the ``General Instructions''; and
0
e. Redesignating Section 2 as Section 3, adding new Section 2, and
revising newly redesignated Section 3 under the ``Information to be
Included in the Report''.
    The addition and revision read as follows:

    Note: The text of Form SD does not, and this amendment will not,
appear in the Code of Federal Regulations.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM SD
Specialized Disclosure Report
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(Exact name of the registrant as specified in its charter)
-----------------------------------------------------------------------

(State or other jurisdiction of incorporation)
-----------------------------------------------------------------------

(Commission file number)
-----------------------------------------------------------------------

(Address of principle executive offices)
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(Zip code)
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(Name and telephone number, including area code, of the person to
contact in connection with this report.)
    Check the appropriate box to indicate the rule pursuant to which
this form is being filed:
    ---- Rule 13p-1 under the Securities Exchange Act (17 CFR 240.13p-
1) for the reporting period from January 1 to December 31,--------.
    ---- Rule 13q-1 under the Securities Exchange Act (17 CFR 240.13q-
1) for the fiscal year ended--------.

GENERAL INSTRUCTIONS

A. Rule as to Use of Form SD.

    This form shall be used for a report pursuant to Rule 13p-1 (17 CFR
240.13p-1) and Rule 13q-1 (17 CFR 240.13q-1) under the Exchange Act.

B. Information to be Reported and Time for Filing of Reports.

    1. * * *
    2. Form filed under Rule 13q-1. File the information required by
Section 2 of this Form on EDGAR no later than 150 days after the end of
the issuer's most recent fiscal year.
    3. If the deadline for filing this form occurs on a Saturday,
Sunday or holiday on which the Commission is not open for business,
then the deadline shall be the next business day.
    4. The information and documents filed in this report shall not be
deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, unless the registrant specifically
incorporates it by reference into a filing under the Securities Act or
the Exchange Act.
* * * * *

INFORMATION TO BE INCLUDED IN THE REPORT

* * * * *

Section 2--Resource Extraction Issuer Disclosure

Item 2.01 Disclosure requirements regarding payments to governments

    (a) A resource extraction issuer shall file an annual report on
Form SD with the Commission, and include as an exhibit to this Form SD,
information relating to any payment made during the fiscal year covered
by the annual report by the resource extraction issuer, a subsidiary of
the resource extraction issuer, or an entity under the control of the
resource extraction issuer, to a foreign government or the United
States Federal Government, for the purpose of the commercial
development of oil, natural gas, or minerals. Specifically, a resource
extraction issuer must file the following information in an exhibit to
this Form SD electronically formatted using the eXtensible Business
Reporting Language (XBRL) interactive data standard:
    (1) The type and total amount of such payments made for each
project of the resource extraction issuer relating to the commercial
development of oil, natural gas, or minerals;
    (2) The type and total amount of such payments made to each
government;
    (3) The total amounts of the payments, by category listed in
(c)(6)(iii);
    (4) The currency used to make the payments;
    (5) The financial period in which the payments were made;
    (6) The business segment of the resource extraction issuer that
made the payments;
    (7) The government that received the payments, and the country in
which the government is located; and
    (8) The project of the resource extraction issuer to which the
payments relate.
    (b) Provide a statement in the body of the Form SD that the
specified payment disclosure required by this form is included in an
exhibit to this form.
    (c) For purposes of this item:
    (1) The term commercial development of oil, natural gas, or
minerals includes exploration, extraction, processing, and export of
oil, natural gas, or minerals, or the acquisition of a license for any
such activity.
    (2) The term foreign government means a foreign government, a
department, agency, or instrumentality of a foreign government, or a
company owned by a foreign government. As used in Item 2.01, foreign
government includes a foreign national government as well as a foreign
subnational government, such as the government of a state, province,
county, district, municipality, or territory under a foreign national
government.
    (3) The term financial period means the fiscal year in which the
payment was made.
    (4) The term business segment means a business segment consistent
with the reportable segments used by the resource extraction issuer for
purposes of financial reporting.
    (5) The terms ``subsidiary'' and ``control'' are defined as
provided under Sec.  240.12b-2 of this chapter.
    (6) The term payment means an amount paid that:
    (i) Is made to further the commercial development of oil, natural
gas, or minerals;

    (ii) Is not de minimis; and
    (iii) Includes:
    (A) Taxes;
    (B) Royalties;
    (C) Fees;
    (D) Production entitlements;
    (E) Bonuses;
    (F) Dividends; and
    (G) Payments for infrastructure improvements.
    (7) The term not de minimis means any payment, whether made as a
single payment or a series of related payments, that equals or exceeds
$100,000. In the case of any arrangement providing for periodic
payments or installments, a resource extraction issuer must consider
the aggregate amount of the related periodic payments or installments
of the related payments in determining whether the payment threshold
has been met for that series of payments, and accordingly, whether
disclosure is required.

Instructions

    1. If a resource extraction issuer makes an in-kind payment of the
types of payments required to be disclosed, the issuer must disclose
the payment. When reporting an in-kind payment, an issuer must
determine the monetary value of the in-kind payment and tag the
information as ``in-kind'' for purposes of the currency. For purposes
of the disclosure, an issuer may report the payment at cost, or if cost
is not determinable, fair market value and should provide a brief
description of how the monetary value was calculated.
    2. If a government levies a payment, such as a tax or dividend, at
the entity level rather than on a particular project, a resource
extraction issuer may disclose that payment at the entity level. To the
extent that payments, such as corporate income taxes and dividends, are
made for obligations levied at the entity level, an issuer may omit
certain tags that may be inapplicable (e.g., project tag, business
segment tag) for those payment types as long as it provides all other
electronic tags, including the tag identifying the recipient
government.
    3. An issuer must report the amount of payments made for each
payment type, and the total amount of payments made for each project
and to each government, during the reporting period in either U.S.
dollars or the issuer's reporting currency. If an issuer has made
payments in currencies other than U.S. dollars or its reporting
currency, it may choose to calculate the currency conversion between
the currency in which the payment was made and U.S. dollars or the
issuer's reporting currency, as applicable, in one of three ways: (a)
by translating the expenses at the exchange rate existing at the time
the payment is made; (b) using a weighted average of the exchange rates
during the period; or (c) based on the exchange rate as of the issuer's
fiscal year end. A resource extraction issuer must disclose the method
used to calculate the currency conversion.
    4. A company owned by a foreign government is a company that is at
least majority-owned by a foreign government.
    5. A resource extraction issuer must disclose payments made for
taxes on corporate profits, corporate income, and production.
Disclosure of payments made for taxes levied on consumption, such as
value added taxes, personal income taxes, or sales taxes, is not
required.
    6. As used in Item 2.01(c)(6), fees include license fees, rental
fees, entry fees, and other considerations for licenses or concessions.
Bonuses include signature, discovery, and production bonuses.
    7. A resource extraction issuer generally need not disclose
dividends paid to a government as a common or ordinary shareholder of
the issuer as long as the dividend is paid to the government under the
same terms as other shareholders; however, the issuer will be required
to disclose any dividends paid in lieu of production entitlements or
royalties.
    8. If an issuer meeting the definition of ``resource extraction
issuer'' in Rule 13q-1(b)(1) is a wholly-owned subsidiary of a resource
extraction issuer that has filed a Form SD disclosing the information
required by Item 2.01 for the wholly-owned subsidiary, then such
subsidiary shall not be required to separately file the disclosure
required by Item 2.01. In such circumstances, the wholly-owned
subsidiary would be required to file a notice on Form SD providing an
explanatory note that the required disclosure was filed on Form SD by
the parent and the date the parent filed the disclosure. The reporting
parent company must note that it is filing the required disclosure for
a wholly-owned subsidiary and must identify the subsidiary on Form SD.
For purposes of this instruction, all of the subsidiary's equity
securities must be owned, either directly or indirectly, by a single
person that is a reporting company under the Act that meets the
definition of ``resource extraction issuer.''
    9. Disclosure is required under this paragraph in circumstances in
which an activity related to the commercial development of oil, natural
gas, or minerals, or a payment or series of payments made by a resource
extraction issuer to a foreign government or the U.S. Federal
Government for the purpose of commercial development of oil, natural
gas, or minerals are not, in form or characterization, one of the
categories of activities or payments specified in this section but are
part of a plan or scheme to evade the disclosure required under Section
13(q).

Section 3--Exhibits

Item 3.01 Exhibits

    List below the following exhibits filed as part of this report.
    Exhibit 1.01--Conflict Minerals Report as required by Items 1.01
and 1.02 of this Form.
    Exhibit 2.01--Resource Extraction Issuer Disclosure Report as
required by Item 2.01 of this Form.

SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the duly authorized undersigned.
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(Registrant)

-----------------------------------------------------------------------
By (Signature and Title)*

-----------------------------------------------------------------------
(Date)

    *Print name and title of the registrant's signing executive officer
under his or her signature.
* * * * *

    By the Commission.
     Dated: August 22, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-21155 Filed 9-11-12; 8:45 am]
BILLING CODE P