Will Oil and Gas Issuers Leave U.S. Equity Markets in Response to Section 1504 of the Dodd-Frank Act? Can They Afford Not to?

Abstract

Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to bring greater transparency to extractive-related payments made to governments by resource extraction issuers required to report to the Securities and Exchange Commission.  It does so by requiring resource extraction issuers to disclose non-de minimus payments made to foreign governments to further the commercial development of oil, natural gas, or minerals.  There is substantial concern among industry participants that companies subject to Section 1504 may be placed at a competitive disadvantage vis-à-vis companies not subject to the reporting requirements.  This Note, focusing on the oil and gas industry, identifies the major companies that will be subject to the regulation, the potential competitive disadvantages that they may face, and whether these companies can credibly threaten to leave U.S. equity markets in response to the regulation.  This Note argues that the failure of Section 1504 to achieve broad coverage of oil and gas companies will place regulated companies at a competitive disadvantage with respect to their unregulated competitors.  This Note analyzes the international stock exchange participation of the top fifty oil and gas companies and finds that, in response to these competitive disadvantages, certain companies may delist from U.S. exchanges.