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The SEC's Extraction Distraction

As noted yesterday, the Securities and Exchange Commission has proposed to amend Form SD to implement Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Because the proposed rules relate to disclosures by resource extraction issuers, the meaning of "extraction" has some importance.  As proposed, Item 2.01(d)(5) of Form SD defines "extraction" as follows:

"Extraction means the production of oil and natural gas as well as the extraction of

There is much fault to find in this definition. 

First, why does the definition use the term "production" in reference to oil and natural gas and the term "extraction"?  Does the SEC assign different meanings to the terms?  If not, why create possible ambiguities by using two different terms?  Elegance of variation may be laudable in literature but it carries no virtue in rulemaking.

Second, the definition is hopelessly circular because it defines "extraction" as "the extraction".  It is generally unhelpful to define a term by the term itself. 

Finally, the definition is ambiguous.  Does "extraction" require all three elements (i.e., the production of oil, the production of natural gas, and the extraction of minerals) or does it require only one of the elements (i.e., production of oil, the production of natural gas, or the extraction of minerals).  While the SEC may have intended the latter, either interpretation is plausible given the definition's syntax.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume IX, Number 365


About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...