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.