Canadian and European oil companies will find themselves at a competitive disadvantage to their American rivals if U.S. lawmakers scrap tighter transparency requirements on the industry, as expected, according to company executives, legal experts and trade groups.
The U.S. Senate is poised to overturn the so-called "resource extraction rule", a regulation requiring U.S. natural resources companies to disclose taxes and other payments to foreign governments, in a vote that could come as early as Friday.
The rule is among a handful of regulations ushered in during the final months of Barack Obama's presidency that Republican lawmakers - who now control Congress - have targeted as being overly burdensome and bad for the U.S. economy. Democrats have no way to keep the law in place as Republicans need only a simple majority to kill the measure.
But overturning the regulation, set to take effect next year, would leave Canadian and European natural resource companies with the most-stringent reporting standards in the world for payments to foreign governments - as U.S. behemoths like Exxon Mobil Corp and Chevron Corp get a reprieve.
Certain details of contract negotiations and terms of bids to access reserves are currently required under regulations now in place in both Canada and Europe. Such information could reveal to competitors negotiating tactics and other metrics that many companies consider proprietary, observers say.
"It definitely could put Canada at a disadvantage because we are fairly stringent on our rules, both domestically and internationally, on how our companies operate," said Mark Salkeld, chief executive officer of the Petroleum Services Association of Canada, an industry trade group.
European oil company Royal Dutch Shell Plc, meanwhile, pointed out that a reversal in the United States would go against the broader global trend toward transparency in the notoriously murky industry.
"The trend that we have, with access to information, with bringing distant countries into our space all the time, we will have to live with that. I don���t think any single political system can turn that around," CEO Ben van Beurden told reporters when asked about the proposed change in U.S. regulation.
"BANG FOR THEIR BUCK"
Required by the 2010 Dodd-Frank Wall Street reform law, the U.S. Securities and Exchange Commission's extraction rule was finalized last summer.
Canadian and European regulations were modeled after the Dodd-Frank efforts.
But the rule was quickly targeted by Congressional Republicans after victories in the November election that brought President Donald Trump and his anti-regulation, pro-energy agenda into the White House.
Trump has signaled a sweeping reduction in regulation to bolster the American drilling and mining industries, including by undoing Obama's initiatives to combat climate change.
Vivek Warrier, a partner at Bennett Jones, a law firm in Calgary, said that could put Canadian companies at an even steeper disadvantage.
"When a potential investor comes in, they will look at the additional regulatory compliance costs that will impact Canadian companies and probably conclude there's better bang for their buck south of the border," he said.
Suncor Energy Inc, Canada's largest oil and gas producer, said reporting on payments to foreign governments is a minor administrative burden. "But generally speaking we support reporting payments to governments as it contributes to greater transparency," said Sneh Seetal, a Suncor spokeswoman.
Canadian Natural Resources Ltd and Cenovus Energy Inc, two Canadian oil producers, declined to comment.
American oil companies, including Exxon Mobil, meanwhile, say that the regulation had threatened to put them at a competitive disadvantage to huge state-controlled oil companies like Russia's Rosneft Ltd and China's CNOOC Ltd.
"As publicly traded companies, we have to compete globally with state-owned companies who hold a large majority of proved reserves and have no similar transparency or reporting obligations," Exxon spokesman William Holbrook said.
Stephen Comstock, director of tax policy for the American Petroleum Institute, said revoking the U.S. extraction rule is "a necessary step by Congress to establish sensible regulations that balance increasing transparency without diminishing our industry's competitive advantage."
Exxon and the API said they support an alternative scheme whereby a host country would report to its citizens at a regular interval how much money in total was generated from extractive industries, without breaking out company details.
The U.S. oil industry also said that the U.S. Foreign Corrupt Practices Act would still remain in effect, prohibiting bribery of foreign officials.
(Reporting by Ernest Scheyder in Houston and Nia Williams in Calgary; Additional reporting by Lisa Lambert and Sarah Lynch in Washington, D.C., Ron Bousso in London; Editing by Richard Valdmanis and Lisa Shumaker)