Section 13(q) of the Securities Exchange Act of 1934 directed the SEC to issue rules requiring resource extraction issuers to include in an annual report information relating to any payment made by the issuer, a subsidiary of the issuer, or an entity under the control of the issuer, to a foreign government or the Federal Government for the purpose of the commercial development of oil, natural gas, or minerals.  Having far exceeded the Congressional deadline, the SEC is now under a federal court order to promulgate a rule.  Oxfam Am., Inc. v. United States SEC, 2015 U.S. Dist. LEXIS 116982 (D. Mass. Sept. 2, 2015).  Last month, the SEC published its proposal for public comment.

The statute refers to “commercial development of oil, natural gas, or minerals”. The SEC is proposing to define the phrase to mean “exploration, extraction, processing, and export of oil, natural gas, or minerals, or the acquisition of a license for any such activity”.  The proposed definition focuses on the issuer’s activities but is circular when it comes to defining the object of those activities.  In other words, it assumes that everyone knows the meaning of “oil, natural gas, or minerals”.  I’m not so sure.

Is sandstone a mineral or simply a bunch of rocks?

People use the term “mineral” to refer to a variety of different substances.  For example, the term “mineral” is sometimes used to refer to a naturally occurring a crystalline substance such as quartz (a crystal is homogenous substance in which atoms have a fixed, orderly structure).  Under this definition, a rock lacking in crystalline structure or comprised of several minerals would not be a mineral.

Is C₁₃₇H₉₇O₉NS a mineral or a long-dead vegetable?

Others define “minerals” as naturally occurring inorganic solids.  Organic compounds include the element of carbon. Under this definition, coal is not a mineral because by weight it is between 86% and 98% carbon (the above formula for bituminous coal indicates that it is comprised of 137 carbon atoms). However, see Penturelli v. Spector, Cohen, Gadon & Rosen, Attorneys at Law, P.C., 779 F.2d 160 (3d Cir. 1985) in which the Court of Appeals held that interests in a coal mining operation were securities under the Securities Act of 1933, which defines a “security” in Section 2(a)(1) to include “fractional, undivided interest in oil, gas or other mineral rights”.  The SEC’s Securities Act Industry Guide 7 also treats coal as a “mineral deposit”.

Is water a mineral or simply something California needs more of?

Because Section 13(q) refers to a liquid (oil), and a gas (natural gas), it may be inferred that Congress at least intended to the term “mineral” to refer to a solid.  However, Guide 7 includes oil (which is both organic and a liquid) as a “mineral deposit”.  In addition, at least one court has even concluded that water, an inorganic liquid, is a mineral under Alaska’s mineral lien statute. Baker Hughes Oilfield Operations, Inc. v. Nat’l Rural Utils. Coop. Fin. Corp. (In re Naknek Elec. Ass’n), 471 B.R. 225 (Alaska 2012).  In any event, it may not be useful to characterize minerals as solids, because a matter’s state is dependent upon temperature and pressure.  For example, water exists naturally as a solid, liquid and a gas.

From the foregoing discussion, it should be obvious that there is no single meaning of “mineral”.  According to whom you ask, minerals may, or may not be, homogenous.  They may, or may not, have fixed crystalline structures.  They may, or may not, include liquids such as oil and water.  They may, or may not, include organic compounds such as coal.   It is therefore incumbent upon the SEC to publish for public comment a proposed definition of “mineral”.

Some readers may be unfamiliar with the terms “organic” and “inorganic”.  Because my undergraduate degree is in Biology, I was required to take both organic and physical chemistry.  Organic chemistry, which I found fascinating and very challenging, is the study of carbon compounds.  Carbon has been much vilified of late for its perceived contribution to climate change.  However, life, booze and sugar would not exist without it.

 The very model of a modern major-general