ONRR Overview and Updates

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Office of Natural Resources Revenue (ONRR)

U.S. Department of the Interior

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

ONRR Overview and Updates

Presented by:

Deborah Gibbs Tschudy, Deputy Director

National Oil & Gas Royalty Conference

October 17 , 2012

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Outline of Presentation



Background and Program Highlights



New Initiatives



New and Upcoming Regulations


2


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Office of Natural Resources Revenue

Background and
Program Highlights

3


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

ONRR: Who We Are

4


Office under the Assistant Secretary for Policy, Management and Budget
within the Department of the Interior



Responsible for the management of revenues associated with federal
offshore and federal and American Indian onshore mineral leases, as well
as revenues received as a result of offshore renewable energy efforts



Dallas

Denver

Farmington

Ft. Berthold

Houston

Oklahoma City

Tulsa

Washington D.C.

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

ONRR’s Strategic Outcome Goals

5


Companies timely comply with
laws, regulations and lease terms
and pay every dollar due

States, Tribes, Indian mineral owners,
US Treasury and other entities receive
timely and accurate revenues and data

The public trusts ONRR’s
professionalism, integrity,
efficiency and quality

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

ONRR Voted Top Work Places 2012


Denver

6


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Department of the Interior

7


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Office of Natural Resources Revenue

8


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

FY 2011 Disbursements

FY 2011 Disbursements: $11.16 Billion



$6.05 billion to the U.S. Treasury


$892 million to the Land & Water Conservation Fund


$150 million to the Historic Preservation Fund


$1.53 billion to the Reclamation Fund


$2.0 billion to 35 States


$538 million to the Department’s Office of the Special Trustee
on behalf of 34 Indian tribes and approximately 30,000
individual Indians


Note: FY 2012 Disbursement Information will be available on ONRR’s website on
November 19, 2012

9


FY 2011 Cumulative Mineral Lease

Revenue Disbursement ~ $230.7 Billion


Since 1982, ONRR has
distributed $230.7 billion in
revenues from onshore and
offshore lands to the Nation,
States, and American
Indians



The ONRR distribution to
the U.S. Treasury is one of
the Federal government’s
greatest sources of non
-
tax
income

10


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

11



FY 2012 Reports Received:


1,970
payors

(Form 2014)



1,900 o
perators (Oil and Gas
Operations Report)

Financial Management Highlights

6.1
million
production lines

@
97.5%
accuracy rate

Financial operations and
internal controls
contributed to DOI
achieving
unqualified

opinions* during the
annual CFO audits

The PeopleSoft accounting
system was one of the first
in DOI to satisfy OMB and
Federal Managers Financial
Integrity Act financial
system requirements

*Unqualified opinion (Clean Audit)
-

In conformity with U.S.
generally accepted accounting principles (GAO
-
09
-
946SP)

FY 2012 Lines
Processed:

4,875,150
million
royalty
lines

@ 98.94
%
accuracy rate

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity










For every dollar spent on
compliance activities between FY
2009
-
2011, ONRR returned $3.89
back to
taxpayers

Since 1982, audit and

compliance activities

have collected $3.9

billion

In FY
2012
completed
325
audits and
891
compliance reviews

Completed
compliance
work
on 92% of the
companies with a
high/significant
risk rating

In FY
2012
ensured
compliance for about
$3.1
billion in royalty
revenues

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Audit and Compliance Highlights

12

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Coordination and Enforcement

State and Indian Coordination

Blackfeet

Southern Ute

Navajo Nation

Ute

Shoshone/Arapaho

Ute Mountain Ute

13


Cooperative agreement support and
coordination with ten States and six Tribes


Serves as an advocate for the fulfillment of
ONRR trust responsibility and to resolve
Indian mineral
-
related issues

Alaska

North Dakota

California

Oklahoma

Colorado

Texas

Montana

Utah

New Mexico

Wyoming


In FY
2012,
ONRR held
97
outreach
sessions and resolved
over
35,000
royalty
-
related
inquiries

14

Enforcement Highlights

Litigation Support


849 debts referred to Treasury between FY 2009
-

FY 2012 involving over
$2.1 million in delinquent debts


26 Bankruptcy Proofs of Claim filed since FY 2009 involving over $3.8
million

Civil Penalties


$
28.8 Million in penalties collected since FY 2000


1,112
cases opened since FY 2000 and 964 cases
closed

Alternative Dispute Resolution


$280
million received in settlement cases from FY
2009

FY 2011

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Office of Natural Resources Revenue

15



New Initiatives


Tracks compliance activity, reporter
interactions, and collections from compliance
activity


Allows ONRR to determine
payor

risk and
schedule assignments based on risk


Tracks and maintains all compliance
documents via Electronic Work Papers

Operations Management Tool


Provides flexibility to distribute and disburse
money without manual intervention in response to
legislative changes


Flexibility to disburse at the unique lease
level/program (geothermal, GOMESA, etc.)

Flexible Disbursements


Capability to perform data analysis of
payor

and operator reported royalty and production
information


Tools for Volume Comparison, Price
Monitoring, Adjustment Monitoring, Trending,
and more

Business Intelligence Software

Upgrade to Minerals Revenue Management
Support System


Ability for easier, on
-
line review and
reconciliation of interest calculations


Allows for rule
-
based interest calculations
based on lease type and program; e.g., royalty
relief programs that have different interest
rules

Interest Modernization


Online rental allows
payors

to upload data and
make annual lease rental payments through
pay.gov


Implements industry
-
recommended
enhancements to
eCommerce

eCommerce Phase II



PeopleSoft Upgrade from Version 8.9 to 9.1


PeopleTools

Upgrade from Version 8.4.9.18 to
8.5.1


Database Upgrade from Oracle 10.4 to 11

PeopleSoft Upgrade

16


17


ONRR DATA ACCURACY EFFORTS

Up
-
Front System Edits

Data Mining

Missing Reports, Volume Comparisons, LVS/GVS,
High Level Analyses of Sales Values, Royalty Values,
Adjustments, etc.




1 Month





6
-
9 Months






2
-
3 Years




7 Years
(Fed. oil & gas)

Compliance
Reviews

Audits

Timeline

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

18


Problems
Addressed
by Data Mining


-

Volume Variances

-

Net Negatives

-

Improper Adjustments

-

Reporting Anomalies

-

Agreement Misreporting

-

Chronic Misreporting

Problems
Addressed by New
Edits in
eCommerce


-

Indian Net Negatives




-

Exceeding Allowance limits



-

Incorrect
Pricing




-

Incorrect Royalty Rates

-

OGOR/2014 Coding Errors

-

Invalid Agreements

Improving Data Quality

eCommerce

and Data Mining

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Total Data Mining Collections to Date = $20,979,005.94*

Improving Data Accuracy

Exceptions
Resolved

Collections to
Date

Volume Comparison

61,932

$16,941,333.34

RSFA


6 Year Limitation

on Adjustments

763

$3,750,540.54

Net Negative Reporting

988

$287,132.06

*
As of
August
2012

New Royalty and Production Reporting Edits:



14
edits in December
2011,


32 new or modified edits in October 2012, and


9
edits
requiring
additional study for future
releases


Updated list of edits available
at
http://
www.onrr.gov/FM/ReptInfo.htm


19


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Enhancements to ONRR’s Statistics Website


ONRR is improving the www.onrr.gov statistical website to
provide transparency, clarity, ease of use, and ability to search
and query data


November 19,
2012,
roll
-
out to include FY 2012
Disbursements and FY 2012 Reported Revenues by
Accounting Year

20


http://
www.onrr.gov/ONRRWebStats


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

How Important is Data Accuracy?

“Leasing
, production revenue on public lands soared in
2011”

Phil Taylor,
Energy and Environment (E&E)
reporter

Published: Thursday, January 5, 2012


“Revenue
reported from natural gas production on public lands nearly doubled in 2011, and the
number of new oil and gas leases issued increased by two
-
thirds, according to statistics released
today by the Interior Department
. The
Bureau of Land
Management data
show natural gas
production at its highest level since at least 1984
.”


Question from Senator
Barasso’s

(Wyoming) Staff:


“BLM
reports that natural gas production on Federal lands in Wyoming went from approximately
1.63
Tcf

in
FY 2010
to
approximately 3.94
Tcf

in FY 2011, or an increase of 140%.

In
other
words, BLM is reporting that natural gas on Federal lands in Wyoming exceeded the total amount
of natural gas production in all of Wyoming for FY 2011, which obviously does not make sense.

Can
you help me understand this
?”


Did onshore natural gas production actually double from 2010 to 2011?



21

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

How Important is Data Accuracy?

22

FY 2011 Accounting Year Reported Sales Volume, Sales Value, and RVLA

Data Initially Reported to ONRR

What Should Have Been Reported

to ONRR




Sales Volume


Sales Value


RVLA


Sales Volume


Sales Value


RVLA

Wyoming Federal
Onshore
-

Unprocessed Gas


3,293,788,183.86


3,958,152,845.56


418,295,472.35


898,504,428.79



3,958,152,845.56


418,295,472.81















All Reported
Royalty Revenues


7,051,616,561.06



19,846,186,758.47


2,380,152,200.65


4,656,332,805.99



19,846,186,758.47


2,380,152,201.11















All Reported
Royalty Revenue
by Category
Federal Onshore






1,360,212,189.72






1,360,212,190.18















Federal Onshore
Reported Royalty
Revenue


5,370,199,795.57


12,555,793,825.24


1,360,212,189.72


2,974,916,040.50


12,555,793,825.24


1,360,212,190.18


In August 2011, a

Federal oil and gas
payor

misreported sales volumes on their Form MMS
-
2014 report so
significantly that it distorted the FY 2011

sales volume published on ONRR’s statistics website by
2.4
Trillion cubic feet

giving the appearance that Federal onshore gas production doubled from FY 2010



The
payor

correctly reported the royalty rate and royalty value (subject to audit)

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

How Important is Data Accuracy?

ONRR Actions



ONRR’s Office of Enforcement assessed the company a $1.9
million civil penalty for knowing or willful maintenance of false,
inaccurate, or misleading information on ONRR’s
database



ONRR updated the Federal
gas price up
-
front edit
to “Fatal”
on
January 26, 2012.
The Federal oil and Indian oil and gas up
-
front
price edits were already
“Fatal”



ONRR is monitoring reported Sales Volumes on a real time basis



23

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Well Data Reconciliation Project


Consistent
well information between ONRR and
BLM/BSEE
is vital to effectively account for production and collect every
dollar due.



ONRR is working with BLM and
BSEE to reconcile well data
information and



Ensure
validation of OGORs against the most recent
well data


Streamline OGOR reporting and processing


Provide
earlier notification to Operators if OGORs do not match
well



information



Successful implementation will:


Further automate data exchange between



Operators and Federal Agencies


Assure well and OGOR data integrity

24

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Recent Dear Reporter Letters


Recent Dear Reporter Letters Involving Indian Leases (both
dated August 27, 2012)


-
Dual Accounting for Indian Leases and Arm’s
-
length Sales of Indian Gas
Beyond the First Index Pricing Point


-
Gas Sold From Indian Leases in an Index Zone Under Arms’
-
Length
Dedicated Contracts and Paying Indian Royalties on Oil and Gas Produced
From Indian Leases on Behalf of
Others



Both letters sent certified mail; return receipt requested



Failure to comply may subject lessee to enforcement actions,
including civil penalties











25

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

26


GAO High Risk Report

GAO High Risk Report


Three "shortcomings" in Interior's revenue collection policies:


1)
The Federal Government receives a fair return on its oil and gas resources
(so called "government take")

2)
Interior completes its production verification inspections

3)
Interior's data on production and royalties are consistent and reliable

Responsibility shared with
BLM, BOEM and BSEE

ONRR’s responsibility to accurately collect
royalty and production data from industry

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

27


GAO High Risk Report

Four ONRR
-
related GAO Reports Cited on the GAO High Risk Report


GAO
-
08
-
0893R



Mineral Revenues: Data Management Problems and Reliance on
Self
-
Reported Data for Compliance Efforts Put MMS Royalty Collections at Risk


Status:

All 4 implemented




GAO
-
09
-
549



Mineral Revenues: MMS Could Do More to Improve the Accuracy
of Key Data Used to Collect and Verify Oil and Gas Royalties


Status:

All 5 implemented




GAO
-
10
-
313



Oil and Gas Management: Interior’s Oil and Gas Production
Verification Efforts Do Not Provide Reasonable Assurance of Accurate
Measurement of Production Volumes


Status:

1 implemented




GAO
-
11
-
34



Federal Oil and Gas Leases: Opportunities Exist to Capture Vented
and Flared Natural Gas, Which Would Increase Royalty Payments and Reduce
Greenhouse Gases


Status:

1 targeted for full implementation in 2013

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Unbundling of Transportation and

Processing Costs


Because fees charged by pipeline companies often include deductible and
non
-
deductible costs, calculation of allowable gas transportation and gas
processing costs can be difficult and complicates ONRR’s compliance
reviews and audits



ONRR and the State of New Mexico have unbundled 12 systems to date.
Rates may be found at
http://www.onrr.gov/unbundling/default.htm




ONRR has hired 8 new FTE and will be hiring 3 additional FTE to
implement
a strategy to unbundle rates for Federal and Indian
transportation and processing
systems



ONRR is implementing the unbundling strategy in coordination with State
and Tribal audit programs

28


29



















COLLABORATION

Unbundling Team (AV)



Inventory & prioritize transportation and processing systems



Develop and oversee a 3
-

5 year project plan



Develop the Statement of Work and oversee contractor



Provide technical support to ACM, STRAC, & contractor



Develop performance measures and monitor progress



Publish unbundled rates on website

Contractor



Determine allowable equipment based on guidance


provided by the Unbundling Team



Sort equipment costs by allowed and non
-
allowed


costs



Use the data to determine allowable and


non
-
allowable percentages



Store & maintain collected data


States & Tribes



Issue data requests to system operators



Tour facilities of selected systems



Analyze & submit data to Contractor



Draft orders to pay and perform



LEADERSHIP &
DIRECTION

AUDIT & DATA
COLLECTION

DATA
REPOSITORY

Unbundling Audit Team (ACM)



Incorporate the high risk transportation


systems into annual work plans



Tour facilities of selected systems



Issue data requests to system operators



Analyze & submit data to Contractor



Issue orders to pay and perform


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

ONRR Unbundling Information Website


Published Annual Factors for Gas Plants and
Transportation
Systems (
http://www.onrr.gov/Unbundling/default.htm
)


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Inventory & Prioritization of Bundled Systems


ONRR has
identified 189 gas plants that process Federal & Indian natural
gas production (based on FY 2011 data)



ONRR
established
22 criteria for each plant and selected 7 high risk factors
to prioritize which gas plants to unbundle



29
high
-
priority gas plants cover
more than 80% of
total volume reported
for all
gas plants
in FY 2011



Timeline for unbundling the 29
high
-
priority
plants
:

-


FY 2013


6 Gas
Plants

-


FY 2014


7 Gas
Plants

-


FY 2015


16 Gas
Plants



ONRR will evaluate associated
transportation systems
when we evaluate
each
gas
plant

31


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Next Steps in ONRR’s Unbundling Efforts


Previous
u
nbundling efforts have taken an average of 3 years to complete,
yielded results that are only valid for one year, and must be repeated for
each year where factors are needed



ONRR is evaluating an engineering solution that uses:


Industry accepted engineering practices and data;


Sophisticated, industry standard modeling tools; and


Replacement costs, adjusted for location and updated annually



An engineering solution would be based on minimal data needs:

-
Process Flow Diagrams

-
Gas Throughput

-
Gas Composition

-
Inlet and outlet conditions for major process components



32


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Office of Natural Resources Revenue

New and Upcoming
Regulations

33


34

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

34


Federal Oil & Gas Valuation Proposed Rule


ONRR published an Advanced Notice of Proposed Rulemaking for
Federal Oil and Gas Valuation on May 27, 2011; comment period
closed on July 26, 2011



Purpose is to
make changes to existing Federal Oil & Gas regulations at 30
CFR Part 1206, subparts C and D to:




Offer greater simplicity, certainty, clarity, and consistency in


production valuation for mineral lessees and mineral revenue


recipients;




Be easy to understand;




Decrease industry’s cost of compliance and government’s cost of


enforcement; and




Provide early certainty to industry and ONRR that companies


have paid every dollar due

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Federal Oil & Gas Valuation Proposed Rule


ONRR received responses from 19 commenters representing
states, industry, industry trade associations and the general
public. Comments viewable at:


http
://www.onrr.gov/Laws_R_D/PubComm/AA01rmpc.htm




ONRR has drafted proposed
regulations for Federal Oil and
Gas Valuation.




The
proposed rule is currently with the Office of the
Solicitor

for review

35


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Indian Oil Negotiated Rulemaking

Purpose:

Advise the Secretary on a rulemaking to address
Indian Oil Valuation as it relates to the major portion
requirement in Indian oil leases



Charter signed by the Secretary on Dec 1, 2011, establishing the
Indian Oil Valuation Negotiated Rulemaking (IONR) Committee
under the authority of the Federal Advisory Committee Act


Balanced membership from industry, Indian tribes and
allottees
, and
the Federal government


Held meetings throughout the Spring/Summer 2012; next meeting
late October 2012


Committee is considering a traditional ONRR
-
calculated major
portion and an index
-
based methodology.

36


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

37


Regulations




Debt
Collection, 30 CFR 1218


Final
rule


Published May 2, 2012


Clarified
and
codified
provisions of Debt Collection Act of 1982 and

Debt
Collection Improvement Act of 1996


Established
procedures governing collection of delinquent royalties,
rentals, bonuses, and other amounts due


Included
provisions for administrative
offset



Amendments
to ONRR’s
Website,
Mailing
Addresses,
and
Payment Definitions


Direct Final
Rule


Published May 2, 2012


Codified
eCommerce

as
ONRR’s
reporting website for royalties and
production


Added a definition for pay.gov

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

38


Regulations



Amending
OMB Control Numbers and Certain
Forms
-

Direct
F
inal
R
ule



Published December 8, 2011



Amended
OMB control numbers for information collection
requirements, certain form numbers, and corresponding technical
corrections to
position
titles, agency names, and acronyms listed in
chapter XII of 30 CFR



ONRR is in the process of finalizing a second Direct
Final
R
ule
to
update the remaining forms



Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Regulations


Proposed Rule for Civil Penalties


Applies civil penalty regulations to solid mineral and
geothermal
leases



Adjusts FOGRMA civil penalty amounts for inflation as
required by the Federal Civil Penalty Inflation Adjustment
Act



Provides notice that ONRR will post a matrix for civil penalty
assessments on the ONRR
website



The proposed rule is currently in internal review


39

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

40


Regulations



Proposed Rule for GOMESA (Phase II)


Moves
GOMESA Phase I regulations from 30 CFR Part 519 to 30
CFR Part 1219


Establishes formula and methodology for calculating and
allocating GOMESA Phase II revenue to the
Gulf Coast States,
their eligible coastal political subdivisions, and the Land and
Water Conservation
Fund


GOMESA Phase
-
II revenue sharing starts after October 1, 2017



The proposed rule is currently in internal review


Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

Regulations


Takes vs. Entitlements


Proposed rule



Implements section 6(d) of RSFA and prescribes when a
Federal lessee must report and pay royalties on the volume of
oil and gas it takes from a lease, or on the volume to which it
is entitled based on its ownership interest in the unit or
lease



The proposed rule is currently with OMB for
review


41

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

42


FY 2013 President’s Budget Items of Interest


Sharing of Civil Penalties



The Department is proposing new language amending Section 206 of the
FOGRMA that requires ONRR to share with States and Tribes 50% of
any
civil
penalties resulting from activities
conducted by
a State
or Tribe
under
a
cooperative
audit agreement.



The law also requires to ONRR deduct
the
50% civil penalty share from
the
funding it provides to
the State or Tribe for its audit program costs.





Proposed language would require ONRR to reduce the State or Tribe’s
share of the 50% civil penalty by the funding ONRR provides through
audit cooperative agreements

Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

43


FY 2013 President’s Budget Items of Interest


FY 2013 Onshore Oil & Gas Inspection Fees:


BLM will collect a non
-
refundable inspection fee from the designated
operator of each Federal and Indian lease or agreement subject to
inspection under 30 U.S.C. 1718(b)


FY 2013 fees range from $700 to $6,800 for each lease or agreement

-

billed at the beginning of the fiscal year




FY 2013 Offshore Oil and Gas Inspection Fees:


For facilities above the waterline, excluding drilling rigs, the annual fee
ranges from $10,500


$31,500
-

billed at the beginning of the fiscal year


FY 2013 drilling rig inspection fees are


$16,700 for rigs operating in water depths < 500 feet


$30,500 for rigs operating in water depths

500 feet


These fees billed within 30 days of the month in which the inspection
occurs




Industry Compliance

Accurate Revenues and Data

Professionalism & Integrity

44


Questions & Comments



Please Contact


Deborah Gibbs Tschudy

Deputy Director, Office of Natural Resources Revenue

PO Box 25165

MS
-
61000B

Denver Federal Center, Bldg 85

Denver, CO 80225

Deborah.Gibbs.Tschudy@ONRR.Gov



http://www.onrr.gov