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Office of Natural Resources Revenue (ONRR) U.S. Department of the Interior Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity ONRR.

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Presentation on theme: "Office of Natural Resources Revenue (ONRR) U.S. Department of the Interior Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity ONRR."— Presentation transcript:

1 Office of Natural Resources Revenue (ONRR) U.S. Department of the Interior Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity ONRR Overview and Updates Presented by: Deborah Gibbs Tschudy, Deputy Director National Oil & Gas Royalty Conference October 17, 2012

2 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity Outline of Presentation Background and Program Highlights New Initiatives New and Upcoming Regulations 2

3 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity Office of Natural Resources Revenue Background and Program Highlights 3

4 Industry ComplianceAccurate Revenues and DataProfessionalism & 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.

5 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

6 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity ONRR Voted Top Work Places 2012 – Denver 6

7 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity Department of the Interior 7

8 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity Office of Natural Resources Revenue 8

9 Industry ComplianceAccurate Revenues and DataProfessionalism & 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,

10 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 ComplianceAccurate Revenues and DataProfessionalism & Integrity

11 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity 11 FY 2012 Reports Received: 1,970 payors (Form 2014) 1,900 operators (Oil and Gas Operations Report) Financial Management Highlights 6.1 million production 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 SP) FY 2012 Lines Processed: 4,875,150 million royalty % accuracy rate

12 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity For every dollar spent on compliance activities between FY , 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 ComplianceAccurate Revenues and DataProfessionalism & Integrity Audit and Compliance Highlights 12

13 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity Coordination and Enforcement State and Indian Coordination BlackfeetSouthern Ute Navajo NationUte Shoshone/ArapahoUte 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 AlaskaNorth Dakota CaliforniaOklahoma ColoradoTexas MontanaUtah New MexicoWyoming In FY 2012, ONRR held 97 outreach sessions and resolved over 35,000 royalty-related inquiries

14 14 Enforcement Highlights Litigation Support 849 debts referred to Treasury between FY 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 ,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 ComplianceAccurate Revenues and DataProfessionalism & Integrity

15 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity Office of Natural Resources Revenue 15 New Initiatives

16 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 to Database Upgrade from Oracle 10.4 to 11 PeopleSoft Upgrade 16

17 17 Precision 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 Risk-based Approach Enforcement Actions

18 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

19 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity Total Data Mining Collections to Date = $20,979,005.94* Improving Data Accuracy Exceptions Resolved Collections to Date Volume Comparison61,932$16,941, RSFA – 6 Year Limitation on Adjustments 763$3,750, Net Negative Reporting988$287, * 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 19

20 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity Enhancements to ONRR’s Statistics Website ONRR is improving the 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

21 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

22 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity How Important is Data Accuracy? 22 FY 2011 Accounting Year Reported Sales Volume, Sales Value, and RVLA Data Initially Reported to ONRRWhat Should Have Been Reported to ONRR Sales Volume Sales Value RVLA Sales Volume Sales Value RVLA Wyoming Federal Onshore - Unprocessed Gas 3,293,788, ,958,152, ,295, ,504, ,958,152, ,295, All Reported Royalty Revenues 7,051,616, ,846,186, ,380,152, ,656,332, ,846,186, ,380,152, All Reported Royalty Revenue by Category Federal Onshore 1,360,212, ,360,212, Federal Onshore Reported Royalty Revenue 5,370,199, ,555,793, ,360,212, ,974,916, ,555,793, ,360,212, 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)

23 Industry ComplianceAccurate Revenues and DataProfessionalism & 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, 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

24 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

25 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

26 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity 26 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

27 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity 27 GAO High Risk Report Four ONRR-related GAO Reports Cited on the GAO High Risk Report GAO R – 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 – 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 – 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 – 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

28 Industry ComplianceAccurate Revenues and DataProfessionalism & 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 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 29 COLLABORATION Unbundling Team (AV) Inventory & prioritize transportation and processing systems Develop and oversee a 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

30 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity ONRR Unbundling Information Website Published Annual Factors for Gas Plants and Transportation Systems (http://www.onrr.gov/Unbundling/default.htm)http://www.onrr.gov/Unbundling/default.htm

31 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

32 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity Next Steps in ONRR’s Unbundling Efforts Previous unbundling 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

33 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity Office of Natural Resources Revenue New and Upcoming Regulations 33

34 34 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

35 Industry ComplianceAccurate Revenues and DataProfessionalism & 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: 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

36 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

37 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

38 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity 38 Regulations  Amending OMB Control Numbers and Certain Forms - Direct Final Rule  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 Rule to update the remaining forms

39 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

40 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

41 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

42 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

43 Industry ComplianceAccurate Revenues and DataProfessionalism & 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

44 Industry ComplianceAccurate Revenues and DataProfessionalism & Integrity 44 Questions & Comments Please Contact Deborah Gibbs Tschudy Deputy Director, Office of Natural Resources Revenue PO Box MS-61000B Denver Federal Center, Bldg 85 Denver, CO


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