Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 1 ONRR: Collecting Every Dollar Due Presented by: Gregory J. Gould, Director ONRR AGA Professional Development Conference April 26, 2012 Office of Natural Resources Revenue (ONRR)

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 2 Overview Creation of ONRR ONRR Mission and Contributions to the U.S. ONRR Restructuring and Strategic Review Mission Work: ONRR Program Areas Recent ONRR Achievements New Emerging Initiatives: –Royalty Reform –Extractive Industries Transparency Initiative (EITI)

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 3 The Creation of ONRR On October 1, 2010, ONRR was formally established and moved under the Office of the Assistant Secretary for Policy, Management and Budget. ONRR has worked closely with the Assistant Secretary for Policy, Management and Budget to enhance the organization’s ability to deliver timely compliance on every dollar due, make accurate on-time payments, and earn public trust. ONRR used the reorganization to spark an agency-wide transformation and develop a strategic framework to prioritize new and ongoing initiatives for implementation. “This is significant not only for moving forward with our overall reorganization, but also for the American taxpayers, whose interests will be better protected by the improved collection and management of revenues from energy development on our public lands and oceans…” -- Secretary Ken Salazar

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 4 DOI: Prior to Restructuring

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 5 DOI: After Restructuring

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 6 ONRR: Who We Are 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 ComplianceAccurate Revenues & DataProfessionalism & Integrity 7 Cumulative Mineral Lease Revenue Disbursement ~ $231 Billion Since 1982, approximately $231 billion in revenues was distributed from onshore and offshore lands to the Nation, states, and American Indians The distribution to the U.S. Treasury is one of the Federal government’s greatest sources of non- tax income

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 8 Contributing to the Nation ’ s Economy FY 2011 Disbursements -- $11.16 Billion –$ 6.05 Billion to the U.S. Treasury –$ 891 Million to the Land & Water Conservation Fund –$ 150 Million to the Historic Preservation Fund –$ 1.53 Billion to the Reclamation Fund –$ 2 Billion to 37 States –$ 538 Million to the Department’s Office of the Special Trustee on behalf of 36 Indian tribes and approximately 30,000 individual Indians Approximately $10 billion in revenue is disbursed annually

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 9 ONRR Strategic Review and Reorganization October 1, 2010 ONRR created October 28, 2010 ONRR Strategic Review begins December 17, 2010 Strategic Review results presented March 2011 Implementation Work Groups formed October 1, 2011 ONRR FY 2012 Reorganization Results: Developed a new Strategic Framework to guide decision making Clearly communicated organizational priorities proliferating ownership, optimism and enthusiasm across the organization Launched new initiatives to improve compliance, organizational health and inter-agency collaboration Instituted new ways to make decisions, hold people accountable, measure success and ensure effective results

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 10 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 Three Outcomes Define ONRR ’ s Success

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 11 Mission Work: ONRR Program Areas Financial and Program Management Audit and Compliance Management Coordination and Enforcement Management

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 12 Financial and Program Management Production Reporting & Verification  Receive, process and verify industry- submitted production reports  Error correction for all Federal and Indian production  Oversee meter inspections for production verification Financial Management  Collect, verify, distribute all rent, royalties and bonuses  Receive, process and verify industry-submitted royalty reports  Perform Data Mining functions Asset Valuation  Issue valuation guidance and determinations  Review and respond to transportation and processing allowance requests  Draft and publish valuation rulemakings

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 13 FY 2011 Reports Received: 1,950 payors (Form 2014) 1,900 operators (Oil and Gas Operations Report) Financial Management Accomplishments 5.7 million production 97.4% 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 2011 Transaction Lines Processed: 4.7 million royalty 99.2% accuracy rate

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 14 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

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 15 Audit and Compliance Management All audits performed according to Generally Accepted Government Auditing Standards Compliance reviews are an analysis that determines the reasonableness of reported revenues Properties and companies are selected for review or audit using a risk assessment across the entire universe of properties and companies Audit and Compliance ensures that Federal and Indian mineral revenues are accurately reported and paid A 3-year cycle to review and/or audit revenues was established

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 16 Audit and Compliance Accomplishments For every dollar spent on compliance activities between FY , ONRR returned approximately $4.00 back to taxpayers Since 1982, audit and compliance activities have collected $3.9 billion In FY 2011 completed 311 audits and 1,059 compliance reviews Received a “pass” opinion on 2011 Peer Review of our audit activities In FY 2011 ensured compliance for about $5.5 billion in royalty revenues

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 17 Coordination and Enforcement Management: State and Tribal Coordination –Audit agreement support and coordination with ten States and six Tribes –Conduct Outreach –Serves as an advocate for the fulfillment of ONRR trust responsibility and to resolve Indian mineral-related issues –In FY 2011, States and Tribes completed 244 audits and 171 compliance reviews –In FY 2011, held 98 outreach sessions and resolved over 12,500 royalty-related inquiries –For every dollar spent on compliance activities between FY , States and Tribes returned $3.39 back to taxpayers AlaskaNorth Dakota CaliforniaOklahoma ColoradoTexas MontanaUtah New MexicoWyoming BlackfeetSouthern Ute Navajo NationUte Shoshone/ArapahoUte Mountain Ute

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 18 Coordination and Enforcement Management: Office of Enforcement Office of Enforcement Functions:  Alternative Dispute Resolution  Litigation  Enforcement Operations New Enforcement Strategy Emphasizing:  Deterrence – resolve to sanction repeat offenders  Appropriate Enforcement Actions – aggressively issuing civil penalties  Communication – provide training/information to managers and employees; publicize collected civil penalties  Continuous improvement – balance and improve staff expertise  Partnership – collaborate on creative enforcement solutions

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 19 Office of Enforcement Penalties The civil penalties program is a tool ONRR uses to encourage compliance by issuing civil penalties when companies fail to comply with, or knowingly violate, applicable regulations or laws. Such penalties are authorized by the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA). ONRR regulations at 30 C.F.R. § 241 provide a cure period of at least 20 days for regulatory violations such as failure to submit reports. Violations not cured within the period are subject to civil penalty assessments, until they are cured: As much as $500 per day; $5,000 per day after 40 days; Certain violations - as much as $10,000 or $25,000 per violation for each day the violation continues. Some violations are also crimes under Title 18, U.S.C. or False Claims under 31 U.S.C ONRR works in partnership with the Department’s Office of the Inspector General and the U.S. Attorney’s Office in pursuing these violations.

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 20 Office of Enforcement Accomplishments Litigation Support 624 debts referred to Treasury between FY FY 2011 involving over $3.2 million in principal + interest 21 Bankruptcy Proofs of Claim filed since FY 2009 involving over $27 million principal + interest Civil Penalties $28.8 Million in penalties collected since FY ,112 cases opened since FY 2000 and 964 cases closed (637 or 66% with compliance achieved) Alternative Dispute Resolution $185 million received in settlement cases from FY FY 2011 (25 ADR case facilitations resulting in Compliance)

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 21 Increased Industry Education: Targeted Reporting Training to help industry comply Implemented new e-commerce technology that places additional onus on companies to report correctly New data mining business processes: Collected approximately $12 million in additional revenues since 2010 Monitor adjustments outside 6-year statute of limitations Volume comparison between royalty and production reports Established a Meter Inspection Team: Joint partnership with Bureau of Safety and Environmental Enforcement Automated Production Metering Feasibility Study Recent ONRR Achievements Piloting an integrated compliance approach with a large independent producer Professionalism and Integrity: 3-year Auditor Training Program High employee involvement in ONRR continuous improvement initiatives

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 22 Emerging Initiatives: Royalty Reform Federal Oil & Gas Valuation Federal & Indian Coal Valuation Indian Oil Valuation Negotiated Rulemaking

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 23 Emerging Initiatives: Improving Data Transparency Extractive Industries Transparency Initiative (EITI) President Obama announced the U.S. intention to implement EITI September 2011 Voluntary framework for governments to disclose revenues received from oil, gas and mining assets belonging to state Parallel disclosure from companies of what they have paid the government in royalties, rents, bonuses, taxes and other payments INDUSTRY discloses payments EITI REPORT payments are independently reconciled and verified GOVERNMENT discloses receipt of payments

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 24 The Future of ONRR ONRR’s future is bright because we are… ▪ Constantly adapting to find innovative improvements and operational efficiencies to best serve the American people ▪ Holding our self and our employees accountable for performance while maximizing talent and knowledge development ▪ Working cross-functionally and cross-departmentally to achieve critical goals ▪ Committing to transparency for the American people and other nations looking to be leaders in the energy field ONRR expects to achieve… ▪ Timely compliance from companies and payment of every dollar due ▪ Timely and accurate revenues and data distributed to recipients ▪ Trust in ONRR’s professionalism, integrity, efficiency and quality

Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity 25 Please Contact Gregory J. Gould Acting Deputy Assistant Secretary for Natural Resources Revenue Director, Office of Natural Resources Revenue (202) Questions & Comments