[Audit Report on Supporting Documentation for Operators  Participating in the Stripper Oil Well Property Royalty Rate Reduction Program, Bureau of Land Management and Minerals Management Service]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 00-i-300

Title: Audit Report on Supporting Documentation for Operators  Participating
       in the Stripper Oil Well Property Royalty Rate Reduction
       Program, Bureau of Land Management and Minerals Management
       Service

Date:  March 27, 2000 


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U.S. Department of the Interior
Office of Inspector General


AUDIT REPORT
SUPPORTING DOCUMENTATION FOR
OPERATORS PARTICIPATING IN THE 
STRIPPER OIL WELL PROPERTY
ROYALTY RATE REDUCTION PROGRAM,
BUREAU OF LAND MANAGEMENT AND
MINERALS MANAGEMENT SERVICE


REPORT NO. 00-I-300

MARCH  2000




EXECUTIVE SUMMARY

Supporting Documentation for Operators Participating in the
Stripper Oil Well Property Royalty Rate Reduction
Program, Bureau of Land Management and Minerals Management
Service (No. 00-i-300)

BACKGROUND

The Stripper Oil Well Property Royalty Rate Reduction Program,
initiated by the Bureau of Land Management (BLM), became
effective on October 1, 1992. The Program was to provide an
economic incentive for operators to maintain or restart
production of marginal or uneconomic oil wells on Federal onshore
leases by drilling new wells, by reworking existing wells, and/or
by implementing enhanced oil recovery projects.  The regulatory
requirements for the Program are in the Code of Federal
Regulations (43 CFR 3103.4-2).  The Secretary is required by 43
CFR 3103.4-2(5) to evaluate the effectiveness of the Program, and
this provision allows the Secretary to terminate any or all
royalty rate reductions granted under the Program upon a 6-month
notice any time after September 10, 1997.  On February 18, 1998,
the Department of the Interior extended the Program for an
indefinite period. 

The operator is required to submit a "Stripper Royalty Rate
Reduction Notification" form, which includes the operator's lease
or agreement number, qualifying period, and  reduced royalty
rate. The operator is required to calculate the reduced royalty
rate using information  reported on the "Monthly Report of
Operations" form.  The operator calculates the average production
of oil per well per day by dividing the total oil production
during the qualifying period by the total number of producing or
injecting well days.  The reduced royalty rate becomes effective
on the first day of the month after the Minerals Management
Service (MMS) receives the notification.  The operators of the
properties included in the Program are allowed to pay Federal
royalty rates ranging from 0.5 to 11.7 percent of the value of a
barrel of oil.  These rates are below the standard onshore rate
of 12.5 percent.  As of September 30, 1999, approximately 850
operators and 4,100 properties were participating in the Program.
Royalty rate reductions during the period of October 1, 1992,
through December 31, 1998, totaled more than $139 million.  

Both BLM and MMS are responsible for the Program.  BLM is
responsible for promulgating the Program regulations;
establishing policies and procedures; conducting all
on-the-ground inspections to verify producing volumes and
producing days; and reviewing production anomalies that are
identified by MMS, which are unexplained differences between
reported production from the operator's monthly reports and the
notification.  MMS is responsible for confirming the reduced
royalty rate information provided by the operator on the
notification form. 

OBJECTIVE

The objective of the audit was to determine whether BLM provided
effective oversight of well classification and production rates
used in determining eligibility for the Program.

RESULTS IN BRIEF

We found that the "Monthly Report of Operations" form prepared by
operators and used to support reduced royalty rate determinations
for the Program showed  production days that were inaccurate or
that often could not be supported with operator documentation.
Operators are required by 43 CFR 3162.4-3 to accurately disclose
all operations conducted on each well during each month.
However, BLM (1) did not provide sufficient oversight of
operators to ensure that information on the production days was
correct and (2) did not establish Program policies and procedures
to enable participating operators to accurately compute their
reduced royalty rates and for MMS Program staff to accurately
review and confirm the reduced royalty rates provided by the
operators.  For the 14 Program properties reviewed, we found that
5 properties had inaccurate rates, which may result in underpaid
royalties of about $1.27 million, and that 7 properties had
unsupported rates, which may result in underpaid royalties of
$3.22 million.  In addition, we found that reviews were conducted
by state auditors from the States of California, New Mexico, and
Oklahoma on six additional properties.  Of the six properties,
four had inaccurate rates, which resulted in underpaid royalties
of about $847,000, and one property had an unsupported rate,
which may result in underpaid royalties of $25,000.  Of the 20
properties, 17 had inaccurate or unsupported rates, which
resulted in actual or potential underpaid royalties totaling
about $5.36 million (30.8 percent).  If the 30.8 percent
potential underpaid royalty error rate is representative of the
$139.7 million in total reduced royalty Program benefits
received, the total potential for underpaid royalties could be as
much as $43.02 million, which is attributable to inaccurate rates
($16.90 million) and unsupported rates ($26.12 million).   

RECOMMENDATIONS

We recommended that BLM and MMS develop a plan which ensures that
operators of the largest benefiting properties are audited and
develop a policy for operators that do not have sufficient
records to support their reduced royalty rates.  We also
recommended that they develop a policy and procedures on how to
address certain issues when reviewing or preparing Program
notifications and that they develop and implement a procedure for
reviewing supporting documentation for future Program
notifications submitted by operators.

AUDITEE COMMENTS AND OIG EVALUATION

Both BLM and MMS concurred with the report's four
recommendations.  Based on the bureaus' response and subsequent
information, we considered two recommendations resolved and
implemented and two recommendations resolved but not implemented. 



                                             C-IN-MOA-001-98(C)-D
AUDIT REPORT

Memorandum

     To:  Director, Bureau of Land Management
          Director, Minerals Management Service

   From:  Roger La Rouche 
          Acting Assistant Inspector General for Audits 

Subject:  Audit Report on Supporting Documentation for Operators 
          Participating in the Stripper Oil Well Property Royalty
          Rate Reduction Program, Bureau of Land Management and
          Minerals Management Service (No. 00-i-300)

INTRODUCTION

This report presents the results of our self-initiated audit of
the supporting documentation for operators participating in the
Stripper Oil Well Property Royalty Rate Reduction Program.  The
objective of the audit was to determine whether the Bureau of
Land Management (BLM) provided effective oversight of well
classification and production rates used in determining
eligibility for the Program.  This is the second report that we
are issuing on the Program.  The first report, entitled
"Processing of Notifications for the Stripper Oil Well Property
Royalty Rate Reduction Program, Minerals Management Service" (No.
99-I-782), dated  August 1999, determined whether the Minerals
Management Service (MMS) effectively processed and verified
royalty rate reduction notifications.  (This report is synopsized
in the Prior Audit Coverage section of this report.) 

BACKGROUND

The Secretary of the Interior is required by the Federal Oil and
Gas Royalty Management Act of 1982 (30 U.S.C. *1711(a))  to
"establish a comprehensive inspection, collection and fiscal and
production accounting and auditing system to provide the
capability to accurately determine oil and gas royalties,
interest, fines, penalties, fees, deposits, and other payments
owed, and to collect and account for such amounts in a timely
manner."  

The Mineral Leasing Act of 1920 (30 U.S.C. * 209) allows the
Secretary to adjust royalty rates on Federal onshore leases to
encourage the maximum amount of oil or gas to be removed.
Further, to promote development on leases that cannot be operated
economically under the existing lease terms, the Secretary may
waive, suspend, or reduce the royalty on all or any portion of
the leasehold.  Both BLM and  MMS have responsibilities for
Federal onshore leases.  BLM's responsibilities include issuing
onshore leases and monitoring production on the leases.  MMS's
responsibilities include ensuring the proper determination,
collection, and distribution of royalties.

The Stripper Oil Well Property Royalty Rate Reduction Program,[1]
initiated by BLM, became effective on October 1, 1992. The
Program was to provide an economic incentive for operators to
maintain or restart production of marginal or uneconomic oil
wells on Federal onshore leases by drilling new wells, by
reworking existing wells, and/or by implementing enhanced oil
recovery projects.  The regulatory requirements for the Program
are at 43 CFR 3103.4-2.  The Secretary is required by 43 CFR
3103.4-2(5) to evaluate the effectiveness of the Program, and
this provision allows the Secretary to terminate any or all
royalty rate reductions granted under the Program upon a 6-month
notice any time after  September 10, 1997.  On February 18, 1998,
the Department of the Interior extended the Program for an
indefinite period. 

The operator is required to submit a notification of Program
participation on Form MMS-4377, "Stripper Royalty Rate Reduction
Notification," which includes the operator's lease or agreement
number, qualifying period, and  reduced royalty rate. The
operator is required to calculate the reduced royalty rate using
production and injection information  reported on the "Monthly
Report of Operations" (Form MMS-3160).[2]  The operator
calculates the average production of oil per well per day by
dividing the total oil production during the qualifying period by
the total number of producing or injecting well[3] days.  The
resulting average is rounded down to the nearest whole barrel
regardless of the amount.  The reduced royalty rate becomes
effective on the first day of the month after MMS receives the
notification.  The operators of the properties included in the
Program are allowed to pay Federal royalty rates ranging from 0.5
to 11.7 percent of the value of a barrel of oil (see Appendix 2).
These rates are below the standard onshore rate of 12.5 percent. 

To qualify for the Program, eligible wells must either produce
oil or serve as an injection well for any period of time during
the initial 12-month qualifying period, a preceding period, or a
subsequent 12-month period.  The qualifying period is used to
determine the amount of production and the royalty rate that
would be effective on or after October 1, 1992.  In calculating
the royalty rate, operators are required to use either the
initial qualifying period, which was August 1, 1990, through July
31, 1991, or if shut-in[4] during this period, the 12-month
production period immediately prior to the shut-in.  Further,
properties not qualifying during or prior to the initial
qualifying period are required to use the first consecutive
12-month qualifying period beginning after August 31, 1990.  In
addition, participating operators can submit notifications for
further reduced royalty rates subsequent to their initial
participating rate if production levels continue to decline
(these subsequent periods are referred to as outyears).  After
the first outyear notification is filed, a notification is
required thereafter for each subsequent 12-month period or the
royalty rate reverts to the initial reduced royalty rate.  Each
outyear notification is due within 60 calendar days after the
applicable 12-month period.

Both BLM and MMS are responsible for the Program.  BLM is
responsible for promulgating the Program regulations;
establishing policies and procedures; conducting all
on-the-ground inspections to verify producing volumes and
producing days; and reviewing production anomalies that are
identified by MMS, which are unexplained differences between
reported production from the operator's monthly reports and the
notification.  MMS is responsible for confirming the reduced
royalty rate information provided by the operator on the form
"Stripper Royalty Rate Reduction Notification."  In confirming
the reduced royalty rate, MMS compares information submitted in
the notification with production and well status data previously
submitted in the "Monthly Report of Operations."  The information
confirmed by MMS includes the following: the Federal mineral
interest in the property, the identification and the proper
description of the property, and the operator's status as the
current operator of the property.   MMS also confirms that wells
meet the Program definition of a producing oil or injection well,
that reported production is complete, and that the corresponding
reduced royalty rate is accurate.  Upon completion of this
review, MMS notifies the operator that the calculated rate has
been confirmed, adjusted, or disqualified.

As of September 30, 1999, approximately 850 operators and 4,100
properties were participating in the Program.  Royalty rate
reductions during the period of October 1, 1992, through December
31, 1998, totaled more than $139 million (see Appendix 3).
Stripper oil properties included single leases, communitization
agreements, and units and ranged in size from a single well to
more than 1,300 wells per property. 

SCOPE OF AUDIT

Our audit fieldwork was conducted during March through July 1999
at  MMS's Royalty Management Program office in Lakewood,
Colorado, and  BLM's Fluid Minerals Office in Washington, D.C.
In addition, we contacted or visited BLM, state, and industry
officials at the offices and locations listed in Appendix 4.  To
meet our audit objective, we selected 8 New Mexico and 6 Wyoming
properties (see Appendix 5) from a list of the 100 largest
benefiting properties in 1997.  The properties were selected
based on the number of producing days per well and the number of
wells included on the operators' monthly reports.  Our objective
was to determine whether the error of overreported production
days identified by the Comptroller of the State of California
(see Prior Audit Coverage) was a systemic problem.  For these
properties, we examined BLM and MMS records and contacted
operators or performed site visits to the offices of 5 of the 10
operators that were responsible for the 14 properties reviewed.
We obtained information from participating operators supporting
the monthly reports such as daily production logs, water
injection records, and well-production test records. 

Our audit was made in accordance with the "Government Auditing
Standards," issued by the Comptroller General of the United
States.  Accordingly, we included such tests of records and other
auditing procedures that were considered necessary to accomplish
our objective.  We also reviewed the Department of the Interior's
Accountability Report for fiscal year 1998, which includes
information  required by the Federal Managers' Financial
Integrity Act of 1982, and BLM's annual assurance statement on
management controls to determine whether any reported weaknesses
were within the objective and scope of our audit.  Neither the
Accountability Report nor BLM's assurance statement addressed
BLM's involvement in the Program.  In addition, we evaluated
BLM's system of internal controls related to the Program.  The
internal control weaknesses we found are discussed in the Results
of Audit section of this report.  Our recommendations, if
implemented, should improve the internal controls in the areas
reviewed. 

PRIOR AUDIT COVERAGE

During the past 5 years, the General Accounting Office has not
issued any audit reports on the Program.  However, in August
1999, the Office of Inspector General issued the report
"Processing Notifications for the Stripper Oil Well Property
Royalty Rate Reduction Program, Minerals Management Service" (No.
99-I-782), which addressed the second part of our audit
objective.  The report stated that MMS did not timely confirm
notifications it received and did not timely input the confirmed
reduced royalty rates or review differences in the royalty rates
confirmed with the royalty rates paid for properties
participating in the Stripper Oil Well Property Royalty Rate
Reduction Program.  The report made two recommendations for MMS
to develop and implement a plan to (1) eliminate the Stripper Oil
Well Property Royalty Rate Reduction Program notification
processing and data entry backlog and to approve future
notifications in a timely manner and (2) review Program
exceptions generated by the automated matching process and
collect underpaid royalties from operators. Based on MMS's
response, we considered the first recommendation resolved and
implemented and the second recommendation resolved but not
implemented.  

As discussed previously (see Scope of Audit), the Controller of
the State of California issued an October 30, 1998, audit report
on royalties reported by a production company for its Program
leases located in California for the period of January 1, 1993,
through December 31, 1995.  The report said that the company
overstated well-production days on its "Monthly Report of
Operations" during the qualifying period for the Stripper Oil
Well Property Royalty Rate Reduction Program.  According to the
State auditors, a primary factor causing the misreporting was
that the company's automated system reported all days of a month
as producing unless adjustments were made based on manually
generated reports showing when a well was inactive (well
downtime).  Adjustments for well downtime often were not input
into the automated system.  The report also stated that
overstated well-production days were the main factor for the
royalty rate to be adjusted from 2.1 percent to 2.9 percent,
which resulted in royalty underpayments of more than $500,000.
The company agreed with the conclusions and subsequently paid the
underpaid royalties.  

RESULTS OF AUDIT

We found that the "Monthly Report of Operations" (Form MMS-3160)
prepared by operators and used to support reduced royalty rate
determinations for the Stripper Oil Well Royalty Rate Reduction
Program showed  production days that were inaccurate or that
often could not be supported with operator documentation.
Operators are required by 43 CFR 3162.4-3 to accurately disclose
all operations conducted on each well during each month.
However, BLM (1) did not provide sufficient oversight of
operators to ensure that information on the production days was
correct and (2) did not establish Program policies and procedures
to enable participating operators to accurately compute their
reduced royalty rates and for MMS Program staff to accurately
review and confirm the reduced royalty rates provided by the
operators.  For the 14 Program properties reviewed, we found that
5 properties had inaccurate rates, which may result in underpaid
royalties of about $1.27 million, and that 7 properties had
unsupported rates, which may result in increased royalties of
$3.22 million (see Appendix 5).  In addition, we found that
reviews were conducted by state auditors from the States of
California, New Mexico, and Oklahoma on six additional
properties.  Of the six properties, four had inaccurate rates,
which resulted in underpaid royalties of about $847,000, and one
property had an unsupported rate, which may result in increased
royalties of $25,000.  Of the 20 properties, 17 had inaccurate or
unsupported rates, which resulted in actual or potential
underpaid royalties totaling about $5.36 million (30.8 percent).
If the 30.8 percent potential underpaid royalty error rate is
representative of the $139.7 million in total reduced royalty
Program benefits received, the total potential for underpaid
royalties could be as much as $43.02 million, which is
attributable to inaccurate rates ($16.90 million) and unsupported
rates ($26.12 million).   

Participating Program operators are required by 43 CFR 3103.4-2
to calculate reduced royalty rates using production data,
including well-production days as reported on the monthly
reports. Monthly reports are required by  43 CFR 3162.4-3 to
disclose accurately all operations conducted on each well during
each month.  Specifically, 43 CFR 3162.4-3  states that "it is
particularly necessary that the report show for each calendar
month: . . . The number of days each well produced, whether oil
or gas, and the number of days each input [injection] well was in
operation."   According to 43 CFR 3161,  BLM is responsible for
all operations conducted on Federal onshore leases, including the
approval, inspection, and regulation of oil and gas operations.   

Record maintenance and retention requirements are established in
Section 103 of the Federal Oil and Gas Royalty Management Act of
1982. The Act requires  records to be maintained for 6 years
after the records are generated unless the Secretary notifies the
record holder that he has initiated an audit or an investigation
involving such records and requires such records to be maintained
for a longer period.  The Federal Oil and Gas Royalty
Simplification and Fairness Act of 1996 amended sections of the
Federal Oil and Gas Royalty Management Act of 1982.   Section 115
of the 1996 Act established a 7-year period for the retention of
records from the date an obligation becomes due.  This 7-year
period (30 U.S.C. *1724(f)) applies to oil and gas produced after
September 30, 1996. 

Our audit was designed to determine whether the error of
overreported production days  identified by the Controller of
California (see Prior Audit Coverage) was  systemic.  We
determined that California, New Mexico, and Wyoming properties
received more than 91 percent of the royalty rate reductions
provided through the end of calendar year 1998 (see Appendix 3).
Based on our review of the 14 properties (see Appendix 5), we
found that only 2 properties had accurate and supported Program
rates.  Of the remaining 12 properties, 9 properties had
deficiencies related to inaccurate or unsupported production
days.  Three of the nine properties had inaccurate rates with
sufficient records for recalculation, one property  had an
inaccurate rate with insufficient records for recalculation, and
five properties had no records to support their Program rates.
The remaining three properties had deficiencies related to
insufficient Program policies and procedures.

Production Days  

BLM did not provide adequate oversight to ensure that operators
participating in the Program accurately reported well-production
days on their monthly reports used in their reduced royalty rate
determinations.  Because reduced royalty rates were based on the
average production per day per well during the qualifying period,
the number of  producing days reported was a critical part of the
reduced royalty rate calculations.  BLM officials stated that
producing days reported on the "Monthly Report of Operations "
were normally not verified by BLM oil and gas inspectors because
production days were not considered to be an essential factor
when production totals were verified.  In addition, BLM did not
have Program policies and procedures to ensure that operators
retained records supporting their claimed reduced royalty rates.
These deficiencies are detailed in the paragraphs that follow.

Sufficient Records for Recalculation.  We identified three
properties for which well-production days were misreported during
the qualifying period and for which records were sufficient for
us to recalculate the proper reduced royalty rates.  Based on our
recalculations, we found that royalties were underpaid by
$1,037,953 for the three properties as follows:

- In September 1992, an operator of a New Mexico property
submitted an initial notification claiming a reduced royalty rate
of 1.3 percent effective in October 1992.  The claimed rate was
confirmed by MMS in March 1993.  The rate calculation was based
on the monthly reports, which showed only one producing oil well
that produced 61 barrels of oil during 52 well-production days.
In March 1999, we obtained daily production logs from the
operator  for this property in support of the monthly reports.
Our review of these records indicated that the well was producing
oil for between 4 and 6 days during the qualifying period.  The
operator agreed with our findings and acknowledged that the
production days shown on the monthly reports were incorrect,
which resulted in a reduced royalty rate that was also incorrect.
Further, a BLM Washington Office Program official  reviewed the
operator's field records and concluded that the records supported
only 4 well-production days.  Consequently, using the 4
production days and the 61 barrels of oil, we determined that the
property averaged more than 15 barrels of oil per day, which made
it ineligible for a reduced royalty rate.  Based on our
recalculation of the royalties that were paid for the period of
October 1, 1992, through December 31, 1998, we determined that
the operator underpaid royalties by $888,416.  

- In September 1992, an operator of a Wyoming property submitted
an initial notification claiming a reduced royalty rate of 11.7
percent effective in October 1992.  The claimed rate was
confirmed by MMS in October 1994.  The rate calculation was based
on the monthly reports, which showed three producing oil wells
and two water injection wells that produced  20,178 barrels of
oil over a period of 680 producing and 672 injecting days (1,352
total days).  In March 1999, we obtained oil well-production test
records from the operator for this property that purportedly
supported the production data shown on the monthly reports.  Our
review of these production rate tests indicated that the reported
volumes were produced in 1,194 days, which was 158 fewer days
than the 1,352 days reported on the monthly reports.
Consequently, using 1,194 producing days and 20,178 barrels of
production, we determined that  the property produced more than
15 barrels of oil per day and was therefore ineligible for a
reduced royalty rate.  The operator agreed that a discrepancy
existed between the operator's well test records and the reported
monthly production and said that he would provide us with
additional information to explain the discrepancies.  However, we
had not received the information as of October 1999.  Based on
our recalculation of the royalties paid for the period of October
1, 1992, through December 31, 1998, we determined that the
operator underpaid royalties by $76,935.   

- In September 1992, the same Wyoming operator in the previous
example submitted a notification for another property.  Our
review disclosed similar reporting discrepancies.  We performed
the same recalculation and determined that for the same period,
the operator underpaid royalties by $72,602 on this property.

Incomplete Records.  One property for which well-production days
were  misreported during the qualifying period had records that
were not sufficiently adequate for us to accurately recalculate
the proper reduced royalty rate for the property. However, based
on available information, we determined that  royalties were
underpaid by as much as $672,384 for the property.  Specifically,
in September 1992, an operator of a New Mexico lease submitted an
initial notification claiming a reduced royalty rate of 6.1
percent effective in October 1992.  The claimed rate was
confirmed by MMS in January 1993.  The rate calculation was based
on the monthly reports, which identified 46 producing oil wells
and 8 water injection wells with production of 143,796 barrels of
oil over a period of 16,637 producing and 2,920 injecting days
(19,557 total days).  In March 1999, we obtained daily tank
gauging reports from the operator for this lease in support of
production data that were reported on the monthly reports.  Based
on our review, we found that the operator had reported all 19,557
possible elapsed calendar days for the producing and injecting
wells during the qualifying period.  Based on discussions with
BLM personnel, we determined that it was not reasonable for the
54 wells to produce or inject every day of the year.   The
operator stated that its reporting system is automated and
contains a default which reports all days during each month as
producing unless the system is changed manually. In addition, the
operator stated that field personnel would make written notes of
well downtime but that these records were not retained.  The
president of the operating company stated that "there is not a
stripper well in New Mexico that would operate 365 days a year."
Regarding water injection records, we noted that 240 days were
reported as injecting when meter readings indicated that
injection had not occurred.  The operator also concurred that
these data may have been misreported. The operator was able to
provide only one well test record for a single well of the 46
producing oil wells.  The record for the one well showed oil
production of 76 barrels over 8 days (average production of 9.5
barrels per day) versus production of 92 barrels over the full 31
days  reported on the monthly report for this well.  Based on the
well test average production of 9.5 barrels per day, we concluded
that the reported production of 92 barrels would be produced in
about 10 days.  Based on our conclusion that the wells could not
have been operating for every day during the qualifying period,
on documentation obtained on water injection well meter readings
and one well test record, and on statements made by the president
of the property's operating company, we considered this rate to
be unsupported.  Consequently, we recalculated the royalties paid
for the period of October 1, 1992, through December 31, 1998,
using the standard onshore  12.5 percent royalty rate and
concluded that the operator did not support royalty reductions of
$672,384. 

Lack of Records.  The current operators of five properties could
not provide documentation supporting the  eligibility of their
properties for royalty rate reductions.  These operators all
stated that they had purchased the participating property from a
previous qualifying Program operator and that records supporting
the reduced royalty rate were not provided at the time of sale.
We attempted to contact the previous operators of these
properties and were able to contact  two of them, who also stated
that they were unable to locate the records.  However, one
previous operator told us that records such as well test records,
pumper logs, downtime reports, and tank gauging reports are
normally given to the purchaser when a property is sold.  

Each of the five properties for which we requested records had
reported high numbers of producing days during the qualifying
period.  Specifically, production days reported on the monthly
reports during the qualifying periods averaged 96.2 percent of
the total number of days in the year (the range was from 84
percent to 100 percent of the available days).  As stated in the
section "Incomplete Records," BLM officials and an operator told
us that stripper and associated injection wells are frequently
down for reasons such as  workovers (cleaning out a well that has
sanded up, pulling tubing, washing out the bottom of the well
with mud or acid, or using explosives to dislodge sand or silt);
maintenance activities (such as hot oiling to remove paraffin wax
buildup); and work on pumps, motors, pipelines, and oil storage
tanks.  Wells may also be down for regularly scheduled periods of
time to allow oil or gas to migrate to areas of low pressure,
such as the area surrounding the well bore of a producing well.
Consequently, because records were lacking and the number of
reported producing days was high, we concluded that the five
properties should not qualify for the reduced rates claimed by
the four operators.  We determined that reduced royalties for
these five properties totaled $2,395,865 for the period of
October 1, 1992, through December 31, 1998. 

Program Policies and Procedures

BLM did not establish Program policies and procedures for
participating operators and for MMS Program staff to ensure the
accuracy of reduced royalty rate determinations.  Specifically,
policies and procedures were not established to address certain
situations that would impact the operators' calculation of
reduced royalty rates related to (1) the use of load oil in
fracturing;[5] (2) multiple completions,[6] commonly known as
down hole commingling and multiple completion wells;[7] and (3)
water injection in a nonproducing formation on that property.  We
determined  that the failure to consider these situations
resulted in  inaccurate Program royalty rate determinations.  For
the 14 sampled properties, we identified 3 properties with these
situations that required technical interpretation and guidance by
BLM officials. These officials acknowledged that these situations
had not been anticipated when the Program was established.  Based
on our discussions and recalculations, we determined that
royalties were underpaid for the three properties by $383,131, as
described in the paragraphs that follow.

Fracturing.  In November 1994, an operator of a Wyoming property
submitted an initial notification claiming a reduced royalty rate
of 6.1 percent effective in December 1994.  The claimed rate was
subsequently recalculated and confirmed by MMS at 5.3 percent.
The rate calculation was based on the monthly reports that
identified two oil wells with production of 4,090 barrels of oil
over 648 producing days.  In March 1999, we obtained
well-production test records from the operator for this property
in support of the monthly reports. Our review of these records
revealed large production volume reporting discrepancies between
the well-production test volumes and the volumes reported on the
monthly reports.  For example, in October 1993, the operator
reported production of 326 barrels of oil over 31 claimed
production days, while the well test records showed production of
716 barrels of oil over just 18 test days.  Similarly, in
December 1993, the operator reported no oil production over 31
claimed production days, while the well test records showed
production of 209 barrels of oil over just 10 test days.  The
operator told us that the reporting discrepancies were due to
recovering oil used on the property for fracturing the formation.
In this case, the operator was using load oil[8] to fracture the
formation.  For the subsequent recovery of this oil, the operator
appropriately did not report the load oil as production but did
report the number of days it took to recover the load oil as
producing days.  While BLM had no formal policy and procedure on
fracturing with load oil as it relates to calculating reduced
royalty rates for the Program, BLM Program officials have taken
the position that neither recovered load oil nor days spent
recovering load oil for fracturing should be considered for
reduced royalty rate calculations.  As with the preceding
examples, we used the well test records to calculate the expected
number of well-production days.  This calculation resulted in a
decrease of qualifying days from 648 to 358.  At 358 production
days and 4,090 barrels of production, the property qualifies for
a reduced royalty rate of 9.3 percent rather than the 5.3 percent
claimed.  Based on our recalculation of the royalties paid for
the period of November 1, 1993, through December 31, 1998, we
determined that the operator underpaid royalties by $39,671. 

Multiple Completions and Multiple Completion Wells.  In September
1992, an operator of a New Mexico property submitted an initial
notification claiming a reduced royalty rate of 5.3 percent
effective in October 1992,  and the rate claimed was confirmed by
MMS in March 1993.  The rate calculation was based on the monthly
reports that identified 13 producing oil wells with production of
31,432 barrels of oil over 4,501 well-producing days.  In March
1999, we obtained daily production logs from the operator in
support of the monthly report.  Based on our review of the
monthly report, we found that 8 of the 13 oil wells reported were
multiple completions with down hole commingled production[9]
which was produced from only 3 oil wells.  According to BLM
Program officials, BLM has no written policy for the Program on
multiple completions that are commingled down hole.  However,
these officials told us that multiple completions with commingled
production should be counted as only one well.  Accordingly, the
eight wells reported on the operations report should have been
reported as only three wells.   We recalculated the
well-production days based on 8 wells instead of 13 wells, which
reduced the well-producing days to 2,684.  At 2,684 producing
days and 31,432 barrels of production, the property qualifies for
a reduced royalty rate of 9.3 percent instead of the 5.3 percent
rate claimed.  Based on our recalculation of the royalties paid
for the period of October 1, 1992, through December 31, 1998, we
determined that the operator underpaid royalties by $190,927.  

BLM also did not have a written policy and procedure for
calculating reduced royalty rates for properties containing
multiple completion wells.  BLM Program  officials stated that in
the case of a multiple completion wells, each producing tubing
string[10] should be counted as an individual well.  MMS Program
officials who reviewed and confirmed the operator's reduced
royalty rate said that they had not received guidance on how to
count multiple completions or multiple completion wells and had
assumed that multiple completions should be counted as multiple
wells regardless of commingling.  

Water Injection in a Nonproducing Formation.  In September 1992,
an operator of a Wyoming lease submitted an initial notification
claiming a reduced royalty rate of 2.9 percent effective in
October 1992.  Subsequent to MMS's review of that rate, the
operator submitted amended monthly reports, and MMS confirmed a
2.1 percent rate.  The rate calculation was based on the amended
monthly reports, which showed two producing oil wells and three
water injection wells with production of 3,902 barrels of oil
over a period of 535 producing and 994 injecting days (1,529
total days).  In March 1999, we obtained well-production test
records from the operator for this lease in support of the
monthly reports.  Based on our review of these records, we found
large reporting discrepancies between the well-production test
volumes and the volumes reported by the operator on the monthly
reports.  For example, during May, June, and July 1991, the
operator reported no oil production over 74 claimed production
days; however, the well test records identified production of 806
barrels of oil over just 28 tested days.  In addition, based on
our review of the amended monthly reports, we determined that the
operator claimed 446 injecting days during the period of December
1990 through July 1991 for injection to a formation which
produced no oil from the formation on that property.  BLM's
petroleum engineer for that area said that this injection was
either for the benefit of another lease or was a water disposal
well with no benefit to production and should not be counted as
an eligible Program well.  In April 1999, the operator agreed
that a discrepancy existed between the operator's well test
records and the reported monthly production.  Although the
operator agreed to provide us with additional information to
explain the discrepancies, we had not received this information
as of August 1999.  Based on the reporting discrepancies noted
and the absence of records to support the operator's amended
monthly reports and the operator's claimed rate, we considered
this rate to be unsupported.  Based on our recalculation of the
royalties paid for the period of October 1, 1992, through
December 31, 1998, we determined that the operator had underpaid
royalties by $152,533.

During this audit, we discussed our findings with BLM and MMS
officials and with state audit agency officials, including
discussions with these officials during our participation in the
April and June 1999 State and Tribal Royalty Audit Committee[11]
meetings, since some state audit agencies are responsible for
auditing Federal onshore leases within their boundaries.  BLM and
MMS officials agreed that there was a lack of policies and
procedures.  Further, some state officials agreed to amend their
annual audit plans to include audits of significant Program
properties.  To assist in this effort, MMS officials agreed at
the April Committee meeting to identify the top 100 properties
that benefited from the Program since the Program's inception.
BLM officials subsequently agreed to request records supporting
the reduced royalty rates for these properties.  Officials of
California, New Mexico, and Wyoming told us that they will begin
auditing these properties.  As previously stated, the Program's
properties in these states received more than 91 percent of the
royalty rate reductions provided through the end of calendar year
1998.  We have provided copies of our applicable working papers
to audit officials in New Mexico and Wyoming.

The 14 audited properties that we reviewed (see Appendix 5)
received reduced royalty Program benefits totaling about $6.94
million, and we identified 12 properties that had inaccurate or
unsupported rates, which resulted in actual or potential
underpaid royalties totaling about $4.49 million (64.7 percent).
Specifically, five properties had inaccurate rates with
approximately $1.27 million in underpaid royalties, and seven
properties had unsupported rates with $3.22 million in reduced
royalties in which some or all of the royalties may be underpaid.
In addition, the States of California, New Mexico, and Oklahoma
reviewed six additional properties that had received reduced
royalty Program benefits totaling about $10.48 million.  Of the
six properties, five had inaccurate or unsupported rates, which
resulted in potential underpaid royalties totaling about $872,000
(8.3 percent).  Specifically, four properties had inaccurate
rates with $847,000 in potential underpaid royalties, and one
property had an unsupported rate with $25,000 in reduced
royalties. The combined 20 properties reviewed had reduced
royalty Program benefits totaling about $17.42 million.  Of the
20 properties, 17 had inaccurate or unsupported rates, which
resulted in actual or potential underpaid royalties totaling
about $5.36 million (30.8 percent).  If the 30.8 percent
potential underpaid royalty error rate is representative of the
$139.7 million in total reduced royalty Program benefits
received, the total potential for underpaid royalties could be as
much as $43.02 million, which is attributable to inaccurate rates
($16.90 million) and unsupported rates ($26.12 million).   

We believe that BLM and MMS, in consultation with the states
which have Federal properties participating in the Program,
should develop an overall audit strategy for participating
properties other than the largest benefiting properties. Smaller
properties could be audited along with the largest benefiting
properties having the same operator, especially when systemic
errors are found.  For example, erroneous information for all of
an operator's leases may occur because the automated production
reporting systems  automatically report production days equal to
the number of days in the month unless the number of production
days is manually changed to reflect actual producing days.

In addition, BLM and  MMS need to develop  policy and procedures
for instances where the operators say that records prior to 1993
are no longer available.  Such  policies and procedures are
essential because while the program is entering its eighth year,
a 6-year records retention requirement applies to production
occurring prior to September 1, 1996.  For example, State of New
Mexico royalty auditors told us that they had initiated a review
on one stripper property but were unable to obtain the supporting
records.  The auditors subsequently notified the operator by
issue letter that the reduced rate would not be allowed unless
supporting documentation was provided.  The operator responded
that it could not locate the records and that it was required to
maintain those records for only 6 years after the records are
generated.  Based on our review of the top 100 benefiting
properties, we found that 57 properties had rates based on the
original qualification period of August 1990 through July 1991.
However, operators had filed for subsequent outyear rate
reductions on the remaining 40 properties; thus, the supporting
records for these reductions should be less than 6 years old.  At
a minimum, we believe that operators who cannot provide
documentation to support their reduced royalty rates should be
required to requalify for the Program. 

Further, we believe that BLM and MMS need to develop and
implement policies and procedures for reviewing supporting
documentation on future and existing notifications that  MMS has
not confirmed.  Our prior audit report (see Prior Audit Coverage)
noted that  MMS had a backlog of 589 notifications that it had
not confirmed.  Because of the 85 percent error or unsupported
rate (17 of the 20 properties reviewed) identified by this review
and in state auditors' reviews, we believe that supporting
documentation should be reviewed before MMS confirms that a
reduced royalty rate is warranted.

Recommendations

We recommend that the Directors of BLM and MMS:

1.Develop and implement a plan, in coordination with the states,
which ensures that the largest benefiting stripper oil well
properties are audited.  The plan should also  identify smaller
properties (other than the largest benefiting properties) for
audit and/or properties that can be audited in conjunction with
the largest properties.  

2.Develop a policy for participating Program operators which do
not have records prior to 1993 supporting their qualifying
information on the "Monthly Reports of Operations."  In addition,
consideration should be given to requiring requalification of
operators that cannot provide  documentation to support their
reduced royalty rates.

3.Develop Program policy and procedures which address the issues
of using load  oil in fracturing, multiple completions and
multiple well completions, injecting water in a nonproducing
formation, and other issues for reviewing and confirming the
reduced royalty rate notifications provided by the operators. 

4.Develop and implement a procedure to review supporting records
for future Program notifications submitted by operators and
existing notifications that MMS has not confirmed. 

BLM and MMS Response and Office of Inspector General Reply

In the January 27, 2000, response (Appendix 6) to the draft
report, the Acting Director, BLM, and the Director, MMS, agreed
with the report's four recommendations.  Subsequent to the
response, officials from BLM and from the Assistant Secretary for
Land and Minerals Management's office provided additional
information regarding Recommendations 2 and 4.  Based on the
response and the additional information, we consider
Recommendations 2 and 3 resolved and implemented and
Recommendations 1 and 4 resolved but not implemented.
Accordingly, the unimplemented recommendations will be referred
to the Assistant Secretary for Policy, Management and Budget for
tracking of implementation (see Appendix 7).

Regarding Recommendation 2, officials stated, in  March 3, 2000,
electronic correspondence,  that MMS will make referrals to the
states "for pursuit at their discretion" those cases in which
"operators claim that they have no documentation beyond the
statutory records retention period " and in which MMS "has
reasonable basis to doubt either the claims or the veracity of
their stripper royalty rate notifications."  The electronic
correspondence further stated that MMS "will incorporate
alternative compliance techniques to be used for such cases into
its routine compliance training programs" as appropriate.

Regarding Recommendation 4, the officials stated that BLM would
propose a rule or revised regulations by December 29, 2000, for
retaining supporting records for future notifications and
subsequent periods.  

**FOOTNOTES**

[1]:According to 43 CFR 3103.4-2, a stripper well property is
"any Federal lease or portion thereof segregated for royalty
purposes, a communitization agreement, or a participating area of
a unit agreement, operated by the same operator, that produces an
average of less than 15 barrels of oil per eligible well per
well-day for the qualifying period."  Also, 43 CFR 3105.2-2
states, "When a lease or portion thereof cannot be independently
developed and operated in conformity with an established
well-spacing or well-development program, the authorized office
may approve communitization or drilling agreements for such lands
with other lands whether or not owned by the United States, upon
a determination that it is in the public interest."  

[2]: The "Monthly Report of Operations" contains monthly
production data reported by operators for individual leases and
wells, including data on lease identification; well location;
well production of oil, gas, and water; number of days during the
month that each well produced or injected; and other data about
well site conditions and operations.  

[3]:According to 43 CFR 3103.4-1(c)(4), an eligible injection
well is a "well that injects a fluid for secondary or enhanced
oil recovery, including reservoir pressure maintenance
operations."

[4]: Shut-in wells are wells from which the lease operator has
temporarily stopped producing oil and gas because of economic or
other considerations but for which production may be restarted by
opening a valve or turning on a switch.

[5]:According to "Oil and Gas Terms" (by Howard R. Williams and
Charles J. Meyers, Matthew Bender, New York, 1997), fracturing
refers to "a process of opening up underground channels in
hydrocarbon-bearing formations by force, rather than by chemical
action such as acidizing."  Load oil may be utilized in hydraulic
fracturing, which is defined as "a mechanical method of
increasing the permeability of rock, and thus increasing the
amount of oil and or gas produced from it.  The method employs
hydraulic pressure to fracture the rock."     

[6]:According to "Oil and Gas Terms" (by Howard R. Williams and
Charles J. Meyers, Matthew Bender, New York, 1997), multiple
completion refers to "the completion of a single well into more
than one producing horizon.  Such a well may produce
simultaneously from the different horizons, or alternately from
each." 

[7]:According to "Oil and Gas Terms" (by Howard R. Williams and
Charles J. Meyers, Matthew Bender, New York, 1997), multiple
completion well refers to "a well producing from two or more
formations by means of separate tubing strings run inside the
casing, each of which carries crude oil from a separate and
distinct producing formation.  The separate tubing strings
distinguish this form of well from a commingled well, which
produces from two or more oil bearing formations through a single
tubing string in the common well casing." 

[8]:According to "Oil and Gas Terms" (by Howard R. Williams and
Charles J. Meyers, Matthew Bender, New York, 1997), load oil
refers, in part, to "oil injected into a well as part of a
fracturing operation."

[9]:According to "Oil and Gas Terms" (by Howard R. Williams and
Charles J. Meyers, Matthew Bender, New York, 1997), commingled
production refers to "production from two or more wells or leases
or oil-bearing formations commingled by an operator."   

[10]:Tubing strings are explained in footnote 7.

[11]:The State and Tribal Royalty Audit Committee is an
organization composed of  states and Indian tribes that have
audit agreements with MMS.

Since the report's recommendations are considered resolved, no
further response to the Office of Inspector General is required
(Appendix 7).

Section 5(a) of the Inspector General Act (5 U.S.C app. 3)
requires the Office of Inspector General to list this report in
its semiannual report to the Congress.  In addition, the Office
of Inspector General provides audit reports to the Congress.


APPENDIX 1

CLASSIFICATION OF MONETARY AMOUNTS[1]

-----------------------------------------------------------
Finding                       Potential Additional
Area                               Revenues*
                                 (In millions)
-----------------------------------------------------------
Royalties underpaid because of:
-----------------------------------------------------------
- incorrect royalty rates        $1.56[2] to $16.90
- unsupported royalty            $3.25    to $26.12
              rates
-----------------------------------------------------------
Total                           $4.81**  to $43.02
-----------------------------------------------------------


**FOOTNOTES**

[1]:These amounts are exclusive of the $3.5 million audit
exception reported in the August 1999 audit report "Processing
Notifications for the Stripper Oil Well Property Royalty Rate
Reduction Program, Minerals Management Service" (No. 99-I-782)
(see Prior Audit Coverage).

[2]:This amount is exclusive of an underpayment of more than
$500,000 identified by the State of California that the operator
subsequently paid (see Prior Audit Coverage).  

APPENDIX 2

ROYALTY RATES FOR THE
STRIPPER OIL WELL PROPERTY ROYALTY RATE 
REDUCTION PROGRAM

Average Barrels                 Reduced
of Oil Produced               Royalty Rate
Per Well Per Day               Percent[1]

          0                        0.5

          1                        1.3

          2                        2.1

          3                        2.9

          4                        3.7

          5                        4.5

          6                        5.3

          7                        6.1

          8                        6.9

          9                        7.7

         10                        8.5

         11                        9.3

         12                       10.1

         13                       10.9

         14                       11.7


**FOOTNOTES**

[1]:The standard onshore Federal royalty rate as of December 1999
was 12.5 percent for 15 or more average barrels of oil produced
per well per day.

APPENDIX 3

SCHEDULE OF ESTIMATED ANNUAL 
STRIPPER OIL WELL PROPERTY ROYALTY RATE
REDUCTIONS PROVIDED BY STATE


STATE   1992   1993   1994   1995   1996   1997   1998      Total

Alabama   $672   $2,359   $2,146   $1,974   $1,574   $1,876 
$1,072   $11,673

California[1]       569,181   1,685,248   1,693,639  1,740,660
2,148,081   6,195,428         3,351,905        17,384,142

Colorado*           83,493      207,191     249,630     362,120
325,791      314,448     185,249          1,727,922

Illinois              1,309        10,478         8,500
7,116         6,707        12,696         8,178
54,985

Kansas                1,012        87,256     104,839
92,756       87,769        98,380       53,028
525,040

Kentucky              2,825        31,971       35,770
31,872       28,739        26,247       13,829
171,253

Louisiana*            1,052          7,250         8,981
8,021         9,657        19,906       10,763
65,631

Michigan                     0          0         2,977
12,343         5,782          8,000         1,382
30,485

Mississippi         10,740        42,659       38,806
27,262       25,701        31,894       15,923
192,985

Montana*            43,245      226,169     198,564     231,954
189,920      219,736     118,629          1,228,216

Nebraska                     0             459            836
782         1,071          6,763       29,824
39,735

New Mexico*    2,167,788   8,030,576
9,282,29510,512,81911,516,695 15,122,579  9,643,011
66,275,763

Nevada                       0                 0                0
0                0          1,895        5,374
7,269     

North Dakota*                  16,217        39,288       42,350
44,890       40,888        49,819        1,046
234,499

Ohio                  1,105          6,910         8,781
8,763       10,817        44,594      26,248             107,217

Oklahoma*           59,158        65,429       55,984
56,253       70,471        83,806      43,592             434,692

Pennsylvania                  0   0                0
0                0          2,366        1,027
3,393

South Dakota              474          2,262            407
5,791         4,556          3,959           302
17,752

Texas*              15,446        72,814       66,918
60,612       62,661        83,100      63,947             425,498

Utah*             138,446      693,100     999,760  1,097,454
1,092,823   1,298,732    970,115          6,290,430

Wyoming*       1,912,577   7,417,172  7,792,807   8,000,065
7,549,482   7,503,793 4,318,587         44,494,483

TOTALS         $5,024,740    $18,628,591   $20,593,990
$22,303,507  $23,179,185  $31,130,017  $18,863,031  $139,723,063


**FOOTNOTES**

*States with Section 205 agreements authorized by the Federal Oil
and Gas Royalty Management Act.  Although the State of Alaska
also has a Section 205 agreement, no Federal oil properties in
the State participate in the Program.  

APPENDIX 4

OFFICES AND SITES VISITED AND/OR CONTACTED

OFFICES AND SITES                             LOCATION  

Department of the Interior
Bureau of Land Management
Division of Fluid Minerals                   Washington, D.C.
Carlsbad Resource Area                   Carlsbad, New Mexico
Hobbs Resource Area                         Hobbs, New Mexico
Roswell District Office[2]                Roswell, New Mexico
Wyoming State Office*                       Cheyenne, Wyoming
Casper District Office                        Casper, Wyoming
Pinedale Field Office                       Pinedale, Wyoming
Rawlins District Office                      Rawlins, Wyoming

Minerals Management Service
Royalty Management Program Office          Lakewood, Colorado

State of California
Oil and Gas Unit, Division of Audits   Sacramento, California

State of New Mexico
Bureau of Oil and Gas                    Santa Fe, New Mexico

State of Wyoming
Mineral Audit Division                      Cheyenne, Wyoming

Program Operators
Amoco Production Company                    Bair Oil, Wyoming
Conoco*                                  Ponca City, Oklahoma
Devon Energy Corporation                  Artesia, New Mexico
Enron Oil and Gas                          Big Piney, Wyoming
Marathon Oil Company*                           Cody, Wyoming
Mack Energy Corporation*                  Artesia, New Mexico
Marbob Energy Corporation                 Artesia, New Mexico
North Finn, LLC*                              Casper, Wyoming
Plains Petroleum Operating Co.*                Midland, Texas
Texaco Exploration and ProductionHobbs,            New Mexico

**FOOTNOTES**

[2]:Contacted only.

APPENDIX 5

-----------------------------------------------------------
RESULTS OF PROPERTIES REVIEWED
-----------------------------------------------------------
Additional/
Audited              Unsupported
Property  Rate  Audited    Royalty    Royalties   Royalties
Paid     
Number  Paid    Rate     Amount                   Due      
-----------------------------------------------------------
PRODUCTION DAYS
-----------------------------------------------------------
Sufficient Records for Recalculation
-----------------------------------------------------------
1        1.3%   12.5%      $991,536    $103,120   $888,416
-----------------------------------------------------------
2       11.7%   12.5%    626,553     549,618     76,935
-----------------------------------------------------------
3        5.3%    6.1%    303,592     230,990
72,602
-----------------------------------------------------------
Subtotal                                    $1,037,953
-----------------------------------------------------------
Incomplete Records
-----------------------------------------------------------
4        6.1%   12.5%    $1,018,708    $346,324   $672,384*
-----------------------------------------------------------
Subtotal                                      $672,384
-----------------------------------------------------------
Lack of Records
-----------------------------------------------------------
5        6.1%   12.5%    $2,320,429  $1,132,369 $1,188,060*
-----------------------------------------------------------
6        6.1%   12.5%    1,175,620    476,012      699,608*
-----------------------------------------------------------
7        1.3%   12.5%    361,414      37,587       323,827*
-----------------------------------------------------------
8       10.9%   12.5%     297,493     211,589       85,904*
-----------------------------------------------------------
9        8.5%   12.5%     331,869      233,403      98,466*
-----------------------------------------------------------
Subtotal                                          2,395,865
-----------------------------------------------------------
Subtotal             $7,427,214  $3,321,012      $4,106,202
(Production Days)
-----------------------------------------------------------
PROGRAM  REGULATIONS
-----------------------------------------------------------
Fracturing
-----------------------------------------------------------
10       5.3%    9.3%       $92,235     $52,564    $39,671
-----------------------------------------------------------
Multiple Completion and Multiple Completion Wells
-----------------------------------------------------------
11       5.3%    9.3%      $443,907    $252,979   $190,928
-----------------------------------------------------------
Water Injection Into a Non-Producing Formation
-----------------------------------------------------------
12       2.1%   12.5%      $183,342     $30,810  $152,532*
-----------------------------------------------------------
Subtotal (Program      $719,484    $336,353   $383,131
Regulations)
-----------------------------------------------------------
Total            $8,146,698  $3,657,365 $4,489,333
-----------------------------------------------------------
NO PROGRAM EXCEPTIONS
-----------------------------------------------------------
13       6.9%    6.9%      $625,653    $625,653  0
-----------------------------------------------------------
14       2.9%    2.9%      $436,007    $436,007  0
-----------------------------------------------------------
$1,061,660  $1,061,660   Total0
-----------------------------------------------------------
Grand            $9,208,358  $4,719,025 $4,489,333
Total
-----------------------------------------------------------

*Unsupported royalties due.
-----------------------------------------------------------


APPENDIX 6
Page 1 of 5

APPENDIX 6
Page 2 of 5

APPENDIX 6
Page 3 of 5

APPENDIX 6
Page 4 of 5

APPENDIX 6
Page 5 of 5


APPENDIX 7

STATUS OF AUDIT REPORT RECOMMENDATIONS

Finding/Recommendation
Reference                    Status         Action Required 

1 and 4              Resolved; not            No further response
                                                    to the Office
                     implemented             of Inspector General
                                                     is required.
                                      The recommendations will be
                                        referred to the Assistant
                                            Secretary for Policy,
                                        Management and Budget for
                                     tracking of implementation. 

2 and 3              Implemented.            No further action is
                                                        required.




ILLEGAL OR WASTEFUL ACTIVITIES SHOULD BE REPORTED

TO THE OFFICE OF INSPECTOR GENERAL BY:

Sending written documents to:



Within the Continental United States

U.S. Department of the Interior
Office of Inspector General
1849 C Street,N.W.
Mail Stop 5341
Washington, D.C. 20240

Calling:

Our 24 hour
Telephone HOTLINE
1-800-424-5081 or
(202) 208-5300

TDD for hearing impaired
(202) 208-2420 or
1-800-354-0996



Outside the Continental United States


Caribbean Region

U.S. Department of the Interior
Office of Inspector General
Eastern Division- Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

Calling:
(703) 235-9221


North Pacific Region

U.S. Department of the Interior
Office of Inspector General
North Pacific Region
238 Archbishop F.C. F'lores Street
Suite 807, PDN Building
Agana, Guam 96910


Calling:
(700) 550-7428 or
COMM 9-011-671-472-7279