[Biennial Report on the Federal Royalty Management System for Fiscal Years 1994 and 1995]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 97-I-408

Title: Biennial Report on the Federal Royalty Management System
       for Fiscal Years 1994 and 1995

Date: February 19, 1997


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United States Department of the Interior
OFFICE OF INSPECTOR GENERAL

C-IN-MOA-O05-94

To:       The Secretary

From:          Wilma A. Lewis
          Inspector General

Subject Summary: Biennial Report on the Federal Royalty Management System for Fiscal Years
1994 and 1995 (No. 97-I-408)

This is the sixth biennial report issued by the Office of Inspector General. This report was
prepared in accordance with Section 302(b) of the Federal Oil and Gas Royalty Management
Act of 1982, which requires the Office of Inspector General to conduct a biennial audit of the
Federal Royalty Management System and report the results to the Congress and the Secretary
of the Interior. We prepared this report based on the results of 11 audit reports that were
issued by the Office of Inspector General and 1 audit report issued by the General Accounting
Ofllce during the biennial period.

Based on our audits of the Royalty Management System, we concluded that the Minerals
Management Service had made significant progress in implementing the recommendations
fi-om the Task Force on Royalty Compliance and that the Bureau of Land Management had
discontinued the rental rate reduction for oil and gas leases issued before 1987. These
changes, made during the past 2 years, should enhance royalty collections. However, the
Service needs to make fbrther improvements in the following areas: (1) documenting royalty
settlement negotiations; (2) monitoring transportation and processing allowance deductions;
(3) verifiing operator compliance with requirements to accurately and promptly report
production and sales quantities; and (4) managing offshore oil and gas lease abandonment.
The Bureau needs to make improvements in the following areas: (1) developing and
implementing its oil and gas Inspection and Etiorcement Program Strategy and providing
oversight of its bonding and well-abandonment requirements and practices; (2) providing
oversight of common carrier pipeline requirements in California; and (3) managing onshore
oil and gas leasing activities. The 12 audit reports had monetary impacts totaling over $92
million on various aspects of the Royalty Management System: 7 relating to the Minerals
Management Service ($3 1 million) and 5 relating to the Bureau of Land Management ($61
million). Overall, the reports made 28 recommendations to correct the deficiencies identified
in these reports. The responsible agencies either concurred with or provided sufficient
information to resolve all of the recommendations.

In terms of revenues, the Department of the Interior collected royalties, rents, and bonuses
of $4.3 billion in fiscal year 1994 and $3.6 billion in fiscal year 1995. Part of these revenues
were generated from Service, state, and tribal audits of royalty payers. Service audits of
royalty payers resulted in the collection of royalties and the denial of refired requests totaling
$236.5 million ($236.3 million in collections and $.2 million in denials of refind requests) in
fiscal year 1994 and $173.3 million ($1 73 million in collections and $.3 million in denials of
reiind requests) in fiscal year 1995. State and tribal audits of royalty payers resulted in the
collection of an additional $31.3 million in fiscal year 1994 and $42.3 million in fiscal year
1995.

This report does not make any new recommendations because each of the 12 audit repocts
contained specific recommendations to the appropriate Departmental officials at the time each
report was issued.  The Department has generally been responsive to the audit
recommendations and has made the suggested improvements to the Royalty Management
System. In addition, the Service provided a synopsis of its Royalty Management Program
accomplishments during this biennial period, which we have included as Appendix 4.

cc:  Assistant Secretary - Land and Minerals Management
  Assistant Secretary - Indian AfFairs
 Subject: Biennial Report on the Federal Royalty Management System for Fiscal Years
1994 and 1995 (No. 97-I-408) 


CONTENTS

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1
OBJECTIVE AND SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1

RESULTSOFBIENNIAL REVIEW FOR
FISCAL YEARS 1994AND 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . ...3

A. IMPROVEMENTS MADEINTHE ROYALTY
MANAGEMENT SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . ...3
B. IMPROVEMENTS NEEDED IN THE ROYALTY
MANAGEMENT SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . ...5

APPENDICES

l. AUDIT REPORTSISSUED. . . . . . . . . . . . . . . . . . . . . . . . . . ..10
2. ESTIMATED DOLLAR IMPACT OF REPORTS INCLUDED IN
THE BIENNIAL REPORTFORFISCAL YEARS 1994AND 1995 . . 12
3. STATUS OF PRIOR AUDIT REPORT RECOMMENDATIONS . . . . 13
4. SYNOPSIS OF ACCOMPLISHMENTS OF THE
  MINERALS MANAGEMENT SERVICE'S
  ROYALTY MANAGEMENT PROGRAM
  FOR FISCAL YEARS 1994 AND 1995 . . . . . . . . . . . . . . . . . . 14

 
INTRODUCTION

BACKGROUND

The Federal Oil and Gas Royalty Management Act of 1982 requires the Secretary of the
Interior to establish comprehensive inspection, fiscal and production accounting,
collection, and auditing systems. These systems are required to provide the capability to
accurately determine oil and gas royalties, interest, fines, penalties, fees, deposits, and
other payments owed and to collect and distribute such amounts in a timely manner.

To accomplish this requirement, the Secretary established the Royalty Management System
and assigned specific responsibilities to the Minerals Management Service, the Bureau of
Land Management, and the Bureau of Indian Affairs. Most of the royalty management
functions were assigned to the Service's Royalty Management Program. The overall
mission of the Program is to ensure proper determination, collection, and distribution of
bonuses, rents, and royalties from Federal and Indian lands in a manner that maximizes
incentives to the efficient management, production, and use of oil, gas, coal, and other
mineral resources consistent with public health and safety, environmental, and public land
use requirements.  In addition, the Minerals Management Service is responsible for
monitoring oil and gas production from Federal leases on the Outer Continental Shelf.
The Bureau of Land Management is responsible for monitoring oil and gas production
from onshore Federal and Indian leases, and the Bureau of Indian Affairs distributes
mineral revenues to individual Indians and tribes.

The policies and procedures for the Royalty Management System are delineated in public
laws and Departmental regulations, including the Allotted Indian Land Leasing Act of
1909, as amended; the Mineral Leasing Act of 1920, as amended; the Indian Mineral
Leasing Act of 1938; the Minerals Leasing Act for Acquired Lands of 1947, as amended;
the Outer Continental Shelf Lands Act of 1953, as amended; the Geothermal Steam Act
of 1970; the Combined Hydrocarbon Leasing Act of 1981; the Indian Mineral
Development Act of 1982; the Federal Oil and Gas Royalty Management Act of 1982; and
the Federal Oil and Gas Leasing Reform Act of 1987.

OBJECTIVE AND SCOPE

The Federal Oil and Gas Royalty Management Act of 1982, Section 302(b), requires the
Office of Inspector General to perform a biennial audit of the Federal Royalty
Management System and to submit the results of such audit to the Congress and the
Secretary. This biemial report of the Royalty Management System is the sixth of such
reports and covers the biennial period of October 1, 1993, through September 30, 1995
(fiscal years 1994 and 1995).

1

 


The overall objective of this biennial review was to determine the Department's
compliance with the Federal Oil and Gas Royalty Management Act of 1982. This was
accomplished by the Office of Inspector General through its conduct of 11 audits: 6 on
the Minerals Management Service and 5 on the Bureau of Land Management. Since the
Royalty Management System consists of various components such as leasing, inspection,
production and royalty accounting, royalty collection and distribution, and auditing, we
selectively reviewed activities of these components. Factors such as materiality, degree
of risk, prior audit coverage, and current information regarding the activity were
considered in selecting the specific activities to be reviewed in this biennial period. We
also considered the results of a General Accounting Office audit of offshore oil and gas
resources issued during this biennial period. The reports included in this biennial report
are listed in Appendix 1.

2

 
RESULTS OF BIENNIAL REVIEW
FOR FISCAL YEARS 1994 AND 1995

Based on a review of the 12 Federal Royalty Management System audits conducted during
the past 2 years, we concluded that the Minerals Management Service and the Bureau of
Land Management had made improvements in the System that should increase royalty
collections and improve payer/producer compliance with existing regulations. However,
additional improvements are needed to adequately protect mineral resources and further
enhance royalty collections. Specifically, the Service needs to improve the following
areas: (1) preparing documentation of royalty settlement negotiations; (2) monitoring
transportation and processing allowance deductions; (3) verifying operator compliance
with requirements to accurately and promptly report production and sales quantities; and
(4) managing offshore oil and gas lease abandonment. The Bureau needs to make
improvements in the following areas: (1) implementing its Inspection and Enforcement
Program Strategy and providing oversight over bonding and well-abandonment
requirements and practices; (2) providing oversight of common carrier pipelines in
California; and (3) managing onshore oil and gas leasing activities.

Of the 11 Office of Inspector General audit reports on the Royalty Management System
issued during this period, a total monetary impact of about $92.3 million was identified
in 6 of the reports: $59 million in potential additional royalties, $3.8 million in funds to
be put to better use, and $29.5 million in lost royalties (see Appendix 2).

Regarding the 12 audit reports issued during this biennial period, 2 audit reports identified
improvements made in the Royalty Management System, 2 audit reports presented the
combined financial statements of the Bureau and the Service, and 8 audit reports identified
improvements needed in the Royalty Management System. These reports included 28
recommendations, all of which are considered resolved (see Appendix 3). These reports
are synopsized in Sections A and B.

A.  IMPROVEMENTS MADE IN THE ROYALTY MANAGEMENT
  SYSTEM

Four Office of Inspector General reports noted that improvements had been made in the
Royalty Management System.  The Service made improvements by implementing
recommendations made by the Task Force on Royalty Compliance. The Service also
provided us with a synopsis (Appendix 4) of its accomplishments during fiscal years 1994
and 1995, citing improvements in royalty reporting, royalty collections, and automated
systems.  The Bureau implemented recommendations that eliminated the rental rate
reductions on oil and gas leases issued before 1987. Both the Service and the Bureau
improved the quality of their financial reports.

3

 


Implementation of Task Force Recommendations

In our audit report "Status of Recommendations From the Task Force on Royalty
Compliance" (No. 95-I-545), we stated that the Service had made significant progress in
implementing the 26 Task Force recommendations. The recommendations were designed
to encourage voluntary payer/producer compliance by clarifying existing laws and
regulations, fully integrating Royalty Management Program compliance activities, increasing
the use of automated systems to determine royalty compliance, and developing measures for
overall royalty compliance. The Service developed an action plan that included six areas of
emphasis: management and policy, a pilot program to identi~ and resolve royalty reporting
irregularities, enforcement, audit, regulations, and automated systems. The Service also
identified 112 steps to implement the recommendations. We believe that the steps completed
and planned to be completed by the Service will satisfactorily address all 26 Task Force
recommendations. As such, the report did not contain any recommendations.

Rental Rate Reduction

In our audit report "Onshore Oil and Gas Rental Reduction, Bureau of Land Management"
(No. 94-I-595), we recommended that the Bureau reevaluate the 1992 Oil and Gas
Reduction Review for determining whether the rental rate reduction for leases issued
before 1987 should be continued. The Bureau concurred with our recommendation; the
reevaluation was completed; and the rental rate reduction was allowed to expire on
February 29, 1996. We estimated the potential additional revenue for fiscal years 1994
through 1997 to be about $26 million.

Financial Reporting

Based on our financial statement audits of the Service and the Bureau, we concluded that
the combined financial statements were reliable in all material respects. The audit report
"Minerals Management Service Financial Statements for Fiscal Years 1994 and 1995"
(No. 96-I-631) presented an unqualified opinion regarding the financial operations of the
Service. The audit found that the internal control structure in effect on September 30,
1995, was sufficient to safeguard assets against loss from unauthorized use or disposition;
ensure that transactions were executed in accordance with laws and regulations; ensure that
transactions were properly recorded, processed, and summarized; and provide reasonable
assurance that any losses, noncompliance, or misstatements that are material to the
financial statements would be detected. Our February 1995 report "Bureau of Land
Management Combined Financial Statements for Fiscal Years 1993 and 1994" (No. 95-I-
584) presented a qualified opinion on the Bureau's financial statements because of issues
regarding the Bureau's accounting for property. However, the audit report "Bureau of

4

 
  


Land Mangement Combined Financial Statements for Fiscal Years 1994 and 1995 (No.
96-I-463) presented an unqualified opinion regarding the financial operations of the Bureau.

B.  IMPROVEMENTS NEEDED IN THE ROYALTY
  MANAGEMENT SYSTEM

Seven Office of Inspector General audit reports and one General Accounting Office audit
report indicated that improvements were still needed in the Federal Royalty Management
System as follows:

  - The Service needs to imm-ove documentation of rovalty settlement negotiations.
Our September 30, 1996, report "Negotiated Royalty Settlements, Minerals Management
Service" (No. 96-I-1264) stated that settlements were not always conducted in accordance
with the "Minerals Management Service Settlement Negotiation Procedures. " Specifically,
the report stated that for 9 of the 10 settlements reviewed, there was no documentation for
the estimated values of the issues concerning the underpayment of royalties to be
negotiated, the arguments for reducing values of issues, and/or the reasons why the values
of issues were reduced as a result of the negotiations. The report further stated that for
one of the nine settlements, Indian tribes were not given the opportunity to exclude Indian
issues from a global settlement and were not included in negotiations applicable to their
leases.  The report recommended that the Service Director ensure that Royalty
Management Program personnel: (1) improve documentation of the settlement process; (2)
obtain a written opinion from the Office of the Solicitor regarding the release of
negotiation information to royalty payers; and (3) offer Indian tribes the opportunity to be
specifically included or excluded from royalty settlement negotiations. The Service
agreed with each of the recommendations, which we considered resolved but not
implemented. The recommendations were referred to the Assistant Secretary for Policy,
Management and Budget for tracking of implementation.

  - The Service needs to improve its monitoring of oil and gas transportation
allowances and gas r)rocessin~ allowances. Our August 18, 1994, report "Transportation
and Processing Allowance Deductions, Minerals Management Service" (No. 94-I-1110)
stated that royalty payers had deducted excess oil and gas transportation and gas
processing allowances. Specifically, the report stated that payers deducted allowances that
exceeded: (1) actual costs; (2) the maximum allowed percentages without the approval of
the Service; and (3) 100 percent of the value of the product. In our report, we estimated
that about $27.17 million in additional payments may be owed the Government because
of excess allowance deductions. This amount included $783,000 of additional payments
made to the Service as a result of excess allowance deductions identified during our audit.
As such, the report recommended that the Service: (1) monitor allowance deductions; (2)
notify royalty payers of allowance reporting differences; and (3) implement the Automated
Allowance Tracking System to identify allowance deductions that exceeded regulatory
limitations. The Service agreed with and implemented each of the three recommendations.

5

 
  - The Service needs to secure compliance of all payers and operators with the
requirements to accurately re~ort Production and sales of oil and gas from Federal and Indian
leases. Our September 30, 1996, report "Selected Activities of the Royalty Management
System, Minerals Management Service" (No. 96-I-1255) stated that the Service did not have
an adequate deterrent to ensure the accurate reporting of production and sales quantities.
Title 30 of the Code of Federal Regulations requires Federal and Indian oil and gas lessees
and operators to report, in an accurate, complete, and timely manner, the production and sale
of oil and gas from leases and to pay the Government a royalty based on a rate established in
the terms of the lease. These regulations, along with Section 109 of the Federal Oil and Gas
Royalty Management Act of 1982, authorize the use of civil penalties and interest for those
situations where royalties have been underpaid. However, as stated in the report, these
remedies did not provide an adequate deterrent to ensure reporter compliance because the
prescribed interest rates were low and it was difficult for the Service to implement the
penalties effectively. The report iluther stated that the Service did not assess fees to recover
its costs of resolving discrepancies that resulted fi-om inaccurate reporting. In that regard, the
Service's volume comparison process, which compares sales volumes reported on the
production report with sales volumes reported on the royalty report, generated more
exceptions than the Service could resolve, which led to the establishment of a dollar threshold
below which the Service did not research or resolve the exceptions. In our report, we
estimated that the royalty value of these unresolved exceptions below the threshold was
approximately $1.7 million annually. We recommended that the Service: (1) pursue
legislation which would authorize penalties for substantial underpayment of royalties; (2)
recover the $2.1 million it spends each year to resolve the discrepancies in reported sales
volumes; and (3) reduce the backlog of unresolved exceptions that were over the threshold,
which we estimated to have a royalty value of over $21.2 million. The Service agreed with
each of the recommendations, which we considered resolved but not implemented. The
recommendations were referred to the Assistant Secretary for Policy, Management and
Budget for tracking of implementation.

  - The Service needs to imtx-ove its management of offshore oil and gas lease
abandonment. The General Accounting Office's May 11, 1994, report "Offshore Oil and Gas
Resources" (No. GAO/RCED-94-82) stated that the Service had acted to protect the
environment by: (1) limiting the use of explosives to remove abandoned structures in order
to protect endangered sea turtles and (2) requiring that wells be plugged and lease sites
cleared. However, the report stated that the Service had not encouraged the development of
nonexplosive structure removal technologies which would eliminate or minimize
environmental damage and did not have an overall strategy which targeted its limited
resources to ensure that wells were properly plugged and abandoned and that lease sites were
properly cleared when oil and gas production ended. The General Accounting Office
recommended that the Secretary of the Interior direct the Director of the Service to: (1)
encourage the use of nonexplosive technologies for removing offshore structures; (2) study
the feasibility of mandating the use of nonexplosive technologies; (3) develop an inspection
strategy to ensure proper plugging and abandonment of offshore wells; and (4) complete a

6

 


rulemaking to place time limits on the phase-in of increased bond limits and supplemental
bonding.  The Department of the Interior generally agreed with all four of the
recommendations.

  - The Service needs to address weaknesses noted in the Royalty Gas Marketing Pilot
Promam. Our May 20, 1996, report "Royalty Gas Marketing Pilot, Minerals Management
Service" (No. 96-I-786) noted that the Service had demonstrated the feasibility of taking gas
royalties in kind as an alternative to the royalty-in-value system. However, the report stated
that weaknesses existed in the Pilot design, revenue collections, marketing strategies, and
administrative controls that the Service should consider in studying the royalty-in-kind
concept. At the time of our review, the Service was conducting its own evaluation of the
Pilot, including determining whether savings could be realized in reduced administrative costs,
reduced audit efforts, and avoidance of royalty appeals and litigation. Although the final
results of these analyses were not available at the time of our review, Service officials said
that significant benefits were not expected to be realized unless the gas royalty-in-kind
program was implemented on a large scale, such as for all the leases in the Gulf of Mexico.
No specific recommendations were made as a result of our review.

  - The Bureau needs to improve its management of its oil and gas Inspection and
Enforcement Progn-am activities.  Our September 30, 1996, report "Inspection and
Enforcement Program and Related Activities, Bureau of Land Management" (No. 96-I-1267)
stated that improvements were needed in the Inspection and Enforcement Program to more
effectively accomplish production, drilling, and plugging inspections and that many wells
were allowed to remain unplugged long afler production activities had ceased. Specifically,
according to the report, the Bureau inspected leases that had minimal or no production, over
one-half of the production inspections reviewed were deficient in depth of coverage and
quality of documentation, and many of the high priority well-drilling and well-plugging
inspections were not conducted as required by the Bureau's inspection strategy. As a result,
the Program did not adequately ensure production accountability for oil and gas produced or
regulatory compliance for well-drilling and well-plugging operations on Federal and Indian
leases. The report also noted that none of the seven field offices reviewed had properly
classified wells as shut-in or temporarily abandoned in their Automated Inspection Records
Systems. As a result, some operators had gone out of business, and the Government was
responsible for plugging the wells. Since 1991, the Government has plugged 31 orphan
wells, at a cost of over $1.6 million, and is presently liable for plugging over 300 additional
orphan wells, at a cost estimated by the Bureau to exceed $3 million. In addition, the
Government may also be responsible for the cost of cleaning up contaminated groundwater
and other damage to the natural resources caused by these unplugged wells. Our report
contained 11 recommendations: 6 pertaining to the inspection program and 5 pertaining to
the bonding program. The Bureau concurred with the 11 recommendations, which we
considered resolved but not implemented. The recommendations were referred to the
Assistant Secretary for Policy, Management and Budget for tracking of implementation.

7

 
  - The Bureau needs to improve its mana~ement of onshore oil and gas leasing
activities. Our March 20, 1995, report "Onshore Oil and Gas Leasing Activities, Bureau of
Land Management" (No. 95-I-638) stated that changes in the Federal Oil and Gas Leasing
Reform Act of 1987 could increase competition and revenues to the Bureau's oil and gas
leasing program. According to our report, the Bureau could have generated additional
revenues of $4,2 million annually if it had had the authority to charge noncompetitive leases
a fee equivalent to the minimum bonus bid of $2 an acre, which is a fee that is applicable to
competitive leases. The report recommended that the Bureau inform the Congress, through
a written report, of the opportunities to increase revenues from onshore oil and gas leasing
by amending the Reform Act to require the payment of a fee equivalent to the minimum bonus
bid for leases issued noncompetitively, The report also recommended that the Bureau
establish formal procedures for periodically evaluating and adjusting rental fees and minimum
bonus bid charges on onshore oil and gas leases to ensure optimum return to the Government.
The Bureau concurred with the two recommendations, which were referred to the Assistant
Secretary for Policy, Management and Budget for tracking of implementation.

  - The Bureau needs to improve its mana~ement of common carrier uipelines in
California. Our 1991 report "Enforcement of Common Carrier Statutes for Pipelines
Crossing Federal Lands in California" (No. 91-I-503) stated that six intrastate pipelines which
cross Federal lands fi.mctioned as private carriers in violation of their right-of-way easements.
The report recommended that the Bureau ensure that regulations and requirements pertaining
to common carrier pipelines are communicated to all oil companies that have operations in
California. Our March 31, 1995, report "Followup Review of Enforcement of Common
Carrier Statutes for Pipelines Crossing Federal Lands in California" (No. 95-I-728) stated that
the Bureau had notified all oil companies which had operations in California of the common
carrier requirements of the Mineral Leasing Act but that at least three of the major pipelines
were still not operated as common carriers, even though they crossed Federal lands. The
Bureau said that it would conduct inquiries into any complaint alleging that a right-of-way
holder was not complying with the common carrier requirements. Since no independent oil
producer had formally complained to the Bureau concerning the lack of pipeline access, the
Bureau said that it had no authority to enforce common carrier requirements. The Bureau
also said that it had requested an opinion from the Department of the Interior's Solicitor on
June 7, 1991, regarding the Bureau's authority and responsibility concerning regulation of
pipelines which cross Federal lands.

We recommended that the Bureau again request that the Solicitor promptly issue the opinion
which the Bureau had requested on June 7, 1991, concerning the Bureau's authorities and the
limitations imposed by Section 28(r) of the Mineral Leasing Act. In an April 3, 1995 response
to the Bureau's request, the Associate Solicitor, Energy and Resources, stated that: (1)
common carrier provisions apply to activities outside the boundary of the rights-of-way unless
otherwise exempted; (2) the Department can "condition" the approval of a right-of-way grant
on a pipeline company's submission of rate or tariff schedules to the appropriate agency; and

 
(3) the Department can initiate proceedings to suspend or terminate right-of-way grants or
request the U.S. Attorney to prosecute violations of the Mineral Leasing Act.

The impact on the Federal Government of companies operating as private carriers instead of
common carriers is the potential underpayment of royalties. This occurs because the
independent oil producers that use the pipelines generally have to sell their oil to pipeline
owners at prices that are lower than prices offered by independent refiners. Consequently,
royalties are paid on this undervalued oil. We estimated that Federal royalties in California
may have been underpaid by as much as $29.5 million from 1990 through 1993 and may
continue to be underpaid as long as pipeline owners continue to operate as private carriers.

 


APPENDIX 1
Page 1 of 2

AUDIT REPORTS ISSUED

Report Number          Title

OFFICE OF INSPECTOR GENERAL

MINERALS MANAGEMENT SERVICE

95-I-545       Status of Recommendations From the Task Force
         on Royalty Compliance

96-I-631       Minerals Management Service Financial Statements
         for Fiscal Years 1994 and 1995

96-I-1264       Negotiated Royalty Settlements,
         Minerals Management Service

94-I-1110       Transportation and Processing Allowance Deductions,
         Minerals Management Service

96-I-1255       Selected Activities of the Royalty Management
         System, Minerals Management Service

96-I-786       Royalty Gas Marketing Pilot,
         Minerals Management Service

BUREAU OF LAND MANAGEMENT

94-I-595       Onshore Oil and Gas Rental Rate Reduction,
         Bureau of Land Management

96-I-463       Bureau of Land Management Combined Financial
         Statements for Fiscal Years 1994 and 1995

96-I-1267       Inspection and Enforcement Program and Selected
         Related Activities, Bureau of Land Management

95-I-638       Onshore Oil and Gas Leasing Activities,
         Bureau of Land Management

95-I-728       Followup Review of Common Carrier Statutes For
         Pipelines Crossing Federal Lands in California

10

 


APPENDIX 1
Page 2 of 2

Reuort Number          Title

GENERAL ACCOUNTING OFFICE

MINERALS MANAGEMENT SERVICE

GAO/RCED-94-82   Offshore Oil and Gas Resources, Interior Can Improve
         its Management of Lease Abandonment

11

 


APPENDIX 2

    ESTIMATED DOLLAR IMPACT
    OF REPORTS INCLUDED IN THE
BIENNIAL REPORT FOR FISCAL YEARS 1994 AND 1995

Report                Potential    Funds To Be Put     Lost
Number   Audit Report Title    Additional Revenues To Better Use     Revenue Totals
                        (Amounts in Millions)

Minerals Management Service

94-I-1110 Transportation and Processing
    Allowance Deductions       $27.17*                 $27.17*

96-I-1255 Selected Activities of the
    Royalty Management System     1.70**     $2.16**          3.86**

Bureau of Land Management

94-I-595 Onshore Oil and Gas Rental
     Rate Reduction          26.00*

95-I-638 Onshore Oil and Gas Leasing
     Activities            4.20**

95-I-728 Followup Review of Common
    Carrier Statutes for Pipelines
    Crossing Federal Lands
    in California

96-I-1267 Inspection and Enforcement
    Program and Selected
    Related Activities

TOTAL

$59.07

26.00*


4.20**

* Multiyear
** Anuual

12

 
APPENDIX 3

STATUS OF PRIOR AUDIT REPORT RECOMMENDATIONS

                         Recommendations
Addressee         Recommendations      Concurred With/
of Recommendations         Made         Resolved

Director, Minerals
Management Service           9           9

Director, Bureau of Land
Management             15           15

Secretary, Department
of the Interior             d           A

13

 
Memorandum

From:

Subject:   Biennial Report on the Federal Royalty Management System for Fiscal Years
     1994 and 1995 [Report No. 97-I-December 1996]

We appreciate the opportunity to comment on the Biennial Report on our Royalty Management
Program. We'd like to make a change in Appendix 4 in the first paragraph under Synopsis of
Accomplishments--24 tribes should be 42 tribes. This change reflects the fact that we provide
royalty services for 42 tribes.

I understand that your office has agreed to incorporate into this Biennial Report our January 2
response to the final audit report "Selected Activities of the Royalty Management System,
Minerals Management Service" (No. 96-I-1255). In this response, we agreed with all three
recommendations in the audit report, which should change Appendix 3 in the Biennial Report to
read that all nine recommendations to Minerals Management Service have been resolved.

If you have any questions, please contact Bettine Montgomery at 208-3976.

14

 
APPENDIX 4
Page 2 of 4

reports were matched manually.
Late disbursement interest paid to States

In 1994, RMP paid $S8,000 of interest to States at a
8 "percent.  In 1995, W paid $86,000 of interest to
of 9 percent.  The decrease in on-time disbursements and

rate of
States at a rate
the rising

interest rate increased

OTHER SIGNIFICANT ITEMS
Electronic Commerce

late disbursement interest paid.



Technology Implementation

With the 1995 chan~es, RMP now offers various electronic reporting

              -.
alternatives, including electronic data interchange, magnetic tape,

15

 
settlements.

Volume Comparisons

Alternative Dispute Resolution

Common Reference Data Laboratory

System Enhanced with More Capabilities

 


APPENDIX 4
Page 4 of 4

17

 
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(202) 208-2420 or
1-800-354-0996

Outside the Continental United States

Caribbean Region

U.S. Department of the Interior         (703) 235-9221
Office of Inspector General
Eastern Division- Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209

 
HOTLINE