[Audit Report on Processing Notifications for the Stripper Oil Well Property Royalty Rate Reduction Program, Minerals Management Service]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. 99-i-782

Title: Audit Report on Processing Notifications for the Stripper
       Oil Well Property Royalty Rate Reduction Program, Minerals
       Management Service


Date:  August 31 1999




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



AUDIT REPORT
PROCESSING NOTIFICATIONS 
FOR THE STRIPPER OIL WELL PROPERTY 
ROYALTY RATE REDUCTION PROGRAM,
MINERALS MANAGEMENT SERVICE


REPORT NO. 99-I-782

AUGUST 1999



MEMORANDUM

             TO:  The Secretary

           FROM:  Earl E. Devaney
                  Inspector General

SUBJECT SUMMARY:  Final Audit Report - "Processing Notifications
                  for the Stripper Oil Well Property Royalty 
                  Rate Reduction Program, Minerals Management
                  Service" (No. 99-i-782)

Attached for your information is a copy of the subject final
audit report.  The Stripper Oil Well Property Royalty Rate
Reduction Program was initiated by the Bureau of Land Management
in 1992 to provide royalty relief on low-producing Federal
onshore oil properties.  The Minerals Management Service is
responsible for processing royalty rate reduction notifications
and ensuring that the approved rates are paid by operators and
payors participating in the Program.  The objective of our audit
was to determine whether (1) the Bureau used accurate data and
appropriate methodology to identify the Program's benefits and
costs that were used to justify the Program's indefinite
extension, (2) the Service effectively processed and confirmed
royalty rate reduction notifications, and (3) the Bureau provided
effective oversight of well classification and production rates
used in determining eligibility for the Program.  This report
addressed the second part of the objective, that is, the
Service's processing of the notifications. The remaining parts of
the objective will be addressed in separate reports.  

We found that the Service, because of the insufficient assignment
of personnel, did not timely confirm royalty rate reduction
notifications it received and did not timely input the confirmed
rates or review differences in the royalty rates confirmed with
the royalty rates paid for the properties participating in the
Program.  As a result, royalties may have been underpaid by as
much as  $3.5 million, excluding interest, on the properties
participating in the Program because of these issues.  

Based on the Service's response to the draft report, we
considered one of the report's two  recommendations implemented
and the other recommendation resolved but not implemented.  

If you have any questions concerning this matter, please contact
me at (202) 208-5745.


Attachment

cc:Chief of Staff
Assistant Secretary for Land and Minerals Management
Director, Office of Communications




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

Memorandum

     To:  Assistant Secretary for Land and Minerals Management 

   From:  Robert J. Williams 
          Assistant Inspector General for Audits 

Subject:  Audit Report on Processing Notifications for the
          Stripper Oil Well Property Royalty Rate Reduction
          Program, Minerals Management Service (No. 99-i-782)

INTRODUCTION

This report presents the results of our audit of the Minerals
Management Service's processing of royalty rate reduction
notifications submitted by operators  participating in the
Stripper Oil Well Property Royalty Rate Reduction Program.  The
Program was initiated by the Bureau of Land Management in 1992 to
provide royalty relief on low-producing Federal oil properties.
The Service is responsible for processing royalty rate reduction
notifications and ensuring that the approved rates are paid by
operators and payors participating in the Program.  The overall
objective of the audit of the Program was to determine whether
(1) the Bureau of Land Management used accurate data and
appropriate methodology to identify the Program's benefits and
costs that were used to justify the Program's indefinite
extension, (2) the Service effectively processed and confirmed
royalty rate reduction notifications, and (3) the Bureau provided
effective oversight of well classification and production rates
used in determining eligibility for the Program. This report
addresses the second part of the objective, that is, the Minerals
Management Service's processing of the notifications.  The
remaining parts of the objective will be addressed in separate
reports. 

BACKGROUND

The Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C.
1711(a)) requires the Secretary of the Interior 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.

In terms of the Minerals Management Service, most royalty
management functions are the responsibility of the Royalty
Management Program, which ensures that bonuses, rents, and
royalties from Federal and Indian lands are properly determined,
collected, and distributed.  The Service's Royalty Management
Program also has an automated process that can compare the actual
royalty rate paid with the reduced royalty rate approved for each
stripper well property.  Further, the 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. 

The Mineral Leasing Act of 1920 (30 U.S.C. 209) allows the
Secretary of the Interior to adjust royalty rates to encourage
the maximum amount of oil or gas to be removed.  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.   

The Stripper Oil Well Property Royalty Rate Reduction Program,
initiated by the Bureau, 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 and/or by
implementing enhanced oil recovery projects.  The policies and
procedures for the Program are contained in the Code of Federal
Regulations (43 CFR 3103.4-2).  The Code (43 CFR 3103.4-2(5))
requires that the Secretary evaluate the effectiveness of the
Program and allows the Secretary to terminate any or all royalty
rate reductions granted under the Program upon a 6-month notice
at any time after September 10, 1997.  On February 18, 1998, the
Department of the Interior extended the Program for an indefinite
period.  The Code (43 CFR 3103.4-2) defines a stripper well
property as 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.[1]

The operator is required to submit a notification of Program
participation on Service Form MMS-4377, "Stripper Royalty Rate
Reduction Notification," which includes the operator's lease or
agreement number, qualifying period, and  reduced royalty rate.
The reduced royalty rate becomes effective on the first day of
the month after the Service receives the notification.
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[2] 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 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[3] 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.

The Service compares information submitted in the notification
with production and well status data previously submitted in the
"Monthly Report of Operations" (Form 3160-6).[4]  The information
confirmed by the Service 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.  The Service 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, the Service notifies the operator that
the calculated rate has been confirmed, adjusted, or
disqualified. 

Service records indicated that during the period of August 28,
1992, through September 2, 1998, the Service received 7,254
initial and outyear notifications and confirmed the information
on 6,665 notifications.  Of the 6,665 notifications confirmed,
4,067 notifications had rates confirmed as submitted, 793 had
rate adjustments, and 491 were disqualified from the Program.  

The Service's confirmation of a  notification may identify
production anomalies, which are  unexplained differences between
reported production from the operator's "Monthly Report of
Operations," the notification, and the "Report of Sales and
Royalty Remittance" (Form MMS-2014)[5] submitted by the royalty
payor.  The production anomalies identified are referred to the
Bureau of Land Management field office that has jurisdiction over
the stripper well property.  The Bureau is responsible for
performing an "on-the-ground" inspection of all production
anomalies referred by the Service.  In addition, the Bureau
requires operators to provide a detailed written explanation of
all Service-referred production anomalies.  The Bureau uses the
information obtained from the operators and from its field
inspections to resolve Service-referred anomalies.

SCOPE OF AUDIT

Our audit fieldwork was conducted at the Service's Royalty
Management Program office in Lakewood, Colorado, and the Bureau's
Fluid Minerals Office in Washington, D.C.  To meet this part of
our audit objective, we examined data related to the Service's
verification of notifications submitted by operators
participating in the Program and interviewed Service officials
knowledgeable of this aspect of the Program.  We judgmentally
selected 35 notifications to verify the adequacy of Service
notification processing.  In addition, we randomly sampled 116
Program notifications to verify the  accuracy of the reduced
royalty rates paid by operators participating in the Program.    

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
this part of our objective.  We also reviewed the Departmental
Report on Accountability for fiscal year 1997, which includes
information  required by the Federal Managers' Financial
Integrity Act of 1982, and the Bureau's annual assurance
statement on management controls for fiscal year 1997 to
determine whether any reported weaknesses were within the
objective and scope of our audit.  Neither the Accountability
Report nor the Service's assurance statement addressed the
Service's involvement in the Stripper Oil Well Property Royalty
Rate Reduction Program.  In addition, we evaluated the Service's
system of internal controls related to the Stripper Oil Well
Property Royalty Rate Reduction Program to the extent that we
considered necessary to accomplish our objective.  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 identified. 

PRIOR AUDIT COVERAGE

Neither the Office of Inspector General nor the General
Accounting Office has issued any audit reports during the past 5
years on the Stripper Oil Well Property Royalty Rate Reduction
Program.

RESULTS OF AUDIT

The Minerals Management Service did not timely confirm
notifications it received and did not timely input the confirmed
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
Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C.
1711(a)) requires the Secretary of the Interior to accurately
determine oil and gas royalties and to collect and account for
the amounts in a timely manner.  Further, the Code of Federal
Regulations (43 CFR 3103.4-1) requires operators to submit
notifications to the Service of their claimed reduced  royalty
rates, which become effective the first day of the month after
the Service receives the notifications.  However, the Service did
not assign sufficient personnel to (1) process all the Program
notifications in a timely manner, (2) input all data into the
automated financial system, or (3) resolve differences between
the confirmed royalty rate and the actual royalty rate paid. Of
the 116 sampled properties, we identified 17 properties (14.7
percent) that had underpaid royalties totaling about $61,000, or
an average of $3,600 per property.  Based on this determination,
we believe that royalties may have been underpaid by as much as
$3.5 million, excluding interest, on the properties participating
in the Program.  

Confirmation of Program Notifications 

During the period of August 28 through December 31, 1992, the
Service received 3,430 notifications for reduced royalty rates
and, over the next 6 years (through September 2, 1998), received
3,824 additional notifications, for a total of 7,254
notifications.  As of September 2, 1998, the Service had
confirmed 6,665 of the 7,254 notifications received.  However,
the Service had not confirmed 589 notifications, even though some
of the notifications had been received by the Service at least 2
years earlier.  Our review of Service records indicated that the
amount of time to confirm a notification ranged from 1 day to
72.2 months, with verification time averaging 9.3 months (see
Appendix 3).  During our audit, Service officials acknowledged
that the notifications were not confirmed on a timely basis.  In
its response to our draft report, Service officials said that
incomplete notification packages, as well as the length of time
between notification and submission of related reports,
frequently delayed the process.  

Reduced rates that are not calculated properly can result in
significant royalty underpayments.  Of the 6,665
Service-confirmed notifications, 5,351 had been entered into the
automated system and 1,314 had not been entered.  (See
"Identification of Differences in Royalty Rates Paid" in this
section.)  The Service identified 1,284 errors (24 percent) in
the 5,351 royalty rate reduction notifications processed and
entered into the automated system.  The 1,284 errors consisted of
793 notifications that had improperly calculated rates and 491
notifications that did not qualify for the Program.  Examples of
the  types and the significance of errors found by Service
personnel when confirming notifications are as follows:  

- In December 1993, an operator submitted an initial notification
claiming a reduced royalty rate of 4.21 percent to be effective
in January 1994.   The Service denied this notification in July
1995 because, although the wells on the property produced some
oil, the wells did not meet either of the two oil and gas well
eligibility criteria.  The estimated lost royalties on this
property would have totaled about $827,000 from January 1994
through June 1998 (the last reporting period in the automated
system at the time of our review) had the Service not denied the
notification.

- In October 1992, an operator submitted an initial notification
claiming a reduced royalty rate of 3.7 percent effective November
1992.  The Service denied this notification in October 1994
because the property produced more than15 barrels of oil per well
per day during the qualifying period (see Appendix 2).  The
estimated lost royalties on this property would have totaled
about $290,000 during November 1992 through June 1998 had the
Service not denied the notification. 

- In March 1998, an operator that had an initial
Service-confirmed reduced royalty rate of 11.7 percent submitted
an outyear notification claiming a further reduced royalty rate
of 10.9 percent to be effective in April 1998.  The Service
denied this notification in June 1998 because the property
produced more than 15 barrels of oil per day during the outyear
qualifying period.  The estimated lost royalties on this property
would have totaled more than $2,500 per month had the Service not
denied the notification.

Since royalty rate notification errors are not detected from 1
day to 72 months  after the rate has been used by the royalty
payor, we believe, based on our analysis, that the number of
corrections made to monthly royalty payments is significant.
These calculation errors require the Service to correct the
errors and  the royalty payor to correct each monthly royalty
payment made for the property since the rate change was
submitted.  We believe that more timely reviews would help to
ensure that only confirmed rates are used, which should reduce
the number of royalty payments that need to be corrected.

Identification of Differences in Royalty Rates Paid   

As of September 2, 1998, the Service had not entered the
confirmed royalty rates on 1,314 notifications into the Service's
automated system and, according to Service officials, did not
review differences in the confirmed reduced royalty rates and the
actual royalties paid on most of the 6,665 confirmed
notifications.  The Service's automated system compares the
royalty rate paid on the monthly royalty payment with the royalty
rate authorized by the Service for the individual property.
According to the Service, this comparison generated thousands of
erroneous exceptions because the Service had not entered all of
the confirmed reduced royalty rates into the automated system.
As a result, in March 1994, Service officials deferred the review
of royalty rate exceptions for stripper oil well properties until
the data entry backlogs were eliminated.  The Service's deferral
of the review of royalty rate exceptions for stripper oil well
properties resulted in underpaid royalties for reporting periods
dating back as far as October 1992. 

We selected a random sample of 116 of the total 6,659 stripper
oil properties listed on the 4,231 initial notifications[6] that
were included in the Service's database as of September 1, 1997
(the most recent information available at the time of our audit).
For the purpose of this sample, we considered a lease or an
agreement to be stripper oil property.  However, if an agreement
contained 30 Federal leases receiving a stripper oil royalty rate
reduction, we counted the agreement as 30 separate stripper oil
properties.  In cases where multiple operators were on a
lease-basis property receiving stripper oil royalty rate
reductions, we counted each operator/lease combination as a
separate property.  For the properties selected, we compared the
Service-confirmed reduced royalty rate with the actual royalty
rates paid, including all subsequent outyear rates.  Of the 116
properties, we identified 17 properties (14.7 percent) that had
underpaid royalties totaling about $61,000, or an average of
$3,600 per property.  Examples of the types and significance of
the royalty underpayments we identified were as follows:

- In November 1992, an operator submitted, and the Service
subsequently confirmed, an initial notification claiming a
reduced royalty rate of 11.7 percent for a property.
Subsequently, for the period of May 1995 through April 1996, the
operator submitted, and the Service subsequently confirmed, an
outyear notification claiming a further reduction in  the royalty
rate to 6.9 percent.  However, the operator did not submit a
subsequent outyear notification for the period of May1996 through
April 1997 and did not return to the initial royalty rate of 11.7
percent, of which both actions were required by the Program's
policies and procedures.  We estimated that underpaid royalties
on this property totaled almost $26,000 for the period of May
1996 through February 1998. 

- In October 1992, an operator submitted, and the Service
subsequently confirmed, an initial notification claiming a
reduced royalty rate of 6.9 percent on a property.  However, the
operator paid royalties on this property at a 6.8 percent rate
from the initial qualifying period through February 1998.  We
estimated that underpaid royalties on this property totaled
almost $16,000 during this period. 

- In October 1992, an operator submitted, and the Service
subsequently confirmed, an initial notification claiming a
reduced royalty rate of 8.5 percent for a property.
Subsequently, for the period of December 1993 through November
1994, the operator submitted, and the Service subsequently
confirmed, an outyear notification for a further reduced royalty
rate of 6.9 percent.  However, the operator did not submit an
outyear notification for the period of December 1994 through
November 1995 and paid the  6.9 percent rate rather than return
to the initial royalty rate of 8.5 percent, of which both actions
were required by the program's policies and procedures.  We
estimated that underpaid royalties on this property totaled more
than $9,400 for the period of December 1994 through February
1998.

We believe that if the 14.7 percent error rate, averaging $3,600
per property, identified in our sample is representative of the
6,659 properties included in the initial notifications, the
estimated total underpayments could exceed $3.5 million.
Therefore, the Service should review the comparison of the
confirmed Program royalty rates and the rates paid in a more
timely manner because of the record-keeping requirements of the
Federal Oil and Gas Royalty Management Act and the statute of
limitations applicable to the recovery of royalty underpayments.
In particular, the Act (30 U.S.C. 1713(b)) requires the lessee,
the operator, or others directly involved with oil and gas leases
to maintain records "for six years after the records are
generated unless the Secretary notified the record holder that .
. . such records must be maintained for a longer period."  While
the issue of the applicability and the interpretation of the
6-year statute of limitations (28 U.S.C. 2415(a)) for production
prior to August 13, 1996,[7] has been the subject of years of
litigation between the Service and  industry in several judicial
circuits, the limitations period presents a potential obstacle to
the recovery of underpayments of royalties for the initial
Program production months, according to our Office of General
Counsel.  Further, the Service will need to eliminate the
processing and data entry backlogs so that the automated
exception process can identify only valid royalty rate exceptions
for the Program and be used for its intended purpose.

According to Service officials, the Service did not confirm
notifications in a timely manner, input all of the confirmed
reduced royalty rates into its automated system, or review actual
royalties paid because it did not assign sufficient personnel to
administer the Program.  These duties are conducted by personnel
from the Production Accountability Branch of the Royalty
Management Program's Compliance Verification Division.  Service
officials stated that six personnel were initially assigned to
the Program in 1992 on a full-time basis.  However, by 1998, the
staffing was reduced to three employees on a part-time basis.

During a June 29, 1998, teleconference with Bureau and Service
officials to discuss the continuing backlog of notifications and
the shortage of Service personnel to administer this Program, the
officials agreed to review the issue of Program staffing.  In
December 1998, the Service provided us with a draft strategy
paper to reduce the backlog.  The strategy paper stated that the
Service intended to hire  three new employees and to complete
enhancements to the  automated system, of which both actions
would allow for notifications to be processed more expeditiously. 

Recommendations

We recommend that the Director, Minerals  Management Service:

1.  Develop, using the draft strategy paper, and implement a plan
to eliminate the Stripper Oil Well Property Royalty Rate
Reduction Program notification processing and data entry backlog
and to approve future notifications for the Program in a timely
manner.

2.  Develop and implement a plan to review Program exceptions
generated by the automated matching process and collect underpaid
royalties from operators.

Minerals Management Service Response and Office of Inspector
General Reply

In the July 16, 1999, response (see Appendix 4) to the draft
report from the Director, Minerals Management Service, the
Service concurred with our two recommendations.  We also
considered the Service's comments in the preparation of this
final report.  Based on the response, we consider Recommendation
1 resolved and implemented and Recommendation 2 resolved but not
implemented.  Accordingly, the unimplemented recommendation will
be referred to the Assistant Secretary for Policy, Management and
Budget for tracking of implementation.  

Additional Comments on Audit Finding

In its response, the Service also commented on incomplete
notification packages and royalty rate exception processing as
follows:  

- The Service stated that "it should be recognized that
incomplete notification packages as well as the lag time between
notification and submission of related reports (on which the
notifications are based) frequently delay the process." 

During our audit, Service officials did not tell us that
incomplete notification packages were a significant factor in
delaying the processing of the royalty rate reduction
notifications.  However, we have clarified the report to include
the Service's comments.

- The Service said that the section of our report entitled
"Identification of Differences on Royalty Rates Paid" (page 6)
"might lead the reader to believe that all royalty rate exception
processing had been deferred pending resolution of the data entry
and system problems.  In fact, royalty rate exception processing
was deferred for only those cases where the reported royalty rate
appeared to be a valid stripper royalty rate."

We are aware that all royalty rates used in determining royalty
payments are subjected to an automated exception processing
routine.  We have clarified the report to indicate that the
Service deferred royalty rate exception processing only for the
stripper properties.

Since the report's recommendations are considered resolved, no
further response to the Office of Inspector General is required
(see Appendix 5).

The legislation, as amended, creating the Office of Inspector
General requires semiannual reporting to the Congress on all
audit reports issued, the monetary impact of audit findings
(Appendix 1), actions taken to implement audit recommendations,
and identification of each significant recommendation on which
corrective action has not been taken.

We appreciate the assistance of Service personnel in the conduct
of our audit.

**FOOTNOTES**

[1]:According to "Oil and Gas Terms" (by Howard R. Williams and
Charles J. Meyers, Matthew Bender, New York, 1981),
communitization agreements refer to a "bringing together of small
tracts [of land] sufficient for the granting of a well permit
under applicable spacing rules" and a unit agreement as a "plan
of development and operation for the recovery of oil and gas made
subject thereto as a consolidated unit without regard to separate
ownership." This publication further states, "The best results in
conservation can be obtained only by unitization." 

[2]:According to the Code (43 CFR 3103.4-2(a)(4)), an eligible
injection well is a "well that injects a fluid for secondary or
enhanced oil recovery, including reservoir pressure maintenance
operations."

[3]: 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.

[4]: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. 

[5]:The "Report of Sales and Royalty Remittance" contains monthly
sales data on royalties and other lease-related transactions
reported by royalty payors.  This report is used by the Service's
automated auditing and financial system to process and account
for revenues collected from Federal and Indian leases. 

[6]:A notification may include one or more properties.

[7]: The Federal Oil and Gas Royalty Simplification and Fairness
Act of 1996 (30 U.S.C.A. 1724) established a new statute of
limitations that requires royalties to be collected and royalty
claims to be enforced within 7 years of the month following the
date of production of oil or gas upon which the obligation to pay
royalties arises.  However, this new limitation period applies
only to oil and gas produced from Federal leases subsequent to
August 13, 1996, and does not affect obligations arising from the
production prior to that date (30 U.S.C.A. 1701 note).  


APPENDIX 1

CLASSIFICATION OF MONETARY AMOUNTS

Finding Area

Royalties underpaid because of incorrect royalty rates
Potential Additional Revenues 
$61,000 to $3.5 million


APPENDIX 2

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

Average Barrelsof Oil Produced   Royalty Rate
Per Well Per Day                 Percent    

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

15 or more                   12.5[1]


**FOOTNOTES**

[1]:This was the standard onshore Federal royalty rate as of May
1999.


APPENDIX 3

MINERALS MANAGEMENT SERVICE
TIMELINESS OF NOTIFICATION VERIFICATION

------------------------------------------------------------
Year  Notification  Minimum Number  Maximum Number
Average Number
Received  of Days to  of Days to  of Days
Confirm         Confirm      to Confirm    
------------------------------------------------------------
1992[1]      18                  2,166            194
------------------------------------------------------------
1993         13                  1,379            462
------------------------------------------------------------
1994          1                  1,224            391
------------------------------------------------------------
1995          2                  1,107            338
------------------------------------------------------------
1996         34                   808             376
------------------------------------------------------------
1997         77                   473             258
------------------------------------------------------------
------------------------------------------------------------
1992-1997     1           2,166 (72.2       280 (9.3 months)
months)
------------------------------------------------------------
------------------------------------------------------------

**FOOTNOTES**

[1]:For the period of August 28 through December 31, 1992.

APPENDIX 4
Page 1 of 3

APPENDIX 4
Page 2 of 3

APPENDIX 4
Page 3 of 3

APPENDIX 5

STATUS OF AUDIT REPORT RECOMMENDATIONS

Finding/Recommendation
Reference
Status
Action Required

1Implemented.
No further action is required.

2Resolved; not implemented. No further response to the Office of
Inspector General is required. The recommendation will be
referred to the Assistant Secretary for Policy, Management and
Budget for tracking of implementation.  



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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