Mineral Revenues: MMS Could Do More to Improve the Accuracy of Key Data Used to Collect and Verify Oil and Gas Royalties Page: 2 of 48
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SGAO
Accountability. Integrity* Reliability
Highlights
Highlights of GAO-09-549, a report to
congressional requesters
Why GAO Did This Study
In fiscal year 2008, the Department
of Interior's Minerals Management
Service (MMS) collected over $12
billion in royalties from oil and gas
production from federal lands and
waters. Companies that produce
this oil and gas self-report to MMS
data on the amount of oil and gas
they produced and sold, the value
of this production, and the amount
of royalties owed. Since 2004, GAO
has noted systemic problems with
these data and recommended
improvements. GAO is providing:
(1) a descriptive update on MMS's
key efforts to improve the accuracy
of oil and gas royalty data; (2) our
assessment of the completeness
and reasonableness of fiscal years
2006 and 2007 oil and gas royalty
data-the latest data available; and
(3) factors identified by oil and gas
companies that affect their ability
to accurately report royalties owed
to the federal government.
To prevent erroneous data from
being entered into MMS databases
and to check the quality of data
already entered, GAO recommends
that MMS design (1) an edit check
to prevent payors from submitting
a claim for processing allowances
on gas that is not processed and (2)
new edit checks to examine the net
effect of adjustments to certain key
royalty variables. To simplify
auditing, GAO recommends that
MMS royalty payors submit data on
unit agreements and reasons for
changes to original data
submissions. In commenting on a
draft of this report, Interior
generally agreed with our findings
and recommendations.
View GAO-09-549 or key components.
For more information, contact Frank Rusco,
(202) 512-3841, ruscof@gao.gov.MINERAL REVENUES
MMS Could Do More to Improve the Accuracy of Key
Data Used to Collect and Verify Oil and Gas RoyaltiesWhat GAO Found
MMS has several key efforts underway to improve the accuracy of the payor-
reported data used to collect and verify royalties, but it is too soon to evaluate
their effectiveness. MMS is in the process of implementing (1) GAO's past
recommendations to help identify missing royalty reports and monitor payors'
changes to royalty data; (2) recommendations from the Royalty Policy
Committee-a group empanelled by the Secretary of the Interior to provide
advice on managing federal and Indian leases and revenues-to improve edit
checks, monitor the quality of natural gas, revise gas valuation regulations,
and improve coordination with BLM; and (3) other efforts on adding specific
edits for sales prices and identifying discrepancies in volumes between
operators and payors.
While much of the royalty data we examined from fiscal years 2006 and
2007 are reasonable, we found significant instances where data were
missing or appeared erroneous. For example, we examined gas leases in
the Gulf of Mexico and found that, about 5.5 percent of the time, lease
operators reported production, but royalty payors did not submit the
corresponding royalty reports, potentially resulting in $117 million in
uncollected royalties. We also found that a small percentage of royalty
payors reported negative royalty values, which cannot happen, potentially
costing $41 million in uncollected royalties. In addition, payors claimed
processing allowances 2.3 percent of the time for unprocessed gas,
potentially resulting in $2 million in uncollected royalties. Furthermore,
we found significant instances where payor-provided data on royalties
paid and the volume and/or the value of the oil and gas produced appeared
erroneous because they were outside of expected ranges.
Oil and gas company representatives reported that several factors affect
their ability to accurately report royalties, including complex land
ownership, administratively combining leases into units, ambiguity in
federal regulations that establish gas prices, short time frames for filing
royalty reports, and inaccuracies in MMS's internal databases.
Production Facilities on a Federal Lease in ColoradoSource: GAO.
.United States Government Accountability Office
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United States. Government Accountability Office. Mineral Revenues: MMS Could Do More to Improve the Accuracy of Key Data Used to Collect and Verify Oil and Gas Royalties, report, July 15, 2009; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc298469/m1/2/: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.