Summary

Mineral Revenues: Data Management Problems and Reliance on Self-Reported Data for Compliance Efforts Put MMS Royalty Collections at Risk

GAO-08-893R  September 12, 2008

Full Report (PDF, 18 pages)   

The Department of the Interior's (Interior) Minerals Management Service (MMS) collected the equivalent of over $9 billion in oil and gas royalties in fiscal year 2007, more than $5 billion of which it deposited in the U.S. Treasury; it dispersed the remaining approximately $4 billion to other federal, state, and tribal accounts. These royalties--payments made to the federal government for the right to produce oil and gas from federal lands and waters--represent one of the country's largest nontax sources of revenue. The amount of oil and gas royalties MMS collects may increase if the price of energy increases and industry's demand to drill on lands and in waters controlled by the federal government continues to trend upward. Companies that develop and produce oil and gas resources from federal lands and waters do so under leases obtained from and administered by Interior--BLM for onshore leases and MMS's OEMM for offshore leases. Together, BLM and OEMM are responsible for ongoing oversight of oil and gas operations on more than 28,000 producing leases to help ensure that oil and gas companies comply with applicable laws, regulations, and agency policies. Among other things, BLM (BLM) and OEMM (OEMM) staff inspect leases to verify that oil and gas production is accounted for as required by the Federal Oil and Gas Royalty Management Act of 1982 and agency regulations and policies. These inspections typically include an examination of the meters and their calibration records.

Interior has been subject to significant examination and oversight of its royalty management programs over the years, which has resulted in GAO, Interior's Inspector General, and the Royalty Policy Committee issuing numerous recommendations to improve royalty collections. So far, Interior has been responsive to these recommendations and, as an example, is currently implementing an action plan to address the Royalty Policy Committee's recently issued recommendations. As a result, many of Interior's processes and systems are in flux, and the outcome of these potential improvements will not be known for some time. However, given high oil and gas prices and the increased interest on the part of oil and gas companies in the nation's oil and gas resources, it is important that we have a royalty collection system going forward that can assure the American public that the government is receiving accurate and timely royalty payments. Critical to this is that both BLM and OEMM complete and accurately document their production inspection and verification work. Furthermore, collections of accurate royalties will remain at risk as long as companies may make unverified adjustments to royalty and production data after MMS completes its compliance activities. Increasing this risk is uncertainty regarding the statutory time frames for MMS to collect unpaid royalties, which under one interpretation may leave just 1 year for MMS to identify an improper adjustment. Ultimately, Interior's royalty IT system and policies should provide adequate assurance that the federal government receives appropriate value for oil and gas produced from federal lands and waters. This royalty collection process should also rely less on companies providing accurate information on production and royalties owed, and more on a system with the ability to conduct thorough and independent verification of what is owed to the government, using third-party data where available at reasonable cost, and more systematically examining company source documentation.

Subject Terms

Data collection
Data integrity
Federal/state relations
Financial management
Funds management
Gas leases
Gas resources
Information management
Information technology
Inspection
Internal controls
Mineral resources
Oil leases
Oil resources
Reporting requirements
Risk management
Royalty payments
Systems conversions