Office of Natural Resources Revenue ONRR ONRR Collecting

Office of Natural Resources Revenue (ONRR) ONRR: Collecting Every Dollar Due Presented by: Gregory J. Gould, Director ONRR AGA Professional Development Conference April 26, 2012 1 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Overview • • • Creation of ONRR Mission and Contributions to the U. S. ONRR Restructuring and Strategic Review Mission Work: ONRR Program Areas Recent ONRR Achievements New Emerging Initiatives: – Royalty Reform – Extractive Industries Transparency Initiative (EITI) 2 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

The Creation of ONRR On October 1, 2010, ONRR was formally established and moved under the Office of the Assistant Secretary for Policy, Management and Budget. ONRR has worked closely with the Assistant Secretary for Policy, Management and Budget to enhance the organization’s ability to deliver timely compliance on every dollar due, make accurate on-time payments, and earn public trust. ONRR used the reorganization to spark an agency-wide transformation and develop a strategic framework to prioritize new and ongoing initiatives for implementation. “This is significant not only for moving forward with our overall reorganization, but also for the American taxpayers, whose interests will be better protected by the improved collection and management of revenues from energy development on our public lands and oceans…” -- Secretary Ken Salazar Industry Compliance Accurate Revenues & Data 3 Professionalism & Integrity

DOI: Prior to Restructuring 4 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

DOI: After Restructuring 5 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

ONRR: Who We Are Responsible for the management of revenues associated with federal offshore and federal and American Indian onshore mineral leases, as well as revenues received as a result of offshore renewable energy efforts Dallas Houston Denver Oklahoma City Farmington Tulsa Ft. Berthold Washington, D. C. 6 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Cumulative Mineral Lease Revenue Disbursement ~ $231 Billion • Since 1982, approximately $231 billion in revenues was distributed from onshore and offshore lands to the Nation, states, and American Indians • The distribution to the U. S. Treasury is one of the Federal government’s greatest sources of nontax income 7 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Contributing to the Nation’s Economy • FY 2011 Disbursements -- $11. 16 Billion – $ 6. 05 Billion to the U. S. Treasury – $ 891 Million to the Land & Water Conservation Fund – $ 150 Million to the Historic Preservation Fund – $ 1. 53 Billion to the Reclamation Fund – $ 2 Billion to 37 States – $ 538 Million to the Department’s Office of the Special Trustee on behalf of 36 Indian tribes and approximately 30, 000 individual Indians • Approximately $10 billion in revenue is disbursed annually 8 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

ONRR Strategic Review and Reorganization December 17, 2010 Strategic Review results presented October 1, 2010 ONRR created October 28, 2010 ONRR Strategic Review begins October 1, 2011 ONRR FY 2012 Reorganization March 2011 Implementation Work Groups formed Results: • • Developed a new Strategic Framework to guide decision making Clearly communicated organizational priorities proliferating ownership, optimism and enthusiasm across the organization Launched new initiatives to improve compliance, organizational health and inter-agency collaboration Instituted new ways to make decisions, hold people accountable, measure success and ensure effective results 9 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Three Outcomes Define ONRR’s Success Companies timely comply with laws, regulations, and lease terms and pay every dollar due States, Tribes, Indian mineral owners, US Treasury, and other entities receive timely and accurate revenues and data The public trusts ONRR’s professionalism, integrity, efficiency and quality 10 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Mission Work: ONRR Program Areas Financial and Program Management Audit and Compliance Management Coordination and Enforcement Management 11 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Financial and Program Management Financial Management Production Reporting & Verification § Collect, verify, distribute all rent, royalties and bonuses § Receive, process and verify industry-submitted royalty reports § Perform Data Mining functions § Receive, process and verify industrysubmitted production reports § Error correction for all Federal and Indian production § Oversee meter inspections for production verification Asset Valuation § Issue valuation guidance and determinations § Review and respond to transportation and processing allowance requests § Draft and publish valuation rulemakings 12 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Financial Management Accomplishments FY 2011 Reports Received: 1, 950 payors (Form 2014) 1, 900 operators (Oil and Gas Operations Report) The People. Soft accounting system was one of the first in DOI to satisfy OMB and Federal Managers Financial Integrity Act financial system requirements FY 2011 Transaction Lines Processed: 4. 7 million royalty lines @ 99. 2% accuracy rate 5. 7 million production lines @ 97. 4% accuracy rate Financial operations and internal controls contributed to DOI achieving unqualified opinions* during the annual CFO audits *Unqualified opinion (Clean Audit) - In conformity with U. S. generally accepted accounting principles (GAO-09 -946 SP) Industry Compliance Accurate Revenues & Data 13 Professionalism & Integrity

ONRR DATA ACCURACY EFFORTS Timeline fo En ns Up-Front System Edits nt rce Ac tio 1 Month ec isi on sk ce me ch ch roa Ri 6 -9 Months En 2 -3 Years for ce m s on cti Audits En t A en en t A m ce cti for on s Pr pp -ba se d A se -ba on isi ec Pr d A pp roa sk Ri ns tio Compliance Reviews for Ac nt Missing Reports, Volume Comparisons, LVS/GVS, High Level Analyses of Sales Values, Royalty Values, Adjustments, etc. En me Data Mining 7 Years (Fed. oil & gas) 14 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Audit and Compliance Management A 3 -year cycle to review and/or audit revenues was established All audits performed according to Generally Accepted Government Auditing Standards Compliance reviews are an analysis that determines the reasonableness of reported revenues Properties and companies are selected for review or audit using a risk assessment across the entire universe of properties and companies Audit and Compliance ensures that Federal and Indian mineral revenues are accurately reported and paid 15 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Audit and Compliance Accomplishments Received a “pass” opinion on 2011 Peer Review of our audit activities Since 1982, audit and compliance activities have collected $3. 9 billion In FY 2011 ensured compliance for about $5. 5 billion in royalty revenues In FY 2011 completed 311 audits and 1, 059 compliance reviews For every dollar spent on compliance activities between FY 2009 -2011, ONRR returned approximately $4. 00 back to taxpayers 16 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Coordination and Enforcement Management: State and Tribal Coordination – Audit agreement support and coordination with ten States and six Tribes – Conduct Outreach – Serves as an advocate for the fulfillment of ONRR trust responsibility and to resolve Indian mineral-related issues – In FY 2011, States and Tribes completed 244 audits and 171 compliance reviews – In FY 2011, held 98 outreach sessions and resolved over 12, 500 royalty-related inquiries – For every dollar spent on compliance activities between FY 2009 -2011, States and Tribes returned $3. 39 back to taxpayers Alaska North Dakota California Oklahoma Colorado Texas Montana Utah New Mexico Wyoming Blackfeet Southern Ute Navajo Nation Ute Shoshone/Arapaho Ute Mountain Ute 17 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Coordination and Enforcement Management: Office of Enforcement Functions: § Alternative Dispute Resolution § Litigation § Enforcement Operations New Enforcement Strategy Emphasizing: § Deterrence – resolve to sanction repeat offenders § Appropriate Enforcement Actions – aggressively issuing civil penalties § Communication – provide training/information to managers and employees; publicize collected civil penalties § Continuous improvement – balance and improve staff expertise § Partnership – collaborate on creative enforcement solutions Industry Compliance Accurate Revenues & Data Professionalism & Integrity 18

Office of Enforcement Penalties • The civil penalties program is a tool ONRR uses to encourage compliance by issuing civil penalties when companies fail to comply with, or knowingly violate, applicable regulations or laws. Such penalties are authorized by the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA). • ONRR regulations at 30 C. F. R. § 241 provide a cure period of at least 20 days for regulatory violations such as failure to submit reports. Violations not cured within the period are subject to civil penalty assessments, until they are cured: • As much as $500 per day; • $5, 000 per day after 40 days; • Certain violations - as much as $10, 000 or $25, 000 per violation for each day the violation continues. • Some violations are also crimes under Title 18, U. S. C. or False Claims under 31 U. S. C. 3729. ONRR works in partnership with the Department’s Office of the Inspector General and the U. S. Attorney’s Office in pursuing these violations. 19 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Office of Enforcement Accomplishments Civil Penalties • $28. 8 Million in penalties collected since FY 2000 • 1, 112 cases opened since FY 2000 and 964 cases closed (637 or 66% with compliance achieved) Alternative Dispute Resolution • $185 million received in settlement cases from FY 2009 - FY 2011 (25 ADR case facilitations resulting in Compliance) Litigation Support • 624 debts referred to Treasury between FY 2009 - FY 2011 involving over $3. 2 million in principal + interest • 21 Bankruptcy Proofs of Claim filed since FY 2009 involving over $27 million principal + interest Industry Compliance Accurate Revenues & Data Professionalism & Integrity 20

Recent ONRR Achievements ü Increased Industry Education: Targeted Reporting Training to help industry comply ü Implemented new e-commerce technology that places additional onus on companies to report correctly ü Piloting an integrated compliance approach with a large independent producer ü New data mining business processes: Collected approximately $12 million in additional revenues since 2010 Monitor adjustments outside 6 -year statute of limitations Volume comparison between royalty and production reports ü Professionalism and Integrity: 3 -year Auditor Training Program ü Established a Meter Inspection Team: High employee involvement in ONRR Joint partnership with Bureau of Safety and continuous improvement initiatives Environmental Enforcement Automated Production Metering Feasibility Study 21 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Emerging Initiatives: Royalty Reform Federal & Indian Coal Valuation Federal Oil & Gas Valuation Indian Oil Valuation Negotiated Rulemaking 22 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

Emerging Initiatives: Improving Data Transparency Extractive Industries Transparency Initiative (EITI) President Obama announced the U. S. intention to implement EITI September 2011 Parallel disclosure from companies of what they have paid the government in royalties, rents, bonuses, taxes and other payments INDUSTRY discloses payments Voluntary framework for governments to disclose revenues received from oil, gas and mining assets belonging to state EITI REPORT payments are independently reconciled and verified GOVERNMENT discloses receipt of payments 23 Industry Compliance Accurate Revenues & Data Professionalism & Integrity

The Future of ONRR’s future is bright because we are… ▪ Constantly adapting to find innovative improvements and operational efficiencies to best serve the American people ▪ Holding our self and our employees accountable for performance while maximizing talent and knowledge development ▪ Working cross-functionally and cross-departmentally to achieve critical goals ▪ Committing to transparency for the American people and other nations looking to be leaders in the energy field ONRR expects to achieve… ▪ Timely compliance from companies and payment of every dollar due ▪ Timely and accurate revenues and data distributed to recipients ▪ Trust in ONRR’s professionalism, integrity, efficiency and quality Industry Compliance Accurate Revenues & Data Professionalism & Integrity 24

Questions & Comments Please Contact Gregory J. Gould Acting Deputy Assistant Secretary for Natural Resources Revenue Director, Office of Natural Resources Revenue (202) 254 -5573 greg. gould@onrr. gov http: //www. onrr. gov Industry Compliance Accurate Revenues & Data Professionalism & Integrity 25