CHAPTER 1 FEDERAL AND INDIAN OIL AND GAS ROYALTY MANAGEMENT
| Jurisdiction | United States |
(Jan 1992)
FEDERAL AND INDIAN OIL AND GAS ROYALTY MANAGEMENT
Minerals Management Service
Denver, Colorado
TABLE OF CONTENTS
I. INTRODUCTION
II. DIVISION OF ROYALTY ACCOUNTABILITY RESPONSIBILITIES
III. ROYALTY MANAGEMENT PROGRAM
IV. PAYMENT AND REPORTING REQUIREMENT
V. COLLECTIONS AND PROCESSING
VI. DISTRIBUTIONS AND EXPLANATIONS (Overview)
VII. ROYALTY DUE=(PRODUCTION AMOUNT–BENEFICIAL USE)×ROYALTY RATE×(GROSS VALUE–ALLOWANCES)
VIII. ENFORCEMENT
IX. VERIFICATION (Overview)
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I. INTRODUCTION
A. Nonproducing Federal and all Indian oil and gas leases require that rentals must be paid once per year on or before the anniversary date of the lease.
B. Producing Federal and Indian oil and gas leases require a royalty to be paid by the end of the month following the month of production. If minimum royalty requirements are not satisfied by royalty payments, minimum royalties due are payable at the expiration of the lease year.
C. The amount of royalty is equal to the volume of production saved, removed, or sold times the value of production times the royalty rate.
D. Each of the elements (volume, value, and royalty rate) have certain complicating factors.
II. DIVISION OF ROYALTY ACCOUNTABILITY RESPONSIBILITIES
A. The Department of the Interior has been collecting bonuses, rents, royalties, and other receipts from Federal and Indian mineral leases since 1921. Under the U.S. Geological Survey (USGS), rental and royalty management responsibilities began centralizing in 1981 in Lakewood, Colorado. The Royalty Management Program (RMP) was removed from USGS and placed in the Minerals Management Service (MMS) effective January 21, 1982.
The MMS has remained responsible for this function since its establishment in 1982. More specifically, RMP is responsible for the collection and disbursement of mineral revenues paid on Federal and Indian oil and gas, coal, and other mineral leases onshore and for leases on the Outer Continental Shelf (OCS). The RMP provides significant revenue to the U.S. Department of the Treasury (Treasury), States, and Indian recipients, accounting for approximately $4.6 billion of mineral revenues in Fiscal Year (FY) 1991.
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1. About $3.4 billion in royalties, rents, and bonuses from 6,163 offshore leases, licenses, and permits (74 percent).
2. Over $1 billion from 81,037 Federal onshore leases, licenses, permits, and applications (23 percent).
3. About $152 million from 7,439 Indian leases, licenses, permits, and applications (3 percent).
4. The RMP disburses revenues to 27 States, 29 Indian tribes, and to over 29,000 Indian allottees through the Bureau of Indian Affairs (BIA).
5. The RMP deals with about 2,200 royalty and 30,000 rental payors.
B. The Offshore Minerals Management (OMM) Program is administered by MMS. The OMM is responsible for offshore leasing and associated operational functions such as approving permits for drilling and production operations, production verification, and onsite inspection and enforcement.
C. The Bureau of Land Management (BLM) is a Federal Agency within the Department of the Interior that administers onshore public lands and natural resources. The BLM programs provide for the protection, orderly development, and use of the public lands and resources under principles of multiple use and sustained yield. In addition to its surface management responsibilities, BLM is also responsible for onshore leasing and associated operational functions such as approving permits for drilling and production operations, diligence, drainage, production verification, onsite inspections, and enforcement.
Depending upon a location of an onshore lease, BLM may not be the surface management agency. Other surface management agencies, such as the U.S. Forest Service or the National Park Service, may be responsible for surface disturbance activities. However, BLM remains the leasing agent, as well as being responsible for related operational approvals.
D. The Bureau of Indian Affairs is a Federal Agency within the Department responsible for facilitating the full development of the human and natural resource potential of Indian and Alaska native
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people to manage their own affairs under a trust relationship with the Federal Government. The BIA administers all Indian leases and contracts, distributes mineral revenues, and prepares and maintains title records. The BLM is the operational supervisor, ensuring onsite compliance, appraising the value of resources, and providing expert advice on drilling permits, diligence and other operational matters. The RMP continues to receive, record, verify, and distribute oil and gas revenues and related information to BIA generated from Indian mineral properties. The BIA in turn distributes the revenues and information to Indian tribes and allottees. All rents due on nonproducing Indian leases are paid directly to the appropriate BIA agency/area office.
III. ROYALTY MANAGEMENT PROGRAM
A. The mission of RMP is to ensure that all revenues from Federal and Indian mineral leases are efficiently, effectively, and accurately collected, accounted for, verified, and disbursed to the appropriate recipients in a timely manner and in accordance with existing laws, regulations, lease terms, orders, and notices, and to provide support for technical lease management functions.
To accomplish this mission, RMP:
1. Has an FY 1992 budget of $66 million.
2. Is staffed with about 700 employees located in 10 cities, including Washington, D.C.
3. Has the majority of its personnel located west of the Mississippi.
4. Has 2 major contractors employing a staff of over 400 employees.
5. Operates three principal automated systems to maintain and process revenue and production information submitted by lessees:
a. Auditing and Financial System (AFS). The AFS accounts for and distributes rents and royalties from producing and/or producible Federal onshore and offshore leases and Indian leases. The AFS became operational in 1983. The system was converted from minicomputers to a mainframe computer in September 1987. As a result of improved
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computer support, MMS has been able to accelerate its accounting processes, expedite royalty and interest billings, and improve online data access to users and royalty recipients.
b. Production Accounting and Auditing System (PAAS). The PAAS is a production accounting system that monitors production and disposition activity for leases. Production information submitted to PAAS is compared with sales data reported to AFS to identify potential underpayments of royalty.
c. Bonus and Rental Accounting Support System (BRASS). The BRASS accounts for and distributes annual rentals and bonuses from approximately 63,000 nonproducing onshore Federal leases and permits. This function was historically the responsibility of BLM but was transferred to RMP when BRASS became operational in April 1984.
B. Background
1. Pertinent Statutory Provisions
a. Mineral Leasing Act of 1920 (MLA), as amended ( 30 U.S.C. §§ 181 et seq.).
This act specifies terms and conditions for prospecting and mining of minerals on public domain lands. It specifies rental and royalty terms for each mineral, conditions for pipeline rights-of-way, lease diligence, and royalty disposition. The act calls for sharing of royalty revenues with States.
b. Mineral Leasing Act for Acquired Lands of 1947 ( 30 U.S.C. §§ 181 et seq.).
This act extended the mineral leasing laws (the Act of 1920, etc.) to all lands acquired by the United States. As a result of this act, RMP disburses royalties to other Agencies, including the Department of Agriculture, U.S. Army Corps of Engineers, U.S. Fish and Wildlife Service, Bureau of Reclamation, and others, for further distribution to other recipients.
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c. Outer Continental Shelf Lands Act (OCSLA) of 1953 as amended ( 43 U.S.C. §§ 1331 et seq.).
This act authorizes the Secretary of the Interior to issue exploration permits and mineral leases for tracts located on the OCS. The act specifies lease requirements and royalty terms and describes how revenues are to be deposited to the Treasury.
The OCSLA Amendments of 1985 specify how revenues will be shared with coastal States. Twenty-seven percent of the receipts from OCS leases located within the first 3 miles seaward of State coastal waters are disbursed to coastal States.
d. Federal Oil and Gas Royalty Management Act of 1982 ( 30 U.S.C. §§ 1701 et seq.).
Section 101 of the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA) calls for comprehensive fiscal and production accounting and auditing systems to accurately determine oil and gas royalties, interests, fines, penalties, and other payments owed, and to collect and account for such revenues in a timely manner. The act amended the MLA to require monthly disbursement of Federal royalties to States, and also requires monthly deposit of royalties to Indian accounts. The act requires that an explanation of such payments be provided to States and Indians supporting the disbursements made. A provision for interest payments to States and to appropriate Indian accounts for failure to disburse receipts timely is also included in the act.
2. Pertinent Regulatory Provisions
a. Indians—25 CFR Parts 211, 212 (1991).
These regulations contain the rules and provisions for the leasing of oil and gas and other minerals on tribal and allotted Indian lands. They further set out general terms for rentals and royalties for leases.
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b. MMS—30 CFR (1991).
These regulations describe the requirements for collection of certain rents, royalties, and other payments on Federal leased lands; and for determining royalty liability; for maintaining accounting records; and for audits of royalty payments. Other sections...
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