CHAPTER 9 ROYALTY AND PRODUCTION REPORTING
| Jurisdiction | United States |
(Jan 1992)
ROYALTY AND PRODUCTION REPORTING
Linda S. Whitfield
Minerals Management Service
Denver, Colorado
TABLE OF CONTENTS
I. INTRODUCTION
A. Mission and Goals
II. REFERENCE DATA REQUIREMENTS
A. Fiscal Accounting Division
1. Auditing and Financial System
a. Form MMS-4025, Payor Information Form
2. Bonus and Rental Accounting Support System
B. Production Accounting Division
1. Types and Sources of Reference Data Needed to Determine Correct Reporting
a. Lease, Agreement, and Mine Data
b. Well Data
c. Meter Data
d. Facility Data
e. Operator Data
III. INDUSTRY REPORTING REQUIREMENTS
A. Fiscal Accounting Division Requirements for Acceptable Royalty Reporting
1. Form MMS-2014, Report of Sales and Royalty Remittance (Oil, Gas and Geothermal)
2. Form MMS-4014, Report of Sales and Royalty Remittance (Solid Minerals)
3. Reporting Medium
B. Production Accounting Division Requirements for Acceptable Production Reporting
1. Form MMS-3160, Monthly Report of Operations
2. Form MMS-4054, Oil and Gas Operations Report
3. Form MMS-4055, Gas Analysis Report
4. Form MMS-4056, Gas Plant Operations Report
5. Form MMS-4057, Fractionation Plant Operations Report
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6. Form MMS-4059, Solid Minerals Operations Report
7. Form MMS-4060, Solid Minerals Facility Report
8. Reporting Medium
9. Differences Between Onshore and Offshore Reporting
IV. EDITS
A. AFS Royalty Reporting Edits
B. PAAS Production Reporting Edits
1. Detection
2. Evaluation
3. Correction
a. Errors Detected by the Reporter
b. Errors Discovered by RMP
4. Report Definition
V. EXCEPTIONS AND ASSESSMENTS
A. AFS Royalty Reporting and Payments
1. Late Reporting and Erroneous Reporting
2. Late Payments and Under Payments
B. PAAS Production Reporting
1. Late Reports, Non-Reporting, or Erroneous Reporting
2. AFS/PAAS Exceptions
3. Late, Non-Reporting, or Erroneous Assessments
4. Exceptions from Automated and Manual Production Verification and Injection Tracking System
EXHIBIT 1
SOURCES 9-35
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I. INTRODUCTION
The Department of the Interior (DOI) has been collecting bonuses, rents, royalties, and other receipts from Federal and Indian mineral leases since 1921. The Minerals Management Service (MMS) assumed the responsibility for this function, from the United States Geological Survey (USGS), when it was established in 1982.1
The Royalty Management Program (RMP), within MMS, is specifically responsible for the collection and disbursement of revenues paid on Federal (onshore and offshore) and Indian mineral leases, as well as the collection of production and other operational data to ensure that payments to the Government are accurate. The RMP provides significant revenue to the U.S. Department of the Treasury (Treasury), Federal Surface Agencies, States, and Indian recipients, accounting for approximately $4.6 billion annually.2
A. Mission and Goals
The RMP's primary mission is to ensure that all revenues from Federal and Indian 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.3 The RMP's core purpose is to provide excellent management of Federal and Indian mineral revenues for it's customers. In partnership with its customers, the RMP is continuously improving the quality of its services. RMP's goal is to provide the best financial services in the Federal Government.4
To carry out this mission and purpose, both RMP's Fiscal Accounting Division (FAD) and Production Accounting Division (PAD) have specific functional goals. The FAD's goals are identical to RMP's mission and are best described as to collect, account for, and disburse appropriate Federal and Indian mineral revenues, in an accurate and timely manner, consistent with applicable laws, regulations and policies. The PAD's goals are to provide production data to organizations for lease management functions and to ensure that volumes on which royalties are paid are accurate based on production data provided by lease operators.5
II. REFERENCE DATA REQUIREMENTS
The RMP depends upon sophisticated computer systems to carry out its responsibilities in managing Federal and Indian mineral estates.6 Accurate reference data is integral and essential to any computer system. Reference data is
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information that is relatively static, e.g., revenue source codes, selling arrangement codes, product codes, lease/agreement numbers, mine numbers, well numbers, allocation schedules, etc. Each month, RMP's automated systems process approximately 200,000 lines of royalty data, and 300,000 lines of production data. Although each system is dedicated to support a different function, all three use similar data base information critical to each individual system's process.7
A. Fiscal Accounting Division
The FAD operates two distinctly different automated computer systems to account for and distribute mineral revenues paid on Federal onshore and offshore leases and Indian leases. The automated Auditing and Financial System (AFS) is established on a payor subaccount basis with each payor having his/her own reporting and payment responsibilities. The AFS accounts for and processes all rents and royalties paid on producing and/or producible Federal onshore and offshore leases and Indian leases, and distributes mineral revenues and information received to States, Indians, other Federal agencies and the Treasury. In addition, all offshore leases and solid mineral leases, except nonproducing coal leases with a deferred bonus obligation and nonproducing geothermal and tar sands leases, reside on AFS regardless of production status. In contrast, FAD's automated Bonus and Rental Accounting Support System (BRASS) accounts for and distributes annual rentals and bonuses from nonproducing onshore Federal leases only.8
The FAD maintains the integrity of the reference data bases, for both AFS and BRASS by ensuring the accuracy, completeness, and consistency of lease and agreement data. Lease and agreement information is obtained routinely from the Bureau of Land Management (BLM), the Bureau of Indian Affairs (BIA), and MMS, Offshore Minerals Management Office (OMM) to establish the basic lease and agreement accounts necessary for processing royalties, rents, and bonuses for Federal onshore and offshore leases and Indian leases.9
1. Auditing and Financial System
The AFS system design is based on traditional revenue accounting system principles operated on the exception basis similar to that used by the Internal Revenue Service. All financial information contained on reports and payments submitted to the AFS is considered valid unless rejected by edits built into the automated system. Thus, reports and payments are accepted as correct, subject to audit and exception processing. As a result of continual system improvements, RMP has been able to accelerate its accounting processes and improve online data access to users and royalty recipients.
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The AFS relies on data reported by payors for the majority of its processing. Each month, AFS processes approximately 200,000 lines of royalty data. Major reference data base elements approximate 1,600 active payor codes; 25,000 producing Federal and Indian oil and gas leases; 300 producing mining and geothermal Federal and Indian leases; 7,800 nonproducing Federal and Indian oil and gas leases committed to producing units or communitization agreements; 960 producible mining and geothermal Federal and Indian leases; 68,000 revenue sources; and 80,000 selling arrangements.
The AFS data base includes, in addition to the information furnished by the BLM, BIA, and OMM, a payor data base established through the submittal of the Form MMS-4025, Payor Information Form (PIF), by payors. Essentially, a payor is any party(s) accepting responsibility for paying and reporting royalty for sales from a given lease or agreement.
a. Form MMS-4025, Payor Information Form
The PIF establishes the responsible party(s) for paying royalties, the sources of revenue for the lease, and the disposition of the product(s) on the lease. This information, along with lease and agreement information provided by other government entities, is used to establish and maintain the payor and lease account information required to process monthly Form MMS-2014, Report of Sales and Royalty Remittance, for oil, gas, and geothermal; and Form MMS-4014, Report of Sales and Royalty Remittance for solid minerals.
The PIF must be received and processed by RMP within 30 days prior to the receipt of the monthly royalty report. After RMP processes the PIF, payors receive a Payor Confirmation Report identifying the correct lease, revenue source, selling arrangement and product code combination for the payor to use on the monthly royalty reports. These data elements must match those data elements subsequently reported on monthly royalty reports.
Although a payor must file a PIF for each Federal or Indian lease for all royalties and rents paid to the AFS (30 CFR § 210.51 (1990)), certain Indian producing leases, e.g., Indian leases operated under a joint venture or net profit share agreement with a Tribe, as identified in the MMS Oil and Gas Payor Handbook, 1988, Volume II, Section 1.1.1.,10 are excluded from this requirement and should not be submitted to the AFS.
For the purposes of computerized accounting for Federal and Indian royalty revenues, a unique identification numbering system was developed consisting of the following components:
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• Leases Leases are issued by...
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