MRM COMPLIANCE STRATEGY

• Jurisdiction: United States

Federal and Indian Oil and Gas Royalty Valuation and Management
(Feb 2007)
CHAPTER 6C
MRM COMPLIANCE STRATEGY
Lonnie Kimball
Manager, Offshore Compliance & Asset Management
Minerals Management Service
Houston, Texas

LONNIE KIMBALL

Lonnie Kimball graduated from Southeastern Louisiana University with a major in accounting. Lonnie has been an auditor for 33 years, the last 28 with the Department of the Interior, Minerals Management Service. During his tenure with Minerals Revenue Management, Lonnie has served in several accounting and compliance positions.

Since November 2004, Lonnie manages all offshore Gulf of Mexico, Pacific, and Alaska royalty in value compliance activities as the Program Manager of the Houston Business Center.

The Department of the Interior honored Lonnie with its Superior Service Award in April 2003.

Background

MRM administers a Compliance and Asset Management (CAM) operation charged with ensuring that a fair market value is received for the mineral assets removed from Federal and Indian lands. MRM is committed to the administration of a Federal and Indian mineral revenue compliance program of the highest quality and integrity.

The CAM operation ensures that Federal and Indian mineral revenues are timely and correctly reported and paid by the minerals industry in compliance with applicable laws, regulations and lease terms. Compliance strategies and activities are carried out through a nation-wide MRM field audit structure and delegated and cooperative audit agreements with 11 State governments and 7 Indian tribes.

The current MRM compliance strategy effectively utilizes a combination of targeted and random audits, compliance reviews, and royalty in kind (RIK) property reconciliations. The strategy calls for completion of the compliance cycle within 3 years of the royalty due date with a more detailed strategy for Indian leases. In fiscal year 2006 this strategy ensured reasonable compliance on $5.8 billion in Federal and Indian mineral lease revenues, 72.5 percent of total mineral revenues paid for calendar year 2003, the production year audited/reviewed in FY 2006. MRM's compliance activities have yielded over $3.1 billion in additional mineral revenues since program inception in 1982.

The Compliance Strategy

Historically, the MRM audit strategy was payor-based and, as a result, field audit offices were organized near large concentrations of companies that pay mineral revenues. A reengineering of compliance processes in the late 1990's resulted in the development and implementation of an end-to-end compliance strategy with emphasis on producing properties. The end-to-end compliance strategy was developed in response to MRM performance goals requiring completion of compliance work, including audit, no later than three years after the royalty payment. The compliance strategy is implemented using audits, compliance reviews, and RIK lease/property support functions and royalty reconciliations. In recent years, MMS has focused on revenue dollars as the measurement basis for contemporaneous compliance...