The Minerals Management Service (MMS) has no “reasonable assurance” that it receives its share of natural gas royalty-in-kind (RIK) payments, and it risks losing millions in revenue because of a lack of tools and staff, according to an audit by the Government Accountability Office (GAO).
The performance audit (GAO-09-744) was conducted between June 2008 and August 2009 at the request of Sen. Jeff Bingaman (D-NM), chair of the Senate Energy and Natural Resources Committee; Sen. Ron Wyden (D-OR), chair of the Subcommittee on Public Lands and Forests; Rep. Nick J. Rahall II (D-WV), who chairs the House Committee on Natural Resources; and Rep. Darrell Issa (R-CA), ranking member of the Committee on Oversight and Government Reform. The was issued to the congressional members on Aug. 14; it was distributed to the public on Monday.
“MMS risks losing millions of dollars in revenue because it does not accurately and promptly identify and collect on RIK gas imbalances,” GAO noted. Specifically, auditors said, MMS:
According to the audit, MMS “has made progress” in reconciling RIK gas imbalances, and its current estimate value these imbalances at $35 million owed to MMS and $14 million that MMS owes to operators, resulting in a net of $21 million owed to MMS.
“RIK officials told us that as of June 2009, the agency has reconciled nearly 99% of the imbalances from 2002 through 2006,” the GAO report said. “In addition, MMS’s data indicate it has completely reconciled almost 99% of the imbalances for production occurring in fiscal year 2007, almost 98% for fiscal year 2008 and about 94% for fiscal year 2009.”
However, MMS doesn’t know the exact amount it is owed for imbalances, the audit found, because it lacks “at least” three types of information. The MMS does not verify all gas production data to ensure it receives its entitled RIK gas from all leases taken in kind; it lacks information on how to price gas imbalances for leases that have terminated from the program or where production has ceased; and it could be “forgoing revenue” because it lacks information on daily gas imbalances.
The MMS is making progress, the audit noted. For instance, the federal agency in March contracted for an assessment of the organization of RIK invoicing and imbalance of work. And at GAO’s suggestion MMS is reviewing the possibility of using training classes offered by oil and gas companies for their employees who participate in the RIK gas program.
MMS employees, the audit said, could “gain first-hand knowledge into how industry does it gas imbalance work…make strategic contact with industry gas employee counterparts…and gain some insight into industry training requirements.”
“MMS officials told us that its RIK gas revenue specialists are not required to meet any annual education requirements,” the audit noted. MMS was considering whether to use the industry training.
The audit and recommendations are available at www.gao.gov/new.items/d09744.pdf.
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