ONRR Compliance Process February 12, 2019

Disclaimer The statements or opinions expressed in all ONRR presentations and panel discussions at the 2019 PASO-Tulsa Federal/Indian Royalty Compliance Workshop do not necessarily represent the views of ONRR or the Department of the Interior.

ONRR Compliance Process Improvement Initiative Improve Compliance Business Processes Align Sufficient and Skilled Resources Leverage Technology - Operations Management Tool (OMT)

Process Improvements Increased Productivity Eliminated unnecessary steps and duplication Implemented status tracking and transparency Standardized Phases, Milestones and Tasks to track status and progress Established aggressive deadlines and refined goals Mitigated Overlap of Compliance Activity Organizational realignment Centralized work management Centralizes management of all compliance work (Audit Management, Compliance Management & STRAC) Identifies and flags overlap properties and companies Shows current production/royalty information Identifies compliance targets

Process Improvements Established Standard Compliance Processes Uniform workflow and procedures Consistent file structure Structured supervisory/management review process Escalation process when companies do not respond Framework for defining systemic issues Sampling standards Thresholds to manage work Implemented ONRR-Wide Work Products Internal uniformity Consistent communication to industry

Process Improvements Maximized Results and Improved Resource Management Focus resources on areas of potential misreporting Allocating sufficient and experienced resources for efficient conduct of audit Continue to pursue filling vacant positions Utilize internal experts to provide consistent guidance and training Enhanced auditor training program

Process Improvements OMT is an Integrated ONRR-Wide Tool that automates planning, execution, monitoring, measurement, and reporting on all compliance processes Increases management visibility and insight into processes. Simplifies processes while increasing quality. Reduces time to perform compliance activities. ONRR-Wide Benefits: Work Management Standardized Process Transparency ONRR-wide (and STRAC) automation Automated work management & risk analysis Business process metrics to drive process improvement Optimized for multiple users Enhanced automation to speed process closure Mitigation of overlapped work Consistent work products Process standardization and sustainability Standardized milestones Electronic document & case file storage in one central tool Electronic “workpapers” Data security Electronic file backups Fast accumulation of data for metrics tracking Ease of high level activity transparency Shared view of case & status

OMT Status Compliance Reviews (ONRR) January 2017 Audit (ONRR - Process Only) March 2017 Compliance Reviews (STRAC) Pilot Dec 2017 Data Mining January 2018 Audit (ONRR Pilot) Summer 2019 Audit (ONRR) September 2019

ONRR Organization Office of Natural Resources Revenue Greg Gould Director Jim Steward Deputy Director Audit Management Jeff Carlson Program Director Revenue, Reporting, & Compliance Management Kimbra Davis Coordination, Enforcement, Valuation, and Appeals John Melhoff

Coordination, Enforcement, Valuation & Appeals

Centralized Work Planning & Compliance Strategy Data Analytics Audits Compliance Reviews Data Mining STRAC

Compliance Strategy Apply Insight Work Plan Take Data OGOR | 2014 Reports Risk Tool Compliance Feedback Apply Insight Collaborate Set Priorities Work Plan Data Mining Compliance Review Audit STRAC

Revenue, Reporting, & Compliance Management Revenue, Reporting, and Compliance Management Kimbra Davis, Program Director Compliance Management Jennifer Goldblatt, Program Manager Compliance Team B James Smith, Manager (303) 231-3705 2 Volume Comparison Teams 2 Compliance Assurance Teams Agreement Monitoring Team Compliance Team A Amanda Martinez, Manager (303) 231-3480 Reporting Analysis Team Data Mining Exception Processing: Conduct the first analysis of data that has passed ONRR’s reporting edits to provide reasonable assurance that company-reported royalty and production data is accurate Compliance Reviews: Ensure company compliance with lease terms, laws, and regulations by reviewing the components of the royalty equation to determine if they are correctly reported and paid

Data Mining Processes Volume Comparison Agreement Monitoring Detects missing 2014s Identifies and resolves high-volume discrepancies between OGOR reported sales volumes and 2014 reported sales volumes Identifies and resolves lease and agreement misreporting Volume Comparison Reviews every new and revised communitization agreements (CA) Verifies that all leases in the CA are receiving the correct amount of royalties based on the allocation schedule contained in the terms of the CA Agreement Monitoring Net Negative – Analyzes net negatives at the company/property/sales month/product code level to ensure proper reporting and payment Ad hoc – Analyzes data and tests assumptions to develop future processes, such as original offsetting positive lines for negative adjustments, adjustments to closed or audited time periods, and other misreporting Reporting Analysis

Compliance Review Process Ensure that the components of the royalty equation (volume, value, allowances, royalty rate) are correctly reported and paid Compare elements of the royalty equation to an expected value to determine if variances exist Allow for quick resolution of errors Provide reasonable assurance that all or part of the royalty equation is paid and reported correctly Perform Indian Gas Major Portion, Dual Accounting and Indian Oil Major Portion CRs

Audit Management

Audit Management

Audit Process Closure Planning Analysis Resolution Send Engagement Letter/Data Request Conduct Preliminary Audit Work Select Sample Finalize Audit Plan Analysis Conduct Fieldwork Send Data Requests Resolution Send Preliminary Determination Send Order Letter Confirm Compliance Closure Hold Exit Conference Send Audit Report* * Note: If audit terminated, Send Closure Letter

Process Improvement Results Provides structure and clear guidance leading to a more efficient process Decreases review and processing time by using system generated work products Minimizes time lost when transferring cases between employees Allows audit closure where no findings exist (RSFA) Ensures GAGAS standards (audits) are met reducing the risk of peer review findings Improves management oversight

Process Improvement Results Decreased Backlog As of Dec 2018, 5 audit cases open more than 3 years

Process Improvement Results Reduced Cycle Times Downward trend – decreasing time by nearly a year Expect efficiencies with OMT implementation

How does ONRR notify you of compliance issues? Phone Call Letter Email/MessageWay

What does it mean when ONRR contacts you? Audit Compliance Review Data Mining

How do you determine the compliance type?

What should you do when ONRR contacts you? Follow all instructions within the specified time period. If you need more time, you may need to sign a tolling agreement Refer to identifying information (such as, Case No.) when responding to communications Contact the ONRR employee listed on the correspondence if you need assistance You may appeal or request a hearing on the record, if applicable Failure to follow instructions can result in Notice of Noncompliance, Civil Penalties, or other enforcement actions

How do you locate the due date and case number?

ONRR Escalation Process Action Type Due Date Auditor/Analyst Extension (Optional) Supervisor Extension Manager Extension 1 Next Steps Data Request Maximum 30 Days (less if applicable) N/A One 15-Day Extension from the Due Date or Revised Due Date One to multiple 15-Day Extensions from the Due Date or Revised Due Date Refer to Office of Enforcement Data Request w/Engagement Letter Earlier of: Entrance Conf. Date OR Maximum 30 Days One 15-Day Extension from the Due Date Preliminary Determination Order Letter Order Letters 30 Days from Receipt Date (60 Days for OTP) of Enforcement IF Not Appealed 1 Multiple extensions may require approval from Program Manager.

What’s next? Business Process Reengineering

Questions Jennifer Goldblatt 303-231-3925 jennifer.goldblatt@onrr.gov Shawna Schimke 405-879-6006 shawna.schimke@onrr.gov