Federal Royalty/BLM Audit Workshop Tulsa, Oklahoma September 8, 2011

Financial Management Data Mining  Current projects  Data Mining Implementation Work Group Re-organization Specific PASO questions

Precision ONRR DATA ACCURACY EFFORTS Up-Front System Edits Data Mining Missing Reports, Volume Comparisons, LVS/GVS, High Level Analyses of Sales Values, Royalty Values, Adjustments, etc. 1 Month 6-9 Months 2-3 Years 7 Years (Fed. oil & gas) Compliance Reviews Audits Timeline Risk-based Approach Enforcement Actions

Data Mining Compliance Strategy Council (CSC)  Agreement reporting  Missing reports High Volume discrepancies  Net negatives  Same volume, value, Btu  Trending

Data Mining Statistics  Volume comparison team $357,000 in FY 2010 $573,000 in FY 2011 Many amended 2014’s  Office of Enforcement involvement in future

Data Mining Adjustment Monitoring Team  $.5 million FY 2010  $1.5 million FY 2011  Numerous cases closed for valid adjustments  Just started to look at net negatives

Data Mining Implementation Work Group Cross organization representation 116 reporting issues identified  Pricing  Volume  Adjustments  Allowances  Royalty Rates

Data Mining Implementation Work Group New edits (December estimate)  Indian net negative  Duplicate 2014 adjustments  Transportation exceeding 50% of RVPA or processing exceeding 66.66% of RVPA less transportation  Incorrect reporting of Transportation Allowances on Section 6 Leases  Invalid Agreement numbers (from warning edit to fatal)

Data Mining Implementation Work Group New edits (December estimate)  Lease is not producing (from warning edit to fatal)  Federal leases - STC APOP only with PC 04  Missing API number on Southern Ute properties  Tracking of RSFA violation adjustments  Misreporting of DWRR Codes on OGOR  Multiple Royalty Rates - at least 1 must match  Allow TC for quality banks to be used for NGL banks.

Data Mining Implementation Work Group New edits (June 2012 estimate)  Do not allow TC 41 & TC 55 when price threshold is exceeded  Must have 4410 election form filed if PC 07, NARM and Federal, or if Indian and PC 07  Remove internal Adjustment Reason Codes from ecommerce selection list  Ensure proper reporting of DWRR TCs  OINX - Do not allow allowances in index zone  Flag $/MMBtu values which significantly differ from the corresponding index zone price

Data Mining Implementation Work Group New edits (June 2012 estimate)  Don’t allow allowances on alt. dual accounting properties.  Pricing edits Incorrect sales volumes on skewing price Flag obvious decimal placing problem (56.7 compared to 5.67) reject 2014 lines when the price submitted is below the published (index) price Maintain tables of crude types, pricing, and dates (asset management) tied to an edit that identifies incorrect pricing; for onshore too

Data Mining Implementation Work Group New Data Mining dashboards  Reporting anomalies.  Approvals for venting and flaring.  Duplicate adjustments  Chronic over sufficient royalty estimates and other misreporting.  Net negatives across royalty equation  Overlapping agreements including the % of overlap  Repetitive reporting  Reported royalties later reversed to zero  Related properties with volumes for given time period  Adjustments after closed audit periods

Data Mining Implementation Work Group Future  Ongoing group to get input from all of ONRR and State and Tribal Royalty Audit Committee (STRAC) Data Improvement Group (DIG)  Quarterly meetings  Outreach to field offices and STRAC

Reorganization Production becomes it’s own Division Solid Mineral finance comes to FM  Combine with Royalty Reporting and Reference Data Document Processing Section goes under Accounting Services

Financial Management Specific PASO questions  Adjustments after closed audit periods  Data requests  Debt Collection demands  Indian Over-Recoupment Miscellaneous  EDI reporting  Fines for bad payment data

Financial Management Questions?