The US Minerals Management Service may be forfeiting millions of dollars in natural gas royalties under its royalty-in-kind (RIK) program because it apparently isn't identifying and collecting on imbalances, the Government Accountability Office said.
The MMS, part of the Department of the Interior, estimates that it is owed $21 million for past imbalances but says it lacks the information to calculate the full amount due, GAO said. "MMS does not have sufficient data to determine whether it received its full percentage of RIK gas," it added.
GAO released the assessment 2 days before US House Natural Resources Committee hearings on legislation Chairman Nick J. Rahall (D-W.Va.) introduced on Sept. 8 that would restructure the federal minerals oversight system. The bill would eliminate the RIK program.
GAO's report said MMS's estimate does not include interest on some unpaid amounts because the agency has not determined when interest begins to accrue, as required by law.
"Further, MMS monitors imbalances on a monthly, rather than daily, basis, which leaves open the possibility that some companies owing RIK gas could provide less to MMS when prices are relatively high, making up the difference when prices are relatively low," it continued. "[This] could cost MMS additional revenue because it could miss the opportunity to sell gas on the days when prices are high."
Failure to audit
GAO said MMS can't verify that it is receiving its entitled percentage of gas because it does not audit companies' production and allocation data, in part because it considers its own verification procedures sufficient.
The agency's information system does not provide accurate and timely gas imbalance data, GAO's report said. "For instance, MMS's information system cannot calculate cash settlements for imbalances or compare various types of data that companies submit. Consequently, MMS processes more than half of its gas imbalance data manually," it said.
The report noted that MMS has operated for several years without enough employees to reconcile gas imbalances, and those it has are insufficiently trained.
"According to RIK management, MMS does not have sufficient staff to dedicate someone to fully review RIK gas analysts' work on imbalances, even though mistakes in that work often occur," it continued. "MMS recently hired one new gas imbalance analyst but has not formally assessed staffing needs. In addition, RIK gas imbalance staff lack, among other things, training on industry standards on gas imbalance calculations."
The report recommended that the interior secretary direct MMS to establish policies to appropriately value outstanding RIK gas imbalances and promptly collect the amounts, begin to monitor gas imbalances daily, audit operators and imbalance data on a sample of leases to establish a risk-based audit program for RIK properties, and determine the information and personnel additions necessary to make the program more effective.
