A House of Representatives report has charged the U.S. government's royalty collection system remains seriously flawed.
The study, released by the House interior committee, is the result of a year long investigation into operation of the Minerals Management Service.
It claimed MMS has undercollected royalties because of computer system flaws and the agency's "reluctance to burden industry with additional costs."
Rep. George Miller (D-Calif.), committee chairman, said MMS cannot depend on its computer system to flag inaccurate royalty payments but must rely instead mainly on audits to detect errors even though only 2-3% of all royalty transactions are audited.
RECOMMENDATIONS
The report called on MMS to undertake a number of internal improvements.
It said MMS should update its pavor handbook to reflect regulations that took effect in 1988.
"MMS should decide and communicate to industry how it will collect royalties on contract settlements, payments under unitization agreements, and majority pricing. Until MMS makes these decisions, industry has little guidance on what its royalty payments are."
It also said MMS should monitor product value by funding its proposed automated oil and gas valuation tracking system, which contains posted field prices and spot market prices.
"However we recommend that these prices be supplemented with actual prices paid, as derived from oil and gas settlement statements for arm's length transactions. Through an exception processing routine, MMS should then compare these values with the unit prices paid to identify discrepancies."
The report said MMS also should impose controls over allowances, designing a system that compares allowances reported for arm's length transactions with allowances appearing on oil and gas purchase summary statements.
"Processing allowances could be obtained by auditing gas processing plants," the report said.
"One such audit (by state auditors) of a single plant in Southeast Utah uncovered nearly $3 million in unpaid royalties."
The report said MMS should require purchasers, such as refineries and utilities, to submit monthly purchase summary statements and gas settlement statements for all onshore producing leases where products are sold at arm's length.
"MMS should compare, on a lease or unit basis, monthly production volumes from these statements with operator-reported volumes. MMS should then reconcile significant volume discrepancies."
An MMS spokesman said the agency is working with the committee to implement the recommendations.
"Much of what is in that report already has been addressed," he said. "We think we have done pretty well at making improvements."
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