The new Compliance and Asset Management (CAM) process focuses on the same areas of operation as industry--the property and producing areas. Through this approach and the application of the newly reengineered processes, MRM strives to achieve our compliance goals in the shortest possible time but no later than 3 years from the royalty payment due date. This focus also supports the decision-making process for taking royalties in kind (RIK) as part of ongoing pilot projects when it makes good business Minerals Revenue Management Asset Analysis 1. Research marketing/transportation opportunities: To identify attractive RIK opportunities, MRM studies market accessibility and current pricing in various property areas, including: (1) Investigating pricing mechanisms for contract terms, (2) Evaluating how to package certain quantities and qualities of oil or gas production, (3) Identifying optimal points for delivering RIK production to purchasers, and (4) Recognizing specific market needs or demands that would make RIK production desirable in the marketplace. 2. Asset profile: The asset profile is a database that contains property reference data, royalties and production history, and case history. Additionally, the asset profile contains analyzed data that establish the “expectation parameters" that will be used in the in-value process to forecast expected revenues. 3. Analyze lease characteristics and in-value economics: One of the primary goals of the RIK pilot program is to ensure that revenues are increased or remain neutral when compared to in-value royalties. A lease's RIK potential is determined by evaluating its physical and legal characteristics; lease terms; production quality, type and volume; and the infrastructure of the surface facilities. 4. Select properties for in-value or in-kind disposition: Based on analysis of the marketing, transportation, and lease economics, MMS selects properties to participate in upcoming RIK sales. Recent Accomplishments Additional Revenues $50 million in additional $27.8 million in royalties for the period September 2000 through August 2001 under the 202/205 State and Tribal audit program. $39.2 million in royalties from 16,097 resolved volume exceptions in FY 2001. • $177,706 in royalties from 1,461 resolved standard royalty rate exceptions and unpaid royalties. • $100 million in royalties through settlements Minerals Revenue Management In-Value 1. Forecast of expected revenues: To ensure a consistent approach for creating forecasts and expectations, MRM will develop forecasting guidelines. Forecasts are prepared in advance of the production month and therefore must make assumptions about future economic conditions and production volumes. The forecasting application uses price, allowance and volume estimates to generate a forecast of expected royalties. • Price data will often be formula driven from external market sources. Allowances are established by MMS rules and regulations. · Volume estimates will generally be derived from trending production increase/decline calculations. Preliminary forecasts are reviewed for reasonableness, and analyses are performed to explain the major causes of changes from the previous forecast. MRM measures throughout the entire process, to ensure continuous improvement in the forecasting process. Lessons learned and best practices are monitored for incorporation in subsequent guidelines and for implementing process improvement initiatives. 2. Variance analysis: Given the size of the MRM property portfolio, we monitor each property portfolio and its major components in a disciplined, timely, structured process. Variance analysis detects when expected revenues differ from revenue receipts. 3. Targeting property analysis and specialized testing: The MRM formulates and maintains targeting policies and procedures and issues periodic guidelines to apply to our properties. These policies set the standard for reasonableness, materiality, thresholds and severities within the targeting process. Using these targeting Recent Accomplishments Reengineering Successes: • Implemented the first consolidated compliance targeting strategy utilizing the new end-to-end process that incorporates all phases of compliance verification from automated risk assessment to production review to • In FY 2001, completed 228 dual accounting audits focusing on payors with significant Indian properties for audit periods 19842000. Anticipate completion of this effort in FY 2002. • Incorporated Wyoming properties that included both royalty in value and royalty in kind into the new end-to-end compliance process. Completed most RIK reconciliation work on earlier pilot phases in Wyoming. By applying the end-toend, property-based compliance approach to the royalty-in-kind properties, we are able to review within the 90-day business cycle goal. Minerals Revenue Management guidelines, the data generated from the variance analysis process is analyzed. The units that are most in need of further detailed analysis and compliance testing are identified. Property testing, surveillance activities and specialized testing are performed to determine whether production and royalties have been accurately reported and paid. 4. Preliminary findings: Comprehensive compliance reviews and audits are conducted by MRM employees and the State and Tribal Cooperative and Delegated Audit Program. These reviews are in accordance with the MRM Audit Procedures Manual and other audit regulations and policies. If it is determined that mineral royalties have been 5. Valuation matters: In-value royalties are based on the value of the commodity produced, the volume of production sold, and the royalty rate applicable to the lease. Recent Accomplishments Indian Trust: In FY 2001 and FY analyses and collected To provide requested guidance and resolve disputes over the value of the commodity, product specific information, applicable laws and regulations, legal precedents, transportation and processing costs, lease terms and agency policy are used to prepare a decision document detailing the proper method to be followed in determining royalty value. MRM further resolves these issues by preparing product valuation regulations and guidelines and by providing valuation interpretations, training, outreach and technical support to government agencies and industry. 6. Random audit: In addition to the targeted audits, we perform property-based random audits, ensuring that the targeted audit process identifies all variances and provides audit coverage for the majority of all properties. |