Gregory J. Gould Director Office of Natural Resources Revenue

1. Office of Natural Resources Revenue (ONRR) Introductory Presentation for DOI’s OCL and Intergovernmental staff • Presented By: • April 22, 2014 • Gregory J. Gould • Director • Office of Natural Resources Revenue

2. ONRR: Who We Are • Office under the Assistant Secretary for Policy, Management and Budget within the Department of the Interior • Responsible for the management of revenues associated with federal offshore and federal and American Indian onshore mineral leases, as well as revenues received as a result of offshore renewable energy efforts  Dallas Denver Farmington Ft. Berthold Houston Oklahoma City Tulsa Washington D.C.

3. Cumulative Revenue Disbursement of $257.4 Billion • Since 1982, over $257 billion in revenues was distributed from onshore and offshore lands to the Nation, states, and American Indians • The distribution to the U.S. Treasury is one of the Federal government’s greatest sources of non-tax income

4. Revenue Distribution • FY 2013 Disbursements -- $14.2 Billion • $ 8.6 Billion to the U.S. Treasury • $ 895.6 Million to the Land & Water Conservation Fund • $ 150 Million to the Historic Preservation Fund • $ 1.59 Billion to the Reclamation Fund • $ 2 Billion to 35 States • $ 932.9 Million to 34 Indian tribes and approximately 30,000 individual Indians

5. Statutory Authority • ONRR’s authority to collect royalties comes from the following statutes: • Leasing of Allotted Lands for Mining Purposes, Act of March 3, 1909 • Indian Mineral Leasing Act of 1938 • Indian Mineral Development Act of 1982 • Mineral Leasing Act of 1920 • Geothermal Steam Act of 1979 • Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA) • Federal Oil and Gas Royalty Simplification and Fairness Act of 1996 (RSFA) • Other statutes relevant to offshore leases: • Outer Continental Shelf Lands Act of 1953 (OCSLA) • Deepwater Royalty Relief Act of 1995 (DWRRA) • Energy Policy Act of 2005 (EPAct) • Gulf of Mexico Energy Security Act of 2006 (GOMESA)

6. Mineral Leases as of 6/24/20131 Products & % of Collections Collect Land Categories Royalty payments Rentals Bonuses Penalties Other revenues Federal Onshore Federal Offshore American Indian Oil Natural Gas Coal Carbon Dioxide Copper Geothermal Hot Water Lead Limestone Phosphate Potash Renewables Sand & Gravel Sodium Sulfur Other 90% 8% from over 2,000 payors 61,533 Total Leases Offshore: 6,538* Onshore: 48,650** Indian: 6,345*** DisburseFunds 2% 32,433 Producing Leases Offshore: 1,432* Onshore: 25,049** Indian: 5,952*** Audit & Ensure Compliance • *Administered by BOEM • **Administered by BLM • ***Administered by BIA 1ONRR lease data is maintained for the sole purpose of collecting, verifying and disbursing mineral revenues. For official lease data, please refer to the leasing agencies.

7. Federal Oil and Gas Lease Payments • Bonus: • Cash consideration paid to government by the successful bidder • Paid prior to obtaining a lease • Rent (Non-producing leases): • Annual rental payment due at beginning of each year until lease becomes producible • Annual rental rates -- $1.50 to $44.00 per acre for Federal onshore and Federal OCS lands • Royalty (Producing leases): • Royalty payment due monthly. • Calculated as a percentage of the amount or value of production saved, removed or sold from the lease. • Onshore Federal lands – standard royalty rate of 12.5% • OCS Federal lands • Standard rate – 18.75% (all new leases in the GOM beginning in 2008) • Frontier areas – 12.5% (e.g. Alaska)

8. How Are Royalties Calculated? • Royalty ($$) = Sales Volume X Price X Royalty Rate • (Price = Gross Sales Value – Transportation – Processing Costs) Example: Sales Volume = 100 bbls Price = $70 Transportation = $1.00 Royalty Rate = .125* Royalty due the Federal Government = 100 x ($70 - $1.00) x .125 = $862.50 *The most common royalty rate is 12.5 %

9. OFFSHORE (BOEM/BSEE) ONSHORE (BLM) INDIAN (BIA) Lease Issued to Lessee Producing Lease Non-Producing Lease Lessee Subleases Operating Rights to Operator non-producing Indian rentals Production Data Yes Is lease producing? No Lessee submits payment and Form 2014 Rent Due from Lessee Operator submits Production Data on OGOR ONRR Distribution to States, Indian Tribes, Treasury, OST etc. Federal Leasing Information Flow

10. Data Accuracy Efforts OGORS 2014S Timeline Up-Front System Edits 1 Month 6-9 Months 2-3 Years 7 Years (Fed. oil & gas) Data Mining Missing Reports, Volume Comparisons, LVS/GVS, High Level Analyses of Sales Values, Royalty Values, Adjustments, etc. Enforcement Actions Enforcement Actions Precision Risk-based Approach Risk-based Approach Compliance Reviews Precision Enforcement Actions EnforcementActions Audits

11. Financial & Production Management Production Reporting & Verification Receive, process and verify industry-submitted production reports Error correction for all Federal and Indian production Oversee meter inspections for production verification • Financial Management • Collect, verify, distribute all rent, royalties and bonuses • Receive, process and verify industry-submitted royalty reports • Perform Data Mining functions

12. Audit and Compliance Program A 3-year cycle to review and/or audit revenues was established All audits performed according to Generally Accepted Government Auditing Standards Compliance reviews are an analysis that determines the reasonableness of reported revenues Properties and companies are selected for review or audit using a risk assessment across the entire universe of properties and companies Audit and Compliance ensures that Federal and Indian mineral revenues are accurately reported and paid

13. Audit and Compliance Standards • Audits conducted are governed by standards developed and published by the Government Accountability Office (GAO) referred to as Generally Accepted Government Auditing Standards (GAGAS) • GAGAS aligns with both the International Auditing Standards (IAS) for financial audits and the International Organization of Supreme Audit Institutions’ (INTOSAI) standards for performance audits • The ONRR Audit Manual sets the minimum standards that ONRR, state, and tribal auditors must follow in completing audits • The ONRR Compliance Review Manual establishes standards for completing both full and limited-scope compliance reviews.

14. Coordination, Enforcement, Valuation, and Appeals: • Office of Enforcement & Appeals: • Alternative Dispute Resolution • Litigation • Enforcement Operations • Asset Valuation: • Issue valuation guidance and determinations • Review and respond to transportation and processing allowance requests • Draft and publish valuation rulemakings • State and Indian Coordination: • Advocate for the fulfillment of ONRR trust responsibility • Focal point for Indian mineral issues and contact with the Indian community, Indian mineral owners, and involved state and federal agencies

15. The Extractive Industries Transparency Initiative, or EITI, is a global standard that promotes revenue transparency and accountability in the extractive sector.

16. Benefits of Implementing EITI in the U.S. Increase Transparency & Dissemination Enhance Understanding by all Stakeholders Achieve Better Governance & Accountability Inform public policy dialogue Provide accessible and useful information about public resources Ensure fair return on behalf of citizens for the use of public resources Maintain or increase trust & public confidence across sectors Highlight resource revenue to government Enhance public financial management Foster participatory governance through collaborative decision-making Maintain or increase social license to operate Strengthen investment climate

17. Challenges of U.S. Implementation • Defining and ensuring adequate civil society representation • Defining scope in light of complex governance and size/scale of U.S. industry, including diversity in land/resource ownership and leasing • Alignment of U.S. policies and regulations • Potential duplication of reporting requirements • Cost of new or revised reporting systems and of the USEITI process itself • Information published might not be value added • Legality of convening an independent MSG • Providing sufficient education/outreach • Sectors may have trouble self-organizing

18. USEITI MSG Representation The USEITI Multi-Stakeholder Group has 21 Members and 20 Alternates, representing a wide range of organizations and stakeholder interests: • Civil Society • Project on Government Oversight, Revenue Watch, Transparency International • Earthworks, First Peoples Worldwide, North Star Group, Oceana • Calvert Investments, Energy Policy Forum, Goldwyn Global Strategies, Research Associates • United Mineworkers, United Steelworkers • University of California Los Angeles, Virginia Polytechnic Institute • Government • Departments of Energy, the Interior, Treasury • State Compact Commissions for Mining, Oil and Gas • State Government Representatives from California and New Mexico • Industry • British Petroleum, Chevron, Conoco-Phillips, Exxon-Mobil, Noble Energy, Shell Oil, Ultra Petroleum, Walter Energy • Freeport McMoRan Copper & Gold, Newmont Mining, Peabody, Rio Tinto • American Petroleum Institute, Council of Petroleum Accountants Societies, Independent Petroleum Association of America, National Mining Association

19. Looking Ahead: Timeframe February 2014: Achieve EITI Candidacy 2014: Implement USEITI Workplan 2015: Produce first USEITI Report 2016: Complete validation and achieve compliance

20. Questions & Follow Up • Gregory J. Gould • Director • Office of Natural Resources Revenue • greg.gould@onrr.gov