Agency Information Collection Activities: Submitted for Office of Management and Budget Review; Comment Request

DEPARTMENT OF THE INTERIOR

Minerals Management Service

Agency Information Collection Activities: Submitted for Office of

Management and Budget Review; Comment Request

AGENCY: Minerals Management Service, DOI.

ACTION: Notice of information collection solicitation and public

meetings.

-----------------------------------------------------------------------

SUMMARY: Under the Paperwork Reduction Act of 1995, the Minerals

Management Service (MMS) is soliciting comments on revising an existing

information collection, Report of Sales and Royalty Remittance, the

Office of Management and Budget (OMB) Control Number 1010-0022, which

expires on August 31, 2001.

FORM: MMS-2014.

DATES: Written comments should be received on or before April 26, 1999.

MMS will hold two public meetings about the proposed royalty reporting

changes on March 11, 1999, in Houston, Texas, and on March 17, 1999, in

Lakewood, Colorado.

ADDRESSES: Comments sent via the U.S. Postal Service should be sent to

Minerals Management Service, Royalty Management Program, Rules and

Publications Staff, P.O. Box 25165, MS 3021, Denver, Colorado 80225-

0165; courier address is Building 85, Room A613, Denver Federal Center,

Denver, Colorado 80225; e-mail address is RMP.[email protected]. The

time and location for each public meeting is:

Houston--March 11, 1999, 8:30-11:30 a.m. Central Standard Time, Houston

Compliance Division Office, 4141 North Sam Houston Parkway East,

Houston, Texas 77032, Telephone Number (281) 987-6802

Denver--March 17, 1999, 8:30-11:30 a.m. Mountain Standard Time,

Minerals Management Service, Denver Federal Center, Building 85, West

6th Avenue and Kipling Street, Lakewood, Colorado 80215, Telephone

Number (303) 231-3585

[[Page 8836]]

(Access to the Denver Federal Center will require the presentation of a

picture identification.)

FOR FURTHER INFORMATION CONTACT: Paula Neuroth, Reports Branch, at

phone number (303) 231-3287, FAX number (303) 231-3700, or e-mail at

Paula.N[email protected].

SUPPLEMENTARY INFORMATION: We are seeking your comments, both positive

and negative, on our proposed changes to Form MMS-2014. Do you have, or

are you able to obtain access to, the information needed to report the

data element (all data elements are described below)? If not, from what

other source could the Royalty Management Program (RMP) obtain the

data? Is it appropriate to collect the proposed data via the revised

Form MMS-2014, or should we collect by other means (realizing that this

may mean a new information collection)? Are there other data elements

that RMP should collect in lieu of the proposed data elements? Will

collecting other data elements better enable us to meet our three goals

stated in this Notice? Is this information collection necessary for us

to properly do our job? Can we enhance the quality, utility, and

clarity of the information we collect? Can we lessen the information

collection burden on the respondents by using automated collection

techniques or other forms of information technology?

The public meetings will be open to the public to discuss the

proposed reporting changes. We encourage members of the public to

attend these meetings. Those wishing to make formal presentations

should sign up upon arrival. The sign-up sheet will determine the order

of speakers. For building security measures, each person will be

required to sign in and may be required to present a picture

identification.

Comments, including names and home addresses of respondents, are

available for public review during regular business hours and are

placed on our web site at http://www.rmp.mms.gov/library/readroom/

readrm.htm. Individual respondents may request that we withhold their

home address from the rulemaking record, which we will honor to the

extent allowable by law. There may be circumstances in which we would

withhold from the rulemaking record a respondent's identity, as

allowable by the law. If you wish us to withhold your name and/or

address, you must state this prominently at the beginning of your

comment. However, we will not consider anonymous comments. We will make

all submissions from organizations or businesses, and from individuals

identifying themselves as representatives or officials of organizations

or businesses, available for public inspection in their entirety.

In April 1996, RMP undertook a compliance reengineering initiative

to examine the current compliance strategy and determine the best

approach for accomplishing future goals and objectives. The principal

reengineering objective was to define and implement a new compliance

strategy that satisfied, in the most cost-effective manner possible,

the compliance program's primary purpose of ensuring that Federal and

Indian mineral lease revenues were accurately and timely paid.

The Royalty Policy Committee (RPC), which includes representatives

from industry, States, Indian Tribal and allottee groups, and MMS,

issued recommendations in June 1996 to streamline both royalty and

production reporting. An action plan was developed to implement many of

the recommendations; however, in August 1996, the Federal Oil and Gas

Royalty Simplification and Fairness Act of 1996 (RSFA), was enacted

into law. RSFA significantly changed many of RMP's historical operating

assumptions as well as some fundamental Federal oil and gas mineral

revenue financial activities. Although near-term changes in processes

and systems were made to implement the law, long-term strategies,

business processes and aging systems needed to be addressed for RMP to

be cost-effective and responsive to customer needs. The decision was

made April 1, 1997, to expand reengineering to all RMP core business

processes. This is the most comprehensive review of the RMP's business

processes and organization since its creation in 1982. As part of its

reengineering effort, RMP analyzed current information collection

requirements of the Form MMS-2014, and built upon the RPC's earlier

recommendations. Is the information we collect necessary and how do we

use it? Will it support reengineered business processes? Can we obtain

or utilize the information we collect more efficiently? Are changes

necessary to better support reengineered business processes?

There are several reasons why we conduct information collections:

To fulfill our obligation of disbursement and

distribution of funds to the ultimate recipients as quickly as

possible;

To comply with FOGRMA, Explanation of Payments (EOP)

requirements. FOGRMA, Section 105(a) requires RMP to provide to

revenue recipients along with payments: a description of the type of

payment being made, the period covered by such payment, the source

of such payment, production amounts, the royalty rate, unit value

and such other information as may be agreed upon by the Secretary

and the recipient State, Indian tribe, or Indian allottee. The Form

MMS-2014 is the source of the information; and

To collect sufficient and appropriate information to

assist RMP in the compliance and asset management process which is

dependent upon the accuracy and usefulness of the Form MMS-2014

data. The compliance and asset management process will ensure that

all revenues, whether they are received through in-kind or in-value

royalties, are accurately reported and paid and that the compliance

status of all leases is known within a reasonable time.

As a result of our analysis, we developed and incorporated revised

reporting requirements in the proposed Form MMS-2014 which will reduce

the volume of lines reported and processed, minimize errors and related

error correction workloads, simplify reporting and lower costs for both

industry and RMP. The proposal incorporates RPC recommendations, and

input received from States, Indian Tribes, and other industry groups.

We plan to implement this proposal, or, a modified proposal based upon

your comments, by September 2001.

We are seeking your comments on the proposed revisions presented

and described below related to reporting for Federal and Indian oil,

gas, and geothermal leases. These include revisions to reporting

concepts, specific proposed Form MMS-2014 data elements, agreement

level reporting, report format and presentation, paperless reporting,

and reporting burden.

Reporting Concepts

1. Elimination of the Form MMS-4025, Payor Information Form (PIF), OMB

Control Number 1010-0033

The RPC recommended that RMP simplify the current form, reduce the

frequency of submissions, and explore alternatives to the PIF. RMP has

performed extensive analysis of the alternatives and believes that in a

reengineered system the PIF can be eliminated.

Each year, industry prepares and submits over 23,000 PIF's which

identify the type of payment to be reported (rent, minimum royalty,

royalty, etc.) and establish the specific lease, revenue source,

product(s), and selling arrangements a payor will report on the Form

MMS-2014.

PIFs are frequently not submitted timely or are prepared

incorrectly. Additionally, the data actually reported on the Form MMS-

2014 does not always correspond to the PIF

[[Page 8837]]

information, causing lines to reject. In fact, this is the principal

reason for rejected Form MMS-2014 lines. Industry and RMP personnel

spend many hours researching and correcting these rejected lines.

RMP is proposing that in lieu of the PIF, payors report the MMS

converted lease and agreement number on the Form MMS-2014. The MMS has

an existing unique numbering system to accommodate the Bureau of Land

Management (BLM) and the Bureau of Indian Affairs (BIA) assigned

numbers. Reporting of the MMS lease and agreement number eliminates the

need for a PIF to establish the relationship of the payor to a revenue

source. Payors will obtain the converted lease and agreement numbers

via the Internet or by contacting RMP.

All other data that was established via the PIF, including product

code(s), start and end dates, and rent and minimum royalty

responsibility will now be established via the Form MMS-2014. RMP will

use the reported sales month, payment type (royalty, rent, minimum

royalty, etc), and product code to populate our data base.

This change allows RMP to eliminate a major industry reporting

burden, reduces costs for RMP and industry, and significantly reduces

the number of rejected Form MMS-2014 lines while enabling RMP to

disburse and distribute funds to the recipients more efficiently.

2. Product Valuation

RMP believes automating product valuation monitoring, i.e.,

identifying reporting that appears to be outside RMP established

tolerances, is the best way to efficiently and effectively improve the

compliance and asset management process. We need sales data reported at

a level of detail that does not mix volumes and values to mask true

exceptions or generate erroneous exceptions. All MMS valuation

regulations are based on the principle that arm's-length sales

represent value. Arm's length is defined in 30 CFR 201.101 and 30 CFR

206.151 as a contract or agreement that has been arrived at in the

market place between independent, nonaffiliated persons with opposing

economic interests regarding that contract. Therefore, RMP must be

able, at a minimum, to distinguish arm's-length sales from sales that

are not arm's length.

Additionally, combining different types of contracts, such as

percentage-of-proceeds, with other sales occurring during the month

would skew the product value. Therefore, RMP will require payors to

report separate lines of royalty detail based upon the nature of the

sale (arm's length/non-arm's length) and the contract type. RMP will

establish a code for each criteria. We will publish these codes in the

appropriate payor handbooks. Multiple sales occurring during a month,

but within a single criteria, will be reported as one line on the Form

MMS-2014. We do not believe this requirement will increase the number

of lines a payors must report. Most payors will not have sales from

more than one contract type occurring in the same sales month on a

lease. The proposed criteria are:

Arm's-length spot contract

Non-arm's-length spot contract

RMP defines a spot contract as a contract where the price under

the contract is tied to a 30 day spot market price such as a bid-

week index price, bid-week spot price or an after bid-week (after

market) spot price. Normally, a spot contract is for a period of 30

days or less.

Arm's-length long term contract

Non-arm's-length long term contract

RMP defines a long term contract as a contract where the price

under the contract is tied to something other than a 30-day spot

market price or a negotiated fixed price such as a NYMEX futures

forward month price. Normally, a long term contract is for a period

greater than 30 days.

Arm's-length percentage-of-proceeds (POP) contract

Non arm's-length percentage-of-proceeds contract

RMP defines a POP contract as a contract for the sales of gas

prior to processing in which the value of the wet, unprocessed gas

is based on a percentage of the proceeds the purchaser receives for

the sale of residue gas and gas plant products attributable to

processing the lessee's gas.

Obtaining data at this level of detail will enable RMP to focus our

efforts on true valuation problems and avoid unnecessary requests to

industry for additional data.

3. Reporting Adjustments.

Between 40 and 60 percent of the total monthly lines reported by

industry are adjustments to previously reported data. Currently, when a

payor submits amended data, they must reverse the entire original line

and report a new line incorporating the amended data. This practice

requires both RMP and industry to maintain detail monitoring of the

``last line'' reported and accounts for a large number of the lines

reported by industry and processed by RMP.

As recommended by RPC, RMP is proposing that the reporting of prior

period adjustments be on a ``net'' basis. Net basis is defined as the

incremental positive or negative volume/value change for a line of

reporting. The original line would not be reversed. Only a single line

entry to report the change in volume/value would be required. However,

a two-line adjustment would be required if any of the original key data

elements such as lease number, agreement number, product code, or sales

month were incorrect. RMP estimates that this change will reduce the

number of Form MMS-2014 lines by 700,000 to 1.0 million lines annually.

4. Transportation and Processing Allowance Deductions

The current process requires reporting of volumes and values on one

line, transportation allowance deductions on a second line, and

processing allowance deductions on a third line of the Form MMS-2014.

This doubles and triples reporting of key data elements.

As recommended by the RPC, RMP is proposing that transportation and

processing allowance deductions be reported on the same line as volumes

and values. Reporting of key data elements only once for all related

transactions can be accomplished by adding fields to the Form MMS-2014.

RMP anticipates that this will reduce the number of Form MMS-2014 lines

reported, processed, and verified by approximately 875,000 a year. It

will also streamline and improve the accuracy of the payor's initial

reporting of allowances by automatically assigning the deductions to

the associated royalty value.

Form MMS-2014 Data Elements

RMP is seeking your comments on the proposed Form MMS-2014 data

elements. Each of the proposed Form MMS-2014 data elements is explained

below and is identified as required or not required. A brief

explanation of the data and how it will be used is also provided.

1. Payor Name

Required. This identifies company/individual submitting the report.

MMS uses the payor name to match to an existing payor code or to

contact the company if the payor code is blank or invalid.

2. Payor Code

Required. This uniquely identifies the entity submitting the

report. It also links to the payor address and company contact

information in RMP's system.

3. Indian Report Indicator

Required. Is used to indicate that all lines on the report are for

Indian leases. If not checked, report is assumed to be Federal. Indian

and Federal leases cannot be reported on the same Form MMS-2014.

[[Page 8838]]

4. Payor Assigned Document Number

Required. A unique identifier assigned by the payor to both the

report and the associated payment. Used by RMP system to automatically

match a receivable (Form MMS-2014 or Bill/Order) to the associated

payment. This data element has been expanded to an 8 place alpha/

numeric field (no slashes, dashes, or special characters).

5. Line Number

Required. Used to sequentially number each line on the report.

6. Reserved for Payor's Use

Not Required. Can be used by the payor to enter their property

identifier. RMP will process this data and store it in our system as

part of the royalty line. It serves as a communication tool with the

payor.

7. MMS Lease Number

Required. This is the MMS-assigned lease number, not the Agency

Assigned (BLM, BIA, MMS's Offshore Minerals Management) lease number.

RMP is required by FOGRMA to display the ``source of the payment''

(lease number) on the EOP which is provided to States and Indians. The

lease number will be used in conjunction with the agreement number in

Column 9 as a replacement for the current revenue source code. The

lease number also drives the disbursement process.

8. API Well Number

Not Required. RMP is not requiring monthly well level reporting.

The API well number will only be reported in two specific cases, but

only if MMS instructs the payor to do so. These cases are:

When Indian Tribes elect to opt out of an index zone as

proposed in the new Indian gas valuation rule; and

When certain Outer Continental Shelf royalty rate

relief initiatives are implemented.

9. MMS Agreement Number

Required in those cases where royalties are being reported for

sales attributable to unit or communitization agreement production.

Must be blank if sales are being reported for lease level production.

This eliminates the need to report a revenue source code. Instead, RMP

will use the reported lease or lease and agreement number to compare

sales volumes reported on the Form MMS-2014 to sold or transferred

volumes reported on the monthly Oil and Gas Operations Report (OGOR).

10. Product Code

Required. Identifies the product on which royalties are calculated.

RMP is required to provide this on the EOP. This information is used in

many aspects of the royalty management process. RMP anticipates adding

new product codes for the following:

Geothermal--electrical generation, kilowatthours

Geothermal--electrical generation, thousands of pounds

Geothermal--electrical generation, millions of Btu's

Geothermal--electrical generation, other

Geothermal--direct utilization, millions of Btu's

Geothermal--direct utilization, hundreds of gallons

Geothermal--direct utilization, other

Coalbed methane

11. API Gravity

Required if reported product code is 01-oil; 02-condensate; 13-fuel

oil; 14-oil lost. Used in valuation monitoring.

12. Valuation Code

Required. This data field will be used to identify contract type

and nature of disposition (arm's-length or non arm's-length) for

Federal and Indian oil, gas, and geothermal leases. RMP has determined

that this information is needed to effectively and timely identify and

resolve product valuation issues. Payors will be able to roll up sales

within each Valuation Code criteria on a lease and report a single

line. Sales occurring across criteria will require separate lines of

reporting.

13. Sales Month/Year

Required. RMP must collect this information for the EOP and it is

used in all RMP downstream verification processes.

14. Transaction Code

Required. RMP must collect this information for use on the EOP. It

is a key element in the royalty edit process, identifying for the MMS

system what data elements and relationships to expect on the line and

what activity is being reported (rent/ royalty/ recoupment/ etc.).

15. Adjustment Reason Code

Used to report a variety of adjustments and, in some cases,

original line entries. Required field if:

A line is an adjustment to data previously reported or,

A line is a RSFA marginal property ``true-up'' line or,

The payor is self-reporting interest or,

The payor is reporting Indian major portion.

It also is used in the calculation of interest as it relates to the

above items. RMP will reduce the number of adjustment reason codes, but

has determined that maintaining a separate adjustment reason code

provides needed functionality and flexibility.

16. Sales Volume

Required. The volume reported in this field is the MCF, barrels,

gallons, long tons, kilowatt-hours, thousands of pounds, and hundreds

of gallons on which the Indian/Federal royalty is calculated. Gas sales

are reported at a standard temperature of 60 degrees Fahrenheit and

14.73 psia. Calculation of Sales Volume will be determined differently

for entitlement versus takes reporting and for sales attributable to

agreement production versus sales attributable to lease level

production. RSFA provides the foundation for entitlements and takes

requirements.

Entitlement Calculation

Sales attributable to agreement production:

Total agreement sales volume x Lease allocation percentage x Lease

Federal or Indian mineral interest x Working interest owner

percentage x Indian direct pay percentage (if applicable).

Sales attributable to lease production:

Lease sales x Lease Federal or Indian mineral interest x Working

interest owner percentage x Indian direct pay percentage (if

applicable).

Takes Calculation

Calculation for takes reporting will be defined by RMP through

reporting instruction.

RMP must collect this information for use on the EOP. RMP will use

this field to compare sales volumes reported on the Form MMS-2014 to

sold or transferred volumes reported on the OGOR. It will also be used

in conjunction with column 17 to calculate the Btu content for gas

products.

17. Gas MMBtu Sales Volume

Required if the reported product code is:

03--processed (residue) gas,

04--unprocessed (wet) gas,

12--flash gas,

15--fuel gas, or

16--gas lost (flared or vented).

The MMBtu sales volume is calculated using the same formula as

Column 16. RMP will use columns 16 and 17 to calculate the Btu content

on gas products. MMBtu (MCF x 1000) = Btu/cf.

[[Page 8839]]

18. Royalty Rate

Required. Payors will report the royalty rate they used to

calculate the Federal/Indian royalty due. RMP must collect this

information for use on the EOP.

19. Unit Price

Required. This is the sales value divided by sales volume (MCF or

MMBtu depending on the terms of the sales contract, tons, barrels,

gallons, pounds, or kilowatt-hours). RMP must collect this information

for use on the EOP. The MMS understands that this price will not

directly relate to a specific contract because in most cases it will

represent a weighted average price of many sales occurring during the

sales month. Additionally, MMS has no plans or legal authority to force

arm's-length payors with lower reported unit prices, paying on Federal

leases to ``true-up'' to higher reported unit prices by other lessees

in the field or area.

20. Royalty Value Prior to Allowances

Required. This is the royalty amount due prior to any allowable

deductions for transportation or processing. Depending on the product

reported, this value will be calculated using the following formula.

Oil, condensate, CO2, gas plant products, helium,

sulfur, nitrogen, and geothermal products:

Column 16 x Column 18 x Column 19 = Column 20

Processed gas, unprocessed gas, flash gas, fuel gas, gas lost:

Column 17 x Column 18 x Column 19 = Column 20

Column 20 will be in $/Mcf of $/MMBtu depending on whether column

16 or 17 is used.

21. Transportation Deduction

Required if the payor is reducing the Royalty Value Prior to

Allowances for the actual costs of transporting the product from the

lease to a sales point or processing plant off the lease. This amount

is deducted from Column 20 to determine the Royalty Value Less

Allowances due on the line.

22. Processing Deduction

Required if the payor is reducing the Royalty Value Prior to

Allowances for the actual costs of processing the product. This is the

amount claimed for processing gas prior to the royalty sales point.

This amount is deducted from Column 20 to determine the Royalty Value

Less Allowances due on the line.

23. Royalty Value Less Allowances

Required. This is the net payment applicable to the line. Royalty

Value Prior to Allowances (Column 20) less amounts deducted for

transportation (Column 21) and processing (Column 22), if any, equals

Royalty Value Less Allowances.

24. Payment Method

Required. A unique payment method will identify royalty-in-kind

transactions, as well as payments made directly to an Indian allottee,

Indian lockbox, or MMS.

Report Control Block

This block is used to identify the payor's net payment. The payor

will show the report total less Royalty In-Kind, Indian Direct Pay, and

Indian Lockbox amounts. If applicable, the payor will also be able to

identify and use credits that reside in RMP's system to offset the

payment amount due on the current Form MMS-2014. Credits are created in

RMP's system through a variety of actions such as interest exception

processing which calculates interest owed to a payor. RMP has

determined that it is more efficient to authorize the use of these

credits to pay current obligations than to process refunds to the

payor.

Agreement Level Reporting

Is it advantageous to require royalty reporting at the

communitization or unitization participating area (agreement) level?

Payors would report one line for the agreement showing total volumes,

allowances and values applicable to the Federal/Indian leases. RMP

would allocate each payor's reported volumes, allowances, and values to

all leases in the agreement based on the allocation schedule in our

system. Agreement level reporting:

Results in fewer reporting lines from industry,

Eliminates the need for RMP to roll-up Form MMS-2014

reported volumes for comparison to sold/transferred volumes reported

on the Oil and Gas Operations Report,

Supports and simplifies marginal property RSFA

requirements,

Requires RMP to roll-down reported information to the

lease for distribution to the States and Indians,

Results in RMP allocating each payor's volumes,

allowances, and values to all leases in the agreement even though

the payor may not have an interest in all leases in the agreement,

Does not support designee/designor requirements of

RSFA,

Eliminates lease level sales and allowance detail

information that might be useful in the compliance verification

processes,

Requires RMP to maintain and store data at the original

Form MMS-2014 agreement level and at the lease level,

Complicates monitoring of Indian over-payments and

recoupments (recoupments can only be taken against the specific

Indian lease where the overpayment occurred).

Report Format and Presentation

Included in this Notice are two proposed Form MMS-2014 formats.

Attachment A is an 8\1/2\ x 11 inch portrait form. Attachment B is an

8\1/2\ x 14 inch landscape form. The data elements on both versions

are the same. We are seeking your comments on which version you prefer

and why.

Paperless Reporting

To assist industry in reporting, RMP offers a wide range of

electronic reporting options including:

Electronic Data Interchange (EDI) (ANSIX12)

Form MMS-2014 Template Software

Comma Separated Values (CSV)

ASCII

The reports can be transmitted using EDI, e-Mail, tape or diskette.

Specifics including edit specifications, template software, record

layouts, and implementation information are all provided at no cost to

industry. The time required for a company to draw data from its own

files, enter a line of data, and generate the electronic report is

significantly less that the time needed for a company to manually

complete the line on a paper Form MMS-2014. Additionally the report

does not require re-keying when received by RMP. We require most payors

to report electronically.

Reporting Burden

RMP believes the overall reporting burden will be decreased by

these proposed reporting changes, and we specifically invite your

comments regarding this expected decrease in reporting burden. The

current estimated time to manually complete one line on the Form MMS-

2014 is 7 minutes. This time includes data assembly, value and royalty

calculations, entering data on the form, and mailing. The total time

involved varies considerably from a small company reporting only one or

two leases to a large company reporting many leases. For those

companies who report electronically, the time to generate and submit

the data is estimated to be 2 minutes per line. MMS estimates that the

proposed changes in reporting requirements will reduce the total number

of lines currently reported on the Form MMS-2014, however, the

reporting burden per line, either manually or electronically reported,

[[Page 8840]]

may increase. Furthermore, elimination of the PIF eliminates industry's

burden for preparing this form which is currently estimated at 50

minutes per submission for approximately 23,000 submissions a year.

Dated: February 12, 1999.

Lucy Querques Denett,

Associate Director for Royalty Management.

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