oversight

Mineral Resources: Mineral Volume, Value, and Revenue

Published by the Government Accountability Office on 2012-11-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

United States Government Accountability Office
Washington, DC 20548




          November 15, 2012

          The Honorable Raúl M. Grijalva
          Ranking Member
          Subcommittee on National Parks, Forests, and Public Lands
          Committee on Natural Resources
          House of Representatives

          The Honorable Tom Udall
          United States Senate

          Subject: Mineral Resources: Mineral Volume, Value, and Revenue

          The Department of the Interior (Interior) administers minerals found in over 700 million
          acres of federal lands, 57 million acres on Indian lands, and 1.8 billion acres below
          offshore waters. Operators who lease these lands and extract these minerals pay
          billions of dollars annually that are shared among federal, state, and Indian tribal
          governments and are one of the largest nontax sources of revenue to the federal
          government. Some of these minerals, such as oil, gas, and coal, are available through
          leases requiring payments in the form of rents and bonuses, which are required to
          secure and maintain a lease, and royalties, which are based on the value of the
          minerals that are extracted. These minerals are generally known as leasable minerals.
          The Department of the Interior’s Office of Natural Resources Revenue (ONRR) is
          responsible for compiling data on the volume and value of leasable minerals produced
          from all federal and Indian lands where there is a trust responsibility, and collecting the
          appropriate payments. In contrast, other minerals, such as gold, silver, and copper,
          are governed by the General Mining Act of 1872, which makes these minerals
          available to operators through a federal claim-patent system that provides the right to
          explore, extract, and develop the federal mineral deposit without having to pay a
          royalty.1 These minerals are generally known as hardrock minerals.2

          You asked us to review minerals extracted from federal lands. Our objectives were to
          provide information on the (1) volume and dollar value of leasable minerals extracted
          1
           Since 1995, under provisions in the annual appropriations act, Congress has enacted a series of 1-year moratoria
          on the issuance of mineral patents.

          2
           In addition to leasable and hardrock minerals, there is a third category, known as saleable minerals, which include
          such materials as sand, stone, and gravel; these minerals are generally widespread, of low value, and available for
          sale through Interior’s Bureau of Land Management. We do not discuss saleable minerals in this report.


                                                                                            GAO-13-45R Mineral Resources
from federal lands and waters in fiscal years 2010 and 2011; (2) amount the federal
government collected for leasable minerals in royalties, rents, bonuses, and other
revenue and how this amount was calculated; and (3) availability of data on the
volume and dollar value of hardrock minerals extracted from federal lands in fiscal
years 2010 and 2011. Enclosure I contains the briefing on the volume, value, and
revenues from leasable minerals on federal and Indian lands that was given to your
offices on June 26, 2012 (objectives 1 and 2). In addition, enclosure II presents
information on the availability of data regarding the volume and value of hardrock
minerals extracted from federal lands (objective 3).

To obtain data on leasable minerals, we analyzed data on leasable minerals
maintained by ONRR. These data included sales year data on sales volume, royalties,
rents, bonuses, and other revenue for fiscal years 2010 and 2011. These data, which
ONRR updates annually, include all leasable mineral sales transactions that occurred
in a given fiscal year. We focused our review on revenue data and did not collect data
on administrative processing fees for services or fines paid to the federal government,
such as those related to processing leases and hardrock mining claims. We identified
the factors that were integral to calculating these revenues and the share retained by
the federal government after disbursement to state and Indian recipients. To assess
the reliability of these data, we reviewed our prior analyses of the database ONRR
uses to record mineral sales and revenue data and interviewed officials familiar with
the database’s contents. We determined that ONRR’s sales volume, sales value, and
revenue data were sufficiently reliable for the purpose of describing the aggregate data
that ONRR is reporting but did not assess the reliability of the individual transactions
that make up those data.

To determine the availability of data on hardrock minerals, we reviewed reports and
interviewed officials with Interior’s U.S. Geological Survey and Bureau of Land
Management and with the Department of Agriculture’s U.S. Forest Service. We also
reviewed reports from the 12 western states where the majority of hardrock mining
occurs and interviewed state officials in Alaska and Nevada about their efforts to
estimate the amount of hardrock minerals produced on federal lands. We reviewed
hardrock mine production data contained in documents filed with the U.S. Securities
and Exchange Commission by hardrock mine operators and interviewed Interior
officials regarding their efforts to implement the Extractive Industries Transparency
Initiative, an international effort to promote openness and accountability in the oil, gas,
and mining sectors.

We conducted this performance audit from January 2012 to November 2012 in
accordance with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.




Page 2                                                         GAO-13-45R Mineral Resources
In summary, there were nearly 70 different types of leasable minerals extracted from
federal lands and waters in fiscal years 2010 and 2011, but their volume cannot be
aggregated because they use different units of measure. For example, the volumes of
the four most valuable of these minerals—oil, gas, natural gas liquids, and coal—are
measured in barrels, million cubic feet (mcf), gallons, and tons, respectively. According
to ONRR data, the total value of all leasable minerals extracted from federal and
Indian land and sold in fiscal years 2010 and 2011 was $92.3 billion and $98.6 billion,
respectively.

The resulting revenue to the federal government from mineral leasing activity on
federal and Indian land in fiscal years 2010 and 2011 was $11.3 billion and $11.4
billion, respectively. Of this amount, oil, gas, and natural gas liquids accounted for the
majority of the revenue—$10.1 billion in each fiscal year. The bulk of this revenue
comes from royalties, which accounted for 92.8 percent of total revenue in 2011.
Table 1 shows the volume, value, and royalties for the most valuable leasable mineral
commodities.

Table 1: Volume, Value, and Royalties of Oil, Gas, Natural Gas Liquids, and Coal Extracted from Federal
and Indian Land, Fiscal Years 2010 and 2011
Dollars in billions

                                                       Volume                          Value          Royalties
Commodity                                           2010                   2011     2010     2011     2010 2011
Oil                                  739.0 million barrels  645.6 million barrels   $53.2   $61.7      $5.4   $6.6
Gas                                          5,415.2 mcf            4,859.2 mcf     $24.4   $20.5      $2.8   $2.4
Natural gas liquids                      4,817.9 gallons        4,679.1 gallons      $4.7     $5.6     $0.4   $0.6
Coal                                           478.1 tons             470.0 tons     $7.3     $7.6     $0.8   $0.8
Source: GAO analysis of ONRR data.



The mechanisms used to calculate the three types of leasable mineral revenue—
bonus bids, rents, and royalties—vary widely. For example, for oil and gas leases,
bonus bids—up-front payments to obtain a lease—are determined by a competitive
bidding process, with leases going to the highest bidder. Prior to the competitive
bidding, Interior sets a minimum acceptable bonus bid for each offshore parcel and a
minimum per acre bid amount for each onshore parcel offered for lease. Rent is
charged annually for a lease until production begins or the lease is terminated or
relinquished. Royalty rates depend on the mineral and are generally calculated based
on a proportion of sales value, less allowable deductions, such as transportation and
processing allowances.

Regarding the availability of data on hardrock minerals, we found that federal agencies
generally do not collect data from hardrock mine operators on the amount and value of
hardrock minerals extracted from federal lands because there is no federal royalty that
would necessitate doing so. Furthermore, while many western states collect data on
the hardrock minerals produced in their state for purposes of assessing a state royalty,
they generally do not collect data on the volume of those minerals extracted from
federal land within those states. The Department of the Interior is now working to
implement an international initiative to promote openness and accountability in the oil,


Page 3                                                                              GAO-13-45R Mineral Resources
gas, and mining sectors called the Extractive Industries Transparency Initiative. This
initiative is currently in the beginning stages of implementation—consequently it is
unclear what affect, if any, it will have on reporting requirements for operators of
hardrock mines on federal lands. Interior officials told us that they expect to finish
implementing this initiative in about 4 years.

Agency Comments

We provided a draft of this report to the Department of the Interior for review and
comment. The department provided technical comments which we incorporated as
appropriate.
                                          -----

As agreed with your offices, unless you publicly announce the contents of this report
earlier, we plan no further distribution until 30 days from the report date. At that time,
we will send copies to the appropriate congressional committees, the Secretary of the
Interior, the Directors of the Office of Natural Resources Revenue and the Bureau of
Land Management, and other interested parties. In addition, the report will be available
at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions concerning this report, please contact
me at (202) 512-3841 or fennella@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page of this
report. Key contributors to this report were Jeff Malcolm, Assistant Director; Casey L.
Brown; David Brown; Michael Kendix; Marya Link; Cheryl Peterson; Mick Ray; Carol
Herrnstadt Shulman; and Walter Vance.




Anne-Marie Fennell
  Director, Natural Resources and Environment

(Enclosures—2)




Page 4                                                        GAO-13-45R Mineral Resources
Enclosure I


              Briefing on Volume, Value, and Revenue of Leasable Minerals




             Leasable Minerals on
           Federal and Indian Lands:
          Volume, Value, and Revenue

              Briefing for Congressional Requesters

                                June 26, 2012




Page 5                                                 GAO-13-45R Mineral Resources
Enclosure I




    Introduction

    • The Department of the Interior (Interior) administers over
      700 million acres of minerals on federal and Indian lands and
      1.8 billion acres below offshore waters.
    • Certain minerals in these areas—such as oil and gas—are
      available through leasing systems that require payments from
      the lessees extracting or producing such minerals.
    • These resources generate billions of dollars annually that are
      shared among federal, state, and tribal governments. Revenue
      generated from oil and gas production is one of the largest
      nontax sources of federal government funds.
    • Interior’s Office of Natural Resources Revenue (ONRR) is
      responsible for collecting payments for minerals produced from
      federal and Indian leases and data on the volume and value of
      the related sales.

                                                                      Page 2




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Enclosure I




    Objectives, Scope, and Methodology

    • This final briefing is in response to your request for information
      on the following two objectives:

    1. the sales volume and value reported to Interior for onshore
       and offshore federal and Indian leasable minerals sold in fiscal
       years 2010 and 2011, and

    2. the amount the federal government collected for these
       minerals in royalties, rents, bonuses, and other revenue, and
       how this amount was calculated.



                                                                          Page 3




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Enclosure I




    Objectives, Scope, and Methodology

    • We focused our work on leasable minerals on federal and
      Indian lands and in offshore federal waters.
    • For the first objective, we analyzed ONRR-maintained “sales
      year” data for fiscal years 2010 and 2011. These data include
      all transactions related to mineral sales that occurred in a given
      fiscal year, and ONRR updates these data annually.
    • For the second objective, we analyzed ONRR-maintained sales
      year data on mineral royalties, rents, bonuses, and other
      revenue for fiscal years 2010 and 2011.
        • We determined the factors that were integral to calculations
           of these revenues.
        • We determined the revenue share retained by the federal
           government after disbursement to state and Indian
           recipients.

                                                                          Page 4




Page 8                                            GAO-13-45R Mineral Resources
Enclosure I




    Objectives, Scope, and Methodology

    • We interviewed Interior staff from several offices and spoke
      with industry representatives to gain their perspective on these
      issues.
    • We reviewed prior GAO analyses of the database ONRR uses
      to record mineral sales and revenue data. We also interviewed
      officials familiar with the database’s contents. We determined
      that ONRR’s sales volume, sales value, and revenue data were
      sufficiently reliable for the purpose of describing the aggregate
      data that ONRR is reporting, but did not assess the reliability of
      individual observations that make up those data.
    • Our data include dollar values for fiscal years 2010 and 2011.
      The reported values are in nominal dollars, not adjusted for
      inflation. Inflation for fiscal year 2011 was 2.6 percent.
                                                                          Page 5




Page 9                                            GAO-13-45R Mineral Resources
Enclosure I




    Objectives, Scope, and Methodology

    • We provided a draft of this briefing to Interior officials for their
      review and comment. Department officials provided technical
      comments that we incorporated as appropriate.
    • We conducted this performance audit from January 2012 to
      June 2012 in accordance with generally accepted government
      auditing standards. Those standards require that we plan and
      perform the audit to obtain sufficient, appropriate evidence to
      provide a reasonable basis for our findings and conclusions
      based on our audit objectives. We believe that the evidence
      obtained provides a reasonable basis for our findings and
      conclusions based on our audit objectives.



                                                                           Page 6




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Enclosure I




    Results in Brief

    • About 70 different leasable mineral products were involved in
      royalty-related transactions in fiscal years 2010 and 2011.
    • The total value of leasable minerals extracted from federal and
      Indian lands and sold in fiscal years 2010 and 2011 was
      $92.3 billion and $98.6 billion, respectively.
    • The resulting revenue from mineral leasing activity on federal
      and Indian lands in fiscal years 2010 and 2011 was
      $11.3 billion and $11.4 billion, respectively.
    • Oil, gas, and natural gas liquids accounted for the majority of
      this revenue—$10.1 billion in each fiscal year.



                                                                       Page 7




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Enclosure I




    Background

    Types of minerals on federal lands
    • Leasable
       • Include energy-producing substances, such as oil, coal, natural gas,
          and geothermal steam, and non-energy producing substances, such as
          phosphate and potassium.
       • The federal government collects revenues for leasable minerals
          primarily through lease bids, annual rents, and royalties.
    • Locatable (hardrock)
       • Include substances such as gold, silver, copper, and uranium.
       • The federal government generally does not collect royalties or rent for
          locatable minerals. Instead, it charges miners an initial fee to locate a
          claim and an annual fee to maintain the claim.
    • Saleable
       • Include building materials such as sand, stone, gravel, and clay.
          Saleable minerals are generally widespread and of low value.
       • Interior’s Bureau of Land Management (BLM) makes saleable minerals
          available through contracts of sale and free use permits.


                                                                                Page 8




Page 12                                                   GAO-13-45R Mineral Resources
Enclosure I




    Background

    Leasable minerals
    • Classified as leasable based on
        • Mineral type, as discussed above, or
        • Type of land on which they are located. For example,
            • All minerals on Indian lands held in common are
              generally leasable.
            • Minerals on acquired federal lands are considered
              leasable.
    • The most prominent leasable minerals in sales and revenue are
      oil, gas, natural gas liquids (NGL), and coal products.
    • Others include carbon dioxide, copper concentrate, soda ash,
      lead concentrate, phosphate ore, and geothermal steam.
                                                                      Page 9




Page 13                                        GAO-13-45R Mineral Resources
Enclosure I




    Background

    Commodities and mineral products
    • For reporting purposes, ONRR aggregates some similar
      minerals together into groups called commodities.
    • Each commodity may consist of several distinct mineral
      products or categories.
    • ONRR groups twenty-nine mineral products into the following
      key commodities: oil, gas, NGL, and coal.
       • Seventeen of those mineral products were involved in
         royalty-related transactions in fiscal year 2010 and/or 2011.




                                                                       Page 10




Page 14                                           GAO-13-45R Mineral Resources
Enclosure I




    Background

    Commodities and mineral products (cont’d)
     Commodities            Mineral products involved in royalty-related transactions, fiscal years 2010-2011

     Oil                    Condensate, Drip or Scrubber Condensate, Fuel Oil, Inlet Scrubber, Oil, Other Liquid
                            Hydrocarbons
     Gas                    Coal Bed Methane, Flash Gas, Fuel Gas, Gas Hydrate, Gas Lost-Flared or Vented, Nitrogen,
                            Processed (Residue) Gas, Unprocessed (Wet) Gas
     NGL                    Gas Plant Products
     Coal                   Coal, Coal-Bituminous-Raw
     Other                  Anhydrous Sodium Sulfate, Borax-Anhydrous, Borax-Decahydrate, Borax-Pentahydrate, Boric
                            Acid, Brine Barrels, Carbon Dioxide Gas, Caustic, Cinders, Clay, Cobalt Concentrate, Copper,
                            Copper Concentrate, Ferro Phosphorous Slag, Geothermal-Direct Utilization (2), Geothermal-
                            Electrical Generation (3), Gilsonite, Gold, Gold Ore, Gold Placer, Gypsum, Helium,
                            Langbeinite, Lead Concentrate, Leonardite, Limestone, Magnesium Chloride Brine, Manure
                            Salts, Molybdenum Concentrate, Muriate Of Potash-Granular, Muriate Of Potash-Standard,
                            Phosphate Raw Ore, Potash, Purge Liquor, Quartz Crystal, Salt, Sand/Gravel (2), Silver, Soda
                            Ash, Sodium Bi-Carbonate, Sodium Bisulfite, Sodium Decahydrate, Sodium Sesquicarbonate,
                            Sulfide, Sulfur, Sylvite-Raw Ore, Trona Ore, Wavellite, Zinc Concentrate

    Source: ONRR.
    Note: Individual mineral products that were sold in different ways were reported as multiple products in ONRR‘s data and in this table.
    For example, Sand/Gravel was sold both by the ton and by the cubic yard.
                                                                                                                                     Page 11




Page 15                                                                                            GAO-13-45R Mineral Resources
Enclosure I




     Background

     Reorganization of the Minerals Management Service (MMS)
     • Beginning in 2010, the Secretary of the Interior reorganized the
       MMS into three new agencies to separate its missions of
       promoting offshore resource development, enforcing safety
       regulations offshore, and collecting revenue from both onshore
       and offshore operations.
     • The three agencies are:
         • Bureau of Ocean Energy Management. BOEM manages the
           development of the nation’s offshore resources.
         • Bureau of Safety and Environmental Enforcement. BSEE
           enforces safety and environmental regulations offshore.
         • Office of Natural Resources Revenue. ONRR manages
           revenue associated with federal and Indian mineral leases
           both onshore and offshore.

                                                                       Page 12




Page 16                                           GAO-13-45R Mineral Resources
Enclosure I




    Background

    ONRR’s management of leasable minerals revenue
    • ONRR collects nearly all of the data and payments for minerals
      leased from federal and Indian lands.
    • Much of this information is self-reported by lessees who,
      according to ONRR, have up to 6 years to make adjustments to
      their submitted data.
    • ONRR audits a portion of all lessee data and payments after
      3 years. For example, in 2012 ONRR is auditing information
      reported by lessees in fiscal year 2009.




                                                                     Page 13




Page 17                                         GAO-13-45R Mineral Resources
Enclosure I




    Background

    Types of leasable mineral revenue commonly collected by ONRR
    • Bonus bids (Bonuses)
       • Up-front cash payments to secure a lease. Mineral leases generally are
          awarded based on competitive bidding, with leases going to the highest
          bidder. Interior determines a minimum acceptable bonus bid for each
          onshore and offshore parcel offered for lease.
    • Rents
       • Rent per acre leased is charged annually until production begins unless
          the lease is terminated or relinquished.
    • Royalties
       • Payments based on a proportion of sales value, less allowable deductions.
    • Other revenues
       • Miscellaneous fees and other payments. For example, ONRR collects
          interest on late royalty payments.


                                                                               Page 14




Page 18                                                   GAO-13-45R Mineral Resources
Enclosure I




    Background

    Key legislation governing leasable minerals
    Mining Law of 1872
        • Authorizes and governs prospecting and mining for locatable minerals on
           federal lands, originally ranging from gold to fossil fuels.
    Mineral Leasing Act of 1920
        • Authorizes and governs leasing on federal lands for development of
           deposits of fossil fuels, fertilizer minerals, and chemical minerals on federal
           lands, which were previously governed by the Mining Law of 1872.
    Mineral Leasing Act for Acquired Lands of 1947
        • Authorizes and governs mineral leasing on federal acquired lands. Federal
           acquired lands may be leased under the provisions of the Mineral Leasing
           Act of 1920.




                                                                                    Page 15




Page 19                                                        GAO-13-45R Mineral Resources
Enclosure I




    Background

    Key legislation governing leasable minerals (cont’d)
    Outer Continental Shelf Lands Act of 1953
         • Serves as the basis for most federal regulation governing offshore minerals
           and development activities within U.S. coastal waters generally from 3 to
           200 miles offshore.
    Federal Land Policy and Management Act of 1976
         • Governs wind and solar projects, which are authorized by obtaining a right-
           of-way from BLM.
    The Federal Oil and Gas Royalty Management Act of 1982
         • Affirms the authority of the Secretary of the Interior to administer and
           enforce all rules and regulations governing oil and gas leases on federal or
           Indian land.
    Indian Mineral Development Act of 1982
         • Authorizes tribes to enter into agreements with private companies to
           develop the mineral resources on their lands.

                                                                                  Page 16




Page 20                                                      GAO-13-45R Mineral Resources
Enclosure I




                        Objective 1



              Volume and Value of Leasable Minerals




                                                              Page 17




Page 21                                  GAO-13-45R Mineral Resources
Enclosure I




    Objective 1: Volume and Value of
    Leasable Minerals
    Sales volume in fiscal years 2010 and 2011
    • Calculations or comparisons of total volume sold across
      commodities or individual mineral products are not
      meaningful because measurement units often differ.
       • For example, oil sales are measured in barrels (bbl);
         gas sales in thousands of cubic feet (mcf); coal sales
         in tons; and NGL sales in gallons (gal).

    • However, we can compare sales volumes for key
      commodities across time.

                                                                  Page 18




Page 22                                      GAO-13-45R Mineral Resources
Enclosure I




    Objective 1: Volume and Value of
    Leasable Minerals
    Total sales volume by key commodity and source for fiscal
    years 2010 and 2011 (Quantities in millions)
                               Fiscal           Federal    Federal   Indian
          Commodity            year            onshore    offshore    lands       Total
          Oil (bbl)            2010               107.8      617.9      13.2      739.0
                               2011               111.8     514.4      19.4       645.6
          Gas (mcf)            2010             3,068.0    2,097.7    249.4      5,415.2
                               2011             2,955.1    1,654.1    250.0      4,859.2
          Coal (ton)           2010              456.5        N/A      21.6       478.1
                               2011              448.0        N/A      22.0       470.0
          NGL (gal)            2010             2,272.4    2,415.4    130.0      4,817.9
                               2011             2,484.3    2,054.8    140.0      4,679.1
          Source: GAO analysis of ONRR data.

                                                                                           Page 19




Page 23                                                              GAO-13-45R Mineral Resources
Enclosure I




    Objective 1: Volume and Value of
    Leasable Minerals
    Non-revenue volume, fiscal years 2010 and 2011
    • Certain leasable mineral sales are exempt from royalty payments
      under specific royalty relief programs.
    • In 2010 and 2011, these exemptions applied to some offshore oil,
      gas, and natural gas liquid sales.
    • Royalty relief programs include those for minerals located in deep
      water, for minerals buried deep in shallow water, and for wells where
      production is no longer profitable.
    • In fiscal year 2010, 2.2 million barrels of oil were accepted into the
      U.S. Strategic Petroleum Reserve in lieu of royalty payments, but this
      royalty-in-kind program was no longer active in 2011.
    • Other volumes never make it to market because they are used as
      fuel on the lease site or, in the case of gas, vented or flared into the
      air.

                                                                            Page 20




Page 24                                                GAO-13-45R Mineral Resources
Enclosure I




    Objective 1: Volume and Value of
    Leasable Minerals
    Revenue-bearing versus non-revenue volume, fiscal years
    2010 and 2011 (Quantities in millions)
                         6000
              Millions




                                                 5,008
                         5000                                                               4,633
                                                               4,419                                          4,381

                         4000


                         3000
                                                                                                                            Revenue-bearing
                                                                                                                            volume
                         2000
                                                                                                                            Non-revenue bearing
                                                                                                                            volume
                         1000
                                   559                                         513
                                                         407           399                                            298
                                         180                                         132            226
                           0
                                   Oil (bbl)     Gas (mcf)      NGL (gal)      Oil (bbl)     Gas (mcf)        NGL (gal)
                                                   2010                                        2011
                                Source: GAO analysis of ONRR data.
                                Note: According to ONRR officials, oil, gas, and NGL were the only minerals
                                that had non-revenue sales in 2010-2011, and all were from offshore leases.

                                                                                                                                              Page 21




Page 25                                                                                                   GAO-13-45R Mineral Resources
Enclosure I




    Objective 1: Volume and Value of
    Leasable Minerals
    Total sales value by key commodity, fiscal years 2010 and 2011
    (Dollars in billions)
                               $61.7


                 $53.2
                                                             Oil, gas, coal, and natural gas liquid products
                                                             collectively accounted for 97 percent of sales
                                                             in both fiscal years 2010 and 2011.

                                       $24.4
                                                     $20.5




                                                                 $7.3          $7.6
                                                                                      $4.7         $5.6
                                                                                                          $2.8          $3.2


                 2010          2011    2010          2011        2010          2011   2010         2011   2010         2011
                         Oil                   Gas                      Coal                 NGL            Other Products
              Source: GAO analysis of ONRR data.

                                                                                                                               Page 22




Page 26                                                                                      GAO-13-45R Mineral Resources
Enclosure I




    Objective 1: Volume and Value of
    Leasable Minerals
    Total sales value by key commodity and source, fiscal years
    2010 and 2011 (Dollars in billions)
                                  Fiscal            Federal    Federal     Indian
              Commodity           year             onshore    offshore      lands       Total
              Oil                 2010                 $7.5      $44.8        $0.9      $53.2
                                  2011                  9.6       50.5         1.6      $61.7
              Gas                 2010                 13.5        9.9         1.0      $24.4
                                  2011                 12.4        7.1         1.0      $20.5
              Coal                2010                  6.7        N/A         0.6       $7.3
                                  2011                  7.0        N/A         0.6       $7.6
              NGL                 2010                  2.0        2.5         0.1       $4.7
                                  2011                  2.8        2.6         0.2       $5.6
              All other           2010                  2.6        0.0         0.2       $2.8
                                  2011                  3.1        0.0         0.1       $3.2
              Total               2010                $32.3      $57.2        $2.8      $92.3
                                  2011                $34.9      $60.2        $3.5      $98.6
              Source: GAO analysis of ONRR data.

                                                                                                Page 23




Page 27                                                                  GAO-13-45R Mineral Resources
Enclosure I




    Objective 1: Volume and Value of
    Leasable Minerals
    Revenue-bearing versus non-revenue sales value, fiscal years
    2010 and 2011 (Dollars in billions)
                         $60
              Billions




                                                                              $48.7
                         $50

                                 $41.1
                         $40


                         $30
                                                 $22.5                                                                      Revenue-bearing
                                                                                              $19.5                         sales
                         $20
                                         $12.1                                        $13.0                                 Non-revenue bearing
                                                                                                                            sales
                         $10
                                                                $4.2                                          $5.2
                                                         $1.9                                         $1.0
                                                                       $0.4                                          $0.4
                         $0
                                    Oil             Gas           NGL            Oil             Gas            NGL
                                                   2010                                         2011
                               Source: GAO analysis of ONRR data.
                               Note: According to ONRR officials, oil, gas, and NGL were the only minerals
                               that had non-revenue sales in 2010-2011, and all were from offshore leases.

                                                                                                                                                  Page 24




Page 28                                                                                                      GAO-13-45R Mineral Resources
Enclosure I




                   Objective 2



              Leasable Minerals Revenue




                                                        Page 25




Page 29                            GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Total sales value and total revenue, fiscal years 2010 and 2011
    (Dollars in billions)
                         $120
              Billions




                                                             $98.6
                         $100
                                       $92.3                         Oil, gas, and natural gas
                         $80
                                                                     liquids accounted for
                                                                     $10.1 billion of total
                         $60                                         revenues in each fiscal
                                                                     year.
                         $40



                         $20
                                                                       $11.3                   $11.4


                          $0
                                       2010                  2011      2010                    2011
                                               Sales Value                     Total Revenue

                                Source: GAO analysis of ONRR data.

                                                                                                               Page 26




Page 30                                                                                   GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Total revenue and revenue by category, fiscal years 2010 and 2011
    (Dollars in billions)
                     $12     $11.3       $11.4
          Billions




                                                                                                              $10.5

                     $10                                                                       $9.7



                     $8


                     $6


                     $4


                     $2                          $1.3
                                                                  $0.5   $0.3           $0.3
                                                                                                                      $0.0        $0.0
                     $0
                             2010        2011    2010             2011   2010           2011   2010           2011    2010       2011
                               Total Revenue            Bonuses                 Rents                 Royalties        Other Revenues

                           Source: GAO analysis of ONRR data.

                                                                                                                                         Page 27




Page 31                                                                                                     GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Bonus bids to obtain mineral leases
    • Pricing mechanisms for land and resource leases vary widely.
    • Competitive bidding is generally used for onshore lease sales,
      with leases awarded to the highest bidder. Interior determines a
      minimum acceptable “bonus bid” for each tract offered.
      Successful bidders must pay a portion of the bonus bid on the
      date of auction and then must pay the balance within
      10 business days.
    • Competitive bidding is also used for offshore lease sales. As
      with onshore sales, if no bids match or exceed the minimum,
      the lease is withheld and offered again at a later sale.


                                                                      Page 28




Page 32                                          GAO-13-45R Mineral Resources
Enclosure I




     Objective 2: Revenue from Leasable
     Minerals
     Bonuses by lease type, fiscal years 2010 and 2011
     (Dollars in millions)
               $1,400                                                                                    $1,400
    Millions




                                                                                              Millions
                             $1,177.5
               $1,200                                                                                    $1,200


               $1,000                                                                                    $1,000


                $800                                                                                      $800
                                                                                                                                                       2011
                                                          2010
                $600                                                                                      $600


                $400                                                                                      $400      $332.0

                                                                                                                                 $174.8
                                                                                                          $200
                $200                          $109.7
                                                                                                                                               $21.0          $0.8      $0.5       $0.0
                                                                  $2.7            $0.0                      $0
                  $0
                                                                                                                  Oil and Gas   Coal Total   Potassium    Phosphate Geothermal Sodium Total
                         Oil and Gas Total   Coal Total     Geothermal Total   Sodium Total
                                                                                                                      Total                    Total        Total      Total
                        Source: GAO analysis of ONRR data.
                        Note: Sodium bonuses totaled $120.00 in both 2010 and 2011.


                                                                                                                                                                                Page 29




Page 33                                                                                                                                   GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Customary rental rates to maintain leases prior to generating royalties1
     Types of leases                                  Annual rental terms for new leases
     Oil and gas leases
       on federal onshore lands                       $1.50 per acre for the first 5 years and $2 per acre thereafter.
       on federal offshore lands                      Starts at $7 or $11 per acre in the Gulf of Mexico with increases
                                                      beginning in the sixth year of the lease.
       on Indian lands                                $2 per acre or greater as prescribed in the lease.
     Coal leases
      on federal lands                                $3 per acre not credited against royalty payments.
       on Indian lands                                Varies with lease; not less than $2 per acre.
     Geothermal leases on federal lands               Competitive leases are $2 per acre for the first year, $3 per acre for the
                                                      second through tenth years; non-competitive leases are $1 per acre
                                                      through the tenth year. Both types of leases increase to $5 per acre after
                                                      the tenth year.
     Lead, zinc, copper, and other hardrock           $1 per acre on acquired lands; minimum per permit or lease is $20.
     mineral leases on federal lands
    Source: Interior.


    1 These   are rental terms for new leases. Rental terms have varied over time.

                                                                                                                          Page 30




Page 34                                                                                    GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Rents by lease type, fiscal years 2010 and 2011
    (Dollars in millions)
                         $350
              Millions




                                          $294.9
                         $300
                                                       $271.1

                         $250


                         $200
                                                                                                  2010

                         $150                                                                     2011



                         $100


                          $50

                                                                      $4.9          $5.2
                          $0
                                            Oil & Gas Total          All Other Leases Total

                                Source: GAO analysis of ONRR data.

                                                                                                             Page 31




Page 35                                                                                 GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Customary royalty rates for new mineral leases1
     Types of leases                                  Customary royalty rates for new leases
     Oil and gas leases
       on federal onshore lands                       12.5 percent for both competitive and non-competitive leases.

      on federal offshore lands                       18.75 percent in Gulf of Mexico; 12.5 percent in Alaska and other frontier
                                                      areas. BOEM can use other royalty rates of no less than 12.5 percent.
      on Indian lands                                 Varies; in most cases the minimum rate is 16.67 percent.
     Coal leases
      on federal lands                                8 percent of the value of production for underground mines and 12.5
                                                      percent of value of production of surface mines.
      on Indian lands                                 Varies; not less than 8 percent of value of production for underground mines
                                                      and 12.5 percent of value of production for surface mines.
     Geothermal leases on federal lands               For electricity production, 1 to 2.5 percent of the value of geothermal steam
                                                      in the first 10 years; not more than 2 to 5 percent annually thereafter.
     Lead, zinc, copper, and other hardrock           No minimum royalty rate on acquired lands, but usually 5 percent.
     mineral leases on federal lands
    Source: Interior.

    1 These   are royalty rates for new leases. Royalty rates have varied over time.

                                                                                                                           Page 32




Page 36                                                                                       GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Royalties by key commodity, fiscal years 2010 and 2011
    (Dollars in billions)
                           $6.6                          Oil, gas, coal, and natural gas liquid products
                                                         collectively accounted for 98 percent of
              $5.4
                                                         royalties in both fiscal years 2010 and 2011.


                                     $2.8
                                                  $2.4




                                                          $0.8          $0.8
                                                                               $0.4         $0.6
                                                                                                   $0.2               $0.2


             2010          2011      2010         2011    2010          2011   2010         2011   2010               2011
                     Oil                    Gas                  Coal                 NGL                 All Other

          Source: GAO analysis of ONRR data.

                                                                                                                      Page 33




Page 37                                                                               GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Sales values versus royalties for key commodities, fiscal years
    2010 and 2011 (Dollars in billions)
                                                                                                       $61.7

           $53.2




                                 $24.4
                                                                                                                             $20.5



                                                             $7.3                                                    $6.6                                $7.6
                         $5.4                                                     $4.7                                                                                        $5.6
                                               $2.8                                                                                        $2.4
                                                                           $0.8                 $0.4                                                                   $0.8                 $0.6

           Sales     Royalties   Sales    Royalties      Sales        Royalties   Sales    Royalties   Sales     Royalties   Sales    Royalties      Sales        Royalties   Sales    Royalties
           Value                 Value                   Value                    Value                Value                 Value                   Value                    Value
                   Oil                   Gas                        Coal                  NGL                  Oil                   Gas                        Coal                  NGL
                                                      2010                                                                                        2011

          Source: GAO analysis of ONRR data.

                                                                                                                                                                                              Page 34




Page 38                                                                                                                                    GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Allowable deductions from royalty payments

    • Transportation. Transportation allowances are granted for
      reasonable, actual, and necessary costs to transport oil, gas, or gas
      plant products to an off-lease point, such as a sales point, a delivery
      point, or a gas processing plant.
    • Processing. Processing allowances are granted for costs incurred
      by the lessee in the extraction and recovery of gas plant products
      from a gas stream.

    • Effective royalty rate.
       • The rate actually paid by lessees, once non-revenue volumes
          and deductions for transportation and processing have been
          factored in. It is expressed as a percentage that is calculated by
          dividing the actual royalty payment by the sales value.
                                                                            Page 35




Page 39                                                GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Effective royalty rate paid for offshore oil at common lease rates,
    fiscal years 2010-2011 (dollars in millions)
                   Royalty rate                        Non- Royalty value Transportation Royalty value      Effective
     Fiscal          specified Total sales          revenue        prior to and processing           less     royalty
     year             in lease       value       sales value  allowances        allowances   allowances          rate
     2010              12.50%   $34,557.4          $11,985.9      $2,755.0           ($51.5)     $2,703.5      7.82%

                        16.67%       $9,635.6         $53.9      $1,578.8          ($15.0)       $1,563.8    16.23%

                        18.75%           $54.4         $1.1         $10.0           ($1.6)           $8.4    15.36%

     2011               12.50%      $37,770.8     $12,797.3      $3,122.0          ($52.6)       $3,069.4     8.13%

                        16.67%      $12,081.3        $136.5      $1,984.2          ($17.7)       $1,966.4    16.28%

                        18.75%           $41.1         $1.8          $7.3           ($0.1)           $7.3    17.70%


    Source: GAO analysis of ONRR data.

                                                                                                            Page 36




Page 40                                                                           GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Effective royalty rate paid for offshore gas at common lease rates,
    fiscal years 2010-2011 (dollars in millions)
                  Royalty rate                   Non- Royalty value Transportation Royalty value    Effective
     Fiscal       specified in Total sales    revenue       prior to and processing          less     royalty
     year               lease        value sales value  allowances       allowances   allowances         rate
     2010             12.50%     $4,965.6     $1,776.5       $398.0           ($42.4)      $355.6      7.16%

                        16.67%       $4,782.9    $124.3     $765.4          ($18.5)        $746.9    15.62%

                        18.75%           $15.0     $8.3       $1.3           ($0.0)          $1.2     8.27%

     2011               12.50%       $3,421.5    $935.4     $310.9          ($34.8)        $276.0     8.07%

                        16.67%       $3,574.3     $61.1     $583.3          ($14.3)        $569.0    15.92%

                        18.75%           $33.9     $7.8       $4.8           ($0.2)          $4.6    13.72%


    Source: GAO analysis of ONRR data.

                                                                                                     Page 37




Page 41                                                                     GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Disbursement of revenues from onshore leasable minerals
    • 50 percent of federal receipts are disbursed to the states, with
      2 percent of the states’ share (i.e., 1 percent of total receipts)
      retained to cover the administrative costs of the leasing
      program.1
    • 40 percent of federal receipts are deposited in the Reclamation
      Fund for water project and program activities in the 17 western
      states.2
    • 10 percent of federal receipts are deposited in the Treasury.
    • All revenues from Indian lands are returned to the appropriate
      tribal entities or individual Indians.
    1 90percent of receipts from Alaska are permanently appropriated to that state, with 1.8 percent of total receipts retained to cover
    administrative costs.
    2 No receipts from Alaska are deposited in the Reclamation Fund.



                                                                                                                                      Page 38




Page 42                                                                                             GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Disbursement of revenues from offshore leasable minerals
    • Up to $900 million is allocated annually to the Land and Water Conservation
      Fund from sources including offshore mineral leasing.
    • When appropriated by Congress, $150 million is allocated annually to the
      National Historic Preservation Fund from Outer Continental Shelf lease
      receipts.
    • 27 percent of receipts from Section 8(g) leases are allocated to the states.
      These leases are located in federal waters within 3 miles of the offshore
      boundary of coastal states.
    • 37.5 percent of receipts from specified oil and gas leases off the coasts of
      selected Gulf Coast states are allocated annually to those states (Alabama,
      Louisiana, Mississippi, and Texas).
    • $250 million of annual spending for fiscal years 2007-2010 is permanently
      appropriated for the Coastal Impact Assistance Program.
    • Any remaining funds are deposited in the Treasury.

                                                                                 Page 39




Page 43                                                     GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
    Disbursement of total revenues from onshore and offshore
    leases, fiscal years 2010-2011 (in millions)
               2010 disbursement: $9,170                               2011 disbursement: $11,162
                                           $150                                                    $150
                                   $408                                                    $538

                                                                                                    $892
                                             $899                                                                   American
                                                                                                                    Indian Tribes & Allottees
                                                                                                                    Historic Preservation Fund

                                                                                                           $1,533   Land & Water Conservation
              $4,517                                $1,364                                                          Fund
                                                                                                                    Reclamation
                                                                     $6,050                                         Fund
                                                                                                                    State Share

                                                                                                      $1,999        U.S. Treasury

                                          $1,832




              Source: GAO analysis of ONRR data.
              Note: Total disbursement amounts are not directly comparable to the total revenue amounts
              presented earlier because of different accounting and reporting practices for the two values.
                                                                                                                                Page 40




Page 44                                                                                           GAO-13-45R Mineral Resources
Enclosure I




    Objective 2: Revenue from Leasable
    Minerals
     A 2011 Interior report identifies payments other than bonuses, rents, and royalties
     that companies are required to remit to various levels of government.1 For example,
     according to this report, oil companies operating in the United States may also be
     subject to:

     Income tax. This is the most common levy. A few jurisdictions, however, exempt the oil
     industry from the generally applicable corporate income tax and impose a petroleum
     income tax. Incentives are often provided in the form of accelerated recovery of
     development costs, depletion allowances, infrastructure credits, and other benefits. A state
     income tax may be levied in addition to the federal income tax with appropriate deductions.

     Severance tax. Common in the United States, this tax is usually levied by states on the
     same basis as royalty. Different rates may apply to oil and gas.

     Property tax. A property tax may be levied by counties.
    1 Agalliu,
            Irena. Comparative assessment of the federal oil and gas fiscal systems. A special report prepared at the request of the U.S.
     Department of the Interior, Bureau of Ocean Energy Management. October 2011. Interior commissioned this report in response to a
     GAO recommendation. See GAO, Oil and Gas Royalties: The Federal System for Collecting Oil and Gas Revenues Needs
     Comprehensive Reassessment, GAO-08-691 (Washington, D.C.: Sept. 3, 2008).
                                                                                                                                   Page 41




Page 45                                                                                           GAO-13-45R Mineral Resources
Enclosure I




          GAO on the Web
          Web site: http://www.gao.gov/

          Contact
          Chuck Young, Managing Director, Public Affairs, youngc1@gao.gov
          (202) 512-4800, U.S. Government Accountability Office
          441 G Street NW, Room 7149, Washington, D.C. 20548

          Copyright
          This is a work of the U.S. government and is not subject to copyright
          protection in the United States. The published product may be reproduced
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          because this work may contain copyrighted images or other material,
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          reproduce this material separately.


                                                                                   Page 42




Page 46                                                       GAO-13-45R Mineral Resources
Enclosure II


    Data Are Not Available on the Volume or Value of Hardrock Minerals Extracted
                                  from Federal Land

Federal agencies generally do not collect data from hardrock mine operators on the
amount and value of hardrock minerals extracted from federal land because there is
no federal royalty that would necessitate doing so. For example, as we reported in
2008, Interior’s U.S. Geological Survey collects extensive data on mineral production
through its annual surveys, but it does not collect data that would allow it to determine
what proportion of this production came from federal land. 3 In addition, publicly traded
hardrock mine operators frequently include production information as part of their
filings with the U.S. Securities and Exchange Commission, but they do not consistently
report the amount of minerals produced from federal lands. Similarly, many western
states collect data on the hardrock minerals produced in their state for purposes of
assessing a state royalty, but they generally do not collect data on the volume of those
minerals extracted from federal land within those states.

While the United States has committed to implementing the Extractive Industries
Transparency Initiative—an international effort to promote openness and
accountability in the oil, gas, and mining sectors—it is unclear if this will affect
reporting on hardrock mineral production on federal land. To comply with the initiative,
extractive companies operating in a country must comprehensively disclose all
material payments to the government, and government agencies must disclose all
material revenues received from extractive industries. President Obama announced in
September 2011 that the United States would implement the initiative and named the
Secretary of the Interior as the government official responsible for its implementation.
However, because this effort is in the early stages of implementation, it is currently
unclear if hardrock mine operators will ultimately be required to disclose the amount of
minerals produced from federal land, as is required in some of the other countries that
have implemented the initiative. Interior officials told us that they expect to finish
implementing this initiative in about 4 years.

Even though overall data are not available on federal hardrock production, Interior and
some western states have used the limited data available to roughly estimate the
amount and value of hardrock minerals produced from federal land. For example, in
1993, Interior estimated that 15.3 percent of the total U.S. production value of hardrock
minerals came from federal land. Using this percentage and 2011 survey data on
nonfuel minerals from the U.S. Geological Survey, Interior estimated that the sales
value of hardrock minerals extracted from federal land in fiscal year 2011 was about
$6.41 billion. 4 In addition, officials with the Nevada Division of Minerals, using
estimates provided by mine operators, told us that that roughly two-thirds of metallic


3
 GAO, Hardrock Mining: Information on State Royalties and Trends in Mineral Imports and Exports, GAO-08-849R
(Washington, D.C.: July 21, 2008).
4
 U.S. Department of the Interior, Task Force on Mining Royalties, Economic Implications of a Royalty System for
Hardrock Minerals (Aug. 16, 1993); and U.S. Department of the Interior, The Department of the Interior’s Economic
Contributions, Fiscal Year 2011 (Washington, D.C.: July 9, 2012).


Page 47                                                                         GAO-13-45R Mineral Resources
Enclosure II


minerals—a subgroup of hardrock minerals—produced in Nevada comes from federal
land, and about one-third comes from private land. 5




(361417)



5
 According to the U.S. Geological Survey, Nevada has the highest value of nonfuel mineral production in the United
States, with a total value of about $10.4 billion in 2011. See U.S. Geological Survey, Mineral Commodity
Summaries 2012 (Reston, VA: Jan. 21, 2012).


Page 48                                                                         GAO-13-45R Mineral Resources
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