Royalty Revenue Processing

Table of Contents

Royalty Revenue Processing Overview

1.0 Receipt of Royalty Payments

2.0 Receipt of Royalty Returns

3.0 Edit and Evaluation Routines

3.1.2 Form OGR-1

3.1.3 Form OGR-2

3.1.4 Assessment edits

3.1.5 Credit edits (computational & remittance)

3.1.5.1 Lease Credit

3.2 Payment Matching

3.2.1 Payment to return matching

3.2.1.1 Generate list of unmatched payments & returns

3.3 Pre evaluation edits

3.3.1 Correction, Release and Override capabilities

3.3.2 Return credit line edits

3.3.3 Royalty Management Credit Line Approval

3.5. Evaluation Routines

3.5.1 Payment amount determination SLR116

3.5.2 Credit Lines allocation SLR117

3.5.3 Debit Lines allocation SLR118

3.5.4 Computational lines processing SLR119

3.5.5 Debit Computation notice SLR120

3.5.6 Credit Computation Assessment notices SLR121

4.1..Process notices

4.1.1 Process detail lines for interest SLR122

4.1.2 Process Advance Royalty Payments with return SLR123

4.1.3 Process reported assessments with return SLR124

4.1.4 Generate Report Remittance Difference SLR125

4.2.0 Royalty Remitter Notifications

4.2.1 Monthly Notices generated in Returns processing SLR126

1.Cash Suspense

2.Royalty detail suspense

3.Royalty edit errors

4.Royalty report remittance assessment

5.Advance Royalty assessment

6.Royalty computational assessment

7.Royalty interest assessment

8.Royalty Remittance Credit invoice

9.Royalty Computational Credit

10.Royalty Lease Credit

11.Rejected credit line

4.2.2 Monthly Account Activity Process SLR127

5.1.0 Royalty Distribution stage

5.1.1 Distribution Cash for Debit Lines SLR128

6.1.0 Return Reversal Process SLR143

6.1.2 Parameter maintenance subsystem SLR129

6.1.2.1 Maintain payment due date by product kind

6.1.2.2 Update Lease Net Credit Parameter

6.1.2.3 Update Pricing Edit Parameters

6.1.2.4 Update Syntax Edit Parameters

6.1.2.5 Update Allowable Deduction Parameters

6.1.2.6 Update Evaluation Parameters

6.1.2.7 Maintain User Approval Parameters

6.1.3 Abatements

6.1.3.1 Inventory of the Assessments by OGRID SLR130

6.1.3.2 Partial Abate of Assessment SLR131

6.1.3.3 Full Abate of Assessments SLR132

6.1.3.4 Assessment Abatement Report SLR133

6.1.3.5 Inventory of Outstanding Credits by OGRID SLR134

6.1.3.6 Abate Remittance Credit SLR137

6.1.3.7 Abate Computation Credit Detail SLR138

6.1.3.8 Abate Lease Credit SLR139

6.1.4 Suspense Processing

6.1.4.1 Monitor Royalty Suspense Errors SLR140

6.1.5 Web services SLR141

Royalty Revenue Processing Overview

Business Process

The focus of this document is to identify requirements at a business process level. A business process is a stand-alone logical unit of work. Ideally, it should consist of end-to-end processing that begins with an event of some kind and ends in the production of the output that responds to the event. This is known as straight-through processing (STP). Business reality will dictate to an application what the business processes are. With in each process however, there will be a number of steps. These fit into the STP-like manner. At the point in the development cycle where requirements are transformed into specifications, the discrete steps in each process are defined.

Overview of Oil & Gas Royalty Returns Processing

In general, the Oil & Gas Royalty Returns Processing sub-system processes cash collected along with corresponding return documents, distributes cash to state fund accounts and beneficiaries, validates return information, and generate assessments, credits and notices. The two major categories are: the distribution cycle and the day-to-day maintenance.

The distribution cycle is the primary function of royalty returns processing. The objective is to receive and process returns and payments within the State specified time period.

The Sub-functions include:

  • Payment capture
  • Return capture
  • Payment to return matching
  • Return edits
  • Return evaluation
  • Royalty payer notification
  • Distribution to Funds and Beneficiaries
  • Balancing

Simultaneous with the Distribution cycle, there are the day-to-day maintenance ongoing activities that encompass a set of sub-function linked to, or support the results of the distribution cycle.

The sub-functions include:

  • Production Unit Maintenance
  • Advance Royalty/Payment due date processing
  • Assessment Maintenance
  • Abatements
  • Reversals
  • Appeals
  • Credit processing & refund requests
  • Suspended detail reconciliation
  • Suspended cash reconciliation

Royalty Revenue Processing Cycle

Work in the Royalty Revenue Processing group occurs basically around a monthly cycle.

The work is broken down into six categories:

  1. Receipt of Royalty Payments,
  2. Receipt of Royalty Returns,
  3. Edit and Evaluation of the Returns,
  4. Distribution of Revenue,
  5. Validation and Issuance of Notices to remitters
  6. Month End Clearance of Suspended Monies. Joselino

The edit and evaluation processes are dependent on specific sequences or steps. It is important to distinguish between the stages of the processing cycle, as activities may vary or be illegal at certain times in the cycle. The stages are; Pre-evaluation, Post-evaluation, Pre-distribution and Post-distribution. Some of the edit and evaluation processes are controlled by parameters for tolerances and severities.

1.0 Receipt of Royalty Payments

Process Description

Receipt of royalty payments occurs in one of three ways: Electronic fund transfers (EFT) as submitted to the SLO fiscal agent via Automated Clearing House (ACH) payments, or as EFT transfers via Fedwires, and lastly as cash payments that are usually mailed in with their associated paper return documents.

Electronic fund transfers are submitted in through New Mexico financial institution, currently Well Fargo. The ACH payments and the Fedwires must be automatically uploaded into an ONGARD database table. This transfer must include security auditing & control information that is stored in an ONGARD data table.

Payment information must be available for correction throughan ONGARD update payment screen. This process must retain the original entry and all modifications made to that entry in chronological order. Entries are examined for OGRID, amount, and date. Once verified, the corrected entries are downloaded and added to the payment data store of transactions ready for processing. A management report containing details about this process must be produced when the payment data has been verified and is ready for the monthly processing.

The New Mexico State Land Office is currently considering taking the key entry and cash deposit process internal rather than contracting with the Taxation and Revenue Department. ONGARD must have the capabilities to accomplish this

2.0 Receipt of Royalty Returns

Process Description

Royalty return filings come to the SLO through one of four methods:

  • EDI packet submittal
  • CSV Virtual Private Network packet submittal
  • CSV Secure Socket Layer packet submittal
  • Paper submittal. The paper filings will require a data entry screen and a process to get them loaded into the imaging system at the Land Office. The retrieval of the imaged documents must be developed to coincide with the other return ID’s. As the returns proceed thought the edit & evaluation process, the original documents are required to resolve any errors which may have been caused by data entry errors.

The New Mexico State Land Office is currently considering taking the key entry and cash deposit process internal rather than contracting with the Taxation and Revenue Department. ONGARD must have the capabilities to accomplish this

3.0 Edit and Evaluation Routines

Process Description

The edit routines for the royalty returns are fairly complicated. Included in this section are the highlights of the editing requirements, providing a sense for the sequence and complexities. The Royalty return process is comprised of five different types of transactions:

  1. Summary line entry
  2. Detail lines entry
  3. Assessment
  4. Credit
  5. Lease credit

Edits are performed on summary and detail line items. In the case of summary, there are some edits which can be performed on the summary line itself and there are other edits which will be performed only for the return as a whole (e.g. validating sub-totals reported in the summary along with the individual amounts reported in the detail lines). In the case of details there are some edits which can be performed at individual line entry level and there are some edits which cannot be performed at individual line entry level rather they span more than one line for editing (e.g. validating OGRID sub-account balance). Currently there are three forms used to file Royalty returns; OGR-1, OGR-2 and OGR-2C. The OGR-2C form will be discontinued and the functions of the OGR-2C form incorporated in the two forms.

Following table maps the edit processes to the edit process structure

Edit Structure Component Name / Process Type
Summary Line Edit / Summary Syntax Check
Summary Balancing Edit / Summary Balancing Edits
Single Line Edit / Basic Syntax Edit, Pricing, Deduction & Computation Edits (OGR-2)
Multiple Lines Edit / Reported Credit Line Entry Edit, OGRID Sub-account Balance Edit
Credit Line Edit for Net Credit >25000
Transaction Code Edits
Assessments Processing / Reported Assessments Edits
Credits Processing / Reported Credits Edits

3.1.1 Royalty Returns Edit Rules

Process Description

Only the following rules can be set by the user to be Reject, Critical or Non Critical

Edit Rule Id / Short Description / Long Description / Severity
RS001 / Invalid OGRID Code / OGRID Code is not defined in the system / C
RS002 / Invalid OGRID Role / OGRID role is not Royalty Remitter / C
RS003 / Inactive OGRID Role / OGRID role is expired / N
RD001 / Invalid PUN / PUN is not defined to the system / C
RD002 / Inactive PUN / PUN is not valid for the Sales Month/Year / C
RD003 / Invalid LEASE / LEASE is not defined to the system / C
RD004 / Inactive LEASE / LEASE is not valid for the Sales Month/Year / C
RD005 / Invalid PUN/LEASE / PUN/LEASE combination does not exist / C
RD006 / Inactive PUN/LEASE / PUN/LEASE combination not valid for Sales Month/Year / C
RD007 / Invalid Product Code / Product Code does not exist in the system / C
RD008 / Transportation Deduction / Transportation Deduction/Gross Proceeds ratio must be within the parameter specified limit for the corresponding Sales Month/Year / N
RD009 / Incompatible Processing Deduction / Processing deduction is valid only for Gas Products / N
RD010 / Processing Deduction / Processing Deduction/Gross Proceeds ratio must be within the parameter specified limit for the corresponding Sales Month/Year / N
RD011 / Market Preparation Deduction / Market Preparation Deduction/Gross Proceeds ratio must be within the parameter specified limit for the corresponding Sales Month/Year / N
RD012 / PriceRange Check / Gross Proceeds/Volume ratio must be within the parameter specified range for the corresponding Sales Month/Year. / N
RD013 / Mathematical Error in Royalty Computation / Arithmetic Error in computation of Net proceeds / C
RD014 / Wrong Royalty Rate used for Calculation / Royalty rate used is not correct as per Lease terms. / N
RD015 / OGRID Sub-account Balance below zero check / For a particular PUN/LEASE/Sale Month/Year/Product Code combination the total of debits and credits in the database and the reported values becomes less than zero / N
RD016 / Two year limit on Credit / Any credit claimed must be within two years from the date of payment allocation / R
RD017 / Requested Net Credit Check / For a credit line entry submitted, there should be corresponding payment allocations within the two years such that the total of payments allocated must be greater than or equal to the credit amount in the line entry. / C
LC001 / Requested Net Credit against a Lease greater than $25000 check / In a report, request for utilization of Lease Credits against a lease is greater than $25000 / R
RS004 / Sub-total of Royalties Check / In a report, totals of Royalties reported in detail lines must be equal to the total royalty amount reported in the summary / N
RS005 / Sub-total of Interest Check / In a report, totals of Interest reported in detail lines must be equal to the total interest amount reported in the summary / N
RS006 / Sub-total of Credits Check / In a report, totals of Credit Invoices reported must be equal to the total credits reported in the summary / N
RS007 / Sub-total of Assessments Check / In a report, totals of Assessments Invoices reported must be equal to the total assessments reported in the summary / N
RS008 / Sub-total of Lease Credits
Check / In a report, totals of Lease Credits Amounts claimed must be equal to the total Lease Credits amounts reported in the summary / N
LC002 / Invalid Lease Credit Amount Claimed / Against a particular line item in a report, for the Lease Credit Invoice specified the amount claimed is less than the amount available. / C
IK001 / Premium Amount specified is not valid / Premium Value specified in the detail line does not correspond to the premium amount corresponding to the category specified in the contract. That is Premium Value / Volume specified in the line entry is not equal to the Premium amount specified in the Premium Category Table corresponding to the Category Code and Volume range. / N
IK002 / Premium Percentage specified is not valid / Premium Value specified in the detail line does not correspond to the premium percentage corresponding to the category specified in the contract. That is Premium Value / Base Price Value specified in the Premium Category Table corresponding to the Category Code and VolumeRange / N

Note: Reject: means that the item is rejected and no further processing takes place on that item.

Critical: means that the item has critical severity and the error results in a notice to the remitter and the money allocated to the line may be held in suspense and will not be distributed to the beneficiaries.

Non critical: means that the item has a warning and the warning may be notified to the remitter and the money allocated to the line will be distributed to the beneficiaries

The following tables illustrate the edits for the OGR-1 and OGR-2 forms.

3.1.2 Form OGR-1

FORM OGR-1
Form Field Name / Element Name / Edit Rules / Severity
Report Date / RPT_MTH
RPT_DD
RPT_YR / Valid date should not be future date. / C
OGRID Number / OGRID_CDE / Valid OGRID code and role. Should be active / C
Final Return / FNL_RET_IND / Should be "Y" or "N" / N
Remitted return / REMIT_YON / Should be "Y" or "N" / C
Accelerated royalty pmt / ACCL_RPT_AMT / must be numeric blank means zero / C
SaleMo./Yr. (Accelerated. Royalty pmt) / ACCL_RPT_YR ,
ACCL_RPT_MTH / Must be valid month and year, must be a future sales month or year. / C
Total Royalty / SUM_RPT_ROY_AMT / must be numeric/blank / C
Total Interest / SUM_RPT_INT_AMT / must be numeric/blank / C
Total Assessments paid / SUB_TOT_ASSMNT_RPT / must be numeric/blank / C
Total Credit taken / SUB_TOT_CR_RPT / must be numeric/blank defaults to zero / C
Total Lease Credit / LEASE_CR_AMT_RPT / Must be numeric/blank means zeros. / C
Accelerated Royalty (PREVIOUS) / ACCL_CLM_AMT / blank or numeric / C
Sale Month & year (Previous) / ACCL_CLM_YR,
ACCL_CLM_MTH / should be previous valid date / C
Net Advance Pmt / ADV_ROY_RPTD / blank means zeros / C
Total Remittance / TOT_REMIT_AMT / must be numeric/blank / C

3.1.3 Form OGR-2

OGR-2
Form Field Name / Element Name / Edit Rules / Severity
Company Name / N/A / NOT CAPTURED / N/A
OGRID Number / OGRID_CDE / Valid OGRID code. Should be active / C
Page # / PG_NUM / must be numeric, should begin with one and should follow previous page number / C
Line # / LN_NUM / must be numeric, should be sequential within page number, if source of report is data entry or ONGARD, should be from 1 to 13 / C
SaleMo./Yr. / SALES_MTH
SALES_YR / must be valid month and year, cannot be a future sales month or year, can be current month and year / C
PUN / PUN / must be valid, active PUN for sales month and year / C
Lease # / LEASE_PRFX_IDN +
LEASE_SEQ_NUM / must be valid and active for sales month and year / C
Prod. Code / PRD_CDE / Must be valid product code. / C
Arms Length Indicator / ARM_LEN_IND / Valid values are 'Y', 'N' or Blank. Blank means 'Y'. If Non Arms Length Ind. is 'Y' then transport deduction cannot be present. / N
Transaction Code / TRNS_CDE / Must be valid code, blank defaults to "51", i.e. Regular Payment. / N
Volume BBL-MCF / VOL_OIL_BBLS / must be numeric, no decimal positions, normally positive, unless an amendment, if negative, value must be negative or zero, can be zero, an original entry should never be negative, if field is blank, default to zero / C
BTU / AVE_BTU_GAS / blank or numeric with no decimals / N
VOL (NGLS) / VOL_NGLS_GALN / Numeric with no decimals .required only for NGL product code. / N
Transportation Deduction (for Gas - mainline) / ALLOW_DEDN_TRANSP / Valid dollar amount, normally positive, amendments can be negative, must have corresponding value entry, deduction/value ratio should be within state specified limits including the corresponding sales month/year, can be blank (means zero). Must have corresponding gross proceeds. / N
Processing Deduction / ALLOW_DEDN_PROC / Valid dollar amount, normally positive, amendments can be negative, must have corresponding value entry, deduction/value ratio should be within state specified limits for the effective period including the corresponding sales month/year, the deduction should be less than or equal to the value amount, only applicable for gas products, can be blank. / N
Allowable Deduction (market
prep)/ other Transportation Deduction / ALLOW_DEDN_MKT / Must be numeric, blank means zero, amendments can be negative, must have corresponding gross proceed entry. (must be within state specified range) / N
Gross Proceeds / GRS_PROCD / Must be numeric, blank means zeros, amendments can be negative,
Gross proceed/Vol ratio i.e. Gross price must be within state specified range / N
State Royalty Paid / ROY_RPT_PD_AMT / Must be numeric, must be non-zero, amendments can be negative, must be equal to Net proceeds time applicable royalty rate / C

3.1.4Assessment Edits

Process Description

Prior period assessments that are being paid with a return are edited for accuracy. This function edits the assessment number and the assessment amount paid fields of the line entry. The assessment number must be alpha-numeric and match with the OGRID. The assessment reported paid amount, for a given existing assessment number, must be positive and less than or equal to the outstanding balance.

3.1.5CreditEdits(computational & remittance)

Process Description

Prior period credits that are being applied with a return are edited for accuracy. This function edits the credit number and the credit amount paid fields of the line entry. The credit number must be alpha-numeric and match with the OGRID. The credit reported amount, for a given existing credit number, must be positive and less than or equal to the outstanding credit balance.