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U.S. Government Accountability Office: Federal Oil and Gas Lease Oversight Needs Sweeping Fixes

by Matt Rosenberg July 27th, 2010

BACKGROUND: The Gulf oil spill has refocused attention on the role of the U.S. Department of the Interior’s oversight of activity by companies which lease federally-regulated properties to drill for oil off-shore, or for oil or natural gas onshore. Interior’s Bureau of Land Management oversees onshore oil and gas leases onshore, while until now a division of department’s Minerals Management Service regulated offshore oil leases. A newly-created branch of Interior will now oversee offshore leases, but old and serious problems remain with the entire oversight program, according to the General Accountability Office, which serves an investigative and oversight function for Congress. In testimony last week to a U.S. House committee, GAO’s natural resources and environment policy chief sought to remind legislators of what more than five years of GAO recommendations indicate, about needed reforms yet to be implemented.

KEY LINK: “Oil And Gas Management: Past Work Offers Insights To Consider In Restructuring Interior’s Oversight,” testimony to the U.S. House Committee On Oversight And Government Reform by Frank Russo, Director, Natural Resources and Environment division, Government Accountability Office, 7/22/10

KEY FINDINGS:

  • “Effective management and oversight of our nation’s oil and gas resources is critical” for reasons of worker safety, economic stability and environmental protection. “Additionally, ensuring royalties are accurately paid on oil and gas production is increasingly important as our country faces serious fiscal challenges.”
  • In Fiscal year 2009, Interior collected more than $9 billion in royalties, rents and purchase bids for oil and gas production on federal lands and in federally-controlled waters.
  • Oil and gas production on federally-overseen U.S. lands has increased overall in the last two decades but Interior’s oversight has too often been insufficient.
  • Environmental inspections have not been consistently performed for onshore oil and gas leases, in part because department staff were too busy processing drilling permits.
  • Statutory and agency requirements to inspect onshore and offshore lease sites and metering equipment to measure oil and gas production levels are too often not being met, so independent verification of amounts produced and accuracy of lease payments is not available.
  • Current law allows leaseholders to independently adjust their previously entered data on production levels and royalties owed. As well, the information technology (IT) system used to assist in oversight of offshore oil leases has lacked capability to detect when leaseholders fail to report their royalties owed, on time.
  • A long-standing Interior effort to implement improved IT systems for verification of leaseholder production levels was found to be “years from adoption.”
  • Interior has had significant problems hiring, training and keeping petroleum engineers and inspectors whose job it is to verify how much oil and gas is being produced from federal leases. Private industry pays more, turnover is high, and continuing education and certification is weak.
  • U.S. lease rates for development of oil and gas on federal lands are too low. “The U.S. government receives one of the lowest shares of revenue for oil and gas resources compared with other countries and resource owners….Interior has not systematically re-examined how the U.S. government is compensated for extraction of oil and gas for over 25 years.”
  • As Interior embarks on a new effort to reform and improve its oversight of federal resource lands, it should keep these recommended improvements in procedures and operations at top of mind, and ensure they are implemented in a timely manner.

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