Key Issues > High Risk > Management of Federal Oil and Gas Resources
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Management of Federal Oil and Gas Resources

This information appears as published in the 2013 High Risk Report.

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GAO’s work has identified challenges in the Department of the Interior’s (Interior) management of oil and gas on leased federal lands and waters; specifically, Interior (1) does not have reasonable assurance that it is collecting its share of revenue from oil and gas produced on federal lands and (2) continues to experience problems in hiring, training and retaining sufficient staff to provide oversight and management of oil and gas operations on federal lands and waters. As a result, GAO concluded that management of federal oil and gas resources is a high-risk area and added it to the High Risk List in 2011.

Federal oil and gas resources provide an important source of energy for the United States; create jobs in the oil and gas industry; and generate billions of dollars annually in revenues that are shared between federal, state, and tribal governments. Revenue generated from federal oil and gas production is one of the largest nontax sources of federal government funds, accounting for about $9 billion in fiscal year 2009 and $10.1 billion in each of fiscal years 2010 and 2011. Also, the explosion onboard the Deepwater Horizon and oil spill in the Gulf of Mexico in April 2010 emphasized the importance of Interior’s management of permitting and inspection processes to ensure operational and environmental safety.

Historically, Interior’s Bureau of Land Management (BLM) managed onshore federal oil and gas activities while the Minerals Management Service (MMS) managed offshore activities and collected royalties for all leases. Interior recently restructured its oil and gas program, transferring offshore oversight responsibilities to two new bureaus, the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE), and assigning the revenue collection function to a new Office of Natural Resources Revenue. This restructuring did not include BLM’s management of onshore federal oil and gas activities.

In July 2012, GAO reported that Interior had reorganized its oversight of offshore oil and gas activities when it established two new bureaus—BOEM and BSEE—to provide oversight of offshore resources and operational compliance with environmental and safety requirements. This reorganization had originally been a factor that GAO considered high risk, particularly because the reorganization was begun in the immediate aftermath of the Deepwater Horizon incident, when many of the agency’s resources were engaged in the incident response. However, because Interior completed that reorganization, GAO is narrowing the federal oil and gas high-risk area to focus on the remaining issues related to revenue collection and human capital challenges. Interior continues to face ongoing challenges in these two broad areas:

  • Revenue collection. In 2010, GAO reported that neither BLM nor MMS (the predecessor to BOEM and BSEE) had consistently met their statutory requirements or agency goals for oil and gas production verification inspections. Without such verification, Interior cannot provide reasonable assurance that the public is collecting its legal share of revenue from oil and gas development on federal lands and waters. In addition, in 2009, GAO reported on numerous problems with Interior’s efforts to collect data on oil and gas produced on federal lands, including missing data, errors in company-reported data on oil and gas production, sales data that did not reflect prevailing market prices for oil and gas, and a lack of controls over changes to the data that companies reported. As a result of Interior’s lack of consistent and reliable data on the production and sale of oil and gas from federal lands, Interior could not provide reasonable assurance that it was assessing and collecting the appropriate amount of royalties on this production. GAO made a number of recommendations to Interior to improve controls on the accuracy and reliability of royalty data. Interior generally agreed with GAO’s recommendations and is working to implement many of them, but these efforts are not complete and it remains uncertain at this time if they will be fully successful. For example, in response to a GAO recommendation that Interior undertake a comprehensive reassessment of its revenue collection policies and processes, Interior contracted for such a study with the goal of informing decisions about lease terms, including royalties. However, while the study has been completed, Interior is still in the process of deciding if and how to use the results of the study to alter its lease terms.
  • Human capital. GAO has reported that the bureaus responsible for oversight and management of federal oil and gas resources on federal lands and in federal waters—BLM, BOEM, and BSEE—have encountered persistent problems in hiring, training, and retaining staff. For example, in 2010, GAO found that BLM and MMS (the predecessor to BOEM and BSEE) experienced high turnover rates in key oil and gas inspection and engineering positions. As a result, Interior faces challenges meeting its responsibilities to oversee oil and gas development on federal leases, potentially placing both the environment and royalties at risk. While Interior’s reorganization of its offshore management of oil and gas includes plans to hire additional staff with expertise in inspections and engineering, these plans have not been fully implemented and it remains unclear whether Interior will be fully successful in hiring, training, and retaining these staff. For fiscal years 2012 and 2013, Congress provided funds to BOEM and BSEE in the Gulf of Mexico to establish higher minimum rates of pay for key positions—chiefly geophysicists, geologists, and petroleum engineers—for up to 25 percent of the usual minimum rate of pay. However, it is uncertain how Interior will address staffing shortfalls to oversee offshore resources long term. In July 2012, GAO reported that, to improve inspector training, Interior was creating a new training program for its inspection staff (such as BSEE’s National Offshore Training Program to train inspectors and engineers), but that it may take up to 2 years before new inspection staff are fully trained. Human capital issues also exist at BLM and the management of onshore oil and gas, and these issues were not been fully addressed in Interior’s reorganization. For example, Interior has not received congressional approval or funds to establish higher minimum rates of pay for key positions as did BOEM and BSEE.

Interior must successfully address the challenges GAO has identified, implement open recommendations, and meet its responsibilities to manage federal oil and gas resources in the public interest. While Interior recently began implementing a number of GAO recommendations, including those intended to improve the reliability of data necessary for determining royalties, the agency has yet to implement a number of other recommendations, including those intended to (1) provide reasonable assurance that oil and gas produced from federal leases is accurately measured and that the public is getting an appropriate share of oil and gas revenues and (2) address its long-standing human capital issues. Interior agreed with GAO’s recommendations regarding human capital, noting that BOEM pilot and evaluate a workforce planning tool to institutionalize workforce planning and guide the long-term strategic planning process. Similarly, Interior stated that BSEE will develop a comprehensive bureau-wide strategic human capital plan to address anticipated workforce changes and gaps in critical skills and competencies. The target dates for these efforts are the summer and fall of 2013, respectively.

GAO is currently engaged in a review of Interior’s collection of revenues from the production of oil and gas on federal lands and waters. As part of this review, GAO will examine Interior’s progress, if any, in (1) ensuring the government is getting a fair return for federal oil and gas resources, (2) meeting agency targets for conducting oil and gas production verification inspections, and (3) providing greater assurance that oil and gas production and royalty data are consistent and reliable. In addition, GAO is currently reviewing the extent to which Interior continues to face problems hiring, training, and retaining staff and how this affects Interior’s ability to oversee oil and gas activities on federal lands and waters. As part of this effort, GAO will focus on the causes of Interior’s human capital challenges, actions taken, and how Interior plans to measure the effectiveness of corrective actions. In addition, while GAO has narrowed the focus of its high-risk review to revenue collection and human capital issues, GAO will, in the course of ongoing work on these issues, continue to consider Interior’s reorganization and its affect on the agency’s ability to oversee federal lands and waters.

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    • Frank Rusco
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