Management of Federal Oil and Gas Resources

Why It's High Risk

The Department of the Interior faces challenges in managing public oil and gas resources in a timely and efficient manner while maintaining operational and environmental safety. This will be particularly difficult in a constrained resource environment. In particular the department

• has been unable to complete production inspections, maintain reliable royalty and production data, and provide assurance that the public is receiving its fair share of oil and gas revenues
• has had long-standing challenges in hiring, training, and retaining staff in key skilled positions
• is currently engaged in a broad reorganization of both its offshore oil and gas management and revenue collection functions and such organizational transformations are complicated endeavors, requiring the concentrated efforts of both leaders and employees.

The Department of the Interior manages the leasing of federal lands and waters for oil and gas production. These activities provide an important source of energy for the United States, create jobs in the oil and gas industry, and raise revenues that are shared between federal, state, and tribal governments. Revenue generated from oil and gas produced from leased federal lands and waters is one of the largest nontax sources of federal government funds, accounting for about $9 billion in royalties in 2009. The deadly explosion onboard the Deepwater Horizon and oil spill in the Gulf of Mexico in April 2010 emphasized the importance of federal management of permitting and inspection processes to ensure operational and environmental safety. The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling reported in January 2011 that this disaster was the product of several individual missteps and oversights by BP, Halliburton, and Transocean, which government regulators lacked the authority, the necessary resources, and the technical expertise to prevent.

^ Back to topWhat We Found

GAO designated management of federal oil and gas resources as high risk because Interior faces ongoing challenges in three areas:

Revenue collection. Our past work has shown that Interior does not have reasonable assurance that it is collecting the public’s fair share of revenue from oil and gas produced on federal lands. Specifically:

• In 2010, we reported that Interior had not consistently met its statutory or agency goals for verifying that oil and gas producers accurately report the volumes of oil and gas produced from federal leases, either onshore or offshore.
• In 2009, we reported that Interior lacked consistent and reliable data on the production and sale of oil and gas from federal lands and therefore cannot provide reasonable assurance that it was appropriately assessing and collecting royalties.
• In 2008, we reported that Interior collected lower levels of revenues for oil and gas production than all but 11 of 104 oil and gas resource owners––countries and some states––whose revenue collection systems were evaluated in a comprehensive industry study.

Human capital. Our past work has also shown that Interior 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, potentially placing both the environment and royalties at risk. For example, in 2010, we reported that BLM and MMS experienced high turnover rates in key oil and gas inspection and engineering positions.

Reorganization. In May 2010, the Secretary of the Interior announced plans to reorganize the offshore oil and gas management and revenue collection functions of the department by eventually transferring offshore oversight responsibilities to the newly created Bureau of Ocean Energy Management and Bureau of Safety and Environmental Enforcement and revenue collection to the newly created Office of Natural Resource Revenue. While Interior’s reorganization may eventually lead to more effective operations, our past work has shown that organizational transformations are not simple endeavors.

• provide reasonable assurance that billions of dollars of revenues owed the public are being properly assessed and collected, and
• assure that oversight of oil and gas exploration and production on federal lands and waters maintains an appropriate balance between efficiency and timeliness on one hand, and protection of the environment and operational safety on the other.

Finally, Interior’s reorganization efforts focus on problems with offshore oil and gas management and revenue collection, but do not address significant challenges we have identified with its management of onshore oil and gas resources.

^ Back to topWhat Needs to Be Done

Interior recently began implementing a number of GAO recommendations, including those intended to improve the reliability of data necessary for determining royalties. However, it has yet to fully implement a number of recommendations, including those intended to provide reasonable assurance that oil and gas produced from federal leases is accurately measured, that the public receives its share of oil and gas revenues, and address long-standing human capital issues.

Interior must successfully address the challenges GAO has identified, for both onshore and offshore oil and gas resources, and meet its routine responsibilities to manage these resources in the public interest, while managing a major reorganization that has the potential to distract agency management from other important tasks and put additional strain on Interior staff. It must also do this in a constrained resource environment that will pose additional challenges to Interior.

^ Back to topKey Reports

Federal Oil and Gas Leases

Oil and Gas Management

Offshore Oil and Gas Development

Energy Policy Act of 2005

Mineral Revenues

Oil and Gas Leasing

Mineral Revenues

Oil and Gas Royalties

Oil and Gas Royalties

Oil And Gas Development

Results-Oriented Cultures

More Reports