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 2017 High Risk Report.

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The Department of the Interior (Interior) has taken some steps to strengthen how it manages federal oil and gas resources, but has not met the criteria for removal from our High-Risk List. Interior has not implemented four of our recommendations to improve the verification of oil and gas produced from federal leases, and the reasonableness and completeness of royalty data. Management of federal oil and gas resources was added it to the High-Risk List in 2011. We identified challenges in Interior's management of oil and gas on leased federal lands and waters. We found that Interior (1) lacked reasonable assurance that it was collecting its share of revenue from oil and gas produced on federal lands and waters; (2) continued to experience problems hiring, training, and retaining sufficient staff to oversee and manage oil and gas operations on federal lands and waters; and (3) was undertaking a major reorganization of its oversight of offshore oil and gas management and revenue collection functions. In 2013, after concluding that Interior had fundamentally completed its reorganization, we narrowed the high-risk area to Interior's revenue collection and human capital challenges. For this update, we are reopening the third segment based on our February 2016 report, in which we found that Interior's restructuring of the Bureau of Safety and Environmental Enforcement (BSEE) has made limited progress addressing long-standing deficiencies in the bureau's investigative, environmental compliance, and enforcement capabilities.

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. Interior reported collecting over $49 billion from fiscal years 2011 through 2015 from royalties and other payments. This makes oil and gas resources one of the federal government's largest sources of nontax revenue. Moreover, the April 2010 explosion onboard the Deepwater Horizon and subsequent oil spill in the Gulf of Mexico highlighted the importance of Interior's management of permitting and inspection processes to ensure operational and environmental safety.

In 2010, we found that Interior faced various human capital challenges, including hiring and retaining staff and, as a result, had difficulty meeting its responsibilities overseeing oil and gas activities on offshore federal leases. We also found that Interior had not consistently and appropriately trained offshore inspection and engineering staff. Historically, Interior's Bureau of Land Management (BLM) oversaw onshore federal oil and gas activities while the Minerals Management Service managed offshore activities and collected royalties for all leases. Interior completed restructuring its oil and gas program in 2011, transferring offshore oversight responsibilities to two new bureaus—the Bureau of Ocean Energy Management (BOEM) and BSEE—and assigning the revenue collection function to a new Office of Natural Resources Revenue (ONRR). BLM did not restructure its management of onshore federal oil and gas activities.

BSEE's mission is to promote safety, protect the environment, and conserve offshore resources through regulatory oversight and enforcement. It oversees offshore operations, which includes the authority to investigate incidents that occur on the outer continental shelf, monitor operator compliance with environmental stipulations, and take enforcement actions against operators that violate safety or environmental standards. Yet more than 5 years after its creation, BSEE continues to use investigative policies and procedures that predate the Deepwater Horizon explosion. BSEE's outdated policies and procedures do not require planning investigations, gathering and documenting evidence, and ensuring quality control, potentially undermining the effectiveness of investigations. Moreover, BSEE's ongoing restructuring of its environmental compliance program reverses steps taken to address post–Deepwater Horizon incident concerns, risking the bureau's abilities to oversee environmental compliance. Additionally, BSEE did not review its maximum daily civil penalty as required by the Outer Continental Shelf Lands Act.

Management of Federal Oil and Gas Resources

While Interior has taken some steps to strengthen how it manages federal oil and gas resources, it has not met the criteria for removal from our High-Risk List. Interior has not implemented four of our prior recommendations to improve the verification of oil and gas produced from federal leases, and the reasonableness and completeness of royalty data. In April 2015, we made seven additional recommendations to the Secretary of the Interior to improve production verification efforts, two of which remain open. In January 2014, to ensure a consistent and comprehensive approach to addressing BLM's, BOEM's, and BSEE's ongoing hiring and retention challenges, we made two recommendations to Interior to explore the expanded use of recruitment, relocation, and retention incentives, and systematically collect data on hiring times. We closed the first recommendation as implemented, but the second remains open. In September 2016, we made five recommendations to Interior to improve staff hiring, retention, and training; all five remain open. In February 2016, we made nine recommendations to Interior to address BSEE's ongoing restructuring effort; eight of those recommendations remain open. Based on these factors and our ongoing work examining BSEE's strategic initiatives to improve its offshore oversight and internal management, we are expanding the Management of Federal Oil and Gas Resources high-risk area to again include a segment on Interior's restructuring of offshore oil and gas oversight.

Interior has partially met the criteria to address the revenue collection and human capital challenges we identified, and has implemented some of the recommendations we made. However, Interior needs to do more to meet its responsibilities to manage federal oil and gas resources, and to maintain leadership commitment in addressing the remaining four criteria.

Leadership Commitment: To address its human capital challenges, Interior needs to evaluate the effectiveness of incentives such as special salary rates, analyze hiring time data, and evaluate the bureaus' training programs. To enhance Interior's oversight of oil and gas development, and fully implement the bureau's restructuring and effectively oversee offshore oil and gas development, BSEE leadership needs to take several steps, such as completing draft policies outlining the responsibilities of its divisions, and updating and developing procedures to guide them. BSEE leadership also needs to conduct a risk analysis of its environmental compliance program.

Capacity: To address its revenue collection challenges, Interior will need to identify the staffing resources necessary to consistently meet its annual goals for inspecting and verifying oil and gas production. To address its human capital challenges, Interior needs to evaluate whether its efforts to increase compensation paid to key oil and gas staff were effective in hiring and retaining staff. Interior also needs to fully evaluate the bureaus' training programs and look for potential opportunities to share training resources.

Action Plan: To address its revenue collection challenges, Interior needs to continue its efforts related to its study on automating data collection from production metering systems. To address its human capital challenges, Interior needs to track, monitor, and analyze the effectiveness of the incentives paid to key oil and gas staff. Interior also needs to analyze data from its new human resources software system in order to identify steps in the hiring process that may be causing delays. Regarding training, Interior needs to review training and identify opportunities to share training resources.

Monitoring: To address its revenue collection challenges, Interior needs to ensure that oil and gas produced from federal leases is accurately measured, and that the federal government is collecting an appropriate share of oil and gas revenues. To address its human capital challenges, Interior needs to track and monitor performance metrics for incentive payments and special salary rates, capture accurate data on hiring time from a new human resources software system, and evaluate training programs.

Demonstrated Progress: To address its revenue collection challenges, Interior needs to continue to effectively implement our related recommendations as outlined in the areas above. To address its human capital challenges, Interior must continue to show progress in hiring, retaining, and training its key oil and gas staff.

Looking for our recommendations? Click on any report to find each associated recommendation and its current implementation status.
  • portrait of Frank Rusco
    • Frank Rusco
    • Natural Resources and Environment, Director
    • ruscof@gao.gov
    • (202) 512-3841