Inaccurate Estimates of Western Coal Reserves Should Be Corrected

EMD-78-32: Published: Jul 11, 1978. Publicly Released: Jul 11, 1978.

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A significant portion of coal resources are under federal lands which are leased by the Department of the Interior to private entrepreneurs for mining purposes. In a previous report, GAO concluded that estimates of resources on existing leases did not provide a sound basis for forecasting production potential.

This conclusion has not changed. Interior's recoverable reserve estimates were based on general recovery factors and not on detailed economic analyses. Wide variations existed between Interior and leaseholder estimates, with leaseholder estimates generally better supported. However, both the U.S. Geological Survey (USGS) and leaseholders omitted some underground coal in computing recoverable reserves. USGS does not have requirements for nonproducing leaseholders to provide cost and pricing information; producing leaseholders submit selling price information with production royalty reports. No coal production occurred before 1977 on 87 percent of the 219 leases reviewed. The Mineral Leasing Act of 1920, as amended, requires leaseholders to satisfy conditions of diligent development and continued operation, and coal production requirements were further defined in 1976 regulations issued by Interior. Application of these requirements depends on accurate reserve estimates.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of the Interior should: (1) publish reserve estimate methodology regulations for comment and hold public hearings on them; (2) as an interim measure, require USGS to use the published estimating criteria contained in its bulletin, and review and update all reserve estimates on existing leases, when diligent development or continued operations requirements are not met, leases should be terminated; (3) obtain from leaseholders reserve estimates, cost, and pricing data, and develop procedures for analyzing this information in estimating recoverable reserves; and (4) consider acquiring computer capability to provide for more effective and timely determination of reserve estimates.

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