Energy:

Onshore Oil and Gas Leasing--Who Wins the Lottery?

EMD-79-41: Published: Apr 13, 1979. Publicly Released: Apr 13, 1979.

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GAO reviewed the Bureau of Land Management's (BLM) use of lotteries for determining recipients of onshore oil and gas leases. Federal oil and gas leases for onshore federal lands are issued either competitively or noncompetitively, as provided by U.S. statutes and Department of the Interior regulations. Land within a "known geologic structure" (KGS) must be leased competitively; lands not within a KGS may be leased for 10 years by the first qualified applicant. Because of difficulties in determining the first qualified applicant, a simultaneous filing procedure was instituted in 1960 for re-leased lands; multiple applications for a single lease are resolved by a lottery drawing.

GAO analyzed drawings in New Mexico and Wyoming to determine the chances of winning a number of leases in a single drawing, but did not find that lottery awards exceeded frequency probability. Some families won several leases, but they had applied for most tracts offered. Ten families were surveyed in each state and were found to have filed 7,990 applications at $10 each; their wins were statistically probable. Loose controls make lottery manipulation possible, but GAO did not find evidence of any abuse. The BLM Wyoming State Office is automating its procedures, but checking for duplicate applications still must be done manually, with one person performing six functions in the selection process. These weaknesses will be eliminated in July 1979 when the system is finished; meanwhile, drawings continue. Also, many tracts have not been explored because of the low fees charged. BLM has extended leases routinely even when there has been no production, and has almost approved assignments and subleases, encouraging subdivision into small parcels. Lessees must drill on their tracts to qualify for extensions, but many have waited until the day their leases expired, and much of this drilling has been unrealistically shallow. Other problems are that most lottery applicants have been speculators, the program has been costly to administer, some nuisance holders have failed to sell or explore their tracts, and leases are too small to be commercially profitable.

Recommendation for Executive Action

  1. Status: Closed

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

    Recommendation: The Secretary of the Interior should require tighter controls on the lottery drawing by distributing responsibility among several people and assuring independent verification of winners, and see that lottery entrants are alphabetized for simpler verification and for future audits of drawings results. The Secretary should also consider raising application fees and rental rates to discourage speculation, and set a schedule for exploratory drilling to begin as a condition for granting leases.

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