Oil and Gas Management:

Interior's Oil and Gas Production Verification Efforts Do Not Provide Reasonable Assurance of Accurate Measurement of Production Volumes

GAO-10-313: Published: Mar 15, 2010. Publicly Released: Apr 14, 2010.

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Oil and natural gas produced from federal leases generated over $6.5 billion in royalties in 2009. To verify that royalties are paid on the correct volumes of oil and gas, the Department of the Interior (Interior) verifies the quantity and quality of oil and gas, both onshore, through the Bureau of Land Management, and offshore, through the Offshore Energy and Minerals Management Service. This report assesses (1) the extent to which Interior's production verification regulations and policies provide reasonable assurance that oil and gas are accurately measured; (2) the extent to which Interior's offshore and onshore production accountability inspection programs consistently set and meet program goals and address key factors affecting measurement accuracy; and (3) Interior's management of its production verification programs. To address these questions, GAO analyzed Interior data on oil and gas inspections and human capital, as well as interviewed officials from Interior, states, oil and gas companies, and other countries.

Interior's measurement regulations and policies do not provide reasonableassurance that oil and gas are accurately measured. Interior's varied approaches for developing and revising its measurement regulations are both ineffective and inefficient--Interior's onshore measurement regulations have not been updated in 20 years and do not address current measurement technologies. Onshore and offshore staff have infrequently coordinated on measurement issues, although each addresses similar issues. Additionally, Interior's decentralized process for granting waivers from current regulations and approval of alternative measurement technologies allows officials to make key decisions affecting measurement with little oversight, increasing the risk of approvals of inaccurate measurement technologies. Further, Interior has failed to determine the extent of its jurisdictional authority over key elements of oil and gas infrastructure, including gas plants and pipelines, limiting its ability to inspect these elements to assess the accuracy of their measurement. Finally, Interior's onshore and offshore policies for tracking and approving where and how oil and gas are measured are inconsistent, with Interior tracking offshore measurement points offshore, but not for onshore, creating challenges for onshore inspection staff to verify measurement accuracy. Interior's offshore and onshore production accountability inspection programs are not consistently setting or meeting program goals for inspecting oil and gas leases and do not sufficiently address key factors affecting measurement accuracy. Interior's offshore and onshore inspection program goals differ in key areas, with only the offshore program establishing goals for witnessing meter calibrations, a key control for accurate measurement. Additionally, while the onshore inspection program includes an activity to independently verify gas volume calculations, the offshore program does not. Moreover, Interior has not consistently met its inspection goals; offshore inspectors met program goals once between fiscal years 2004 and 2008, and onshore inspectors met program goals about one-third of the time over the past 12 years. Finally, neither program sufficiently addresses key areas affecting measurement accuracy, including how gas samples are collected. Limited oversight, gaps in staff skills, and incomplete tools hinder Interior's ability to manage its production verification programs. In particular, we identified several instances where production measurement staff work with limited oversight. For example, onshore engineers generally make decisions autonomously in the absence of central guidance and oversight. Further, despite years of critical reviews by GAO and others, Interior recently lowered its own estimation of the risks of the oil and gas program from medium to low, exempting it from more rigorous internal oversight. In addition, some key production verification staff lack critical skills, in part, because Interior has not provided training. For example, Interior has provided training only once in the past 10 years for its onshore engineers, despite significant changes in technology used by industry. Interior's efforts to provide its inspection staff with tools to obtain real-time gas production data directly from producers and the ability to electronically document production inspection results in the field have shown few results.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In August 2010, Interior reported that it will use its Gas and Oil Measurement Team, whose purpose is to provide technical and regulatory expertise necessary to ensure that oil and gas produced from federal leases is accurately measured and properly reported, as a central department panel comprised of technical experts from both BLM and MMS which will meet at least twice per year. Among its roles and responsibilities will be to increase consistency, where appropriate, between offshore and onshore measurement regulations and procedures.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to improve the consistency and efficiency of Interior's oil and gas measurement regulations and policies, the Secretary of the Interior should empower a centralized panel consisting of staff with measurement expertise from the Bureau of Land Management (BLM) and the Offshore Energy and Minerals Management (OEMM) to increase consistency between offshore and onshore measurement regulations, as appropriate.

    Agency Affected: Department of the Interior

  2. Status: Closed - Implemented

    Comments: In August 2010, Interior reported that it will use its Gas and Oil Measurement Team, whose purpose is to provide technical and regulatory expertise necessary to ensure that oil and gas produced from Federal Leases is accurately measured and properly reported, as a central department panel comprised of technical experts from both BLM and MMS which will meet at least twice per year. Among its roles and responsibilities will be to develop regulations to keep pace with new technology, standards, and issues relating to oil and gas measurement.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to improve the consistency and efficiency of Interior's oil and gas measurement regulations and policies, the Secretary of the Interior should empower a centralized panel consisting of staff with measurement expertise from BLM and OEMM to annually review changes in the industry measurement technologies and standards that Interior's regulations reference to determine whether the related regulations should be updated.

    Agency Affected: Department of the Interior

  3. Status: Closed - Implemented

    Comments: In August 2010, Interior reported that it will use its Gas and Oil Measurement Team, whose purpose is to provide technical and regulatory expertise necessary to ensure that oil and gas produced from Federal Leases is accurately measured and properly reported, as a central department panel comprised of technical experts from both BLM and MMS which will meet at least twice per year. Among its roles and responsibilities will be to develop Onshore and Offshore Orders, Notice to Lessees, manuals and handbooks, Instruction Memoranda, and policy to keep pace with new technology, standards, and issues relating to oil and gas measurement.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to improve the consistency and efficiency of Interior's oil and gas measurement regulations and policies, the Secretary of the Interior should empower a centralized panel consisting of staff with measurement expertise from BLM and OEMM to provide departmentwide guidance on measurement technologies not addressed in current regulations and approve variances for measurement technologies in instances when such technologies are not addressed in current regulations or departmentwide guidance.

    Agency Affected: Department of the Interior

  4. Status: Closed - Implemented

    Comments: In August 2010, Interior reported that it will use its Gas and Oil Measurement Team, whose purpose is to provide technical and regulatory expertise necessary to ensure that oil and gas produced from federal leases is accurately measured and properly reported, as a central department panel comprised of technical experts from Interior's relevant bureaus which will meet at least twice per year. Among its roles and responsibilities will be to develop policy and procedures that provide for proper production verification, which included commingling agreements. Interior officials subsequently notified us in September 2011, that BLM had issued interim guidance on commingling which was revised in July 2013. The current guidance outlines criteria for when commingling requests may be approved and identifies considerations for determining whether commingling is in the public interest which includes ensuring that BLM has the ability to verify that production is accurately measured and properly reported. BLM officials told us that they expect this guidance to be incorporated into updated regulations for oil and gas site security.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to improve the consistency and efficiency of Interior's oil and gas measurement regulations and policies, the Secretary of the Interior should empower a centralized panel consisting of staff with measurement expertise from BLM and OEMM to develop guidance clarifying when federal oil and gas may be commingled and establish standardized measurement methods in such a way that production can be adequately measured and verified.

    Agency Affected: Department of the Interior

  5. Status: Closed - Implemented

    Comments: In September 2011, Interior's Solicitor's Office notified BLM and the Bureau of Ocean Energy, Management and Regulation (BOEMRE)-formerly MMS-that under current law, BLM and BOEMRE may physically inspect pipeline company-owned meters that are located on the lease, cooperative agreement, or unit regardless of whether the pipeline company consents. The agencies may inspect pipeline company-owned meters located off the lease, cooperative agreement, or unit only with the pipeline company's consent. The Secretary may promulgate rules requiring a pipeline company to submit reports and information regarding meters the pipeline company owns, regardless of the location of the meter. BLM and BOEMRE may not enforce meter and measurement standards against the pipeline company directly, but may enforce them against the operator even though the pipeline company owns the meter.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to provide greater assurance that key elements in the oil and gas production infrastructure are adequately overseen, the Secretary of the Interior should determine the extent to which Interior has authority regarding pipelines, including meters that pipeline companies own, as well as other methods transportation companies use to ship and measure oil and gas produced from federal leases.

    Agency Affected: Department of the Interior

  6. Status: Closed - Implemented

    Comments: In September 2011, Interior's Solicitor's Office notified BLM and the Bureau of Ocean Energy, Management and Regulation (BOEMRE)-formerly MMS-that under current law, BLM and BOEMRE may physically inspect gas plant tailgate meters only with the plant operator's or owner's consent. The Secretary may promulgate rules requiring the plant to submit reports and information regarding the meters. The Secretary, however, may not enforce meter and measurement standards against the plant owner; any such enforcement must be achieved indirectly through regulation of the federal lessees.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to provide greater assurance that key elements in the oil and gas production infrastructure are adequately overseen, the Secretary of the Interior should determine the extent to which Interior has authority regarding gas plants that process gas from federal leases, including the requirements and responsibilities for approving gas plant meters, and conducting inspections of them.

    Agency Affected: Department of the Interior

  7. Status: Closed - Implemented

    Comments: In March 2014, Interior reported that the Office of Natural Resources Revenue (ONRR)-formerly MMS-had updated its IT system to allow onshore meter identification numbers to be reported on the required monthly production reports. ONRR officials stated that once BLM begins assigning meter numbers to onshore meters, ONRR will include an edit that checks for the correct meter information.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to help ensure that Interior is consistently tracking where and how oil and gas are measured, the Secretary of the Interior should require that MMS require onshore operators to report meter identification numbers in the required monthly production reports.

    Agency Affected: Department of the Interior

  8. Status: Closed - Implemented

    Comments: In July 2013, BLM issued a policy on commingling called "Reviewing Requests for Surface and Downhole Commingling of Oil and Gas from Federal and Indian Leases." It provided guidance for reviewing commingling requests and states that commingling may only be approved if it is in the public interest or in the interest of the Indian tribal or allottee lessors, which includes ensuring that the BLM has the ability to verify that production is accurately measured and properly reported. The guidance lays out the specific questions and documents that are to be considered prior to approving a commingling request to provide greater assurance that BLM staff have the ability to verify and account for the proposed commingled production.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to help ensure that Interior is consistently tracking where and how oil and gas are measured, the Secretary of the Interior should require that BLM petroleum engineers work with BLM staff conducting production verification to confirm that commingling agreements are (1) consistent with Interior guidance on such agreements, and (2) are adequately structured to facilitate key production verification activities before such agreements are approved.

    Agency Affected: Department of the Interior

  9. Status: Open

    Comments: As of August 2014, BLM has not established goals for witnessing oil meter provings or gas meter calibrations. Officials stated that it would be too challenging to coordinate, as BLM inspectors would have to meet oil and gas company officials on site to witness the gas sample collection. BLM has also not established goals for comparing BTU analyses with gas analyses, though an official stated that comparisons do occur during an in office records review. For witnessing inspections of orifice plates and meter tubes, BLM officials again stated that coordinating these activities with companies would be cumbersome. Officials stated that inspectors do typically inspect the orifice plate when it is pulled for inspection by a company official during a gas meter calibration. For meter tubes, BLM has not taken any actions. BLM officials stated that in updating its oil and gas measurement regulations, it may address some of these issues..

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to help ensure that Interior's production accountability inspection program consistently addresses key areas affecting measurement accuracy and that BLM meets its inspection goals, the Secretary of the Interior should establish goals for (1) witnessing onshore oil and gas meter calibrations, (2) witnessing onshore and offshore gas sample collections, (3) comparing onshore reported British Thermal Units (BTU) values with gas analyses, and (4) inspecting onshore and offshore orifice plates and meter tubes.

    Agency Affected: Department of the Interior

  10. Status: Closed - Implemented

    Comments: In May 2011, Interior reported that the BLM had created a new risk-based strategy for planning oil and gas production accountability inspections. BLM has since revised its strategy multiple times, most recently for the fiscal year 2014 strategy. As part its risk-based strategy, BLM is to rate each inspection case-a single well or group of wells-based on a set of risk factors. According to BLM's risk-based inspection strategy, production accountability inspection ratings are to be based on (1) the volume or oil and gas produced, (2)the number of missing oil and gas production reports, (3) a compliance rating, and (4) time since the case was last inspected. This new strategy, if implemented appropriately, should help ensure that all wells are inspected within a reasonable time frame, given available resources.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to help ensure that Interior's production accountability inspection program consistently addresses key areas affecting measurement accuracy and that BLM meets its inspection goals, the Secretary of the Interior should consider an alternative onshore production inspection strategy that enables BLM to inspect all wells within a reasonable time frame, given available resources.

    Agency Affected: Department of the Interior

  11. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to improve the consistency of Interior's management of its onshore production and inspection program, the Secretary of the Interior should direct BLM to review and revise, as appropriate, its oversight of field and state offices and train managers involved in BLM's inspection and enforcement program to ensure adequate and appropriate review of personnel, processes, and production, consistent with standards for internal controls.

    Agency Affected: Department of the Interior

  12. Status: Closed - Implemented

    Comments: In September 2012, Interior reported that the BLM had completed an Internal Control Review on the overall inspection and enforcement aspects of the oil and gas program, with a specific focus on the documentation of the inspections completed. BLM's review focused on 10 field offices with major oil and gas activities and concluded with a closeout report for each office. According to BLM's review, it found that some field offices had poor records/file management and did not have established protocols in place to assure file integrity. The review concluded that additional guidance, training, and continued dialogue would assist offices in applying policy more consistently. Field offices inspected were issued a summary report that included site-specific recommendations. According to documents provided by BLM, several field offices created action plans to address the recommendations included in the summary reports.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to improve the consistency of Interior's management of its onshore production and inspection program, the Secretary of the Interior should direct BLM to conduct reviews of the quality and completeness of the hard copy production inspection program files across field offices periodically and ensure that the data in these files are accurately entered into its database.

    Agency Affected: Department of the Interior

  13. Status: Closed - Implemented

    Comments: As of April 2014, BLM requires mandatory standardized training-which includes measurement topics-for petroleum engineer technicians and production accountability technicians, and standardized training for petroleum engineers that is not yet mandatory. BLM also requires mandatory recertification training for petroleum engineer technicians, and offers some refresher training for petroleum engineers which is not required. In January 2013, Interior's Bureau of Safety and Environmental Enforcement (BSEE)-formerly MMS-issued two internal policy documents setting out training requirements for inspectors and engineers. Under these policies, inspectors are required to complete four levels of training, while engineers must complete an engineering boot camp program and 32 hours per year of approved technical training. Officials told us that all inspectors and engineers must attend several mandatory production courses that cover measurement issues through BSEE's National Offshore Training Program, and may also take specialized measurement courses offered by the training program.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to address gaps in critical oil and gas measurement abilities, the Secretary of the Interior should direct BLM and OEMM to ensure that key onshore and offshore production verification staff have received initial standardized training necessary to effectively carry out their job functions and receive ongoing measurement training as needed.

    Agency Affected: Department of the Interior

  14. Status: Closed - Implemented

    Comments: In June 2011, BLM issued guidance encouraging the use of retention and recruitment incentives, and in May 2012, BLM established an Inspection and Enforcement Workforce Strategy team, which produced a report that made 11 recommendations for BLM's hiring and recruiting initiatives, among other things. Furthermore, in February 2013, BLM issued guidance that directs the use of mandatory service agreements for all newly hired petroleum engineer technicians that requires them to commit to continue service for two years after they obtain certification or face a financial penalty. In addition, in January 2014, Interior's Bureau of Safety and Environmental Enforcement (BSEE)-formerly MMS-officials told us that they had identified and are pursuing 26 strategies to attract and retain inspectors and engineers, which include various recruiting measures and tools such as retention bonuses, student loan repayment, and the use of expanded telework. In January 2014, we reported that that BLM, and Interior's Bureau of Ocean Energy Management(BOEM)-formerly MMS-and BSEE have taken some actions to address their hiring and retention challenges, although use of relocation, and retention incentives has been limited.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to address gaps in critical oil and gas measurement abilities, the Secretary of the Interior should determine what additional policies or incentives are necessary, if any, to attract and retain qualified measurement staff at sufficient levels to ensure an effective production verification program.

    Agency Affected: Department of the Interior

  15. Status: Closed - Implemented

    Comments: In September 2012, Interior transmitted to Congress the evaluation of its in-house developed software pilot program for Remote Data Acquisition for Well production. The report analyzes the pilot program and its results, along with potential problems in implementing the program on a wider level. According to the evaluation, BLM found the program too costly, too unreliable, and too burdensome to implement. As a result, BLM recommended terminating the study in favor of using commercial off-the-shelf software, along with enhanced data mining, internal software development, and increased training and guidance for production auditors as funding permits.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to improve the tools available to Interior's production inspection staff, the Secretary of the Interior should direct BLM to evaluate its commitment to further develop its in-house software, in light of the functionality, cost, and ease of adoption by Interior and industry of commercially available software; and present the results of this evaluation to Congress.

    Agency Affected: Department of the Interior

  16. Status: Closed - Implemented

    Comments: In August 2014, Interior reported that it believes it has adequate authority under current law to require operators to electronic flow computer data for existing leases in electronic, rather than paper, format in the context of a retrospective production accountability review or retrospective audit. To date, such data has been furnished either on paper or electronically as a pdf file. BLM and BSEE agree that receiving the data in a binary (uneditable) form directly from the electronic flow computer would be the best method, but at present time neither agency has the capability to receive electronic flow computer data in that form. Interior officials told us that they are working on a pilot project that would include obtaining the necessary software and hardware to obtain the data in the preferred format to facilitate production accountability.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to improve the tools available to Interior's production inspection staff, the Secretary of the Interior should require all companies purchasing federal leases to immediately provide Interior access to oil and gas production data generated by electronic flow computers to leave open a range of future options for electronic data exchanges with operators.

    Agency Affected: Department of the Interior

  17. Status: Closed - Implemented

    Comments: In May 2014, Interior officials told us that BLM had issued a number of policies related to allowing BLM staff, including staff conducting inspections in the field, to wirelessly connect to BLM's information technology (IT) system via laptops when in the field. According to BLM officials, while the use of laptops in the field is not mandatory, this option allows inspection staff to access key data in BLM,s IT to facilitate the inspection process.Specifically, BLM issued three instruction memoranda in June, 2011 authorizing the use of wireless data communication devices on WI-FI, allowing government-furnished equipment to access the BLM network through public wireless networks, and providing guidance on purchasing mobile devices. In addition, in February, 2012, BLM issued an instruction memorandum on procedures for use of wireless devices.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to improve the tools available to Interior's production inspection staff, the Secretary of the Interior should direct BLM to implement a mobile computing solution for its inspection and enforcement program to allow staff to spend more time in the field conducting inspections and to improve the reliability of the inspection data.

    Agency Affected: Department of the Interior

  18. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to improve the tools available to Interior's production inspection staff, the Secretary of the Interior should coordinate onshore and offshore inspection staffs' efforts to design and implement a mobile computing solution for inspectors in the field, while taking into account any unique or specific needs associated with onshore versus offshore inspections.

    Agency Affected: Department of the Interior

  19. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To increase Interior's assurance that it is accurately measuring oil and gas produced on federal lands and waters, and to help ensure that Interior is consistently tracking where and how oil and gas are measured, the Secretary of the Interior should require that BLM track all onshore meters, including information about meter location, identification number, and owner.

    Agency Affected: Department of the Interior

 

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