Mineral Resources:

Interior's Use of Oil and Gas Development Contracts

RCED-91-1: Published: Sep 17, 1991. Publicly Released: Oct 17, 1991.

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James Duffus, III
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Pursuant to a congressional request, GAO evaluated the use of development contracts by the Bureau of Land Management, acting on behalf of the Secretary of the Interior, in its onshore federal oil and gas leasing program, focusing on whether the contracts: (1) entered into or approved since 1986 satisfy the legal requirements for development contracts; and (2) have had adverse effects on small oil and gas producers.

GAO found that: (1) the 10 contracts entered into or approved by Interior since 1986 do not satisfy the legal requirements for development contracts because those contracts are for oil and gas exploration on largely unleased federal lands, rather than for developing existing leases; (2) rather than being between lessees and lease operators, 9 of the 10 contracts are between Interior and lease operators, and in all 10 contracts the sole parties, other than the Interior, are the operators; (3) by designating the 10 contracts as development contracts, Interior has enabled the contract parties to accumulate lease acreage that exceeds the statutory acreage limitation, resulting in increased concentration of control over federal oil and gas resources and preventing other parties who wish to obtain federal oil and gas leases and participate in developing these resources from doing so; and (4) although Interior believes that the 10 contracts are in the public interest, since they promote exploration for and development of federal oil and gas resources that otherwise might not have been accomplished, using development contracts in this manner equates to rescinding the statutory acreage limitation for the nine major and large independent oil companies that have exceeded acreage limitations in the states where they have contracts.

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