Management of Federal Oil and Gas Resources

Image

Since our 2019 High-Risk Report, the overall rating for this high-risk area remains unchanged at partially met for all five criteria. However, the Department of the Interior’s (Interior) Bureau of Safety and Environmental Enforcement (BSEE) has now met all criteria for the restructuring of the offshore oil and gas oversight segment and is no longer considered high risk. On the other hand, some ratings for the remaining two segments—revenue determination and collection and human capital challenges—regressed from partially met to not met.

Revenue Determination and Collection

Image

Since 2019, Interior continues to partially meet the criteria for capacity, action plan, monitoring, and demonstrated progress for the revenue determination and collection segment. However, leadership commitment regressed from partially met to not met.

Leadership commitment: not met. The rating for leadership commitment regressed from partially met to not met for two reasons.  First, in September 2018, Interior revised a 2016 rule that previously implemented some of our recommendations that the agency better account for methane emissions and potential royalties. The 2018 revisions effectively eliminated many of the 2016 provisions that implemented our recommendations (both rules, however, have been subject to legal challenges, which, at present, have largely invalidated the rules). Interior is also revising another set of regulations that had addressed our recommendations to accurately measure oil and gas for royalty purposes. 

Second, in October 2020, we found that leadership at Interior’s Bureau of Land Management (BLM) was deficient when it implemented its royalty relief program in response to the falling domestic oil prices resulting from the Coronavirus Disease 2019 pandemic. Specifically, BLM management ineffectively communicated with BLM state office officials on how to manage its royalty relief program. This led to ad hoc and inconsistent decisions by BLM state offices when approving royalty relief requests.  As a result, it is impossible for us or BLM to accurately estimate the effect on production and royalties.  

Capacity: partially met.  Interior has taken some steps to address its capacity to address weaknesses in its ability to determine and collect revenue.  For example, Interior revised its regulations to provide the flexibility to set its onshore royalty at or above 12.5 percent for competitive leases.  This revision allows the government to alter royalties if it deems this necessary to ensure a fair return for public resources.

However, Interior still has weaknesses in its capacity to determine whether the oil and gas royalties companies pay to Interior are accurate and complete. For example, Interior’s Office of Natural Resources Revenue (ONRR) lacks a goal for tracking the amount of oil and gas royalties subject to compliance efforts, including audits of oil and gas operators. Additionally, our ongoing work has found that some of Interior’s bureaus lack information technology systems to effectively manage the oil and gas data necessary for ensuring a fair return. In March 2021, we plan to issue a report that discusses Interior’s oil and gas data systems. 

Action plan: partially met. In some cases, Interior has provided us with documentation outlining steps it has taken and time frames to address our recommendations. For example, ONRR provided an update in July 2020 on efforts to replace its risk model used to identify companies on which to conduct royalty compliance work.

However, Interior’s Royalty Policy Committee—which was established in March 2017 and tasked with advising the Secretary on fair market value and collection of revenues from energy and natural resources developed on federal lands—was allowed to lapse in April 2019. Then, after a federal court ruled that Interior did not properly follow procedures in setting up the committee, Interior chose not to re-establish the committee and has not replaced it with something comparable.  Additionally, BLM has continued to postpone a long-planned internal review to assess the overall effectiveness of previously issued guidance on commingling requests—requests to combine oil or gas from public, state, or private leases prior to royalty measurement.

Monitoring: partially met. Interior has undertaken some efforts to monitor its performance addressing royalty determination and collection weaknesses. For instance, Interior has tracked and implemented a majority of our recommendations addressing revenue determination and collection. However, there is still uncertainty about Interior’s actions to rescind and revise regulatory actions that responded to our recommendations to better account for methane emissions and accurately measure oil and gas for royalty purposes.

Demonstrated progress: partially met. Interior has taken several steps to improve its revenue collection and determination efforts. Since Interior was first added to the High-Risk Report in 2011, it has implemented more than 40 of our recommendations related to this segment. Since our 2019 High-Risk Report, we added 11 recommendations to improve Interior’s ability to assess its revenue collection efforts and better ensure receipt of fair market value for offshore oil and gas leases and production. 

While all these recommendations remain open, Interior officials said that they are generally taking steps to implement them. For example, ONRR officials told us in July 2020 that they were developing a new risk model for selecting companies or leases for compliance activities including audits. 

On the other hand, Interior’s Bureau of Ocean Energy Management has not provided evidence regarding any actions it might be taking to address our recommendations to better ensure a fair return on federal offshore oil and gas resources through its processes to review company bids for offshore oil and gas leases.

Human Capital Challenges

Image

Since our 2019 High-Risk Report, Interior no longer partially meets the criteria for leadership commitment, capacity, and action plan.  Interior continues to partially meet the monitoring and demonstrated progress criteria, as it did in 2019.

Leadership commitment: not met. Interior’s ability to address its human capital challenges has been affected by its July 2019 announcement to reorganize BLM by relocating most Washington, D.C.-based headquarters positions to western states. In March 2020, we reported that BLM did not substantially address key practices for effective agency reform.  For example, BLM did not involve employees and stakeholders—a key practice—in the process of developing reforms. Rather than relocate to state and field offices, many headquarters staff left BLM, which caused BLM to lose expertise in headquarters functions, which may include oversight of oil and gas.  

Capacity: not met.  BLM’s decision to relocate most Washington, D.C.-based headquarters staff to BLM offices across the West or to its new headquarters facility in Colorado without any deliberation or input from staff negatively affected capacity. Of the 311 positions moving west, 132 were vacant in July 2019 and an additional 81 staff either declined the reassignment or separated from their position as of January 2020. As of January 2020, these actions had resulted in a vacancy rate of about 68 percent among these positions, and BLM may be unable to ensure that it has the capacity to continue delivering services previously provided by those staff. We are currently following up on the effects of BLM’s headquarters relocation and loss of staff as well as its efforts to refill these positions. 

Further, BLM continues to face challenges with capacity, especially in its hiring, training, and retention of petroleum engineers (PE) and petroleum engineer technicians (PET) needed to oversee federal oil and gas resources. For example, in March 2020, we reported that BLM receives more drilling applications each year than its staff can review. 

Action plan: not met. In response to BLM’s decision in 2019 to relocate its headquarters to the West, we requested that BLM provide its assessment of the expected effects of its reorganization on the current and future workforce. Since BLM did not provide an assessment, we recommended that it complete a strategic workforce plan that addresses how it will recruit for and fill vacant positions resulting from the relocations.  While BLM provided comments on our report, it neither agreed nor disagreed with our recommendations. This raised questions about BLM’s commitment to implementing the recommendations and its ability to ensure its workforce composition aligns with its mission and priorities.

Monitoring: partially met. Interior has implemented many of our recommendations, including to utilize hiring and retention bonuses to meet its challenges in hiring for key skilled positions. It has also made progress in hiring and retaining staff. Further, Interior has taken steps to annually evaluate its bureaus’ training needs, effectiveness, and resources. However, Interior still needs to regularly document these actions so that it can track its progress over time. In March 2020, we recommended that Interior establish outcome-oriented performance measures to assess the effectiveness of BLM’s reorganization. Interior neither agreed nor disagreed with our recommendation. 

Demonstrated progress: partially met.  Interior is addressing its human capital challenges by evaluating hiring and retention incentives and training programs for PE and PETs. For example, Interior evaluated training needs, training effectiveness, and sharing training resources for PEs and PETs. However, as stated previously, BLM neither agreed nor disagreed with our strategic workforce plan recommendation. Without strategic workforce planning, the successful implementation of future reorganization and continued delivery of services is at risk.

Restructuring of Offshore Oil and Gas Oversight (Segment Removed)

Image

The ratings for this segment improved from partially met to met for all criteria since 2019. Consequently, we have removed the segment from this high-risk area.

Leadership commitment: met. Since our 2019 High-Risk Report, Interior has met the criteria for leadership commitment to restructure offshore oil and gas oversight.  For example, BSEE’s Director led a change management initiative program that encompassed more than 180 actions to implement reforms throughout the bureau and included efforts such as an internal assessment of its environmental compliance program. Some of these actions were specifically designed to address our outstanding recommendations regarding the bureau’s restructuring and related strategic initiatives.   

Capacity: met. Since our 2019 report, BSEE has met the criteria for capacity for restructuring of offshore oil and gas oversight. BSEE has taken steps to address trust concerns between headquarters and field personnel that have historically hindered the bureau’s ability to effectively implement restructuring reforms. For example, BSEE created an Employee Engagement Council to obtain input from employees and incorporate their feedback into bureau restructuring reforms and related strategic initiatives. 

Action plan: met. Since our 2019 report, BSEE has met the action plan criteria for restructuring of offshore oil and gas oversight. For each of its reform efforts, BSEE’s change management initiative program identifies specific steps, completion target dates, parties responsible, and their relationship to bureau strategic goals, such as safety, environmental stewardship, and energy security goals. 

Monitoring: met. Since our 2019 report, BSEE has met the monitoring criteria for restructuring of offshore oil and gas oversight. BSEE’s change management initiative program includes regular status updates to bureau leadership identifying reform efforts as complete, on schedule, or delayed. BSEE has also improved its enterprise risk management framework and developed a performance management “dashboard” of programmatic performance indicators, both of which better enable the bureau to assess and address the efficacy of its reforms.

Demonstrated progress: met. Since our 2019 report, BSEE has met the criteria for demonstrated progress for restructuring offshore oil and gas oversight. The bureau has addressed eight of the 13 recommendations relevant to BSEE restructuring and related strategic initiatives and has made significant progress addressing the remaining five. For example, BSEE issued a series of manual chapters, policy handbooks, and standard operating procedures that define the responsibilities of its incident investigations, environmental compliance, and safety enforcement divisions—the three oversight functions that comprised the bureau’s restructuring effort.