Are Leaseholders Adequately Exploring for Oil and Gas on Federal Lands

EMD-82-82: Published: Aug 23, 1982. Publicly Released: Aug 23, 1982.

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GAO reviewed the Federal onshore oil and gas leasing system to determine if leaseholders are adequately exploring their leases. Specific issues which were addressed included the extent and nature of activity of the two predominant leaseholders, industry and speculators, and the actions that may be needed to influence their activity.

The Federal onshore oil and gas leasing system has been widely criticized. Problems cited include a large-scale involvement of speculators, lack of requirements for active lease development, a lottery system that encourages abuse, and failure to achieve fair market value for the leases. In the four States reviewed, GAO found that only about 8 percent of the Federal leases were drilled. Industry oil and gas activity has been increasing substantially nationwide, but rig usage has been decreasing in 1982. Industry's drilling activity on Federal lands appears reasonable in relation to activity on non-Federal lands. GAO found that industry may be taking advantage of certain lease extension provisions, but that this is not a significant problem. Many individuals obtain leases, primarily through the lottery system, who may not have the inclination or ability to develop leases. A sample of lottery leases showed that apparent speculators originally held nearly 60 percent of the leases. These speculators prevent the leases from being issued directly to industry and may inhibit efficient development. Eliminating the speculator would not likely have any major adverse effect on development, but it might adversely effect revenues. GAO and the energy industry identified other factors which may delay or inhibit development. The effect on production and revenues of attempts to eliminate the speculator is so uncertain that such attempts should be approached with caution.

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