Oil and Gas Wells:

Bureau of Land Management Needs to Improve Its Data and Oversight of Its Potential Liabilities

GAO-18-250: Published: May 16, 2018. Publicly Released: Jun 5, 2018.

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Oil and gas companies operating wells on federal and Indian lands are required to reclaim sites after wells are no longer used—plug wells, remove structures, and replant. Companies provide bonds up front to cover reclamation, but if they don't reclaim the site, or if it costs more than expected, the Bureau of Land Management may be liable.

Reclamation costs and potential liabilities likely increased since 2010, but we couldn't determine how much because BLM does not systematically track this data.

We made 7 recommendations to help BLM better manage its risk, including improving the way it tracks reclamation costs and potential liabilities.

Example of an active well that is currently producing

This photo shows an active well.

This photo shows an active well.

Additional Materials:

Contact:

Frank Rusco
(202) 512-3841
ruscof@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

GAO's analysis indicates that the Bureau of Land Management's (BLM) actual costs incurred and potential liabilities for reclaiming oil and gas wells have likely increased for fiscal years 2010 through 2017. However, the full extent of the increase is not known because BLM does not systematically track needed data. Based on GAO's analysis of data obtained from 13 of BLM's 33 field offices that manage oil and gas programs, the average annual reclamation cost was $267,600, an increase compared to the $171,500 annual average across all BLM offices that GAO reported in 2010. Similarly, GAO's analysis of BLM data found that the number of known orphaned wells, those that generally have no responsible or liable parties, for all field offices has increased from 144 in 2010 to 219 as of 2017. However, BLM's database that contains information on oil and gas wells on federal and Indian lands does not collect information on costs incurred or on potential liabilities that might result from an increase in the number of orphaned wells. Under federal internal control standards, management should use quality information to achieve the entity's objectives. Without systematically tracking such information, BLM does not have assurance that it has sufficient bonds or financial assurances to cover the costs of reclaiming orphaned wells.

Lifecycle of Oil and Gas Wells Overseen by the Bureau of Land Management (BLM)

Lifecycle of Oil and Gas Wells Overseen by the Bureau of Land Management (BLM)

GAO was unable to fully assess the extent to which BLM field and state offices have implemented the agency's policies on reviewing wells and bond adequacy in part because of deficiencies in BLM's monitoring approach. For example, reports BLM headquarters used to monitor field offices' implementation of the policies have limitations. GAO identified discrepancies between the well and bond adequacy review reports that BLM state offices submitted to headquarters and the national summary consolidating states' information. Out of 10 state offices, 3 reported a different number of reviews completed in fiscal year 2016 than what BLM reported in its fiscal year 2016 national summary. Leading practices for monitoring the implementation of agency policies call for taking steps such as collecting and analyzing data on performance indicators. Without strengthening BLM's approach to monitoring, its ability to assess field offices' reviews of all inactive wells and determine the adequacy of all bonds is limited.

Why GAO Did This Study

In fiscal year 2016, private entities operated about 94,000 oil and gas wells on federal lands overseen by BLM. Once wells cease production, they can become inactive and potentially orphaned if an operator does not perform required reclamation and if an operator's bond is insufficient to cover the expenses. BLM considers oil and gas wells on federal and Indian lands and the associated leased lands as potential liabilities for the federal government because BLM may have to cover the costs of reclaiming well sites. To better manage its potential liabilities, BLM issued well and bond adequacy review policies in 2012 and 2013, respectively.

GAO was asked to review how BLM manages its potential oil and gas well liabilities. This report examines, among other things: (1) how BLM's actual costs and potential oil and gas well liabilities have changed for fiscal years 2010 through 2017 and (2) the extent to which BLM has implemented its well and bond review policies. GAO analyzed BLM's policies and data and interviewed BLM officials and representatives from stakeholder organizations.

What GAO Recommends

GAO is making seven recommendations, including that BLM systematically track the agency's actual reclamation costs and potential liabilities and strengthen its approach to monitoring field offices' implementation of the well review and bond adequacy review policies. BLM agreed with GAO's recommendations.

For more information, contact Frank Rusco at (202) 512-3841 or ruscof@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: BLM concurred with this recommendation and stated that it will expand existing reporting capabilities to provide the ability to track orphaned and inactive well records over time. BLM will also develop a new funding code to track the costs incurred when reclaiming orphaned wells and issue written guidance to state and field offices in order to implement the bureau-wide use of the code(s) to track the costs incurred for reclaiming orphaned wells. When we confirm what actions BLM has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Director of BLM should systematically and comprehensively track the actual costs BLM incurs when reclaiming orphaned wells and the information, including the number of orphaned wells and inactive wells over time, necessary to determine the agency's potential liabilities. (Recommendation 1)

    Agency Affected: Department of the Interior: Bureau of Land Management

  2. Status: Open

    Comments: BLM concurred with this recommendation and stated that it will provide additional guidance by updating lM 20l2-181 ldle Well Review and Data Entry into the Automated Fluid Minerals Support System (AFMSS), to further bolster and communicate appropriate actions for well reviews. BLM stated that its existing policies provide considerable guidance to state and field offices on how to conduct and report non-operational well reviews, but that it would be beneficial to develop and issue written policy updating and replacing lM 20l2-181. This new and updated guidance will provide state and field offices additional clarification as to what actions constitute a well review. BLM is also currently pursuing system enhancements in the updated AFMSS 2 database that will improve the quality and reporting capabilities of its non-operational well data, which will also be incorporated into the written policy that updates and replaces IM 2012-181. When we confirm what actions BLM has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Director of BLM should develop and communicate specific instructions on what actions constitute a well review for annual-reporting purposes. (Recommendation 2)

    Agency Affected: Department of the Interior: Bureau of Land Management

  3. Status: Open

    Comments: BLM concurred with this recommendation. BLM stated that it currently performs AFMSS 1 and AFMSS 2 data quality checks on an ad hoc basis. BLM will take additional steps to further improve AFMSS 1 and AFMSS 2 data quality by developing guidance on the frequency and standard procedures for data validation review and certification which will be part of the IM 2012-181 update. When we confirm what actions BLM has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Director of BLM should take steps to improve the Automated Fluid Minerals Support System data quality, for example, by conducting more edit checks and by having data stewards certify the quality of the data. (Recommendation 3)

    Agency Affected: Department of the Interior: Bureau of Land Management

  4. Status: Open

    Comments: BLM concurred with this recommendation. BLM stated that it will update its current data review processes by developing guidance on the frequency and standard procedures for data validation reviews and provide more detailed instructions on documenting idle well and bond adequacy reviews. Those actions, combined with AFMSS 2 system enhancements that will improve the data quality and reporting capabilities, will strengthen BLM's monitoring of the implementation of its well review and bond adequacy review policies. When we confirm what actions BLM has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Director of BLM should strengthen its approach to monitoring field offices' implementation of the well review and bond adequacy review policies, such as by collecting and analyzing data on performance indicators and ensuring the quality of those data. (Recommendation 4)

    Agency Affected: Department of the Interior: Bureau of Land Management

  5. Status: Open

    Comments: BLM concurred with this recommendation. As previously stated in BLM's response to Recommendation 2, IM 2012-181 already provides BLM state and field offices with guidance on reviewing and reporting reviews of wells, including those in shut-in status. However, BLM stated that it will issue new guidance on conducting, tracking, and reporting shut-in well reviews. As part of the ongoing AFMSS 2 database enhancements, BLM will improve the quality and reporting capabilities of its shut-in well data, which will also be incorporated in the new guidance replacing IM 2012-181. When we confirm what actions BLM has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Director of BLM should provide greater specificity in current policy or supplemental guidance to all BLM field offices on how to identify and manage all shut-in wells. (Recommendation 5)

    Agency Affected: Department of the Interior: Bureau of Land Management

  6. Status: Open

    Comments: BLM stated that it conducts annual work planning processes which facilitates the decisions regarding the allocation of agency resources. BLM will include additional language in its annual work plan that underscores the importance and relevance of well and bond adequacy reviews. BLM will also develop a new fund code to track the actual reclamation costs incurred from reclaiming orphaned wells. Subject to the availability of fiscal resources, BLM will reclaim additional orphaned wells and work with partners such as state regulatory agencies. When we confirm what actions BLM has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Director of BLM should develop a resource management plan addressing resources needed for conducting well and bond adequacy reviews and reclaiming orphaned wells. (Recommendation 6)

    Agency Affected: Department of the Interior: Bureau of Land Management

  7. Status: Open

    Comments: BLM concurred with this recommendation and stated that it will issue new guidance replacing the expired IM 2013-151 entitled, "Oil and Gas Bond Adequacy Reviews." This new guidance will ensure that the reviews account for the overall operator risk by clarifying the circumstances which warrant the adjustment of bond amounts. When we confirm what actions BLM has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Director of BLM should, in revising the bond adequacy review policy, ensure that the reviews of nationwide and statewide bonds reflect the overall risk presented by operators. (Recommendation 7)

    Agency Affected: Department of the Interior: Bureau of Land Management

 

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