Mineral Revenues:

Progress Has Been Slow in Verifying Offshore Oil and Gas Production

RCED-90-193: Published: Aug 31, 1990. Publicly Released: Jan 11, 1991.

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Pursuant to a congressional request, GAO reviewed the Department of the Interior's actions to: (1) verify the accuracy of reported offshore oil and gas production; and (2) annually inspect certain offshore lease sites.

GAO found that: (1) Interior lacked a fully operational program for verifying that sites accurately reported all oil and gas production for royalty determination purposes, but the Minerals Management Service (MMS) recently initiated two programs aimed at verifying such reports; (2) as of July 1990, the MMS automated oil verification program included all facility measurement points (FMP) in the Gulf of Mexico region, but none in the Pacific region due to computer problems, while MMS conducted the gas verification program exclusively in the Gulf region; (3) although MMS has not fully implemented either program, the first 6 months' results indicated that sites generally accurately reported the produced oil volume and preliminary gas production results noted only minor volume discrepancies; (4) although the Federal Oil and Gas Royalty and Management Act (FOGRMA) required Interior to annually inspect each lease site that produced or was expected to produce significant quantities of oil or gas or had a history of noncompliance, MMS was not meeting the FOGRMA inspection mandate; (5) during 1989, the MMS Gulf region inspected almost all oil FMP, but inspected less than one-third of the gas meters; (6) in the Pacific region, MMS conducted production measurement and site security inspections at all 10 oil FMP and 8 of 9 gas FMP; and (7) MMS Gulf regional officials said that it inspected gas meters only if they were co-located with oil meters, and they were not necessarily those with the greatest production or those which had a history of noncompliance.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: MMS included FMP in the Pacific region in the automated oil verification system, beginning with June 1990 production data.

    Recommendation: Because of the need to ensure that the volume of oil and gas produced from federal leases is accurately reported for purposes of determining royalties, the Secretary of the Interior should direct the Director, MMS, to include FMP in the Pacific region in the automated oil verification program.

    Agency Affected: Department of the Interior

  2. Status: Closed - Implemented

    Comments: In a 1993 pilot study, MMS verified the gas production reported by three large producers for three months and found discrepancies in 7 percent of the statements reviewed; the pilot's final report, suggested phasing in a gas verification system. In 1997, MMS proposed rules that would require companies to submit the data needed to ensure accurate measuring and reporting of gas production and would provide the agency the authority to collect such data. In May 1998, MMS published its final rule implementing a system to verify that gas sales are reported accurately. MMS' initial sampling approach requires that production from high-producing leases be verified for a specific month annually and that production from other leases be verified for a specific month biennially. Although the sampling approach does not explicitly target leases with histories of noncompliance, any compliance problems noted by field inspectors will be followed up to determine if the problem affects reported production.

    Recommendation: Because of the need to ensure that the volume of oil and gas produced from federal leases is accurately reported for purposes of determining royalties, the Secretary of the Interior should direct the Director, MMS, to complete the gas verification pilot program and move quickly to implement an ongoing production verification program. At a minimum, MMS should verify gas volumes for all high-producing leases and leases with a history of noncompliance, as well as randomly verify production from a sample of the remaining leases.

    Agency Affected: Department of the Interior

  3. Status: Closed - Not Implemented

    Comments: MMS has not defined the terms "significant quantities of oil or gas" and "history of noncompliance" to ensure that lease sites meeting these criteria are annually inspected as required by FOGRMA. Instead, MMS believes that its annual inspections of all offshore facilities for safety and environmental purposes largely satisfy the FOGRMA inspection mandate.

    Recommendation: Because of the need to ensure that the volume of oil and gas produced from federal leases is accurately reported for purposes of determining royalties, the Secretary of the Interior should direct the Director, MMS, to define the terms significant quantities of oil or gas and history of noncompliance and ensure that lease sites meeting those criteria are annually inspected as required by FOGRMA.

    Agency Affected: Department of the Interior

 

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