Oil and Gas Royalties: Congress and Interior Should Strengthen Safeguards to Better Ensure Accurate Payments
Fast Facts
Royalties on the sale of oil and gas produced on federal lands bring in significant federal revenue.
The Interior Department has 7 years to verify payment accuracy. At the same time, companies that over- or underpay have up to 6 years to revise their royalty reports. Overpayments can be applied to future royalties or refunded.
In FY 2014–2024, companies paid $96 billion in royalties but also revised their reports for a net revenue decrease of $2.7 billion. Late revisions—on payments made 4-6 years earlier— accounted for $300 million.
Late revisions can shorten Interior's time for verifying accuracy.
Our recommendations address this, and more.
Highlights
Why This Matters
Royalties on the sale of oil and gas produced on federal lands and waters generated more than $14 billion in revenue in 2024. The Department of the Interior’s Office of Natural Resources Revenue (ONRR) oversees these payments by companies.
Companies can revise, or make adjustments to, royalties if they over- or underpaid, or they can request a refund to be reimbursed if they overpaid.
GAO Key Takeaways
Companies’ net adjustments decreased their originally reported royalties from about $96 billion to $93 billion, or by 2.8 percent, in fiscal years 2014–2024. Adjustments included $300 million to royalties initially paid 4–6 years prior. ONRR also approved $352 million in refunds. Royalties must be processed within defined time frames:
- Companies can make adjustments up to 6 years after their original payment.
- Concurrently, ONRR has 7 years to verify that royalties were accurately paid. This can take an average of 18 months or much longer, according to ONRR officials.
ONRR may not have enough time under current statutory requirements to ensure royalties are accurate. This is especially true when companies submit adjustments toward the end of the 6-year statutory time frame, which provides ONRR one year to review. ONRR recommended to Congress in 2011 that it shorten the statutory time frame for a company to adjust royalties from 6 to 3 years, but this change was not enacted. Industry representatives noted that companies generally use electronic systems, which has improved efficiency and reduced the need for a longer time to submit adjustments. At present, the opportunity still exists to provide ONRR with additional time to verify adjustments, thereby ensuring that it is safeguarding federal revenues.
Net Royalty Adjustments of Oil and Gas Royalties from Federal Leases, 2014–2024
Note: Adjustments made based on fiscal year of original royalty payment.
How GAO Did This Study
GAO analyzed ONRR data extracts from fiscal years 2014 through 2024, reviewed documentation, assessed data systems and tools, and interviewed ONRR officials and two industry stakeholder organizations.
Recommendations
GAO is recommending that Congress consider shortening the time frame for companies to make adjustments, as well as making four recommendations to ONRR. ONRR concurred with three recommendations and partially concurred with one. In response, GAO revised the recommendation language.
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| To help ensure ONRR has sufficient time to review and verify royalty payments before the statutory period for finalizing any enforcement actions to collect unpaid royalties expires, Congress should consider shortening the statutory time frame during which companies may make adjustments. (Matter for Consideration 1) | When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Office of Natural Resources Revenue | The Director of ONRR should develop a written policy to guide the use of voluntary agreements that considers the risks and benefits of their use, such as by establishing specific criteria for pursuing agreements to review late-period adjustments. (Recommendation 1) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Office of Natural Resources Revenue | The Director of ONRR should develop a centralized system to consistently track the use of voluntary agreements to extend the time available for audits. (Recommendation 2) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Office of Natural Resources Revenue | The Director of ONRR should ensure there is a documented procedure in place to communicate information about approved refunds to staff responsible for selecting cases for compliance. (Recommendation 3) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Office of Natural Resources Revenue | The Director of ONRR should develop detailed internal guidance on what documentation is required to support a refund request and how best to communicate this to companies. (Recommendation 4) |
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|