GAO sees duplications in government, industry oil and gas R&D

The US Department of Energy should formally assess whether its oil and gas research and development projects would not have occurred without federal funding, the Government Accountability Office recommended in a new report.

The Jan. 9 report examined a program which has shrunk dramatically over several years despite having developed technologies which significantly improved domestic exploration and production.

It noted that the US oil and gas industry spent at least $20 billion on R&D from 1997 through 2006, with a current focus mostly on near-term (within about two years) production challenges. It also said that DOE spent some $1 billion on oil and gas R&D during the same period on both near and long-term projects.

Funding grew in fiscal 2007 and 2008 from 2006 because of Section 999 of the 2005 Energy Policy Act, GAO continued. It said that the law makes about $50 million available annually over 10 years and assigns 75% of that amount to a consortium including universities, industry groups and independent research organizations.

Under EPACT, DOE is charged with maximizing the value of US oil and gas resources by increasing supplies, reducing E&P costs and minimizing environmental impacts, GAO said.

'Hundreds of projects'

"Overall, since 1997, DOE's funds have supported hundreds of near-term projects" including advanced drilling tools, resource imaging devices, enhanced oil recovery and environmental protection, according to the report.

It said that DOE relies on its knowledge of the oil and gas industry's R&D and uses a project selection process to ensure that its programs support the industry. But DOE does not assess whether the industry would conduct this R&D without federal support, GAO said.

"Such an assessment is not made because DOE's screening criteria do not specifically require this type of evaluation. Despite the lack of an assessment, DOE officials continue to believe that DOE's oil and gas R&D activities only minimally duplicate industry's R&D activities because of their extensive interaction with industry," the report said.

Methane hydrates exception

It said that for several years, the White House Office of Management and Budget has expressed concern that DOE's oil and gas R&D backs projects comparable to industry efforts. "However, OMB specifically acknowledged that [DOE's] methane hydrates [research] program is an exception that can provide a unique contribution," the report continued.

GAO also said that it found instances where DOE funds near-term oil and gas R&D which companies would be unlikely to underwrite. For example, it said that DOE worked with the US Bureau of Land Management on several projects to monitor impacts of oil and gas activity on wildlife, groundwater and surface water in the Powder River Basin.

The congressional watchdog service's evaluation affirms that more federally-backed oil and gas R&D appears unlikely unless it's for longer-term projects, however. Producers obviously will need to work harder for R&D funding from other sources.

Contact Nick Snow at nicks@pennwell.com

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