GAO places high-risk label on DOI's oil, gas programs

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Mar. 3 -- Problems in the US Department of the Interior’s oil and gas programs are so extensive that the Government Accountability Office has designated their management a high-risk issue, an official of the congressional watchdog service told the US House Interior Appropriations Subcommittee.

The primary problems involve collecting revenues, recruiting and managing qualified personnel, recent reorganization of the former US Minerals Management Service, and balancing timely and efficient oil and gas development with environmental stewardship, noted Frank Rusco, a GAO natural resources and environment specialist on energy and science issues who testified at the subcommittee’s hearing on DOI management challenges.

DOI’s management of federal resources has been the subject of a large body of GAO’s work and an area where it has found numerous weaknesses and challenges, he said. DOI has taken steps to address material weaknesses, Rusco continued.

“In recent years, we’ve seen a kind of sea change on how our oil and gas reports are received and agencies’ willingness to listen,” he told the subcommittee. “Five years ago, most of them were automatically challenged. In the last 3 years, most of our recommendations have been endorsed, and we are in the process of closing out many of them. That said, [DOI’s] oil and gas agencies still face significant management challenges.”

The reorganization of MMS that US Interior Sec. Ken Salazar launched following the Macondo deepwater well accident in the Gulf of Mexico may eventually lead to more efficient operations, according to Rusco. It also will require such concentrated efforts by leaders and employees that problems could potentially increase in the short term, he said. The reorganization does not address DOI’s onshore oil and gas management through the US Bureau of Land Management, where Rusco said GAO has found several other management issues.

Information systems
A second witness, Acting DOI Insp. Gen. Mary L. Kendall, agreed the department’s two oil and gas programs face serious challenges, including US Outer Continental Shelf energy oversight, revenue collection, financial management, and information technology. “The work we did following the Deepwater Horizon accident showed that the industry already has several systems to share information [that DOI] could adopt,” she said.

Revenue collections haven’t responded to changing industry practices, Rusco said, citing royalty relief as an example where revenue percentages could have increased automatically as conditions improved. DOI is looking at adopting such an approach, he said. “The industry can account for very small amounts it is producing. So can its customers,” the GAO official said. “When they disagree, they can compare data and quickly resolve the issue. There is nothing comparable in the government to provide verification.”

Subcommittee Democrats suggested that improving federal oil and gas revenue collection could help balance the federal budget. “If we’re going to balance the budget, this could be a good place to start,” observed James P. Moran (Va.), the subcommittee’s ranking minority member. “Improving revenue collections and encouraging people working at the agencies to be more conscientious is a good idea. But we also need to give them the tools to do this.”

Republicans suggested that DOI study methods producing states use to collect oil and gas revenues. “I think Wyoming does a better job of collecting severance taxes and royalties as well as with its leasing terms,” Cynthia M. Lummis (Wyo.) said. Kendall urged BLM to look more closely at its right-of-way policies “which sometimes are little more than giveaways.”

Lummis also said environmental groups were routinely protesting onshore federal oil and gas leases and being reimbursed under the Equal Access to Justice Act, effectively billing taxpayers for preventing development of public resources. Rusco responded that a GAO study found challenges came from a wider range of groups, including sporting and recreation organizations, but added that BLM is missing 90% of its deadlines once it favorably resolves protests.

Contact Nick Snow at nicks@pennwell.com.

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