GAO evaluates DOI efforts to improve oil, gas fiscal system

The US Department of the Interior has taken important steps to help ensure a fair return on federal oil and gas resources, but does not have documented procedures to periodically review its fiscal system, the Government Accountability Office said in a report released Dec. 17.

GAO noted that while Interior recently contracted for such an assessment, it was the first in well over 25 years.

“Without documented procedures, [Interior] will not have reasonable assurance that it will consistently conduct such assessments in the future,” the report said. “Without periodically conducting such assessments, [it] cannot know whether there is a proper balance between the attractiveness of federal leases for investment and appropriate returns for federal oil and gas resources, limiting [Interior’s] ability to ensure a fair return.”

It noted that the department changed certain offshore lease terms, including raising royalty rates twice in response to changing market conditions. But it has only considered, but not revised, onshore royalty rates which are subject to the same market forces, the report said. “Current regulations generally provide for a fixed onshore royalty rate that limits [Interior’s] flexibility to make timely adjustments.”

Interior concurred with GAO’s recommendations that it revise the US Bureau of Land Management’s regulations to let the agency revise onshore royalty rates in a way similar to what now exists for offshore leases, determine whether and how to assess new offshore lease terms, and periodically assess its oil and gas fiscal system.

At a US Senate Energy and Natural Resources committee meeting to consider the nominations of Janice M. Schneider to be assistant US Interior secretary for land and minerals management and Neil G. Kornze to be BLM director, Chairman Ronald L. Wyden (D-Ore.) said GAO’s report suggests that DOI has not kept up with the times.

“There remains an obligation to the American taxpayers to make sure they are getting a fair return for commercial use of their public lands,” he said. “Since a major share of onshore royalties also goes to states and Indian tribes, shortcomings in royalty collections also short those states and tribes.”

Schneider responded, “I agree that the US taxpayer should be getting a fair return for the use of public lands and the Outer Continental Shelf. Those benefits can also flow to the states and tribes as appropriate. I look forward, if confirmed, to reviewing this new GAO report and working with members of the committee on this issue.”

Kornze, who has been BLM’s principal deputy director for the past year and an employee there for 3 years, said it is making progress on some fronts, “and if confirmed, you can be sure we’ll be making sure we will continue to take fair return for the taxpayer very seriously.”

Contact Nick Snow at nicks@pennwell.com.

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