The federal government may not be measuring oil and gas production from federal leases accurately because of contradictory policies and poor coordination between agencies, the US Government Accountability Office said in a report it issued on Apr. 14. That production generated more than $2.5 billion in royalties during 2009, it pointed out.
GAO said onshore measurement regulations that the US Bureau of Land Management uses have not been updated in 20 years and do not address current measurement technologies. Staffs from BLM and the US Minerals Management Service, which regulates federal offshore resources, do not coordinate frequently when measurement questions arise "although each addresses similar issues," the report continued.
"Further, [DOI] has failed to determine the extent of its jurisdictional authority over key elements of oil and gas infrastructure, including gas plants and pipelines, limiting its ability to inspect these elements to assess the accuracy of their measurement," it said.
Onshore and offshore policies for tracking and approving where and how oil and gas are measured are also inconsistent, GAO said. It noted that MMS's program establishes goals for witnessing meter calibrations while BLM's does not, and BLM's program includes an activity to verify gas volume calculations which MMS's lacks.
"Limited oversight, gaps in staff skills, and incomplete tools hinder [DOI's] ability to manage its production verification programs," the report said. "In particular, we identified several instances where production measurement staff work with limited oversight. For example, onshore engineers generally make decisions autonomously in the absence of central guidance and oversight."
Some standardization
In a Feb. 26 response to the report's draft, Wilma A. Lewis, assistant US Interior secretary for land and minerals management, said that DOI is working to standardize common agency practices where it would be appropriate, particularly where operations would be more efficient and effective. "Both BLM and MMS are working to develop new regulatory requirements regarding co-mingling of produced oil and gas from different sources that would be appropriate to their respective environments," she said.
The agencies also are collaborating on many important issues such as revising Onshore Order No. 3, which will require onshore operators to include meter identification numbers on monthly production reports, she added. BLM and MMS also are reviewing DOI's authority to regulate plants which process gas from federal leases, including requirements and responsibilities for approving and inspecting meters at the plants, Lewis said.
BLM has a policy of completing onshore production inspections at lease once every 3 years for low-priority cases that it has been unable to meet, the report said. It pointed out that while BLM's program tracks inspections on a single case level, "a single case may include from one to several hundred wells." BLM requires that each case involving multiple wells include inspections of 25% of those wells, it said. "Our analysis of BLM data suggests that numerous producing cases have not been inspected for many years," it said.
BLM petroleum engineer technicians and production accountability technicians offered numerous explanations, GAO said. "First, onshore leases have recently experienced high levels of drilling, and under BLM's formal inspection strategy, conducting drilling inspections take priority over conducting production inspections," it said. After BLM reduced the volume criteria for high-priority cases, the number which required annual inspections increased which further reduced inspection staffs' ability to inspect low-priority cases, it added.
BLM officials in most of the field offices which GAO staff members visited said that it also was difficult to hire and retain enough inspectors because of low salaries compared with the oil and gas industry and high housing costs in energy boom towns, the report said. When employees were successfully hired, more senior and experienced staff members said that they had to spend additional time providing on-the-job training, reducing the number of senior staff inspections, it indicated.
Six key factors
GAO said DOI's production accountability inspections do not witness gas sample collections, verify that BTU values are reported correctly, witness orifice plate inspections, assess impacts of liquids in gas streams, address low differential pressure, and inspect meter tubes.
Software to allow inspectors to remotely monitor gas production and a mobile computing platform, which would allow them to enter results while in the field, are behind their implementation schedule and, according to employees, years from widespread use, it added.
"Specifically, while BLM has made progress in developing in-house software for obtaining and analyzing gas production data from electronic flow computers, it has fallen behind the private sector in collecting and analyzing these data and adopting common software that facilitates data exchanges," the report said. "Additionally, while BLM has recognized the need for staff to have mobile computing technology for documenting production inspections in the field, it has not developed the necessary technology."
Offshore Energy and Minerals Management division recently expressed interest in developing a similar tool for its inspectors, "yet no coordination occurred between BLM and OEMM on the development of such a tool," it added.
Among the 19 recommendations it made, GAO said that US Interior Secretary Ken Salazar should require BLM to track all onshore meters, including information about a meter's location, identification number, and owner; order MMS to require onshore operators to include meter identification numbers in the monthly production reports they file; and have BLM petroleum engineers work with inspectors to confirm that commingling agreements are consistent with DOI guidance and are adequately structured to facilitate key production verification activities before the agreements are approved.
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