Congress and the Interior Department should consider changes to the US oil and gas royalty payment system to safeguard federal revenues, the US Government Accountability Office (GAO) said Dec. 15.
Royalties on the sale of oil and gas produced on federal lands and waters are a significant source of revenue to the US government, generating more than $14 billion in revenue in 2024, GAO explained in a report.
Under the current system, the Interior Department’s Office of Natural Resources Revenue (ONRR) has 7 years to verify royalties are accurately paid and finalize enforcement actions to collect unpaid royalties. At the same time, oil and gas companies that over- or underpay their royalties have up to 6 years to revise their reports, giving the agency as little as a year to complete its verification. The ONRR verification and enforcement process takes an average of 18 months but often lasts much longer, the government watchdog explained.
“ONRR may not have enough time under current statutory requirements to ensure royalties are accurate,” GAO stated. “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.”
In fiscal years 2014–2024, net adjustments reduced companies’ originally reported royalties from about $96 billion to $93 billion, or by 2.8%, GAO said. Adjustments included $300 million to royalties initially paid 4–6 years prior.
In 2011, ONRR recommended to Congress that it shorten the statutory time frame for a company to adjust royalties to 3 years. The change was not enacted, even though industry representatives at the time stated that companies generally use electronic systems and no longer need as much time to submit adjustments, GAO noted.
GAO urged Congress to reduce the period companies have to adjust payments, emphasizing that a shorter adjustment window would help ensure that the US government receives all the money it is owed.
The office also recommended that ONRR consider implementing a policy that would allow it to enter voluntary agreements with companies to ensure it has adequate time to review late-period adjustments. It also should develop a centralized system to consistently track the use of voluntary agreements to extend the time available for audits.
