GAO FAULTS INTERIOR FOR ISSUANCE OF 10 DEVELOPMENT PACTS

The General Accounting Office has challenged the legality of more than 11 million acres of oil and gas leases the U.S. Interior Department has issued to operators in western states. The leases were issued under 10 special "development contracts" the Bureau of Land Management approved between March 1986 and July 1988. BLM has halted the practice, and GAO is urging Congress to review the matter. GAO, a congressional watchdog agency, reports BLM used the development contracts to circumvent a law

Nov. 4, 1991

3 min read

The General Accounting Office has challenged the legality of more than 11 million acres of oil and gas leases the U.S. Interior Department has issued to operators in western states.

The leases were issued under 10 special "development contracts" the Bureau of Land Management approved between March 1986 and July 1988. BLM has halted the practice, and GAO is urging Congress to review the matter.

GAO, a congressional watchdog agency, reports BLM used the development contracts to circumvent a law limiting a single entity to 246,080 acres of federal oil and gas leases in any single state.

That prohibition is designed to prevent a company from dominating leasing in a state, but the law allows BLM to exceed those limits if companies need more acreage to develop existing leases or consolidate production operations.

GAO'S REASONING

GAO said the 10 development contracts BLM has issued or approved since 1986 do not satisfy legal requirements for development contracts because the contracts are for oil and gas exploration on largely unleased federal land rather than for development of existing leases. What's more, they do not require leases within the boundaries of the contracts to be developed.

GAO also said, "The mineral leasing acts also specify that development contracts must be between lessees and others-for example, oil and gas operators. Under the acts the Interior secretary is not authorized to be a party to the contracts. However, nine of the 10 contracts are between Interior and lease operators, and in the 10th contract the parties are all operators. As a result, the sole parties in all 10 contracts, other than Interior, are the operators."

Although Interior maintained the law gives it the discretion to use development contracts to promote exploration of largely unleased federal land, GAO said, "The secretary cannot substitute discretion for the act's acreage limitation."

And it noted the practice reduces the acreage available for leasing to other oil companies in those states.

Interior also maintained the development contracts are in the public interest because the companies committed to a specific amount of exploration on remote leases in return for exceptions from the statutory acreage limit.

But GAO said the six Nevada contracts are not remote but are near each other, are situated between the two main oil producing areas in the state, and are near other companies' leases "indicating to us that these lands have exploration potential."