Key Issues > High Risk > Management of Federal Oil and Gas Resources
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Management of Federal Oil and Gas Resources

To enhance its oversight of oil and gas development on federal lands and waters, the Department of the Interior (Interior) needs to accurately determine and collect royalties; resolve its human capital challenges; and, address leadership commitment deficiencies within the Bureau of Safety and Environmental Enforcement.

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Management of federal oil and gas resources was added to the High-Risk List in 2011, based on challenges we identified in Interior’s management of oil and gas on leased federal lands and waters. This high-risk area has three segments: royalty determination and collection, human capital challenges, and restructuring of offshore oil and gas oversight.

Royalty determination and collection. Interior lacks reasonable assurance that it is collecting its fair share of revenue from oil and gas produced on federal lands and waters.

Human capital. Interior continues to experience problems hiring, training, and retaining sufficient staff to oversee and manage oil and gas operations on federal lands and waters.

Restructuring of offshore oil and gas oversight. Interior’s restructuring of BSEE has made limited progress addressing long-standing deficiencies in the bureau’s investigative, environmental compliance, and enforcement capabilities. Additionally, BSEE has struggled to implement strategic initiatives to improve offshore oversight and internal management.

Management of Federal Oil and Gas Resources

Since our 2017 update, Interior has partially met all criteria for this high-risk area. This high-risk area is composed of three segments: royalty determination and collection, human capital, and restructuring of offshore oil and gas oversight. Under human capital, for example, Interior has taken steps to assess its special salary rates but has not provided evidence that it evaluated its bureaus' training needs, training effectiveness, or opportunities for the bureaus to share training resources. Each of our five recommendations related to human capital, such as annually evaluating the bureaus' training programs, also remain open.

In February 2016, we reported that BSEE had not addressed longstanding oversight deficiencies. In March 2017, we reported that BSEE needed to improve its leadership commitment toward completing strategic initiatives for enhancing offshore oversight and internal management. These reports were the basis for adding the third segment to this High-Risk area in 2017.

Over the years since we added this area to our High-Risk List, we have made numerous recommendations related to this high-risk issue, 4 of which were made since the last high-risk update in February 2017. As of December 2018, 17 recommendations are open or unimplemented.


Royalty Determination and Collection

Management of Federal Oil and Gas Resources

Ratings for this segment remain largely unchanged since our previous High-Risk Report in 2017, though the rating for leadership commitment has been revised from met to partially met due to recent regulatory actions. Ratings for the four remaining criteria remain unchanged.

Leadership commitment: partially met. We revised the rating from met to partially met in light of recent regulatory actions addressing methane emissions and oil and gas measurement that may adversely affect the agency’s past efforts to implement our recommendations.

In October 2010 and July 2016, we found that Interior could take steps to better account for and manage methane emissions and issued several recommendations. For example, in October 2010, we found that economically capturing onshore vented and flared methane could increase federal royalty payments by $23 million annually. In response, Interior took steps to implement our recommendations. Specifically, in November 2016, Interior issued regulations intended to reduce wasteful methane emissions from onshore oil and gas production, which were consistent with our recommendations. In June 2017, however, Interior postponed compliance dates with relevant sections of the new regulations, and then suspended certain requirements in December 2017. Interior subsequently issued revised regulations in September 2018. Interior’s revised regulations were not consistent with our prior work because they eliminated certain regulations that would potentially have addressed our recommendations. Better methane control is important for ensuring the federal government receives all the royalties it is due.

In April 2015, we found that Interior had not updated several oil and gas measurement and site security regulations in over 25 years. As a result, Interior’s measurement regulations did not reflect current measurement technologies and standards, and its site security regulations did not require the tracking of the number or location of its royalty measurement points. This hampered Interior’s ability to have reasonable assurance that oil and gas production was being accurately measured and verified, raising concerns about whether the federal government was receiving the royalties it was due. Accordingly, we recommended that Interior update those regulations. In response, Interior issued new regulations consistent with our recommendations, which went into effect in January 2017. Later that month, Interior announced a new rulemaking effort to begin in January 2019 to revise its oil and gas measurement and site security regulations. It is uncertain whether these revisions will be consistent with our prior work and provide reasonable assurance that the federal government is receiving the royalties it is due.

We will continue to monitor Interior’s regulatory actions and reevaluate its progress to regulate methane emissions and measurement, and site security.

Capacity: partially met. Interior has an uneven capacity to address weaknesses in its ability to determine and collect royalties. Interior was unable to consistently meet its oil and gas measurement goals—an important control for ensuring accurate royalty payments—for fiscal years 2014 through 2017. In September 2018, Bureau of Land Management (BLM) officials stated that while BLM had generally met its goals for high-priority oil and gas measurement inspections for fiscal years 2014 through 2017, it was unable to meet its goals for low-priority inspections, in part due to insufficient staff.

Action plan: partially met. In March 2017, the Secretary of the Interior established the Royalty Policy Committee, which is tasked with providing advice to the Secretary on the fair market value of and on the collection of revenues derived from development of energy and natural resources on Federal lands.  Since then, the Committee has met several times.  This effort is ongoing.

Monitoring: partially met. Interior has undertaken efforts to monitor its performance addressing royalty determination and collection weaknesses. For instance, Interior has implemented a majority of our recommendations addressing royalty determination and collection.  However, it is uncertain if the effect of Interior’s recent regulatory actions on methane emissions and oil and gas measurement will be consistent with our prior work. Additionally, BLM has still not completed a planned internal review to assess the overall effectiveness of previously issued guidance on commingling requests—requests to combine oil or gas from public, state, or private leases prior to royalty measurement.

Demonstrated progress: partially met. Interior has demonstrated progress addressing weaknesses in its revenue collection policies and practices. As of December 2018, Interior fully implemented 47 of our 50 recommendations. However, the effect of Interior’s recent regulatory actions on methane emissions and oil and gas measurement may not be consistent with our prior work. Our recommendations related to methane emissions and oil and gas measurement are important for ensuring the government collects the royalties it is due. Interior may hinder its demonstrated progress if its recent regulatory actions jeopardize its prior efforts to implement our recommendations.


Human Capital Challenges

Management of Federal Oil and Gas Resources

Interior continues to partially meet all criteria for this segment, as it did in 2017. 

Leadership commitment: partially met. Interior has taken steps to implement each of our five recommendations related to human capital, such as evaluating the need for and viability of a certification program for BSEE inspectors. But Interior officials need to provide the guidance and direction to ensure Interior continues to work toward full implementation of these recommendations.

Capacity: partially met. In January 2017, Interior stated that it would direct BLM, BSEE, and the Bureau of Ocean Energy Management to identify their technical competency needs for key oil and gas personnel and develop a plan with milestones.  In May 2018, Interior said it asked the bureaus to provide a plan for identifying key oil and gas positions and their respective technical competencies. As of December 2018, Interior had not provided us with a plan for developing technical competencies.

Action plan: partially met. Among other actions, Interior has taken initial steps to assess the effectiveness of its special salary rates by examining hiring and retention data from the fiscal year 2017 hiring cycle. However, as of December 2018, Interior had not evaluated the bureaus' training needs, training effectiveness, or opportunities for the bureaus to share training resources.

Monitoring: partially met. In September 2016, Interior outlined steps it will take to assess the effectiveness of special salary rates, as well as recruitment, relocation, and retention incentives by tracking measures such as turnover and acceptance rates. As of December 2018, the three bureaus had taken initial steps to regularly evaluate the effectiveness of the special salary rates incentive by examining data from fiscal year 2017 but had not yet evaluated the effectiveness of recruitment, relocation, and retention incentives, or its student loan repayment program.  

Demonstrated progress: partially met.  In September 2016, we reported on Interior’s progress to hire, train, and retain staff, and made five recommendations. Interior has agreed with one recommendation, partially agreed with three, and disagreed with the remaining one. The agency has made some progress, but all recommendations remain open. 


Restructuring of Offshore Oil and Gas Oversight

Management of Federal Oil and Gas Resources

We added this segment to our 2017 High-Risk List and are rating it for the first time.

Leadership commitment: partially met.  In March 2017, we reported that BSEE leadership had started several initiatives to improve its safety and environmental oversight capabilities, but its limited efforts to obtain and incorporate input from within the bureau hindered its progress. In March 2017, we recommended that BSEE establish a mechanism for management to obtain and incorporate input from bureau personnel and any external parties that can affect the bureau's ability to achieve its objectives. We highlighted this recommendation as a top priority for the Secretary of the Interior. BSEE has taken some actions to address our concerns, including establishing an Ombudsman position within the bureau in May 2017, an Employee Engagement Council in February 2018, and an Innovation Program in April 2018. However, BSEE has not yet demonstrated that these actions represent an enduring institutionalization of improved communication throughout the bureau.

Capacity: partially met.  Since March 2017, BSEE has taken some actions for management to obtain and incorporate input from bureau personnel and any external parties that can affect the bureau's ability to achieve its objectives. However, BSEE has not completed other actions, such as a risk analysis of the regional-based reporting structure of the Environmental Compliance Division, including actions to mitigate any identified risk.

Action plan: partially met. In September 2016, BSEE issued a plan with milestones for implementing its case management system for investigations of offshore incidents. However, BSEE has not completed other actions, such as developing a plan to address documented environmental oversight staffing needs.

Monitoring: partially met.  In April 2016, BSEE issued a bureau manual chapter regarding the review and adjustment of civil penalty amounts, and in February 2018 added a supplementary standard operating procedure that defines business practices for civil penalty inflation adjustment and identifies specific bureau roles, responsibilities, and timelines. However, BSEE has not completed other actions.  For example, BSEE has not coordinated with the Administrator of the Environmental Protection Agency to consider existing interagency agreements for monitoring operator compliance with National Pollutant Discharge Elimination System permits on the Outer Continental Shelf and, if necessary, update them to reflect current oversight needs.

Demonstrated progress: partially met. We made a total of 13 recommendations to improve BSEE oversight capabilities and internal management, 9 of which remain open regarding its implementation of oversight divisions, ability to meet strategic objectives, and efforts to improve organizational trust.

Royalty Determination and Collection

Interior has made good progress addressing our recommendations yet needs to (1) continue to consider how to ensure the public gets a fair return from oil and gas produced from onshore and offshore leases, (2) complete its rulemaking to replace its recently issued onshore oil and gas measurement and site security regulations, (3) continue to assess technologies to minimize methane emissions, where applicable, (4) meet its goals for onshore and offshore oil and gas measurement inspections,  and (5) consider technological options to more efficiently and effectively receive oil and gas volume data from companies. As of December 2018, 3 of the 50 recommendations we have made related to this segment remain unimplemented. Interior generally concurred with the remaining unimplemented recommendations. However as stated above, some of Interior’s recent regulatory actions may not be consistent with our prior work. We will continue to monitor Interior’s regulatory actions and reevaluate its progress to regulate methane emissions and measurement, and site security.

Human Capital Challenges

In 2016, we made five recommendations to Interior and all remain open.  Interior needs to fully implement our recommendations to address its human capital challenges.

To help ensure Interior can hire, retain, and  train needed staff, we recommended that Interior (1) regularly evaluate the effectiveness of incentives, such as special salary rates, to hire and retain key oil and gas staff; (2) annually evaluate the bureaus' training programs, including training needs and effectiveness, and potential opportunities for the bureaus to share training resources; (3) develop technical competencies for all key oil and gas staff; (4) evaluate the need for and viability of a certification program for BSEE inspectors; and (5) create or use an existing mechanism to facilitate collaboration across the three bureaus in addressing their shared hiring, retention, and training challenges.

Restructuring of Offshore Oil and Gas Oversight

Interior should implement all open recommendations to complete the restructuring of BSEE’s oversight functions and improve leadership commitment to its key strategic initiatives for improving offshore oversight and internal management.  Interior neither agreed nor disagreed with our recommendations.

Looking for our recommendations? Click on any report to find each associated recommendation and its current implementation status.
  • portrait of Frank Rusco
    • Frank Rusco
    • Natural Resources and Environment, Director
    • ruscof@gao.gov
    • (202) 512-4597