Problems Persist With Gov’t Management of Oil and Gas Resources

By Matt Cover | June 8, 2011 | 12:40 PM EDT

An oil well in a farm field in Tioga, N.D. Domestic production of oil is rising for the first time in two decades thanks to new drilling techniques that are opening up vast fields of previously out-of-reach oil in the western United States. (AP Photo/James MacPherson, file)

( The Interior Department’s management of oil and gas resources on federal lands is “in transition” and still faces numerous challenges, the Government Accountability Office (GAO) said.

Following the 2010 Gulf oil spill, the Obama administration launched a major reorganization of oil and gas development on federal lands. It also re-examined the way it collects revenues stemming from that oil and gas activity.

“While this reorganization may eventually lead to more effective operations, GAO has reported that organizational transformations are not simple endeavors. GAO is concerned with Interior’s ability to undertake this reorganization while meeting its revenue collection and oil and gas oversight responsibilities,” a GAO official said in testimony prepared for a House panel.

Revenues from federal oil and gas resources are one of the largest nontax sources of federal government funds, the GAO noted: In fiscal year 2009, the federal government collected more than $9 billion from oil and gas drilling, leasing, and rents.

GAO said the Interior Department, for the first time in 25 years, is conducting a “comprehensive assessment” of its revenue collection policies and processes. It expects to complete the study later this year. “The results of the study may reveal the potential for greater revenues to the federal government,” GAO told the House Committee on Oversight and Government Reform.

High risk list

The GAO has raised concerns about the federal government’s management of oil and gas activities for years. While the Interior Department has taken steps to address the many weaknesses and challenges identified by GAO, “many recommendations remained unimplemented” as of December 2010.

In February 2011, GAO added the Interior Department’s management of federal oil and gas resources to its list of federal programs and operations that are at “high risk” for waste, fraud, abuse, and mismanagement or needing significant transformation.

GAO said the Interior Department was added to the list partly because of its ongoing reorganization and the revenue collection problems noted above.

In addition, GAO said Interior is not hiring or retaining enough qualified employees, a key problem prior to the 2010 oil spill when it was found that Interior Department regulators were not able to adequately inspect oil rigs for safety.

GAO also said the Interior Department could do more to encourage the development of existing oil and gas leases. With that goal in mind, the Interior Department recently said it would seek legislation establishing a per-acre fee on non-producing leases to encourage drilling.

And finally, GAO said the Interior Department faces challenges in balancing its responsibilities to develop oil and gas resources with environmental protection. This has made Interior the target of critics who charge that the department is hiding behind the specter of the 2010 oil spill to avoid approving new leases.

The GAO testimony concluded on a positive note: “We remain hopeful that the structural changes made to Interior’s bureaus, coupled with a concerted effort to implement the many recommendations we have made, should provide greater assurance of effective oversight of federal oil and gas resources.”