Interior Department policies don't ensure accurate measurement of oil and gas production on federal leases that generates billions of dollars in royalty payments each year, according to a government audit released today.
Limited oversight, gaps in staff skills, failure to update measurement regulations, inconsistent policies, lack of coordination and a failure to determine its authority over key oil and gas infrastructure have hindered Interior's ability to accurately verify production levels, the Government Accountability Office found.
And despite years of critical reviews by GAO and others, Interior recently lowered its own estimation of the risks of the onshore oil and gas program from medium to low, exempting it from more rigorous internal oversight, GAO said.
The 130-page report found that onshore measurement regulations have not been updated in 20 years and do not address current measurement technologies. For both onshore and offshore leases, Interior has ineffective and inefficient methods of developing and revising its measurement regulations, it said.
Interior also has failed to determine the extent of its authority to oversee key elements of oil and gas infrastructure, including gas plants and pipelines, limiting its ability to inspect them and assess the accuracy of their measurement, GAO said.
Onshore and offshore policies vary, resulting in inconsistent oil and gas measurement practices, the audit found. Although onshore and offshore staff face similar measurement issues, they have infrequently coordinated and missed opportunities to take advantage of measurement expertise across agencies.
Interior's decentralized process for granting waivers from the regulations and approving alternative measurement technologies allows officials to make key decisions with little oversight, the report said. GAO 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 key production verification staff lack critical skills, in part because Interior has failed to provide training. For example, the department has provided training only once in the past 10 years for its onshore engineers, despite significant changes in technology used by industry. Interior's efforts to provide its inspection staff with tools to obtain real-time gas production data directly from producers and the ability to electronically document production inspection results in the field have shown few results, GAO said.
The audit also found that Interior's production-inspection programs are not consistently setting or meeting goals for inspecting oil and gas leases and do not sufficiently address key factors affecting measurement accuracy, including how gas samples are collected. Offshore inspectors met program goals once between fiscal 2004 and 2008, and onshore inspectors met program goals about one-third of the time over the past 12 years, GAO said.
The offshore and onshore inspection programs differ, with only the offshore program establishing goals for witnessing meter calibrations, a key control for accurate measurement, the report said. The offshore program lacks an activity to independently verify gas volume calculations, it added.
GAO recommended that Interior improve the consistency and timely updating of measurement regulations and policies, clarify jurisdictional authority over gas plants and pipelines, and provide appropriate and timely training for key measurement staff. Interior generally agreed with the findings and recommendations.
Ned Farquhar, Interior deputy assistant secretary for land and minerals management, said Interior Secretary Ken Salazar has made it clear that ensuring a fair return for taxpayers from the sale of federal oil and gas resources must be a top priority and that the department must implement reforms.
"As part of this commitment to ensuring a fair return, we have reviewed the GAO's report and are concurring with virtually all of its recommendations on production verification," Farquhar said. "We believe that these recommendations and other reforms will help improve the way we monitor, measure, account for, and verify the production of federal oil and gas."
House Oversight and Government Reform Committee ranking member Darrell Issa (R-Calif.) said the report "confirms that the bureaucracy at the Interior Department continues to defeat efforts by both Democratic and Republican administrations to hold it accountable and institute needed reforms."
"The Interior Department is still guilty of a breach of fiduciary duty to the American people," Issa added. "Lowering its own risk assessment for oil and gas programs that reduces needed oversight is clearly a step in the wrong direction. The administration needs to take this situation seriously and work with Congress to ensure taxpayers receive fair payment for oil and gas taken from public lands."
The Project on Government Oversight said Interior should immediately implement recommendations that could increase government revenue.
"It's outrageous that the Interior Department still cannot show taxpayers that they are getting a fair deal for their natural resources," POGO executive director Danielle Brian said in a statement. "Many of these problems are decades old, and progress is moving at a snail's pace."
Click here to read the GAO report.