Analysis: Interior Faces Challenges in Monitoring O&G Production

The Deepwater Horizon tragedy in the Gulf of Mexico has sparked national attention to the manner in which oil and gas exploration and production operations on federal onshore and offshore leases are conducted.

The U.S. Government Accountability Office (GAO), which has spent the past five years conducting evaluations and issuing recommendations to the Secretary of the Interior on how to improve the agency's management of oil and gas resources, has expressed concern over the agency's ability to manage oil and gas resources, ensure safe operation of leases, provide adequate environmental protection, and provide reasonable assurance that the U.S. government is collecting the revenues to which it entitled.

GAO concluded in a review in March 2010 that the Interior Department faces challenges in hiring, training and retaining key staff, which has raised questions about Interior staff's technical capacity to oversee increasingly sophisticated oil and gas activities on federal lands and water. GAO said that Interior's challenge in keeping qualified staff partly stems from competition with the oil and gas industry, which pays its staff higher salaries, said Frank Rusco, GAO director of natural resources and the environment, in testimony on June 17 before the Subcommittee on Energy and Natural Resources.

Moreover, key technical positions responsible for oversight of oil and gas activities have experienced high turnover rates, which Interior officials have said impede their capacity to oversee oil and gas activities. These positions included petroleum engineers, who process drilling permits and review oil and gas metering systems, and inspection staff such as petroleum engineering technician and production accountability technician onshore who conduct drilling, safety and oil and gas production verification inspections. The turnover rates for OEMM inspectors at four district offices reviewed by GAO between 2004 and 2008 ranged from 27 percent to 44 percent.

Interior also has not consistently trained staff it has hired and retained; one example is not requiring onshore and offshore petroleum engineers to undergo training on oil and gas measurement, which is critical to accurate royalty collections, and can be challenging due to the type of meter used, qualities of oil and gas being measured, and rate of production.

Interior's efforts to provide its inspection staff with mobile computing capabilities for use in the field are moving slowly and are years from full implementation. Interior inspectors continue to rely on documenting inspection results on paper, and later reentering these resulting into Interior databases.

GAO also has found that the Interior Department was unable to complete necessary reviews, including environmental and oil and gas production verification inspections, and had an ill-defined process for conducting certain offshore environmental analyses. GAO notes that the Minerals Management Service (MMS), the Interior agency that oversees offshore oil and gas activities, had not prepared a handbook as directed by Interior providing guidance on conducting required environment review in Alaska. As a result, MMS's policy was unclear on what constituted a significant environmental impact.

"The lack of comprehensive guidance in a handbook, combined with a high staff turnover in recent years, left the process of meeting NEPA (National Environmental Protection Act) requirements ill defined for the analysts charged with developing NEPA documents," said Rusco.

In some cases, Interior was uncertain about its legal authority to undertake potential necessary enforcement actions, and that Interior may be inconsistently using its enforcement authority. Staff at one office of the Bureau of Land Management (BLM), the Interior agency that oversees onshore oil and gas activity on federal lands, told GAO that they were not issuing enforcement actions for unauthorized devices intended to modify gas flow upstream of the measurement meter, which may result in inaccurate measurement of gas production volumes. Staff told GAO that this was due to measurement regulations being out of date.

GAO also identified several instances where Interior staff had inappropriate relationships with oil and gas industry personnel, raising questions about whether Interior's oversight efforts were sufficient. The Interior's Office of Inspector General found numerous instances of inappropriate contact between industry and Interior staff, including staff receipt of gifts. "The agency should be free from the direct and indirect influence of the oil and gas industry," said Rusco.

GAO also found state-by-state variation across BLM state offices in relation to oil and gas lease sale decisions in Colorado, New Mexico, Utah and Wyoming, the four Mountain West states responsible for most federal oil and gas development. GAO noted that stakeholders, including industry groups and nongovernmental organizations representing environmental, recreational, and hunting interests, expressed frustration with the transparency and timeliness of the information.

"In conclusion, over the past several years, we and others have found Interior to be in need of fundamental reform," said Rusco. "This past work has found weaknesses across a wide range of Interior's oversight of onshore and offshore oil and gas development."

Rusco noted that Secretary of the Interior Salazar has taken "notable steps" to begin comprehensive evaluations of leasing rules and practices as well as the amount and ways in which the federal government collects revenues. "Interior is also currently implementing a number of our recommendations aimed at making improvements within the existing organization of Interior's functions."