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GAO testifies on BLM energy oversight
Comments on recommendations relating to lease revenues, well bonding, royalty compliance and minimizing methane emissions Alan Bailey for Petroleum News
In recent testimony to the U.S. House Committee on Natural Resources, the Government Accountability Office overviewed some concerns about issues relating to Bureau of Land Management oversight of energy leasing on federal land. In Alaska, BLM manages oil and gas exploration and development in the National Petroleum Reserve-Alaska and will manage any future oil and gas activity in the Arctic National Wildlife Refuge.
The testimony focused on four issues relating to oil, gas and coal development: land lease terms and conditions; bonding for energy related activities; royalty compliance; and methane emissions.
Land lease revenues In terms of land leasing, the GAO questioned the fact that federal lease terms have not changed for several decades, a factor that raises potential issues regarding whether the federal government now receives a fair return on energy related activities on its lands. For example, lease rental rates and the royalty rates on oil and gas production have not been adjusted over the years.
In 2016, in response to a GAO recommendation, BLM adopted regulations providing for royalty rate flexibility. But royalty rates remain at a minimum of 12.5% of production value. Oil and gas land tracts are generally leased for 10 years, with a rental rate of $1.50 per acre for the first five years, rising to $2 per year thereafter. Some states have royalty rates higher than the federal rates, a situation that raises questions over whether the federal government is making an appropriate return from energy production on its land - BLM does conduct periodic assessments of its oil and gas fiscal system and plans to conduct its next assessment in late 2019, the GAO said.
Bonding and well remediation The GAO recently issued a report recommending that Congress should provide funding for the reclamation of orphaned oil and gas wells, while also suggesting that required bonding levels for drilling oil and gas wells are too low. In its testimony to Congress the agency re-iterated these concerns, commenting that well reclamation costs can range from $20,000 to $145,000. While BLM generally sets bonding at the minimum required levels, those minimum levels have fallen far behind inflation over the years and appear to be below realistic reclamation costs, the GAO told the House committee.
The GAO also said that BLM has commented that the agency does not have the authority to seek or claim funds from operators for the reclamation of orphaned wells. Congress should consider giving BLM this type of authority, the GAO suggested.
Royalty compliance With reference to BLM’s ability to meet its royalty compliance goals, ensuring that all oil and gas royalties are fully collected and accounted for, the GAO questioned whether the agency sufficiently accounts for and verifies its revenues. The GAO has recommended, and BLM has concurred with, the establishment of goals for the accuracy of royalty payments.
Methane emissions In 2010 and 2016 the GAO issued recommendations for steps that the Department of the Interior, including BLM, should take to better account for and manage methane emissions from oil and gas development. Methane is a particularly virulent greenhouse gas. The GAO also commented that data reporting gas flaring and venting on federal leases probably underestimate the scale of the emissions.
In 2016 the GAO recommended the BLM should issue new guidance on estimating gas emissions from operations on federal leases.
In July 2016 the Department of the Interior took steps to implement the GAO’s recommendations for the improved control of methane emissions. However, in June 2017 Interior postponed the compliance date for several sections of new emissions regulations. And in September 2018 the agency issued new regulations that were not compliant with the GAO’s findings and recommendations, the GAO told the House committee. Some states have emissions regulations more stringent than those of the federal government, the GAO commented.
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