	Interior’s Oversight of Offshore Oil and Gas Resources

In July 2012, we reported on changes Interior made to its oversight of  offshore oil and gas activities in the Gulf of Mexico in the aftermath of the  Deepwater Horizon incident. Specifically, we reported that
On October 1, 2011, Interior officially established two new bureaus,  separating offshore resource management oversight activities, such  as reviewing oil and gas exploration and development plans, from  safety and environmental oversight activities, such as reviewing  drilling permits and inspecting drilling rigs. New safety and environmental requirements and policy changes  designed to mitigate the risk of a well blowout or spill initially required  Interior to devote additional resources and time to reviewing certain oil  and gas exploration and development plans and drilling permits for oil  and gas activities in the Gulf of Mexico. Our analysis of drilling permit approval time  frames found that approval times initially increased after the new  requirements went into effect, but as both Interior staff and oil and gas  companies became more familiar with these requirements, the review  times decreased. Interior’s inspections of offshore Gulf of Mexico oil and gas drilling rigs  and production platforms from January 1, 2000, through September  30, 2011, routinely identified violations. However, Interior’s database  was missing data on when violations were identified, as well as when  they were corrected for about half of the violations issued. In September 2008, we reported that Interior collected lower levels of  revenues for oil and gas production in the deepwater of the U.S. Gulf of  Mexico than all but 11 of 104 oil and gas resource owners in other  countries, as well as in some states whose revenue collection systems  were evaluated in a comprehensive industry study.significant changes in the oil and gas industry over the past several  decades, we found that Interior had not systematically reexamined how  the U.S. government is compensated for extraction of oil and gas in over  25 years. Furthermore, we reported, in July 2009, on numerous problems with  Interior’s efforts to collect data on oil and gas produced on federal lands  and waters, including missing data, errors in company-reported data on  oil and gas production, and sales data that did not reflect prevailing  market prices for oil and gas. We made a number of recommendations to Interior to  improve controls on the accuracy and reliability of royalty data. Interior  generally agreed with our recommendations and has implemented the  majority of them. We also reported, in March 2010, that Interior was not taking the steps  needed to ensure that oil and gas produced from federal lands and   For example, we found that neither waters was accurately measured. Interior generally  agreed with our recommendations; it has already implemented many of  them and continues to work on the remainder. Interior generally agreed with our  recommendations and is taking steps to implement them. Interior’s Oil and Gas Management on the High Risk List

In February 2011, we added Interior’s management of federal oil and gas  resources to our list of federal programs and operations at high risk for  waste, fraud, abuse, and mismanagement or needing broad-based  transformation. We added Interior to the list because the department:  (1) did not have reasonable assurance that it was collecting its share of  revenue from oil and gas produced on federal lands; (2) continued to  experience problems in hiring, training, and retaining sufficient staff to  provide oversight and management of oil and gas operations on federal  lands and waters; and (3) was engaged in a broad reorganization of both  its offshore oil and gas management and revenue collection functions,  leading to concerns about whether Interior could provide effective  program oversight while undergoing such a broad reorganization. In the February 2013 update to our High Risk list,federal oil and gas management high-risk area to focus on revenue  collection and human capital challenges because Interior had completed  its reorganization. While Interior recently began  implementing a number of GAO recommendations, including those  intended to improve the reliability of data necessary for determining  royalties, the agency has yet to implement a number of other  recommendations, including those intended to help the agency               (1) provide reasonable assurance that oil and gas produced from federal  leases is accurately measured and that the public is getting an  appropriate share of oil and gas revenues and (2) address its long- standing human capital issues. In conclusion, Interior’s management of federal oil and gas resources is in  transition. Our past work has found a wide range of weaknesses in  Interior’s oversight of federal oil and gas resources, ultimately resulting in  its inclusion on our High Risk List in 2011.
Why GAO Did This Study

Interior issues permits for the development of new oil and gas wells on federal lands and waters; inspects wells to ensure compliance with environmental, safety, and other regulations; and collects royalties from companies that sell the oil and gas produced from those wells. In recent years, onshore and offshore federal leases produced a substantial portion of the oil and gas produced in the United States. In fiscal year 2012, Interior collected almost $12 billion in mineral revenues including those from oil and gas development, making it one of the largest nontax sources of federal government funds. Previous GAO work has raised concerns about Interior's management and oversight of federal oil and gas resources.
This testimony focuses on (1) Interior's oversight of offshore oil and gas resources, (2) Interior's collection of oil and gas revenues, and (3) Interior's progress to address concerns that resulted in its inclusion on GAO's High Risk List in 2011. This statement is based on prior GAO reports issued from September 2008 through February 2013.
GAO is making no new recommendations. Interior continues to act on the recommendations that GAO has made to improve the management of oil and gas resources. GAO continues to monitor Interior's implementation of these recommendations.

What GAO Found

Interior's oversight of offshore resources . In July 2012, GAO reported on changes to the Department of the Interior's oversight of offshore oil and gas activities in the Gulf of Mexico following the Deepwater Horizon incident. Specifically, GAO reported that Interior had established two new bureaus, separating resource management oversight activities from safety and environmental oversight activities. GAO also reported that new requirements and policy changes designed to mitigate risk of a well blowout or spill had initially required additional resources and increased permit approval times, but that approval times decreased as Interior staff and oil and gas companies became more familiar with the new requirements. GAO also found that Interior's inspections of offshore Gulf of Mexico drilling rigs and production platforms routinely identified violations, but that Interior's database was missing data on when violations were identified and corrected. GAO made 11 recommendations aimed at improving Interior's oversight activities. Interior generally agreed with the recommendations and plans to implement them.
Interior's collection of oil and gas revenues. In September 2008, GAO reported that Interior collected lower levels of revenues for oil and gas production in the deep water of the U.S. Gulf of Mexico than all but 11 of 104 oil and gas resource owners in other countries and some states. In July 2009, GAO reported on problems with Interior's efforts to collect data on oil and gas produced on federal lands, including missing and erroneous data. In March 2010, GAO reported that Interior was not taking needed steps to ensure that oil and gas produced from federal lands was accurately measured and was not consistently meeting its goals for oil and gas production verification inspections. GAO made numerous recommendations aimed at improving Interior's revenue collection policies, including oversight of production verification activities and controls on the accuracy and reliability of royalty data. Interior generally agreed with these recommendations and has implemented many of them.
Interior's oil and gas management on GAO's high risk list . In February 2011, GAO added Interior's management of federal oil and gas resources to its list of federal programs and operations at high risk for waste, fraud, abuse, and mismanagement or needing broad-based transformation. GAO added this high risk area because Interior (1) did not have reasonable assurance that it was collecting its share of revenues; (2) continued to experience problems hiring, training, and retaining sufficient staff to provide oversight and management of oil and gas operations; and (3) was engaged in a broad agency reorganization that could adversely impact its ability to effectively manage oil and gas during the crisis following the Deepwater Horizon incident. In February 2013, after Interior completed its reorganization, GAO narrowed the oil and gas high-risk area to focus on revenue collection and human capital challenges and is currently examining these issues. While Interior has begun to implement many of GAO's recommendations, it has yet to fully implement a number of others, including recommendations intended to (1) provide reasonable assurance that oil and gas is accurately measured, and that the public is getting an appropriate share of revenues, and (2) address its long-standing human capital issues.