Most of the structures installed and removed were fixed platforms and  caissons installed in shallow water. Interior Has Procedures to Oversee Decommissioning and Estimate Related Costs but Faces Data System Limitations and Has Not Documented Some Procedures

Interior’s BSEE has developed procedures to oversee the  decommissioning of offshore oil and gas infrastructure and estimate costs  associated with decommissioning liabilities, but limitations in its data  system may affect the accuracy and completeness of some cost  estimates. BSEE Has Procedures to Oversee Decommissioning and Estimate Costs, but Data System Limitations May Affect the Accuracy and Completeness of Some Cost Estimates

Officials in BSEE’s Gulf regional office have developed procedures for  overseeing the activities of lessees in decommissioning oil and gas  infrastructure in the Gulf and estimating the costs of doing so, but  limitations in its data system for estimating costs may affect the accuracy  and completeness of some cost estimates. According to BSEE regional officials, they have manually entered updated  cost estimates for most leases in the Gulf. Interior’s Procedures for Obtaining Financial Assurances for Decommissioning Liabilities Pose Risks to the Federal Government, and Interior Plans to Revise Them

Interior’s procedures for obtaining financial assurances for offshore  decommissioning liabilities pose financial risks to the federal government. Officials from Interior’s BOEM told us that the bureau plans to revise its  procedures that determine how much financial assurance a lessee must  provide, and that they expect these procedures to reduce the risk that the  government could incur costs associated with decommissioning. If a lessee passes the financial strength test by demonstrating its financial  ability to pay for decommissioning on its leases, BOEM waives its  requirement for the lessee to provide supplemental bonds. Our prior reports have found that the use of financial strength tests and  corporate guarantees in lieu of bonds poses financial risks to the federal  government. In commenting on a draft of this report, Interior  officials stated that on September 22, 2015, BOEM issued proposed  guidance to clarify its financial assurance procedures. However, it is too  soon to evaluate the specific details of BOEM’s proposed changes to its  financial assurance procedures because BOEM has not issued any final  revisions to its procedures. Interior Faces Two Key Challenges Managing Potential Decommissioning Liabilities

Interior faces two key challenges managing potential decommissioning  liabilities. Internal control  standards in the federal government call for agencies to obtain  information from external stakeholders that may significantly affect their  abilities to achieve agency goals. However,  according to BSEE regional officials, the rule does not require lessees to  submit expense information on costs associated with decommissioning  pipelines, and officials were unable to provide details as to when or  whether BSEE would issue a new rule to require the reporting of such  costs. In addition, in December 2015, BSEE issued final  regulations (proposed in 2009) requiring lessees to report  decommissioning costs directly to BSEE. First, BSEE’s recent regulations do not require lessees to report  costs associated with decommissioning pipelines. Without access  to complete data on decommissioning costs, and without the ability to  accurately and completely record data in Interior’s main data system,  BSEE does not have reasonable assurance that its estimates of  decommissioning liabilities in the Gulf are accurate, and BOEM may not  have reasonable assurance that it is requiring sufficient amounts of  financial assurance based on BSEE’s estimates. First, BOEM identified roughly $2.3  billion in decommissioning liabilities in the Gulf that may not be covered  by financial assurances but was unable to determine the extent to which  these liabilities were valid after several months of analysis due to  limitations with the TIMS data system and inaccurate data. Until BOEM revises  its financial assurance procedures, the federal government remains at  increased risk of incurring costs should lessees fail to decommission oil  and gas infrastructure. Develop a plan and set a time frame to ensure that Interior’s data  system for managing offshore oil and gas activities will be able to  identify, capture, and distribute data on decommissioning liabilities  and financial assurances in a timely manner.
Why GAO Did This Study

Oil and gas produced on federal leases in the Gulf of Mexico are important to the U.S. energy supply. Historically, most offshore production was in shallow water, but more than two-thirds of the more than 5,000 active oil and gas leases in the Gulf are now located in deep water. When oil and gas infrastructure is no longer in use, Interior requires lessees to decommission it so that it does not pose safety and environmental hazards. Decommissioning can include plugging wells and removing platforms, which can cost millions of dollars. Interior requires lessees to provide bonds or other financial assurances to demonstrate that they can pay these costs; however, if lessees do not fulfill their decommissioning obligations, the federal government could be liable for these costs.
GAO was asked to review Interior's management of liabilities from offshore oil and gas production. This report examines Interior's (1) procedures for overseeing decommissioning and estimating its costs, (2) procedures for obtaining financial assurances for these liabilities, and (3) challenges managing these liabilities. GAO reviewed agency regulations and procedures and interviewed officials from Interior, credit rating agencies, academia, and trade associations.

What GAO Found

The Department of the Interior (Interior) has developed procedures to oversee the decommissioning of offshore oil and gas infrastructure and estimate costs associated with decommissioning liabilities but has not addressed limitations with its system for tracking cost estimates. According to officials, Interior's procedures include (1) identifying and tracking unused infrastructure, (2) reviewing lessee plans to decommission infrastructure, and (3) using different cost estimates for decommissioning in shallow and deep water. However, inconsistent with internal control standards, Interior officials must manually enter cost estimates into Interior's main data system to override inaccurate estimates automatically calculated by the system. Without a more accurate data system, Interior does not have reasonable assurance that it will consistently estimate the costs associated with decommissioning.
Interior's procedures for obtaining financial assurances for decommissioning liabilities pose financial risks to the federal government, and Interior is planning to revise its procedures to address these risks but has not finalized its approach. As of October 2015, for an estimated $38.2 billion in decommissioning liabilities in the Gulf, Interior officials identified about $2.3 billion in liabilities that may not be covered by financial assurances. However, these officials were unable to determine the extent to which these data were valid due to limitations with Interior's data system, among other things. Of the remaining $35.9 billion in decommissioning liabilities, Interior held or required about $2.9 billion in bonds and other financial assurances, and had foregone requiring about $33.0 billion in bonds for the remaining liabilities. Interior has procedures that allow it to waive its requirement for a lessee to provide a bond if the lessee passes a financial strength test. Prior GAO work has shown that the use of financial strength tests in lieu of bonds poses risks to the federal government. Interior recognizes the risks associated with its procedures, and Interior officials stated that they issued draft guidance to clarify their procedures in September 2015. Interior has not issued any final revisions to its procedures; therefore, it is too soon to evaluate the details of these proposed changes. Until Interior improves its ability to obtain valid data from its data system and revises and implements its financial assurance procedures, the federal government remains at increased risk of incurring costs should lessees fail to decommission oil and gas infrastructure.
Interior faces challenges managing potential decommissioning liability. For example, until December 2015, Interior did not have a requirement for lessees to report on costs associated with decommissioning activities in the Gulf. Instead, Interior contracted studies to obtain data on decommissioning costs, but some data were decades old. Federal internal control standards call for agencies to obtain information from external stakeholders that may significantly affect their ability to achieve agency goals. However, in December 2015, Interior issued final regulations (proposed in 2009) requiring lessees to report data on most, but not all, decommissioning costs to Interior. Unless and until Interior obtains accurate and complete data on decommissioning costs, Interior may not have reasonable assurance that its cost estimates of decommissioning liabilities in the Gulf are accurate, or that it is requiring sufficient amounts of financial assurance based on these estimates.

What GAO Recommends

GAO recommends that Interior take several steps to improve its data system, complete plans to revise its financial assurance procedures, and revise its cost reporting regulations, among other things. Interior concurred with GAO's recommendations.