The 2013 act significantly changed the federal helium program. Refiners Bought All Helium Offered at Auction and Sales for Higher Than Expected Prices

During the summer of 2014, refiners purchased all the helium offered  during BLM’s first competitive helium auction and in two subsequent  noncompetitive sales at prices that were higher than expected by  participants and BLM officials. BLM and refiners and nonrefiners cited multiple, possible reasons  for the auction’s outcomes, including that refiners had an advantage over  nonrefiners in terms of having existing infrastructure to refine helium  without paying another company to do so. Two Refiners Won All the Auctioned Helium at an Average Price of $161 per Thousand Cubic Feet

Two refiners purchased all 93 million cubic feet of helium that BLM  auctioned for delivery in fiscal year 2015 for an average price of $161 per  thousand cubic feet. Specifically:
Refiners may have been more willing to pay higher prices at the  auction since their costs for refining crude helium are lower than  those of nonrefiners. The Auction Price Affected BLM’s Sales Price, and Sales Were Restricted to Refiners

After the auction, BLM sold more than 1 billion cubic feet of helium in the  two August 2014 sales to the four refiners at a higher than expected  price. BLM Clarified Its Definition of Excess Refining Capacity

Since its implementation of the first phase of the act, BLM has taken  steps to clarify its definition of excess refining capacity to help improve  reporting of excess capacity by refiners. BLM Does Not Have Full Assurance that Refiners Are Satisfying the Tolling Provision

The act’s tolling provision states that, as a condition of sale or auction,  refiners must make excess refining capacity available at commercially  reasonable rates to certain nonrefiners, but BLM does not have full  assurance that refiners are satisfying the provision. According to  language in the Senate report accompanying the act, refiners were to  “make excess refining capacity available to others at commercially  reasonable rates as a condition of their continued participation in helium  allocations  and auctions.” BLM does not have this assurance  because, according to BLM officials, they (1) have not obtained all  relevant information about refiners’ efforts to satisfy the tolling provision,  (2) have not defined or identified criteria for a commercially reasonable  rate, (3) have not determined what to do if a refiner does not satisfy the  tolling provision, and (4) believe the agency’s approach to ensuring that  refiners satisfy the tolling provision is consistent with current market  conditions. Therefore, reporting information about refiners’  attempts to negotiate tolling agreements is voluntary. As a result, refiners  reported inconsistent information about their attempts to negotiate tolling  agreements on their fiscal year 2014 tolling report forms. For example,  some refiners reported that they had attempted to negotiate tolling  agreements but did not report any details about the volumes or rates  offered. The officials with the Office of the Solicitor said BLM also may need to  issue a rule to require refiners to report information about attempts to  negotiate tolling agreements that do not result in signed agreements. BLM officials also said they were concerned that issuing a rule might  delay future auctions and sales, pending final issuance of the rule. BLM Faces a Number of Decisions Related to Upcoming Helium Auction, Sale, and New Storage Contracts as It Continues to Implement the Act

As BLM continues to implement the various phases of the act, the agency  faces decisions during the spring and summer of 2015 related to the  upcoming fiscal year 2016 helium auction, the upcoming fiscal year 2016  helium sale, and the agency’s new storage contracts. BLM Faces Decisions Related to the Upcoming Helium Auction

In creating the agency’s plan for conducting the fiscal year 2016 auction,  BLM officials face decisions on how the agency will (1) conduct a market  survey that will be used to inform the minimum auction price,  (2) determine the amount of helium the agency will make available for  auction, and (3) choose a method to conduct the auction, among other  things. BLM Plans to Conduct a Market Survey to Inform the Minimum Auction Price but Has Not Finalized the Scope of the Survey

BLM officials said the agency plans to contract with an independent third  party to conduct a survey of helium transactions that will provide the basis  for the agency to set the minimum auction price for the fiscal year 2016  auction, but the agency has not decided on the scope of the survey. BLM officials said they are considering  such an increase because they believe that auctioning larger volumes of  helium will result in increased revenues and increased competition. BLM officials told us they considered multiple auction methods when  choosing the live auction, but that they did not assess the auction  methods based on maximizing revenue. Also, BLM  officials said they were familiar with the live auction method because BLM  uses it in other applications, such as in selling oil and gas leases. As of  February 2015, however, BLM helium program officials had not evaluated  the various methods. Conclusions

BLM’s implementation of the Helium Stewardship Act of 2013 is a work in  progress. The act requires  BLM to use an auction method that maximizes revenue. Recommendations for Executive Action

To provide the agency with better information to support its decisions  when implementing the act, we recommend that the Secretary of the  Interior direct the Director of BLM to take the following two actions:  issue a rule—perhaps an interim final rule if BLM finds there is good  cause to do so, given the time constraints—to require refiners to  report information about signed agreements to toll less than 15 million  cubic feet of helium and about refiners’ attempts to negotiate tolling  agreements that do not result in signed agreements; and assess auction methods based on revenue generation, using  available information, and select a method that would maximize  revenue for the upcoming helium auction.
Why GAO Did This Study

Helium is a key nonrenewable resource with a variety of uses. The federal government maintains an underground reservoir near Amarillo, Texas, for the storage of both federally owned helium and helium owned by private companies. The Helium Stewardship Act of 2013 establishes a phased process for the privatization of the federal helium reserve in a competitive market fashion. As part of that process, BLM conducted an auction and two sales of federal helium in the summer of 2014.
GAO was asked to assess BLM's implementation of the act. This report examines (1) the outcomes of BLM's summer 2014 helium auction and sales, (2) BLM's administration of the act's tolling provision (tolling refers to a helium refiner processing or refining another party's crude helium for an agreed upon price), and (3) upcoming decisions BLM faces as it continues implementing the act. GAO reviewed the 2013 act, BLM's auction and sales results, and tolling agreement reports; interviewed BLM and other Interior officials and representatives of 12 of the 13 refiners and nonrefiners that registered to participate in the auction.

What GAO Found

In the summer of 2014, refiners purchased all the helium offered in the Department of the Interior's Bureau of Land Management's (BLM) first-ever competitive helium auction at higher than expected prices. Two refiners purchased all 93 million cubic feet of helium that was auctioned at an average price of $161 per thousand cubic feet—significantly above the prices offered by most other bidders. BLM, refiners, and nonrefiners identified possible reasons for the auction's outcome, including that refiners had an advantage at the auction because their costs for refining crude helium were lower than those of nonrefiners. After the auction, BLM sold more than 1 billion cubic feet of helium in two sales that were restricted to refiners. Since BLM used the average auction price to help set the sales price, the sales price also was higher than expected.
BLM has taken steps to help improve reporting by refiners, but the agency does not have full assurance that refiners are satisfying the tolling provision. The tolling provision requires refiners, as a condition of sale or auction, to make excess refining capacity available at commercially reasonable rates to certain nonrefiners. BLM officials said that one way refiners can satisfy the tolling provision is to attempt to negotiate tolling agreements. The act does not require refiners to report information to BLM about their attempts to negotiate agreements that do not result in signed agreements, so the reporting of this information is voluntary. BLM requested that refiners report this information, but the refiners' responses were inconsistent. For example, some refiners reported that they had attempted to negotiate agreements but did not report details about volume or rates offered. Officials from Interior's Office of the Solicitor said BLM may need to issue a rule to require refiners to report about their attempts to negotiate tolling agreements. However, BLM officials said they do not intend to issue such a rule because it is a time-consuming process that might delay future auctions and sales. Nevertheless, without information about refiners' attempts to negotiate agreements, BLM cannot determine the extent to which refiners with excess capacity are satisfying the tolling provision.
BLM faces a number of decisions about its continued implementation of the act, including decisions related to the auction of a portion of the helium BLM will make available for delivery during fiscal year 2016. Specifically, BLM officials said they plan to contract with a third party to conduct a survey of helium transactions that will form the basis for the fiscal year 2016 minimum auction price, but they have not determined the scope of the survey. Also, BLM officials said they are considering increasing the amount of helium the agency will auction for fiscal year 2016 above the amount set in the act because they think it will increase competition at the auction. In addition, BLM faces a decision in selecting a method for conducting the fiscal year 2016 auction. The act requires BLM to use an auction method that maximizes revenue. BLM officials said they considered multiple methods before selecting the live auction method used for the agency's first auction, but they did not assess the methods based on maximizing revenue. As of February 2015, BLM officials had not evaluated various methods, such as sealed bids or simultaneously auctioning multiple lots. Without assessing auction method options based on revenue generation, BLM does not have assurance that a live auction will maximize revenue as required.

What GAO Recommends

GAO recommends that BLM (1) issue a rule to, among other things, collect information about refiners' attempts to negotiate tolling agreements and (2) assess and select an auction method that would maximize revenue. Interior disagreed with the first recommendation because it believes existing mechanisms provide needed information, and agreed with the second. GAO continues to believe that its recommendation is valid.