	Refiners Bought All Helium Offered at Auction and Sales Held during the Summer of 2014 for Higher Than Expected Prices

As detailed in our April 2015 report, in the summer of 2014, refiners  purchased all the helium offered in BLM’s 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. In interviewing BLM officials and representatives of refiners and  nonrefiners and reviewing BLM’s planned implementation actions, we  identified multiple, possible explanations for why refiners won all the  auctioned helium for higher than expected prices. These explanations  included:
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. BLM officials said they changed this approach  based on their interpretation of the 2013 act. the auction, nonrefiners purchased none of the federal helium that BLM  made available for delivery in fiscal year 2015. In Administering the Tolling Provision, BLM Does Not Have Full Assurance That Refiners Are Satisfying It

In our April 2015 report, we found that BLM had taken steps to help  improve reporting by refiners by clarifying one of the key terms in the  tolling provision, but the agency did not have full assurance that refiners  were satisfying the 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. In addition, BLM requested that refiners report information about attempts  to negotiate tolling agreements that did not result in signed agreements. According to officials with the Office of the Solicitor, the act does not  require refiners to report this information, so reporting is voluntary. As a  result, the refiners’ responses to BLM’s request were inconsistent. For  example, some refiners reported that they had attempted to negotiate  agreements but did not report details about the volume or rates offered. Officials from the Office of the Solicitor said BLM may need to issue a rule  to require refiners to report on their signed agreements for less than  15 million cubic feet and their attempts to negotiate tolling agreements  that do not result in signed agreements. But BLM officials said they do not  intend to issue a rule, in part, because it is a time-consuming process that  might delay future auctions and sales. Until refiners  consistently provide information about signed agreements to toll less than  15 million cubic feet of helium and about their attempts to negotiate tolling  agreements, BLM cannot determine the extent to which refiners are  satisfying the tolling provision by making excess capacity available at  commercially reasonable rates. To provide the agency with better  information to support its decisions when implementing the act, in our  April 2015 report, we recommended that the Secretary of the Interior  direct the Director of BLM to 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 (1) signed agreements to toll  less than 15 million cubic feet of helium and (2) their attempts to negotiate  tolling agreements that do not result in signed agreements. Under BLM’s approach, refiners’ reporting  of certain information—specifically, signed agreements to toll less than  15 million cubic feet and their attempts to negotiate tolling agreements  that did not result in signed agreements—remains voluntary, and not all  refiners provided this information to BLM when the agency previously  requested it. We continue to believe  that undertaking a rulemaking is necessary so that BLM can have better  assurance that refiners are satisfying the tolling provision through fiscal  year 2021. BLM Faces a Number of Decisions As It Continues to Implement the Act

BLM faces a number of decisions about its continued implementation of  the act, including decisions related to its upcoming fiscal year 2016  helium auction and sale. The act requires BLM to  conduct each auction using a method that maximizes revenue to the  federal government. BLM officials told us they considered multiple auction methods when  initially choosing the live auction for the summer 2014 auction, but that  they did not assess the auction methods based on maximizing revenue. As of the issuance of our April 2015 report, however, BLM helium  program officials had not evaluated the various methods. Without  assessing each method based on revenue generation, we found that BLM  would not have reasonable assurance that the live auction method will  maximize revenue, as required by the act. As a result of this finding, we  recommended that the Secretary of the Interior direct the Director of BLM  to assess auction methods based on revenue generation, using available  information, and select a method that would maximize revenue for the  upcoming helium auction. GAO Contact and Staff Acknowledgments

If you or your staff members have any questions about this testimony,  please contact me at (202) 512-3841 or fennella@gao.gov.
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.
This testimony highlights the key findings of GAO's April 2015 report (GAO-15-394). Accordingly, it addresses (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. For the April 2015 report, 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 April 2015, GAO found that refiners purchased all the helium offered in the Department of the Interior's Bureau of Land Management's (BLM) first-ever competitive helium auction, held in July 2014, 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 nonrefiners said that refiners had an advantage because their costs for refining crude helium were lower than nonrefiners'. After the auction, BLM sold more than 1 billion cubic feet of helium in two sales restricted to refiners.
BLM has taken steps to help improve reporting by refiners, but GAO found in its April 2015 report that the agency did not have full assurance that refiners were satisfying the tolling provision of the Helium Stewardship Act of 2013. The tolling provision requires refiners, as a condition of sale or auction of helium under the act, to make excess refining capacity available at commercially reasonable rates to certain nonrefiners. BLM officials said that one way refiners can satisfy the 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 such reporting 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 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 a rule because it is a time-consuming process. 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. Interior disagreed with GAO's recommendation that BLM issue a rule to, among other things, require refiners to report information about their attempts to negotiate tolling agreements that do not result in signed agreements. Interior disagreed with the recommendation because it believes existing mechanisms provide needed information. By relying on existing mechanisms, refiners' reporting of this information remains voluntary, and not all refiners provided the information when BLM previously requested it. GAO continues to believe that undertaking a rulemaking is necessary so that BLM can have better assurance that refiners are satisfying the tolling provision.
In addition, GAO found in April 2015 that BLM faces a number of decisions as it continues implementing the act, including a decision about how the agency will choose a method for conducting its auction of a portion of the helium BLM will make available for delivery during fiscal year 2016. The act requires BLM to conduct each auction using a method that maximizes revenue to the federal government. BLM officials said they considered multiple methods before selecting the live auction method used for the July 2014 auction, but they did not assess the methods based on maximizing revenue. As of the issuance of GAO’s April 2015 report, 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. Interior agreed with GAO’s recommendation that BLM assess and select an auction method that would maximize revenue.

What GAO Recommends

In its April 2015 report, GAO made two recommendations to Interior. Interior concurred with one recommendation but not the other. GAO continues to believe that all of its recommendations have merit and should be fully implemented.
For information, contact Anne-Marie Fennell at (202) 512-3841 or fennella@gao.gov