Therefore, these officials told us that it is important to manage idle wells  so that they do not become orphan wells. First,  the bond adequacy policy directs BLM offices to review bonds and  increase amounts as necessary to ensure, among other things, that the  bond amount reflects the risk posed by the operator. BLM’s Idle and Orphan Well Policy Directs Field Offices to Review These Wells and Ensure They Are Either Plugged or Returned to Production

By issuing IM 2007-192 in September 2007, BLM established a program to  rank all idle and orphan oil and gas wells on federal land, as required by  EPAct 2005. Sensitive environmental resources and other land use priorities. BLM Has Not Consistently or Completely Implemented Its Policies for Managing Potential Liability

BLM field and state offices have not consistently or completely  implemented BLM’s policies for managing the oil and gas wells on federal  land to reduce the likelihood that BLM will need to pay for or perform  reclamation. BLM Field Offices Have Not Always Conducted Bond Adequacy Reviews and Have Not Consistently Interpreted Criteria for Increasing Bonds

According to our analysis of the number of bond reviews reported by 33  survey respondents, the field offices do not always regularly review bonds  and increase bond amounts as necessary. BLM policy calls for field offices  to conduct a bond adequacy review when certain events occur. For  example, 13 of the 33 survey respondents reported that they either did not  conduct any reviews or did not know the number of reviews they  conducted for fiscal years 2005 through 2009. For example, the Vernal  Field Office did not conduct any bond adequacy reviews during this  period. The criteria for increases outlined in IM 2008-122 are vague, creating  ambiguity about whether a request for an increase should be submitted  and whether it will be approved. BLM Data Limitations Restrict the Agency’s Ability to Evaluate Potential Liability and Measure Performance

We identified three limitations in BLM’s data systems that restrict the  ability of BLM field and state offices to evaluate potential liability and  measure performance of BLM field offices’ implementation of the agency’s  policies: (1) incomplete bond information in AFMSS, (2) unreliable field  office counts of the number of idle wells, and (3) incomplete AFMSS data  on the number of reviews for bond adequacy and idle wells. Unreliable Counts of the Number of Idle Wells

The 33 BLM field offices that responded to our survey reported a total of  about 2,300 idle wells that had been inactive for 7 years or more as of  fiscal year 2009. Because minimum bond amounts  have not been updated or adjusted for inflation in more than 50 years, they  may not be sufficient to serve as an incentive to encourage operators to  comply with plugging and reclamation requirements and the cost to plug  and reclaim a well site may far outweigh the value of the bond. Recommendations for Executive Action

To better manage potential liability on federal land, we recommend that  the Secretary of the Interior direct the Director of BLM to develop a  comprehensive strategy to include four actions:  increasing regulatory minimum bonding amounts over time to strengthen  bonding as a tool for ensuring operators’ compliance,  revising the bond adequacy review policy to more clearly define terms and  the conditions that warrant a bond increase,  implementing an approach for ensuring complete and consistent well  records in AFMSS so that BLM field and state offices can better evaluate  potential liability and improve decisionmaking, and  implementing an approach for better monitoring agency performance in  conducting reviews for bond adequacy and idle wells. Agency Comments and Our Evaluation

GAO provided Interior with a draft of this report for its review and  comment. Interior concurred with all four of our recommendations and  noted that, among other things, it has already started to take steps to  improve the data in AFMSS to ensure the completeness and accuracy of  these data. Appendix I: Scope and Methodology

This appendix details the methods we used to examine the Department of  the Interior’s (Interior) Bureau of Land Management’s (BLM) policies and  efforts to ensure that the bonds for oil and gas wells are adequate to cover  the cost of reclaiming land disturbed by oil and gas operations. Specifically, we were asked to (1) identify BLM’s policies for managing  potential federal oil and gas liabilities, (2) determine the extent to which  BLM has implemented these policies, and (3) describe the challenges, if  any, BLM faces in managing potential oil and gas well liability. We  developed a Web-based survey, which we sent to all 48 BLM field offices  with an oil and gas program and received responses from all these offices. To identify the challenges BLM faces in managing potential liabilities, we  analyzed the information officials in the 16 BLM field offices and the  corresponding six state offices provided during our interviews on what  challenges they face, if any, in implementing BLM policies for managing  the potential liability on federal land; whether they had sufficient tools and  resources to implement the policies; and what their views were on BLM’s  bonding system and minimum bonding amounts.
Why GAO Did This Study

The number of oil and gas wells on leased federal land has increased dramatically. To help manage the environmental impacts of these wells, the Department of the Interior's (Interior) Bureau of Land Management (BLM) requires oil and gas operators to reclaim disturbed land in a manner it prescribes. To help ensure operators reclaim leased land, BLM requires them to provide a bond before beginning drilling operations. BLM refers to oil and gas wells and leased land that will require reclamation as potential liabilities because BLM may have to pay for reclamation if the operators fail to do so. GAO was asked to determine (1) BLM's policies for managing potential federal oil and gas well liability, (2) the extent to which BLM has implemented these policies, and (3) the challenges, if any, BLM faces in managing potential oil and gas well liability. GAO analyzed agency data on bonding and wells and interviewed BLM officials. We surveyed all 48 BLM field offices with an oil and gas program, and received 33 responses covering these offices.

What GAO Found

To manage potential liability on federal land, BLM has developed policies for reviewing bond adequacy and for managing idle wells (wells that have not produced for at least 7 years) and orphan wells (wells that generally have no responsible or liable parties). The bond adequacy policy is intended to ensure that bonds are regularly reviewed by BLM field offices when certain events occur, or periodically, and increased as necessary to ensure that they reflect the level of risk posed by the operator. BLM's idle and orphan well policy is intended to ensure that nonproducing wells are either plugged or returned to production; this policy directs BLM field offices to develop an inventory of such wells and rank and prioritize them for reclamation based on potential environmental harm, among other things. BLM has not consistently implemented its policies for managing potential liabilities. Specifically, for fiscal years 2005 through 2009, GAO found that 13 of the 33 field office survey respondents reported that they either did not conduct any reviews or did not know the number of reviews conducted. Most field office officials told GAO that a lack of resources and higher priorities were the primary reasons for not conducting these reviews. In addition, BLM state offices also did not consistently interpret BLM policy on when to increase bond amounts. For example, officials in three state offices told GAO that they generally require evidence of operator noncompliance before raising a bond amount, while another state office increased bond amounts for most operators because it viewed them as a potential risk to the government. With regard to reviews of idle or orphan wells, 11 of the 33 field office survey respondents reported that they had not conducted any reviews in one or more fiscal years during the 5-year period GAO examined. The shortage of resources was identified by officials as the primary reason that these reviews were not conducted. In addition, 2 BLM state offices and 22 field offices have not created action plans for reviewing bond adequacy and idle and orphan wells, as BLM policies call for. BLM faces two challenges in managing potential liability, according to field office officials. First, its bonding system impairs BLM's ability to manage potential liability. Specifically, the minimum bond amounts--not updated in more than 50 years--may not be sufficient to encourage all operators to comply with reclamation requirements. These officials also stated that criteria in the policy for deciding when to increase a bond is vague, creating ambiguity about whether a request for an increase should be submitted and whether it will be approved. Second, limitations with the data system BLM uses to track oil and gas information on public land restrict the agency's ability to evaluate potential liability and monitor agency performance. For example, the BLM field offices GAO surveyed reported a total of about 2,300 idle wells that had been inactive for 7 years or more as of fiscal year 2009. However, other Interior data indicate that the number of idle wells on federal land is nearly double the amount reported by the BLM field offices.

What GAO Recommends

GAO recommends that BLM develop a comprehensive strategy to, among other things, increase minimum bond amounts over time and improve its data system to better evaluate potential liability and agency performance. In commenting on a draft of this report BLM agreed with GAO's recommendations and noted that it has already taken steps to improve the completeness and accuracy of its oil and gas data.