Figure 2 depicts the lifecycle of oil and  gas wells overseen by BLM. The bond adequacy review policy directs:  that field offices perform bond adequacy reviews on all bonds at least  once every 5 years or whenever a bond review is warranted;  that field offices verify and tie all federal wells to their appropriate  bond number and enter bond information and bond adequacy review  data into AFMSS;  that field offices perform adequacy reviews on all bonds using specific  instructions and a worksheet that assigns points for three risk factors:  (1) status of wells covered by the bond (share of inactive wells, deep  wells, and wells with marginal production); (2) operator-specific  compliance history; and (3) reclamation stewardship diligence;  that if the field office official performing the review determines that the  bond amount is insufficient, the official is to take the necessary steps  to determine the appropriate bond amount and increase the bond;  that if the bond being reviewed is a statewide or nationwide bond, field  offices are to review the wells within their field office jurisdiction; and  that each BLM state office with an oil and gas program submit a semi- annual bond adequacy review report to BLM headquarters. BLM’s Actual Reclamation Costs and Potential Oil and Gas Well Liabilities Have Likely Increased, but the Agency Does Not Systematically Track These

BLM’s actual costs incurred to reclaim orphaned wells and potential  liabilities have likely increased for fiscal years 2010 through 2017 based  on our analysis of available information. In addition to actual costs increasing, potential liabilities are also likely to  have increased, though BLM does not systematically track information on  potential liabilities that might result from an increase in the number of  orphaned wells. Over half of  those 144 wells (75) were still identified in AFMSS as orphaned as of July  2017, and the total number of identified orphaned wells on federal lands  had increased from 144 to 219. Although we were unable to determine the full extent of the increase in  BLM’s potential liabilities because BLM does not have the data needed  for such an analysis, other factors also suggest such an increase. According to federal internal control standards, management should use  quality information, which should be complete, to achieve the entity’s  objectives. Without systematically and  comprehensively tracking actual reclamation costs incurred and the  information necessary to determine potential liabilities including the  numbers of orphaned wells and inactive wells over time, BLM cannot  ensure that it has sufficient bond coverage or other financial assurances  to minimize the need for taxpayers to pay for the costs of reclaiming  orphaned wells. BLM concurred with this recommendation. Inadequate monitoring of well and bond policies’ implementation. For example, 3 out of 10 state offices  reported a different number of bond adequacy reviews completed in their  fiscal year 2016 state reports than what was reported in BLM’s fiscal year  2016 national report. Overall, we found that BLM’s current approach to monitoring the agency’s  progress in implementing its well and bond adequacy review policies has  been limited. We reviewed leading practices for monitoring the  implementation of agency policies. Without taking actions to strengthen its approach  to monitoring, such as collecting and analyzing data on performance  indicators and ensuring the quality of those data, BLM’s ability to assess  the extent to which field offices are reviewing all inactive wells and  determining the adequacy of all bonds is limited. However, BLM overall does not have information on the federal resources  needed to reclaim known orphaned wells. Interior stated that,  following GAO’s 2011 report on potential oil and gas well liabilities, BLM  implemented comprehensive policies to better manage and minimize the  risks of idle and orphaned wells on federal and Indian lands. Appendix I: Objectives, Scope, and Methodology

This report examines (1) how BLM’s actual costs incurred to reclaim  orphaned wells and potential oil and gas well liabilities have changed, if at  all, for fiscal years 2010 through 2017; (2) the extent to which BLM has  implemented its 2012 well review and 2013 bond adequacy review  policies; and (3) BLM officials’ and stakeholders’ views on what  challenges, if any, BLM faces in managing its potential liabilities. To examine how BLM’s actual reclamation costs incurred and potential oil  and gas well liabilities have changed, we analyzed data in BLM’s  Automated Fluid Minerals Support System (AFMSS) on oil and gas wells  on federal and Indian lands, including inactive wells—which represent  potential liabilities.
Why GAO Did This Study

In fiscal year 2016, private entities operated about 94,000 oil and gas wells on federal lands overseen by BLM. Once wells cease production, they can become inactive and potentially orphaned if an operator does not perform required reclamation and if an operator's bond is insufficient to cover the expenses. BLM considers oil and gas wells on federal and Indian lands and the associated leased lands as potential liabilities for the federal government because BLM may have to cover the costs of reclaiming well sites. To better manage its potential liabilities, BLM issued well and bond adequacy review policies in 2012 and 2013, respectively.
GAO was asked to review how BLM manages its potential oil and gas well liabilities. This report examines, among other things: (1) how BLM's actual costs and potential oil and gas well liabilities have changed for fiscal years 2010 through 2017 and (2) the extent to which BLM has implemented its well and bond review policies. GAO analyzed BLM's policies and data and interviewed BLM officials and representatives from stakeholder organizations.

What GAO Found

GAO's analysis indicates that the Bureau of Land Management's (BLM) actual costs incurred and potential liabilities for reclaiming oil and gas wells have likely increased for fiscal years 2010 through 2017. However, the full extent of the increase is not known because BLM does not systematically track needed data. Based on GAO's analysis of data obtained from 13 of BLM's 33 field offices that manage oil and gas programs, the average annual reclamation cost was $267,600, an increase compared to the $171,500 annual average across all BLM offices that GAO reported in 2010. Similarly, GAO's analysis of BLM data found that the number of known orphaned wells, those that generally have no responsible or liable parties, for all field offices has increased from 144 in 2010 to 219 as of 2017. However, BLM's database that contains information on oil and gas wells on federal and Indian lands does not collect information on costs incurred or on potential liabilities that might result from an increase in the number of orphaned wells. Under federal internal control standards, management should use quality information to achieve the entity's objectives. Without systematically tracking such information, BLM does not have assurance that it has sufficient bonds or financial assurances to cover the costs of reclaiming orphaned wells.
GAO was unable to fully assess the extent to which BLM field and state offices have implemented the agency's policies on reviewing wells and bond adequacy in part because of deficiencies in BLM's monitoring approach. For example, reports BLM headquarters used to monitor field offices' implementation of the policies have limitations. GAO identified discrepancies between the well and bond adequacy review reports that BLM state offices submitted to headquarters and the national summary consolidating states' information. Out of 10 state offices, 3 reported a different number of reviews completed in fiscal year 2016 than what BLM reported in its fiscal year 2016 national summary. Leading practices for monitoring the implementation of agency policies call for taking steps such as collecting and analyzing data on performance indicators. Without strengthening BLM's approach to monitoring, its ability to assess field offices' reviews of all inactive wells and determine the adequacy of all bonds is limited.

What GAO Recommends

GAO is making seven recommendations, including that BLM systematically track the agency's actual reclamation costs and potential liabilities and strengthen its approach to monitoring field offices' implementation of the well review and bond adequacy review policies. BLM agreed with GAO's recommendations.