OIL AND GAS 

MANAGEMENT

Continued Attention to 

Interior’s Revenue 

Collection and Human 

Capital Challenges Is 

Needed

Statement of Frank Rusco, Director

Natural Resources and Environment

Testimony 

Before the Subcommittee on Energy Policy, 

Health Care, and Entitlements, Committee 

on Oversight and Government Reform, 

House of Representatives 

For Release on Delivery 

Expected at 10:30 a.m. EDT

Thursday, May 16, 2013

GAO-13-647T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-647T, a testimony 

before the Subcommittee on Energy Policy, 

Health Care, and Entitlements, Committee on 

Oversight and Government Reform, House of 

Representatives 

May 2013

OIL AND GAS MANAGEMENT

Continued Attention to Interior’s Revenue 

Collection and Human Capital Challenges Is Needed

Why GAO Did This Study

Interior issues permits for the 

development of new oil and gas wells 

on federal lands and waters; inspects 

wells to ensure compliance with 

environmental, safety, and other 

regulations; and collects royalties from 

companies that sell the oil and gas 

produced from those wells. In recent 

years, onshore and offshore federal 

leases produced a substantial portion 

of the oil and gas produced in the 

United States. In fiscal year 2012, 

Interior collected almost $12 billion in 

mineral revenues including those from 

oil and gas development, making it one 

of the largest nontax sources of federal 

government funds. Previous GAO work 

has raised concerns about Interior’s 

management and oversight of federal 

oil and gas resources.

This testimony focuses on (1) Interior’s 

oversight of offshore oil and gas 

resources, (2) Interior’s collection of oil 

and gas revenues, and (3) Interior’s 

progress to address concerns that 

resulted in its inclusion on GAO’s High 

Risk List in 2011. This statement is 

based on prior GAO reports issued 

from September 2008 through 

February 2013.

GAO is making no new 

recommendations. Interior continues to 

act on the recommendations that GAO 

has made to improve the management 

of oil and gas resources. GAO 

continues to monitor Interior’s

implementation of these 

recommendations.

What GAO Found

Interior’s oversight of offshore resources. In July 2012, GAO reported on 

changes to the Department of the Interior’s oversight of offshore oil and gas 

activities in the Gulf of Mexico following the Deepwater Horizon incident. 

Specifically, GAO reported that Interior had established two new bureaus, 

separating resource management oversight activities from safety and 

environmental oversight activities. GAO also reported that new requirements and 

policy changes designed to mitigate risk of a well blowout or spill had initially 

required additional resources and increased permit approval times, but that 

approval times decreased as Interior staff and oil and gas companies became 

more familiar with the new requirements. GAO also found that Interior’s 

inspections of offshore Gulf of Mexico drilling rigs and production platforms 

routinely identified violations, but that Interior’s database was missing data on 

when violations were identified and corrected. GAO made 11 recommendations 

aimed at improving Interior’s oversight activities. Interior generally agreed with 

the recommendations and plans to implement them. 

Interior’s collection of oil and gas revenues. In September 2008, GAO reported 

that Interior collected lower levels of revenues for oil and gas production in the 

deep water of the U.S. Gulf of Mexico than all but 11 of 104 oil and gas resource 

owners in other countries and some states. In July 2009, GAO reported on 

problems with Interior’s efforts to collect data on oil and gas produced on federal 

lands, including missing and erroneous data. In March 2010, GAO reported that 

Interior was not taking needed steps to ensure that oil and gas produced from 

federal lands was accurately measured and was not consistently meeting its 

goals for oil and gas production verification inspections. GAO made numerous 

recommendations aimed at improving Interior’s revenue collection policies, 

including oversight of production verification activities and controls on the 

accuracy and reliability of royalty data. Interior generally agreed with these 

recommendations and has implemented many of them. 

Interior’s oil and gas management on GAO’s high risk list. In February 2011, 

GAO added Interior’s management of federal oil and gas resources to its list of 

federal programs and operations at high risk for waste, fraud, abuse, and 

mismanagement or needing broad-based transformation. GAO added this high 

risk area because Interior (1) did not have reasonable assurance that it was 

collecting its share of revenues; (2) continued to experience problems hiring, 

training, and retaining sufficient staff to provide oversight and management of oil 

and gas operations; and (3) was engaged in a broad agency reorganization that 

could adversely impact its ability to effectively manage oil and gas during the 

crisis following the Deepwater Horizon incident. In February 2013, after Interior 

completed its reorganization, GAO narrowed the oil and gas high-risk area to 

focus on revenue collection and human capital challenges and is currently 

examining these issues. While Interior has begun to implement many of GAO’s

recommendations, it has yet to fully implement a number of others, including 

recommendations intended to (1) provide reasonable assurance that oil and gas 

is accurately measured, and that the public is getting an appropriate share of 

revenues, and (2) address its long-standing human capital issues. 

View GAO-13-647T. For more information, 

contact Frank Rusco at (202) 512-3841 or 

ruscof@gao.gov. 
Page 1 GAO-13-647T 

441 G St. N.W.

Washington, DC 20548

Chairman Lankford, Ranking Member Speier, and Members of the 

Subcommittee:

I am pleased to be here today to discuss the Department of the Interior’s 

management and oversight of federal oil and gas resources and 

collection of associated mineral revenues. Interior plays an important role 

in permitting the development of new oil and gas wells on federal lands 

and waters; inspecting those wells to ensure compliance with 

environmental, safety and other regulations; and collecting royalties from 

the companies that sell the oil and gas produced from those wells.

In recent years federal leases onshore and in offshore federal waters 

produced a substantial portion of the natural gas and oil produced in the 

United States. In 2012, onshore federal leases produced 13 percent of 

domestic natural gas and 5 percent of domestic oil, while in 2011—the 

most recent year for which data are available—offshore federal leases 

produced almost 24 percent of domestic natural gas and over 6 percent 

of domestic oil. In fiscal year 2012, the federal government collected 

almost $12 billion in mineral revenues, including those from oil and gas 

produced from federal lands and waters, bonus bids for new oil and gas 

leases, and annual rents on existing leases.1 Revenues from federal oil 

and gas are one of the largest nontax sources of federal government 

funds—and, as we have previously reported, improvements in the 

management of federal oil and gas resources could provide an important 

source of potential revenue enhancements as the government faces fiscal 

challenges.2

Several Interior bureaus are responsible for regulating the processes that 

oil and gas companies must follow when leasing, drilling, and producing 

oil and gas from federal leases. The bureaus are also responsible for 

ensuring that companies comply with all applicable requirements. 

Historically, Interior’s Bureau of Land Management (BLM) managed 

onshore federal oil and gas activities, while the Minerals Management 

Service (MMS) managed offshore activities and collected royalties on 

 

1

Readily available data from Interior for nonroyalty revenue—such as rents and bonus 

bids—include revenue from all minerals, including oil and gas, coal, and other resources.

2

GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax 

Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: March 2011).

 
 

Page 2 GAO-13-647T 

federal leases.3

Interior’s management of federal oil and gas activities has been a focus of 

a large body of our work over the past several years. In our resulting 

reports, we noted numerous weaknesses and challenges, and we made 

specific recommendations to Interior for addressing them. In February 

2011, we added Interior’s management of federal oil and gas resources to 

our list of federal programs and operations at high risk for waste, fraud, 

abuse, and mismanagement or needing broad-based transformation.

In May 2010, in the aftermath of the Deepwater Horizon

incident, the Secretary of the Interior announced plans to reorganize 

MMS and divide its responsibilities among separate bureaus. The 

Secretary stated that this division of responsibilities would help ensure 

that each of the newly established bureaus would have a distinct and 

independent mission. Since the reorganization, BLM continues to oversee 

onshore federal oil and gas activities, the Bureau of Ocean Energy 

Management oversees offshore oil and gas leasing, the Bureau of Safety 

and Environmental Enforcement reviews drilling permits and conducts 

inspections for offshore oil and gas activities, and the Office of Natural 

Resources Revenue is responsible for collecting royalties on oil and gas 

produced from both onshore and offshore federal leases.

4

In this context, my testimony today discusses findings from our past work 

on three broad areas: (1) Interior’s oversight of offshore oil and gas 

resources, (2) Interior’s collection of oil and gas revenues, and 

(3) Interior’s progress to address concerns that resulted in its inclusion on 

our High Risk List in 2011. This statement is based on our extensive body 

of work on Interior’s oil and gas leasing and royalty collection programs, 

including reports issued from September 2008 through February 2013. 

We conducted the performance audit work that supports this statement in 

accordance with generally accepted government auditing standards. 

Since that time, Interior has taken significant steps to address identified 

weaknesses and modify its practices for managing oil and gas resources 

but, as of May 2013, many of our recommendations remained 

unimplemented.

 

3

MMS’s Offshore Energy and Minerals Management oversaw offshore oil and gas 

activities, while its Minerals Revenue Management was responsible for royalty collections 

from both onshore and offshore federal leases.

4

GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: February 2011).
 

Page 3 GAO-13-647T 

Additional information on our scope and methodology is available in each 

issued product.

In July 2012, we reported on changes Interior made to its oversight of 

offshore oil and gas activities in the Gulf of Mexico in the aftermath of the 

Deepwater Horizon incident.5

• On October 1, 2011, Interior officially established two new bureaus, 

separating offshore resource management oversight activities, such 

as reviewing oil and gas exploration and development plans, from 

safety and environmental oversight activities, such as reviewing 

drilling permits and inspecting drilling rigs. Because the 

responsibilities of these new bureaus are closely interconnected, and 

carrying them out will depend on effective coordination, Interior 

developed memoranda and standard operating procedures to define 

roles and responsibilities and facilitate and formalize coordination.

Specifically, we reported that

• New safety and environmental requirements and policy changes

designed to mitigate the risk of a well blowout or spill initially required 

Interior to devote additional resources and time to reviewing certain oil 

and gas exploration and development plans and drilling permits for oil 

and gas activities in the Gulf of Mexico. Specifically, these policy 

changes affected Interior’s (1) environmental analyses, (2) reviews of 

oil and gas exploration and development plans, and (3) reviews of oil 

and gas drilling permits. Our analysis of drilling permit approval time 

frames found that approval times initially increased after the new 

requirements went into effect, but as both Interior staff and oil and gas 

companies became more familiar with these requirements, the review 

times decreased.

• Interior’s inspections of offshore Gulf of Mexico oil and gas drilling rigs 

and production platforms from January 1, 2000, through September 

30, 2011, routinely identified violations. However, Interior’s database 

was missing data on when violations were identified, as well as when 

they were corrected for about half of the violations issued. As a result, 

Interior did not know on a real-time basis whether or when all 

violations were identified and corrected, potentially allowing unsafe 

conditions to continue for extended periods. During this same period, 

 

5

GAO, Oil and Gas Management: Interior’s Reorganization Complete but Challenges 

Remain in Implementing New Requirements, GAO-12-423 (Washington, D.C.: July 30, 

2012).

Interior’s Oversight of 

Offshore Oil and Gas 

Resources
 

Page 4 GAO-13-647T 

Interior issued approximately $18 million in civil penalty assessments.

At the time of our report, Interior had begun implementing a number of 

policy changes to improve both its inspection and civil penalty 

programs—but had not assessed how these changes would affect its 

ability to conduct monthly drilling rig inspections.

• Interior continued to face challenges following its reorganization that 

may affect its ability to oversee oil and gas activities in the Gulf of 

Mexico. Specifically, Interior’s capacity to identify and evaluate risks 

associated with drilling remained limited, raising questions about the 

effectiveness with which it allocated its oversight resources. Interior 

also experienced difficulties in implementing effective information 

technology systems, such as those that aid its reviews of oil and gas 

companies’ exploration and development plans. It also continued to 

face workforce planning challenges, including hiring, retaining, and 

training staff. Moreover, Interior did not have current strategic plans to 

guide its information technology or workforce planning efforts.

Our July 2012 report resulted in 11 recommendations for specific 

improvements to Interior’s oversight of offshore oil and gas activities, 

including those intended to improve its drilling inspection program and 

human capital planning. Interior generally agreed with our 

recommendations and has committed to implementing them.

Federal oil and gas resources generate billions of dollars annually in 

revenues that are shared among federal, state, and tribal governments; 

however, in several reviews over the past 5 years we found Interior may 

not be properly assessing and collecting these revenues.

In September 2008, we reported that Interior collected lower levels of 

revenues for oil and gas production in the deepwater of the U.S. Gulf of 

Mexico than all but 11 of 104 oil and gas resource owners in other 

countries, as well as in some states whose revenue collection systems 

were evaluated in a comprehensive industry study.6

 

6

GAO, Oil and Gas Royalties: The Federal System for Collecting Oil and Gas Revenues 

Needs Comprehensive Reassessment, 

In addition, despite 

significant changes in the oil and gas industry over the past several 

decades, we found that Interior had not systematically reexamined how 

the U.S. government is compensated for extraction of oil and gas in over 

25 years. We recommended Interior conduct a comprehensive review of 

GAO-08-691 (Washington, D.C.: Sept. 3, 2008).

Interior’s Collection 

of Oil and Gas 

Revenues
 

Page 5 GAO-13-647T 

the federal oil and gas fiscal system using an independent panel. After 

Interior initially disagreed with our recommendations, we recommended 

that Congress consider directing the Secretary of the Interior to convene 

an independent panel to perform a comprehensive review of the federal 

oil and gas fiscal system and establish procedures to periodically 

evaluate the state of the fiscal system. In response to that 

recommendation, Interior commissioned a study that compared the U.S. 

government’s fiscal system with that of other resource owners. We are 

currently conducting work to assess how Interior plans to use the results 

of this study to inform decisions about its fiscal system.

Furthermore, we reported, in July 2009, on numerous problems with 

Interior’s efforts to collect data on oil and gas produced on federal lands

and waters, including missing data, errors in company-reported data on 

oil and gas production, and sales data that did not reflect prevailing 

market prices for oil and gas.7

We also reported, in March 2010, that Interior was not taking the steps 

needed to ensure that oil and gas produced from federal lands and 

waters was accurately measured.

As a result of its lack of consistent and 

reliable data on the production and sale of oil and gas from federal lands

and waters, Interior could not provide reasonable assurance that it was 

assessing and collecting the appropriate amount of royalties on this 

production. We made a number of recommendations to Interior to 

improve controls on the accuracy and reliability of royalty data. Interior 

generally agreed with our recommendations and has implemented the 

majority of them.

8

 

7

GAO, Mineral Revenues: MMS Could Do More to Improve the Accuracy of Key Data 

Used to Collect and Verify Oil and Gas Royalties, 

For example, we found that neither 

BLM nor MMS had consistently met their agency goals for oil and gas 

production verification inspections, intended to examine, among other 

things, whether lessees were taking steps to ensure that the amount of oil 

and gas produced from federal lands and waters was being accurately 

measured. Without such verification, Interior cannot provide reasonable 

assurance that the public is collecting its share of revenue from oil and 

gas development. We also raised concerns over Interior’s efforts to 

GAO-09-549 (Washington, D.C.: July 

15, 2009). 

8

GAO, Oil and Gas Management: Interior’s Oil and Gas Production Verification Efforts Do 

Not Provide Reasonable Assurance of Accurate Measurement of Production Volumes, 

GAO-10-313 (Washington, D.C.: Mar. 15, 2010). 
 

Page 6 GAO-13-647T 

develop software to allow inspection staff to remotely monitor gas 

production. Specifically, we found that BLM’s Remote Data Acquisition for 

Well Production program—a program designed to provide industry and 

government with common tools to validate production and to view 

production data in near real-time—had shown few results, despite 10 

years of development and costs of over $1.5 million. Our March 2010 

report identified 19 recommendations for specific improvements to 

oversight of production verification activities, including recommendations 

intended to strengthen BLM’s production inspection program and its 

ability to obtain near real-time gas production data. Interior generally 

agreed with our recommendations; it has already implemented many of 

them and continues to work on the remainder.

Additionally, we reported, in October 2010, that Interior’s data likely 

understated the amount of natural gas produced on federal leases, 

because the data did not quantify the amount of gas released directly to 

the atmosphere (vented) or burned (flared) during the production 

process.9 This vented and flared gas represents lost royalties to the 

government and contributes to greenhouse gases. We recommended that 

Interior improve its data and address limitations in its regulations and 

guidance to reduce this lost gas. Interior generally agreed with our 

recommendations and is taking steps to implement them.

In February 2011, we added Interior’s management of federal oil and gas 

resources to our list of federal programs and operations at high risk for 

waste, fraud, abuse, and mismanagement or needing broad-based 

transformation.10

 

9

GAO, Federal Oil and Gas Leases: Opportunities Exist to Capture Vented and Flared 

Natural Gas, Which Would Increase Royalty Payments and Reduce Greenhouse Gases, 

We added Interior to the list because the department: 

(1) did not have reasonable assurance that it was collecting its share of 

revenue from oil and gas produced on federal lands; (2) continued to 

experience problems in hiring, training, and retaining sufficient staff to 

provide oversight and management of oil and gas operations on federal 

lands and waters; and (3) was engaged in a broad reorganization of both 

its offshore oil and gas management and revenue collection functions, 

GAO-11-34 (Washington, D.C.: Oct. 29, 2010).

10GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: February, 2011).

Interior’s Oil and Gas 

Management on the 

High Risk List
 

Page 7 GAO-13-647T 

leading to concerns about whether Interior could provide effective 

program oversight while undergoing such a broad reorganization.

In the February 2013 update to our High Risk list,11

In order for GAO to remove the high-risk designation, Interior must 

successfully address the challenges we have identified, implement open 

recommendations, and meet its responsibilities to manage federal oil and 

gas resources in the public interest. While Interior recently began 

implementing a number of GAO recommendations, including those 

intended to improve the reliability of data necessary for determining 

royalties, the agency has yet to implement a number of other 

recommendations, including those intended to help the agency 

(1) provide reasonable assurance that oil and gas produced from federal 

leases is accurately measured and that the public is getting an 

appropriate share of oil and gas revenues and (2) address its longstanding human capital issues.

we narrowed the 

federal oil and gas management high-risk area to focus on revenue 

collection and human capital challenges because Interior had completed 

its reorganization.

We are currently engaged in two reviews examining the remaining two 

high-risk issues. First, we are conducting a follow up review of Interior’s 

collection of revenues from the production of oil and gas on federal lands 

and waters. As part of this review, we will examine Interior’s progress, if 

any, in (1) ensuring the government is getting a fair return for federal oil 

and gas resources, (2) meeting agency targets for conducting oil and gas 

production verification inspections, and (3) providing greater assurance 

that oil and gas production and royalty data are consistent and reliable. 

Second, we are reviewing the extent to which Interior continues to face 

problems hiring, training, and retaining staff, and how any remaining 

problems affect Interior’s ability to oversee oil and gas activities on federal 

lands and waters. As part of this effort, we will focus on the causes of 

Interior’s human capital challenges, actions taken, and Interior’s plans for 

measuring the effectiveness of corrective actions. In addition, while we 

have narrowed the focus of the high-risk area to revenue collection and 

human capital issues, we will, in the course of ongoing work on these 

 

11GAO, High-Risk Series: An Update, GAO-13-283 (Washington, D.C.: February, 2013).
 

Page 8 GAO-13-647T 

issues, continue to consider Interior’s reorganization and its affect on the 

agency’s ability to oversee federal lands and waters.

In conclusion, Interior’s management of federal oil and gas resources is in 

transition. Our past work has found a wide range of weaknesses in 

Interior’s oversight of federal oil and gas resources, ultimately resulting in 

its inclusion on our High Risk List in 2011. Since then, Interior has 

successfully implemented many recommendations and resolved one of 

the three concerns that led to its inclusion on the high risk list—the 

challenges associated with its reorganization. We remain hopeful that 

Interior will continue to implement the many remaining recommendations 

we have made, thereby providing greater assurance of effective oversight 

of federal oil and gas resources.

Chairman Lankford, Ranking Member Speier and Members of the 

Subcommittee, this concludes my prepared statement. I would be 

pleased to answer any questions that you or other Members of the 

Subcommittee may have at this time.

If you have any questions concerning this testimony, please contact me at 

(202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this statement. Other individuals who made key contributions include 

Jon Ludwigson, Assistant Director; Christine Kehr, Assistant Director; 

Janice Ceperich; Glenn Fischer; Cindy Gilbert; Alison O’Neill; and 

Barbara Timmerman.

GAO Contact and 

Staff 

Acknowledgments

(361493)
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (http://www.gao.gov). Each weekday 

afternoon, GAO posts on its website newly released reports, testimony, 

and correspondence. To have GAO e-mail you a list of newly posted 

products, go to http://www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact:

Website: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations

Public Affairs

Please Print on Recycled Paper.