Oil and Gas Wells: Bureau of Land Management Needs to Improve Its Data and Oversight of Its Potential Liabilities
Released: 2018-06-05T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: 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.

section_title: What GAO Found
paragraphs: 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.

section_title: What GAO Recommends
paragraphs: 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.

section_title: Letter
paragraphs: Oil and natural gas resources on federal and Indian lands are an  important source of our nation’s energy supply. According to the  Department of the Interior’s Bureau of Land Management (BLM), in fiscal  year 2015, the most recent year for which data are available, wells on  federal and Indian lands were responsible for providing 11 percent of the  natural gas and 7 percent of the oil used in the United States. In fiscal  year 2016, private entities operated about 94,000 oil and gas wells on  federal lands overseen by BLM. Once these wells cease production, they  can become inactive. Inactive wells, which are non-producing wells, have  the potential to create physical and environmental hazards if operators fail  to reclaim the well sites, which may involve plugging the well, removing  structures, and reshaping and revegetating the land around the wells (i.e.,  returning well sites as close to their original natural conditions as  reasonably practical). For example, inactive wells that are not plugged or  not properly plugged can leak methane or contaminate surface water and  groundwater. BLM considers both oil and gas wells on federal and Indian  lands as well as the associated leased land as potential liabilities because  BLM may have to pay for reclamation if the well operator fails to do so.

BLM regulations and federal laws contain requirements aimed at  managing BLM’s potential oil and gas well liabilities. For example, to help  ensure that operators reclaim well sites, BLM requires operators to  provide a bond before drilling operations begin. Operators are required to  reclaim well sites before their bonds are released. These bonds may be  surety bonds, which are third-party guarantees that operators purchase  from private insurance companies, or personal bonds accompanied by a  financial instrument, such as a cashier’s check. Inactive wells become  orphaned if an operator does not perform required reclamation and if the  bond is insufficient to cover reclamation expenses and there are no other  responsible or liable parties to do so. In these cases, BLM is responsible  for completing the reclamation of the well site and uses appropriated  funds to perform reclamation. The Energy Policy Act of 2005 (EPAct  2005) directs the Secretary of the Interior to establish a program to  reclaim orphaned, abandoned, or idled oil and gas wells on federal  lands. The act requires that the program identify persons providing a  bond or other financial assurance and establish a means of recovering  the costs of reclaiming wells.

We have previously reported on the actual costs BLM has incurred to  reclaim orphaned wells and reported on and made recommendations  related to BLM’s potential oil and gas well liabilities and the agency’s  efforts to manage these liabilities. For example, in January 2010, we  documented the amount that BLM paid to reclaim orphaned wells from  1988 through 2009 ($3.8 million to reclaim 295 orphaned wells), and  identified the number of orphaned wells that BLM had not yet reclaimed  (144 orphaned wells). In addition, in February 2011, we found  incomplete bond information in BLM’s data system, as well as incomplete  data on the number of well and bond adequacy reviews. We  recommended that BLM develop a comprehensive strategy to better  manage potential oil and gas well liabilities. BLM agreed and, partly in  response to our recommendations, issued a well review policy in 2012  and a bond adequacy review policy in 2013.

You asked us to review how BLM manages its potential oil and gas well  liabilities. 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 (since we last  reported on these issues); (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 oil and gas well liabilities.

To examine how BLM’s actual reclamation costs incurred and potential oil  and gas well liabilities have changed, we analyzed data from BLM’s  Automated Fluid Minerals Support System (AFMSS) on oil and gas wells  on federal and Indian lands, including inactive and orphaned wells— which represent potential liabilities. AFMSS provides a snapshot of the  time that the data are queried, and so AFMSS does not include historical  data over time. As such, to examine the number of inactive wells on  federal and Indian lands and how long these have been inactive, we  combined AFMSS data with data from the Department of the Interior’s  Office of Natural Resources Revenue (ONRR) Oil and Gas Operations  Report’s (OGOR) data system. The Department of the Interior requires  monthly OGORs from operators. These OGORs document and record the  volume of oil and gas produced from wells on federal and Indian lands.  To assess the reliability of AFMSS and OGOR data, we reviewed agency  documents, met with relevant agency officials, and performed electronic  testing. We found the data on the number of inactive wells and how long  they have been inactive and the data for the number of wells BLM has  identified as orphaned to be sufficiently reliable for our purposes.

However, because AFMSS does not contain information on actual costs  incurred to reclaim orphaned wells, we obtained documentation of the  actual reclamation costs that 13 selected BLM field offices incurred for  fiscal years 2010 through July 2017. To analyze these costs, we reviewed  purchase orders and invoices. We also obtained documentation, including  spreadsheets with estimated potential reclamation costs that these 13  offices faced as of July 2017. We compared estimated costs provided  by the 13 field offices to historical actual costs and determined that overall  estimated reclamation costs were sufficiently reasonable for providing a  sense of the general magnitude of potential costs, though we did not  assess the underlying inputs or assumptions used. We selected the 13  BLM field offices because they are responsible for about 80 percent of all  oil and gas wells managed by BLM. We also interviewed officials from  the 13 selected BLM field offices and the 6 BLM state offices associated  with these field offices. Findings from the selected offices cannot be  generalized to BLM offices we did not include in our review. We also  reviewed documentation provided by BLM and compared BLM’s policies  and procedures on recording information on actual costs incurred to  reclaim orphaned wells and potential liabilities against the information and  communication standard outlined in Standards for Internal Control in the  Federal Government.

To examine the extent to which BLM has implemented its 2012 and 2013  policies for conducting well and bond adequacy reviews, we analyzed  BLM’s well review and bond adequacy review reports for fiscal year 2016.  We also reviewed AFMSS data on wells and bonds as of October 2017.  We were unable to fully assess BLM’s performance against the directives  in the agency’s 2012 well review and 2013 bond adequacy review policies  due to limited agency data and documentation. We identified data  accuracy and consistency concerns with some of the data elements in the  agency’s well review and bond adequacy review reports as well as some  AFMSS data on wells and bonds, which we discuss later in this report. In  addition, we reviewed documentation from a random, non-generalizable  sample of 62 well reviews and 58 bond adequacy reviews, as reported by  the 13 selected BLM field offices. Information from our documentation  reviews is not generalizable to all BLM field offices but provides  illustrative examples of the information contained in BLM’s well and bond  adequacy reviews. We compared BLM’s procedures detailing how offices  are to count or report a well review and procedures for maintaining data  quality against the control activities standard outlined in Standards for  Internal Control in the Federal Government. We also compared BLM’s  procedures for monitoring implementation of policy directives against  leading practices for monitoring agency policies.

To examine any challenges that BLM faces in managing its potential oil  and gas well liabilities, we interviewed officials from 20 BLM offices and  interviewed or obtained written responses from representatives from 8  stakeholder organizations knowledgeable about BLM’s oil and gas well management, including academic, environmental, industry, and state  organizations. In addition, we spoke with knowledgeable officials from  ONRR and the Department of the Interior’s Office of Indian Energy and  Economic Development, Division of Energy and Mineral Development. To  identify knowledgeable stakeholders, we conducted a literature search,  reviewed previous GAO reports, and obtained recommendations from  BLM officials. We then used a technique in which the initial group of BLM  officials and stakeholders we interviewed identified additional contacts to  interview. From this list, we selected stakeholders who could provide a  range of viewpoints. The views of the BLM officials, stakeholders, and  other agency personnel we interviewed are not generalizable to BLM  officials, similar stakeholders, and other agency personnel we did not  interview. Lastly, we compared how BLM identified and managed certain  inactive wells, as well as how BLM managed nationwide and statewide  bonds, against the control activities standard outlined in Standards for  Internal Control in the Federal Government; and BLM’s resource  management practices against certain requirements in EPAct 2005 and  leading practices by the Project Management Institute’s The Standard for  Program Management. (App. I lists the BLM offices and knowledgeable  stakeholders we interviewed and provides additional information on our  scope and methodology).

We conducted this performance audit from November 2016 to May 2018,  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: This section provides information on (1) BLM headquarters, state, and  field offices; (2) the lifecycle of oil and gas wells; (3) BLM’s bonding  regulations; and (4) BLM’s 2012 well review and 2013 bond adequacy  review policies.
subsections: section_title: BLM Headquarters, State, and Field Offices
paragraphs: BLM is responsible for issuing leases for private entities to develop oil  and gas resources on and under roughly 700-million acres of (1) BLM  land, (2) other federal agencies’ land, and (3) private land where the  federal government owns the mineral rights. According to BLM,  approximately 32-million acres were leased for oil and gas operations at  the end of fiscal year 2015. BLM also oversees oil and gas operations on  56-million acres of Indian lands.

BLM administers its programs through its headquarters office in  Washington, D.C.; 12 state offices; 38 district offices; and 127 field  offices. Of these, 10 state offices and 33 field offices manage oil and gas  programs, and these are located primarily in the Mountain West, the  center of much of BLM’s oil and gas development. BLM headquarters  develops guidance and regulations for the agency, and the state, district,  and field offices manage and implement the agency’s programs. Because  BLM has few acres of land in the eastern half of the United States, the  Eastern States State Office, in Washington, D.C., is responsible for  managing land in 31 states, and the remaining state offices generally  conform to the boundaries of one or more states. Figure 1 shows the  boundaries of the 12 BLM state offices.

section_title: Lifecycle of Oil and Gas Wells
paragraphs: Once operators obtain federal oil and gas leases and drill wells, those  wells can be actively producing, inactive, or reclaimed. An orphaned well  is a well that BLM determined has no responsible or liable party and for  which there is insufficient bond coverage for reclamation. This situation  may occur, for example, when an operator has declared bankruptcy.  Shut-in and temporarily abandoned wells are examples of types of  inactive wells that can become orphaned. Shut-in wells are physically and  mechanically capable of producing oil or gas in paying quantities or  capable of service use. For example, an operator may put a well in shut- in status if it has not been connected to a sales line or the line is too far  away and it is not economical to connect to at this time. Temporarily  abandoned wells are another type of inactive well that is not physically or  mechanically capable of producing oil or gas in paying quantities but that  may have value for a future use. Figure 2 depicts the lifecycle of oil and  gas wells overseen by BLM.

section_title: BLM’s Bonding Regulations
paragraphs: The Mineral Leasing Act of 1920, as amended, requires that federal  regulations ensure that an adequate bond is established before operators  begin preparing land for drilling to ensure complete and timely  reclamation of the land. Accordingly, BLM regulations require operators to  submit a bond to ensure compliance with all of the terms and conditions  of the lease, including, but not limited to paying royalties, plugging wells,  and reclaiming disturbed land. BLM regulations generally require  operators to have one of the following types of bond coverage:  individual lease bonds, which cover all of an operator’s wells under  one lease, and the minimum amount is set at $10,000;  statewide bonds, which cover all of an operator’s leases in one state,  and the minimum amount is set at $25,000; or nationwide bonds, which cover all of an operator’s leases in the  United States, and the minimum amount is set at $150,000.

BLM can accept two types of bonds: surety bonds and personal bonds. A  surety bond is a third-party guarantee that an operator purchases from a  private insurance company approved by the Department of the Treasury.  The operator is required to pay a premium to the surety company to  maintain the bond. These premiums can vary depending on various  factors, including the amount of the bond and the assets and financial  resources of the operator. If operators fail to reclaim the land they disturb,  the surety company can either pay BLM the amount of the bond to help  offset reclamation costs, or in some circumstances, BLM may allow the  surety company to perform the required reclamation. A personal bond  must be accompanied by one of the following financial instruments:  certificates of deposit issued by a financial institution whose deposits  are federally insured, granting the Secretary of the Interior authority to  redeem it in case of default in the performance of the terms and  conditions of the lease;  cashier’s checks; negotiable Treasury securities, including U.S. Treasury notes or  bonds, with conveyance to the Secretary of the Interior to sell the  security in case of default in the performance of the lease’s terms and  conditions; or  irrevocable letters of credit that are issued for a specific term by a  financial institution whose deposits are federally insured and meet  certain conditions.

If operators fail to reclaim the land they disturb, BLM will redeem the  certificate of deposit, cash the check, sell the security, or make a demand  on the letter of credit to pay the reclamation costs.

section_title: BLM’s 2012 Well Review and 2013 Bond Adequacy Review Policies
paragraphs: In response to our previous recommendations that BLM develop a  comprehensive strategy to improve monitoring agency performance in  conducting well reviews and bond adequacy reviews, BLM issued a 2012  well review policy and a 2013 bond adequacy review policy. These  policies contain directives for conducting reviews when wells and bonds  meet certain criteria. The well review policy directs:  that field office officials evaluate every shut-in well at least once every  5 years;  that field office officials review all wells that have been inactive for 25  years or longer and that have no anticipated beneficial use by March  29, 2013;  that if field office officials determine that there are wells that are not  capable of producing oil or gas in paying quantities or have no  beneficial use, officials are to send the operator a written order  directing the operator to demonstrate that these wells are capable of  producing oil or gas in paying quantities or have a future beneficial  use, or the operator is to submit plans to reclaim the wells;  that each state office submit to BLM headquarters a consolidated  annual report recording well reviews; and  that the annual report identify the leases that were reviewed and the  wells that were reviewed on each lease, and describe what follow-up  action the field office official conducting the review performed.

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.

section_title: BLM’s Actual Reclamation Costs and Potential Oil and Gas Well Liabilities Have Likely Increased, but the Agency Does Not Systematically Track These
paragraphs: 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. Precisely how the agency’s  actual reclamation costs and potential liabilities have changed is unclear  because BLM does not systematically track them at an agency-wide level.  BLM headquarters officials we interviewed told us that they did not have  any information on actual costs incurred to reclaim orphaned wells and  stated that BLM’s data systems were not designed to track incurred  reclamation costs. In addition, AFMSS provides a snapshot of orphaned  wells as identified at the time that the data are queried and does not  provide data for prior time periods.

Because BLM headquarters does not record actual reclamation costs  incurred at an agency-wide level, we requested documentation for the  reclamation costs incurred by 13 selected BLM field offices for fiscal  years 2010 through July 2017. This documentation identified about $2.1  million in reclamation costs incurred over this period, or an average of  about $267,600 per year by these 13 field offices. We estimate that total  actual reclamation costs for all field offices are likely to be higher than this  amount as other field offices may have also reclaimed orphaned wells  during this period. In January 2010, we found that, for all field offices  across the agency, BLM spent about $3.8 million from fiscal years 1988  through 2009, or an average of about $171,500 per year. Comparing  the average costs incurred by the 13 selected field offices to the data we  previously reported demonstrates that actual total reclamation costs  incurred have likely increased since 2010.

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. Potential liabilities include costs that the agency may  incur to reclaim wells that operators fail to reclaim. We believe these  costs have also increased because the number of known orphaned wells  on federal and Indian lands managed by BLM has increased. We  identified changes in the number of known orphaned wells since we last  reported on this matter in January 2010. In January 2010, we found that  BLM had identified and was managing 144 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. Also, BLM officials from the 13 selected  field offices identified about $46.2 million in estimated potential  reclamation costs associated with orphaned wells and inactive wells that  officials deemed to be at risk of becoming orphaned.

Also concerning potential liabilities, our analysis of AFMSS data and  OGOR production data through September 2016 found that BLM  managed about 15,600 inactive wells, of which over 1,000 were inactive  for 25 years or more. In contrast, a document provided to us by BLM  headquarters indicates 325 wells had been inactive for 25 years or more  as of around 2017. This document summarizes data from AFMSS queries  conducted by BLM field and state offices at various times from 2013  through 2014 and queries conducted at various times from 2016 through  2017. BLM officials told us that this difference could be because AFMSS  reports sometimes return conflicting data since the reports draw from  current and historical statuses of wells from both AFMSS and OGOR. We  combined AFMSS and OGOR data to identify the number of inactive  wells because although BLM records the total number of wells on federal  lands over time—a rough indicator of how potential reclamation costs  may change—the agency does not systematically record more specific  types of wells that may be at higher risk of becoming orphaned, such as  inactive wells or wells that have been inactive for 25 years or more.

Moreover, we identified inconsistencies between the data and the  document provided to us by BLM headquarters summarizing the data. For  example, BLM’s summary document did not include one state office, even  though the data include that state office as having two wells that were  inactive for 25 years or more in 2014. BLM’s summary document states  that there had been a reduction in the number of wells that were inactive  for 25 years or more between the times of the two data queries. However,  because BLM does not systematically track the number of inactive wells,  in particular those wells that are at high risk of becoming orphaned, the  agency does not know how its potential liabilities may be changing. These  liabilities include wells inactive for 25 years or more.

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. For  example, there has been an increase in oil and gas development on  federal lands, and therefore, there is the potential for an increase in the  total number of wells on federal lands at risk of becoming orphaned and  needing to be reclaimed in the future. BLM’s portfolio of oil and gas wells  on federal lands has changed over the years, based on overall trends in  the oil and gas industry. According to AFMSS data provided by BLM,  the total number of wells on federal lands that are capable of production  increased along with rising oil and gas prices, from about 89,600 wells in  fiscal year 2010 to peaking to about 94,800 wells in fiscal year 2014. As  oil and gas prices declined starting in 2014, the total number of wells  capable of production also declined to about 94,100 wells in fiscal year  2016.

In addition, declining oil and gas prices (by nearly half from 2010 through  2017) have placed financial stress on oil and gas operators, thereby  increasing bankruptcies and the risk of wells becoming orphaned. For  example, coalbed methane—natural gas extracted from coal beds—was  economical to produce when natural gas prices were higher and  thousands of coalbed methane wells were drilled on federal lands.  However, coalbed methane production has declined because the spread  of shale gas production has driven down natural gas prices. Officials we  interviewed in one BLM field office told us that the drop in natural gas  prices contributed to an increasing number of bankruptcies for operators  of coalbed methane wells. Our analysis of AFMSS data suggests that  there were thousands of inactive coalbed methane wells as of October  2017. To the extent that market conditions remain unfavorable for  coalbed methane production, BLM’s potential future reclamation costs  may increase if any operators of these wells go bankrupt or are otherwise  unwilling or unable to pay the full costs of reclamation, leaving these wells  orphaned.

According to federal internal control standards, management should use  quality information, which should be complete, to achieve the entity’s  objectives. However, BLM does not systematically or comprehensively  track the agency’s actual costs incurred to reclaim orphaned wells and  the information necessary to determine potential liabilities, including  indicators of potential future reclamation costs, such as the number of  inactive wells, orphaned wells, and estimates of reclamation costs for  orphaned wells. BLM headquarters officials said that they sometimes  check AFMSS to see how many orphaned wells there are, but without  doing so systematically and recording the results of these checks, it is not  possible to determine how the agency has been making progress in  managing the number of orphaned wells. EPAct 2005 requires that the  costs of reclaiming orphaned wells be recovered from persons or entities  providing a bond or other financial assurance. 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.

section_title: The Extent to which BLM Implemented Its Well Review Policy and Bond Adequacy Review Policy Directives Is Unclear
paragraphs: The extent to which BLM has implemented its well review policy and bond  adequacy review policy is unclear. Specifically, we were unable to fully  assess the extent to which BLM’s field and state offices have  implemented directives included in these policies because of inconsistent  well review information, inaccurate well and bond data in AFMSS, and  inadequate monitoring of well and bond policies’ implementation.

Inconsistent well review information. We were unable to fully assess  the extent to which BLM implemented some directives in the well review  policy because the well review information reported by field offices  differed across the agency. For example, officials we interviewed at the  13 selected BLM field offices had different understandings of what  specific actions constitute a well review, and therefore differed in their  understanding of which wells were to be included in the annual reports for  documenting well reviews. Specifically, officials from 11 out of 13 selected  field offices told us that a well review consisted of actions—such as  reviewing a well’s status, conducting a physical inspection, and providing  additional notices or letters to the well operator when a well is inactive.  Officials in 2 other field offices told us that while they conduct similar  actions, they consider the sole action of correcting data on a well’s status  to constitute a well review. For example, a BLM official told us that one  reported well review was conducted on a well that had been reclaimed in  1986 but that was not noted in AFMSS. The official told us that following  this well review, they corrected the well status in AFMSS and noted that  this well should not have been on the list of wells to review. While  correcting well data helps improve the accuracy of AFMSS, when some  offices count such corrections as well reviews and others do not, this  variance results in inconsistent information in BLM’s annual well review  reports.

Such inconsistencies in what counts as a well review may be the result of  a lack of clarity in BLM’s well review policy that does not specify what  constitutes a well review. Unlike the bond adequacy review policy, which  provides instructions to field offices on how to conduct a bond adequacy  review and directs field offices to use a specific worksheet to calculate  bond adequacy, the well review policy does not contain specific  instructions on what actions field offices are to take to conduct a well  review, such as how to count reviews or report them. A January 2018  report by the Department of the Interior’s Office of Inspector General  (OIG) similarly found that BLM’s well review policy does not specifically  outline how to conduct and document reviews of shut-in wells (shut-in  wells, as noted earlier, are inactive wells that are physically and  mechanically capable of producing oil or gas in paying quantities or  capable of service use). Under federal standards for internal control,  management should design control activities to achieve objectives and  respond to risks; such activities include appropriate documentation of  internal control in management directives, administrative policies, or  operating manuals. Without developing and communicating specific  instructions outlining what actions constitute a well review for annual- reporting purposes, BLM cannot have reasonable assurance that its field  offices are conducting and reporting on well reviews in a consistent  manner.

Inaccurate well and bond data in AFMSS. Our ability to assess the  extent to which BLM implemented its well review and bond adequacy  review policies was impeded by inaccuracies in certain AFMSS data.  BLM officials told us that some of the data in AFMSS on wells and bonds  were not reliable. For example, BLM officials told us that there may be  discrepancies between the bonds listed in AFMSS and the bonds listed in  the Bond and Surety System, which is BLM’s official database for all oil  and gas bonds. Officials told us that bonds may be missing from AFMSS  because BLM field offices are responsible for manually entering the bond  number from the Bond and Surety System into AFMSS.

In addition, AFMSS data we reviewed contained other inaccuracies.  Specifically, the data we reviewed contained future dates for when wells  were completed, or capable of production, when some wells last changed  statuses, and when some well reviews were reportedly conducted. BLM  officials told us that AFMSS allows users to enter future dates, which can  result in inaccurate data. Having inaccurate dates for wells’ statuses and  wells’ reviews is problematic because it means it is not possible to assess  whether reviews are being conducted as directed by BLM policy. For  example, BLM’s well review policy directs field offices to review each  shut-in well every 5 years. BLM’s performance against this directive  cannot be assessed without reliable information on when wells become  shut-in and when well reviews are conducted.

In written responses to our request for information, BLM officials stated  that AFMSS has some edit checks, but the accuracy of the data entered  into AFMSS is dependent on field office officials responsible for data  entry. BLM officials stated that AFMSS has some electronic safeguards,  such as certain number fields only accepting numbers. In addition,  AFMSS has dropdown menus and checkboxes to narrow the parameters  of certain data being entered. However, there are no edit checks to  prevent field offices from inputting future status dates. In addition, BLM’s  data administration and management handbook establishes that data  stewards are to, among other things, establish target quality levels, data  quality plans (including audits and other quality assurance steps), and  certify the quality of the data. BLM officials stated that they have national  level AFMSS data stewards and information-technology data stewards.  However, BLM officials stated that the agency has not defined AFMSS  target quality levels and did not provide any data quality plans. Officials  stated that BLM headquarters conducts annual data reviews and will  periodically review sample well files to detect data inconsistencies and  errors. In addition, BLM officials stated that field offices are responsible  for certifying the accuracy of the data they enter into AFMSS, and BLM  headquarters is responsible for providing oversight. However, BLM  headquarters officials did not provide documentation of any data  certifications or data reviews, raising concerns over the extent of this  oversight.

Under federal standards for internal control, management should design  control activities, including control activities used in information  processing, to achieve objectives and respond to risks. Examples of such  control activities include:  conducting edit checks of data entered, accounting for transactions in numerical sequences, and  comparing file totals with control accounts.

Without taking steps to improve AFMSS data quality, such as by  conducting more edit checks and having data stewards certify the quality  of the data, BLM cannot have reasonable assurance that management  has the accurate information it needs to track whether field offices are  conducting well and bond adequacy reviews as intended.

In its January 2018 report, the OIG found similar issues related to the  accuracy of AFMSS data. Specifically, the OIG found that AFMSS data  were unreliable due to inaccurate well status information. The OIG also  found that BLM officials update AFMSS manually during a well review or  as needed, as opposed to automating the data, meaning that information  about the status of individual wells in AFMSS and data used for BLM’s  annual well report are not timely. The OIG recommended that BLM  develop and implement a quality control process to identify inaccurate or  incomplete data in AFMSS. BLM concurred with this recommendation.

Inadequate monitoring of well and bond policies’ implementation.  BLM headquarters has taken some actions to monitor the implementation  of its well and bond adequacy review policies across the agency, but its  efforts have been limited, and the agency cannot ensure that its policy  directives have been fully implemented. For example, BLM headquarters  officials told us that headquarters relies on national well review and bond  adequacy review reports to monitor the extent to which field offices are  conducting well and bond adequacy reviews. These well and bond  adequacy review reports provide some information on how BLM field  offices conducted their reviews during a given year, but the reports as  previously mentioned above have data limitations and do not consistently  record a field office’s progress in meeting the policies overall. For  example, annual well review reports list the wells field offices reviewed in  a given year, but do not compare this statistic to a list of the wells that  each field office should have reviewed. Similarly, field offices’ bond  adequacy review reports list the bonds that the field offices reviewed in a  given year. However, the reports do not compare the bonds reviewed to a  list of bonds each field office should have reviewed.

In addition, our analysis of 58 selected bonds reported as reviewed  across the 13 selected field offices found that 4 bonds—about 7  percent—were not reviewed, even though field offices had reported that  they had conducted the reviews. The bond adequacy review policy  directs field offices to review all bonds once every 5 years or whenever a  bond review is warranted. Therefore, the bond adequacy review reports  on their own provide insufficient information for BLM headquarters to  monitor progress about whether field offices are fully implementing the  directive.

We also identified discrepancies between the annual well review and  semi-annual bond adequacy review reports that state offices submitted to  BLM headquarters and the information in headquarters’ national  summary, which consolidates the state office information. These  discrepancies limit the usefulness of the national summary for monitoring  the extent to which field offices are conducting well and bond adequacy  reviews as directed by the policies. 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. Similarly, 6 out of 9 state offices reported a  different number of completed well reviews in their fiscal year 2016 state  report than what was reported in BLM’s fiscal year 2016 national report.

Similarly, the OIG’s January 2018 report found that BLM can only report  its progress in reviewing wells that have been inactive for 25 years or  more by using field office spreadsheets, coupled with AFMSS data. The  report stated that using spreadsheets and AFMSS data have made it  difficult, however, for BLM to demonstrate proper oversight. BLM’s  headquarters officials had to ask state office officials how many wells had  been reviewed and then had to summarize those results in a  spreadsheet. The OIG recommended that BLM monitor and track reviews  of shut-in wells in a management system. BLM concurred and stated that  AFMSS and an update to AFMSS that is under development were the  appropriate databases for monitoring and tracking well reviews.

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. These practices call for, among  other things: (1) periodically collecting and analyzing data on performance  indicators, (2) establishing procedures for ensuring the quality of data on  performance indicators, (3) documenting that monitoring plans were  executed, and (4) considering performance information in making  management decisions. 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.

section_title: Agency Officials and Stakeholders Identified Several Challenges BLM Faces in Managing Its Potential Oil and Gas Well Liabilities
paragraphs: According to BLM officials and stakeholders we interviewed, BLM faces  several challenges in managing its potential liabilities. In particular, BLM  officials and stakeholders told us that one challenge in managing BLM’s  potential liabilities was identifying and managing shut-in wells and  preventing them from becoming orphaned. Another challenge identified  was limited resources and competing priorities in reclaiming orphaned  wells. Other challenges to managing BLM’s potential liabilities include  difficulties in reviewing nationwide bonds, minimum bond amounts, and  operators’ unresponsiveness.
subsections: section_title: BLM Faces Challenges Identifying and Managing Shut-in Wells and Preventing Them from Becoming Orphaned
paragraphs: BLM officials from 6 of the 20 BLM offices—including headquarters and  selected state and field offices—and 2 of the 10 stakeholders told us that  one of the challenges that BLM faces in managing its potential liabilities is  identifying and managing shut-in wells. As previously mentioned, shut-in  wells are inactive wells that are physically and mechanically capable of  producing oil or gas in paying quantities or capable of service use. Since  shut-in wells may become orphaned and therefore involve BLM resources  to reclaim, identifying and managing them is a way for BLM to manage its  potential liabilities. BLM’s 2012 well review policy directs field offices to  review all shut-in wells on federal and Indian lands every 5 years and to  ensure that shut-in wells no longer capable of production are reclaimed.  However, operators are generally not required to notify BLM when they  place a well in shut-in status. As a result, officials noted that it is difficult  for field offices to identify all shut-in wells in order to review them. Officials  from one field office told us that identifying when a well becomes shut-in  is challenging unless inspectors are able to physically find the well.

Even when wells have been identified to BLM as shut-in, some BLM  officials at selected field offices said that they have few policy tools to  manage shut-in wells. In reviewing the well review policy, we found that it  contains certain directives for wells that are temporarily abandoned,  including that an operator is to conduct well integrity testing prior to  placing a well in temporarily abandoned status and a 30-day limit for how  long operators can place wells in temporarily abandoned status without  receiving BLM approval. However, the policy contains no similar  directives related to testing or limited time frames for placing wells in shut- in status. As a result, BLM may be unable to identify and reduce its  inventory of shut-in wells, including wells that have been in shut-in status  for an extended period of time.

In its January 2018 report, the OIG similarly found that the well review  policy does not provide field offices the leverage to make an operator  conduct integrity testing since the policy does not have instructions on the  method, frequency, and way to proceed with a notice or order. Without  having these test results available to them, the report found that BLM staff  cannot be certain that an inactive well is environmentally sound and  capable of production. The report recommended that BLM develop and  implement guidance or update the well review policy to require integrity  testing on inactive wells at specific periods.

Strengthening the identification and management of shut-in wells could  be particularly helpful in managing BLM’s potential liabilities because  such wells have represented a large portion of orphaned wells. According  to our analysis of AFMSS data, 138 of the 242 orphaned wells BLM  manages were in shut-in status prior to becoming orphaned. Moreover,  one of these wells had been in shut-in status since 1926. BLM’s Colorado  and New Mexico state offices have taken steps to address the challenges  associated with shut-in wells becoming orphaned. For example, in  September 2016, BLM’s New Mexico state office issued a policy that  directed operators to obtain BLM’s approval in order to place a well in  shut-in status for more than 90 days and directed the operator to conduct  periodic testing to verify that wells that have been inactive for more than  12 consecutive months remain capable of production. Under federal  standards for internal control, management should design control  activities—such as by clearly documenting internal control in  management directives, administrative policies, or operating manuals—to  achieve objectives and respond to risks. Without providing greater  specificity in current policy or new supplemental guidance to all BLM field  offices on how to identify and manage shut-in wells, the agency is at an  increased risk of having unidentified shut-in wells, and wells that remain  in shut-in status for extended periods of time, leading to increased  potential liabilities if such wells become orphaned.

section_title: BLM Faces Challenges Related to Limited Resources and Competing Priorities
paragraphs: BLM officials and stakeholders told us that one of the challenges BLM  faces in managing its potential liabilities is limited resources, including  staff and funding, and competing priorities. Specifically, officials from 14  of the 20 BLM offices and 3 of the 10 stakeholders told us that BLM field  offices have limited staff and therefore prioritize other work, such as  processing drilling permits, over conducting well and bond adequacy  reviews, which are used to manage potential liabilities. BLM prioritizes  processing drilling permits over well and bond adequacy reviews in part  because the agency is required by statute to process drilling permits  within 30 days of receiving a complete application. BLM headquarters  officials told us that processing permits is the agency’s highest priority  activity and that they ask field offices for monthly progress reports with  projected goals for processing permits within the next 90 days, and  compare the offices’ accomplishments to agency targets. BLM  headquarters officials told us that prioritizing processing permits  increases the workload at the national, state-office, and field-office levels.

Officials from one BLM state office told us that other challenges to  managing its potential liabilities are staffing limitations and the time it  takes to conduct bond adequacy reviews. These state office officials told  us that bond reviews can take a long time to complete because some  bonds are associated with several hundred wells. Similarly, officials from  one field office stated that conducting bond adequacy reviews was time  consuming and that they had only one staff member dedicated to  conducting the reviews. In 2011, we found that a lack of resources and  higher agency priorities were the primary reasons for why many BLM field  office officials we interviewed had not conducted well and bond adequacy  reviews or did not know the number of reviews they had conducted.

In addition, officials from 6 of the 20 BLM offices and 1 stakeholder told  us that another challenge BLM faces in managing its potential liabilities is  prioritizing funding to reclaim orphaned wells. For example, an official  from one state office told us that securing funding to reclaim orphaned  wells is a challenge because BLM does not set aside funding to pay for  reclamation costs. BLM officials in one field office told us that they had  not received funding from BLM headquarters specifically for reclamation  in over 10 years, despite managing a growing number of orphaned wells.  An official from this field office told us that without dedicated funds from  BLM headquarters for this purpose, the field office was unable to reclaim  the orphaned wells. In addition, officials from another field office told us  that time frames for competing and awarding contracts to perform  reclamation work do not coincide with securing funding from BLM  headquarters, and that funding has to be obligated by the end of the fiscal  year. These officials explained that in one instance, by the time they  obtained funding for well reclamation, it was too late to issue a contract  for the work.

EPAct 2005 requires the establishment of a program to reclaim orphaned,  abandoned, or idled oil and gas wells on federal lands. As part of this  program, BLM conducts well reviews and bond adequacy reviews. As  discussed above, about half of the orphaned wells BLM identified in 2009  were not reclaimed and remained orphaned in 2017, and BLM officials  cited funding as the issue. The Project Management Institute, Inc. has  established a standard on program management. Under the standard,  program resource management planning ensures that all required  resources are made available for managers to enable the delivery of  benefits for a program. Resource management planning involves  identifying existing resources and the need for additional resources. The  program manager analyzes the availability of each resource, in terms of  both capacity and capability, and determines how these resources will be  allocated to avoid over-commitment or inadequate support. Such  planning, through a resource management plan, forecasts the expected  resources across a program to allow the program manager to identify  potential resource shortfalls or conflicts over the use of scarce or  constrained resources. The plan is also to describe guidelines for making  program resource prioritization decisions and resolving resource conflicts.

Based on our discussions with BLM headquarters and field office officials,  BLM does not have a resource management plan. For example, when we  discussed resources for reclaiming orphaned wells with BLM  headquarters officials, they told us that some BLM offices obtain funding  from state funds established for reclaiming orphaned wells, but not all  offices have been able to access such funds. If unable to secure funding  from the states, offices may request funding from BLM headquarters for  reclamation, and as mentioned previously, occasionally try to use  unexpended funds left at the end of a fiscal year. In its comments on the  draft report, Interior noted that BLM engages in annual work planning  processes designed to facilitate agency resource allocation decisions.  However, BLM overall does not have information on the federal resources  needed to reclaim known orphaned wells. Without developing a resource  management plan addressing resources needed for conducting well and  bond adequacy reviews and reclaiming orphaned wells, BLM cannot have  reasonable assurance that it is achieving the program’s objectives.

section_title: Agency Officials and Stakeholders Identified Several Additional Challenges BLM Faces in Managing Its Potential Liabilities
paragraphs: Agency officials and stakeholders cited additional challenges including  BLM’s ability to review nationwide bonds, minimum bond amounts, and  operator unresponsiveness.

Reviewing nationwide bonds. Officials from 10 of the 20 BLM offices  told us that they encountered challenges reviewing nationwide bonds  because of a lack of coordination between BLM offices. The purpose  section of the bond adequacy review policy states that field offices are to  review bonds to determine whether the bond amount appropriately  reflects the level of potential risk posed by the operator. However, the  bond adequacy review policy also states in a directive that if the bond  being reviewed is a nationwide or statewide bond, field offices are only to  review the wells within their field office. Officials from one field office told  us that without insights into an operator’s activities in the jurisdictions of  other field offices, bond adequacy reviews do not cover when an operator  has been cited with an Incident of Noncompliance or the number of  inactive wells the operator may have in other jurisdictions. These field  office officials said that it is important to communicate and coordinate with  other field offices when there is a need to require an operator to secure a  larger bond. For example, to require a well operator to increase the  amount of its bond, BLM must show that the operator meets the point  system’s threshold in the bond adequacy review’s calculation  worksheet. Officials in one state office told us that under a nationwide or  statewide bond, an operator might not reach the agency’s threshold for  requiring a bond increase based on an operator’s activities in the  jurisdiction of one field office but may meet the threshold if BLM’s bond  adequacy review assessed all of the operator’s operations within a state  or across the nation.

Under federal standards for internal control, management should design  control activities to achieve objectives and respond to risks, such as by  clearly documenting internal controls, and having the documentation  appear in management directives, administrative policies, or operating  manuals. While BLM has documented its policy, the purpose of the  policy to ensure that the bond amount appropriately reflects the level of  potential risk posed by the operator conflicts with a directive of the policy  that offices are only to review wells within their own jurisdiction. Officials  told us that BLM is currently revising the bond adequacy review policy. As  the agency revises its bond adequacy review policy, BLM has the  opportunity to ensure that bond adequacy reviews reflect the overall risk  presented by operators. By having the policy ensure that the reviews of  nationwide and statewide bonds account for overall operator risk, BLM  can have better assurance that it will reduce the likelihood of using  taxpayer funds to pay to reclaim orphaned wells.

Minimum bond amounts. Officials from 9 of the 20 BLM offices and 1  stakeholder told us that BLM faces challenges related to federal minimum  bond amounts that in their opinion are too low. For example, officials from  one BLM state office expressed concerns about operators with multiple  wells covered by the minimum bond amounts, which the officials believed  to be inadequate to cover total potential reclamation costs. Minimum bond  amounts were set in the 1950s and 1960s and have not been updated to  keep up with inflation. Specifically, the $10,000 minimum for individual  bonds was established in 1960, and the bond minimums for statewide  bonds ($25,000) and nationwide bonds ($150,000) were established in  1951. If adjusted to 2016 dollars, these amounts would be $63,613 for an  individual bond, $189,825 for a statewide bond, and $1,138,952 for a  nationwide bond. According to BLM headquarters officials, the agency  does not require that operators provide full liability bonds. These officials  told us that they believed that most operators would not be able to remain  in business if bond amounts were based on estimated total reclamation  costs.

Operators’ unresponsiveness. Officials from 8 of the 20 BLM offices  and 2 stakeholders told us that BLM faces challenges dealing with  unresponsive operators when requiring operators to increase bond  amounts or issuing Incidents of Noncompliance. For example, officials  from one BLM state office told us that operators do not always respond to  letters informing them of a requirement to secure an increase in their  bond. Officials from another BLM state office told us that the agency can  place operators on a noncompliance list prohibiting them from holding  leases or conducting operations on federal lands. However, these officials  also said that they have seen operators ask relatives to obtain leases in  order to circumvent such prohibitions. Officials from one field office told us  of one particular instance in which BLM had spent over 7 years  attempting to enforce the requirements for reclamation activities. BLM  had issued an Incident of Noncompliance, but the operator did not  respond and instead reorganized as a separate corporate entity.  Subsequently, the operator went bankrupt, requiring BLM to restart the  communications process from the beginning with the newly formed entity.  BLM officials told us that the agency has very little leverage when  companies change their name or reorganize in an attempt to evade  performing required reclamation activities. BLM headquarters officials told  us that working with operators was a delicate balance, especially when oil  and gas prices are down, and BLM field offices would benefit from  conducting periodic operator outreach to have an open dialogue with the  operators.

section_title: Conclusions
paragraphs: BLM is responsible for overseeing oil and gas development on federal  lands and for balancing the sometimes competing priorities of  encouraging oil and gas development, while ensuring that when wells run  dry, operators return well sites to their original natural conditions. Federal  laws, regulations, and BLM’s own policies call for the agency to take  various actions to manage its potential oil and gas well liabilities and  reclaim orphaned wells. However, BLM does not systematically or  comprehensively track how much the agency has spent to reclaim  orphaned wells or information, such as the number of orphaned wells and  inactive wells over time, necessary to determine the agency’s potential  liabilities. Without systematically or comprehensively tracking information  on BLM’s well reclamation costs and indicators of potential future costs,  its ability to monitor its progress and plan for its potential liabilities  associated with orphaned wells is limited.

In addition, implementation of BLM’s well and bond adequacy review  policies by the field offices is hampered by officials having different  understandings of what constitutes a well review. This variance is  because BLM’s well review policy does not outline specific instructions on  what actions field offices should take when conducting a well review. This  situation results in inconsistent ways of conducting well reviews and  annually reporting on them. Without developing and communicating  specific instructions outlining what actions constitute a well review for  annual-reporting purposes, BLM cannot have reasonable assurance that  its field offices are conducting and reporting on well reviews in a  consistent manner. Further, inaccuracies in certain AFMSS data, such as  the dates that wells last changed statuses, raise questions about the  quality of data BLM headquarters uses to determine the extent to which  its offices are implementing the well review and bond adequacy review  policies. BLM has not taken steps to improve AFMSS’ data quality such  as through the use of additional edit checks to prevent field offices from  inputting erroneous data or having data stewards certify the quality of the  data. Without taking such steps, BLM cannot have reasonable assurance  that management has accurate information it needs to track whether field  offices are conducting well and bond adequacy reviews as intended. In  addition, BLM’s approach to monitoring the implementation of its well and  bond adequacy review policies is limited because the reports the agency  uses to monitor implementation provide insufficient and at times  conflicting information. 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 will continue to be limited.

BLM officials and stakeholders identified several challenges that BLM  faces in managing its potential oil and gas well liabilities, including  identifying and managing certain inactive wells—specifically wells that are  in shut-in status and that have the potential to become orphaned. This  problem is because operators are generally not required to notify BLM  when they place a well in shut-in status. Without providing greater  specificity in current policy or supplemental guidance to all field offices,  the federal government may face increased potential liabilities if shut-in  wells become orphaned. In addition, BLM faces challenges related to  limited resources and competing priorities, such as not setting aside  funding to pay for reclaiming orphaned wells. Without developing a  resource management plan addressing resources needed for conducting  well and bond adequacy reviews and reclaiming orphaned wells, BLM  cannot have reasonable assurance that it is achieving the program’s  objectives. BLM also faces challenges related to conducting nationwide  and statewide bond adequacy reviews because the bond adequacy  review policy overall contains conflicting information on how field offices  are to review bonds’ adequacy. BLM is currently revising the bond  adequacy review policy and has an opportunity to ensure that the reviews  of nationwide and statewide bonds reflect operators’ overall risks.

section_title: Recommendations for Executive Action
paragraphs: We are making the following seven recommendations to BLM:  The Director of BLM should systematically and comprehensively track the  actual costs BLM incurs when reclaiming orphaned wells and the  information, including the number of orphaned wells and inactive wells  over time, necessary to determine the agency’s potential liabilities.  (Recommendation 1)

The Director of BLM should develop and communicate specific  instructions on what actions constitute a well review for annual-reporting  purposes. (Recommendation 2)

The Director of BLM should take steps to improve AFMSS data quality,  for example, by conducting more edit checks and by having data  stewards certify the quality of the data. (Recommendation 3)

The Director of BLM should strengthen its approach to monitoring field  offices’ implementation of the well review and bond adequacy review  policies, such as by collecting and analyzing data on performance  indicators and ensuring the quality of those data. (Recommendation 4)

The Director of BLM should provide greater specificity in current policy or  supplemental guidance to all BLM field offices on how to identify and  manage all shut-in wells. (Recommendation 5)

The Director of BLM should develop a resource management plan  addressing resources needed for conducting well and bond adequacy  reviews and reclaiming orphaned wells. (Recommendation 6)

The Director of BLM should, in revising the bond adequacy review policy,  ensure that the reviews of nationwide and statewide bonds reflect the  overall risk presented by operators. (Recommendation 7)

section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of the Interior for  review and comment. In its comments, reproduced in appendix II, Interior  generally concurred with our recommendations. 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. Interior  agreed that there are areas where BLM can improve the accuracy of its  data and further reduce the risks associated with idle and orphaned wells.

Interior indicated that it will update and improve its existing policies and  guidance consistent with the findings and recommendations in our report.

In response to our sixth recommendation—that BLM develop a resource  management plan addressing resources needed for conducting well and  bond adequacy reviews and reclaiming orphaned wells—Interior stated  that BLM conducts annual work planning processes which facilitate  decisions regarding the allocation of agency resources and requested  additional information clarifying how our recommendation fits into or  differs from these. We expanded our description of resource management  planning and added language regarding BLM’s annual work planning  processes to the report. However, we were not able to review the scope  or adequacy of BLM’s annual work planning processes as they relate to  resource planning for well and bond reviews and reclaiming orphaned  wells for this report.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Secretary of the Interior, and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, 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 report. GAO staff who made key contributions to this report  are listed in appendix III.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: 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. We reviewed documentation provided by BLM and  compared BLM’s policies and procedures on recording information on  actual costs incurred to reclaim orphaned wells and potential liabilities  against the information and communication standard outlined in  Standards for Internal Control in the Federal Government. We selected  and interviewed officials from 13 BLM field offices because, according to  fiscal year 2016 data from the Department of the Interior’s Office of  Natural Resources Revenue (ONRR) Oil and Gas Operations Report  (OGOR) data system we analyzed, these offices were responsible for  about 80 percent of all oil and gas wells managed by BLM. In addition,  we interviewed officials from the 6 BLM state offices associated with the  13 selected field offices (see table 1). Findings from selected offices  cannot be generalized to those we did not include in our review.

However, because AFMSS does not contain information on actual costs  incurred to reclaim orphaned wells, we obtained documentation of the  actual reclamation costs that 13 selected BLM field offices incurred for  fiscal years 2010 through July 2017. To analyze these costs, we reviewed  purchase orders, invoices, and other documentation for actual  reclamation work performed. We also obtained documentation, including  spreadsheets with estimated potential reclamation costs that these 13  selected field offices faced as of July 2017. To assess the  reasonableness of estimated reclamation costs, we reviewed estimates  provided by officials from the selected field offices and compared those to  historical actual costs that we previously reported in January 2010. We  determined the overall estimated reclamation costs were sufficiently  reasonable for providing a sense of the general magnitude of potential  costs, though we did not assess the underlying inputs or assumptions  used. The information we received is not generalizable to reclamation  costs for other BLM offices that we did not review.

We also analyzed AFMSS data on the number of wells capable of  production on federal lands from fiscal years 2010 to 2016. The AFMSS  database provides a snapshot of the time that the data are queried, and  so does not include historical data over time. As such, to examine the  number of inactive wells on federal and Indian lands and how long these  have been inactive, we combined AFMSS data with data from the OGOR  data system through September 2016. The Department of the Interior  requires monthly OGORs from operators, which document and record the  volume of oil and gas produced from wells on federal and Indian lands.  From AFMSS, we identified the appropriate population of wells by  selecting wells only located on federal and Indian lands, and excluded  wells that were on state or private lands. Because we did not find data in  AFMSS on how long a well had been in its last recorded status to be  reliable, we analyzed production records from the OGOR data system.  We also excluded data on wells that were in statuses in which there was  no associated potential liability, such as wells pending an application for  permit to drill.

For each reporting date through September 2016, we aggregated data  from multiple well completions to the 10-digit unique well identifier level.  We then matched the unique well identifiers in AFMSS to those listed in  the OGOR data system to enumerate inactive wells by duration of  inactivity. For each reporting date, we designated wells with at least one  completion showing non-zero production volumes or in drilling or  monitoring status in the OGOR data system as active. We also  designated a well as active at a certain date if AFMSS data indicated any  of its completions were completed on that date. Otherwise we deemed  wells where all completions had zero production reporting on a date as  inactive for the corresponding period. In some cases, (i) no OGOR  records existed with non-zero production volumes or drilling or monitoring  well status and (ii) no AFMSS well completion date was provided, and so  we calculated inactivity by using the earliest record date for that well in  the OGOR data set. We discussed our methodology for calculating the  number of wells with BLM officials. We compared the number of inactive  wells from our analysis to those reported in BLM national and state  reports to identify data inconsistencies. In addition, we analyzed AFMSS  reports, as of July 2017, to analyze data on the number of orphaned  wells. To assess the reliability of OGOR and AFMSS data, we reviewed  agency documents, met with relevant agency officials, and performed  electronic testing by verifying, for example, missing or out-of-range data  values. We found the data for the number of inactive wells and how long  they have been inactive as well as the data for the number of wells BLM  has identified as orphaned to be sufficiently reliable for our purposes.

To determine the extent to which BLM has implemented its 2012 and  2013 policies for conducting well reviews and bond adequacy reviews, we  reviewed applicable laws and analyzed the well review and bond  adequacy review policies. We reviewed information contained in BLM’s  well review and bond adequacy review reports for fiscal year 2016 as well  as data generated through AFMSS on bonds and wells as of October  2017. We were unable to fully assess BLM’s performance against the  directives in the agency’s 2012 well review and 2013 bond adequacy  review policies due to limited agency data and documentation as  discussed in the report. Specifically, we identified data accuracy and  consistency concerns with some of the data elements in the agency’s well  review and bond adequacy review reports as well as some AFMSS data  on wells and bonds, which we discuss in this report. We performed  electronic testing by verifying out-of-range values, such as dates of well  reviews conducted that were listed as being in the future. We also  interviewed officials from BLM headquarters, the 13 selected field offices,  and the 6 associated BLM state offices, to obtain information on the  extent to which the selected offices implemented the 2012 and 2013  policy directives. We compared BLM’s procedures detailing how field  offices are to count or report a well review as well as procedures for  maintaining data quality against the control activities standard outlined in  Standards for Internal Control in the Federal Government. We also  compared BLM’s procedures for monitoring implementation of policy  directives against leading practices for monitoring agency policies.

We also reviewed documentation for a random, non-generalizable sample  of 62 well reviews and 58 bond adequacy reviews, as reported by the 13 selected BLM field offices, for a total of 120 reviews. A GAO statistician  selected a random sample of five well reviews for unique well numbers  and five bond reviews of unique bond numbers that the 13 selected field  offices had reviewed from the fiscal year 2016 well report and bond  adequacy report. Due to variations in field offices’ reporting, some well  and bond reviews from prior fiscal years were also included in the random  selection. The Farmington field office also did not conduct any bond  adequacy reviews in fiscal year 2016, and so we included bond reviews  that the field office conducted in fiscal year 2015 in the random selection.  In addition, the Pinedale and Rawlins field offices had not conducted any  bond adequacy reviews in fiscal year 2016. As a result, we randomly  selected additional reviews from fiscal year 2015 for those field offices.  The Pinedale, Rawlins, and Colorado River Valley field offices conducted  less than 5 bond reviews in each office in that fiscal year, so we selected  and reviewed documentation in support of only those reviews they had  conducted. We assessed the documentation to determine whether or not  field offices conducted reviews and complied with selected directives of  the well review and bond adequacy review policies. Information from our  documentation reviews is not generalizable to all BLM field offices but  provides illustrative examples of the information contained in BLM well  and bond adequacy reviews.

To examine BLM officials’ and stakeholders’ views on what challenges, if  any, BLM faces in managing its potential oil and gas well liabilities, we  conducted semi-structured interviews with officials from BLM  headquarters, the 13 selected BLM field offices, and the 6 BLM state  offices associated with these 13 field offices. In addition, we interviewed  or obtained written responses from a standard set of questions from 8  representatives of stakeholder organizations. These representatives were  knowledgeable about BLM’s oil and gas well management, and included  academic, environmental, industry, and state organizations (see table 2).  In addition, we spoke with knowledgeable officials from the Department of  the Interior’s Office of Natural Resources Revenue (ONRR) and the  Department of the Interior’s Office of Indian Energy and Economic  Development, Division of Energy and Mineral Development. To identify  knowledgeable stakeholders, we conducted a literature search, reviewed  previous GAO reports, and obtained recommendations from BLM officials  and stakeholders using a snowball technique in which an initial group of  BLM officials and stakeholders we interviewed identified additional  contacts to interview. From this list, we selected stakeholders who could  provide a range of viewpoints. We generally asked the same questions  during each interview but also discussed individual stakeholders’  perspectives, as appropriate. In our interviews, we asked officials and  stakeholders what challenges, if any, BLM offices face in managing their  potential oil and gas well liability. We also asked what challenges, if any,  BLM offices face in conducting well reviews and bond adequacy reviews.  To identify the challenges identified most often in the interviews, two  analysts developed categories of challenges identified by BLM offices and  stakeholders, and each analyst independently determined whether each  BLM office and stakeholder had identified challenges that fit into these  categories. The two analysts discussed and resolved any differences in  their coding. The views of the BLM officials, stakeholders, and other  agency personnel we interviewed are not generalizable to BLM officials,  similar stakeholders, and other agency personnel who we did not  interview. Lastly, we compared how BLM identified and managed certain  inactive wells, as well as how it managed nationwide and statewide  bonds, against the control activities standard outlined in Standards for  Internal Control in the Federal Government and BLM’s resource  management practices against certain requirements in the Energy Policy  Act of 2005 (EPAct 2005) and leading practices by the Project  Management Institute in The Standard for Program Management.

We conducted this performance audit from November 2016 to May 2018,  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

section_title: Appendix II: Comments from the Department of the Interior

section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Quindi Franco (Assistant  Director), Marie Bancroft (Analyst-in-Charge), Richard Burkard, John  Delicath, Cindy Gilbert, Shylene Mata, Celia Mendive, Dan Royer,  Barbara Timmerman, Carolyn Voltz, Jack Wang, and Jina Yu made key  contributions to this report.

Fast facts: Oil and gas companies operating wells on federal and Indian lands are required to reclaim sites after wells are no longer used—plug wells, remove structures, and replant. Companies provide bonds up front to cover reclamation, but if they don't reclaim the site, or if it costs more than expected, the Bureau of Land Management may be liable.

Reclamation costs and potential liabilities likely increased since 2010, but we couldn't determine how much because BLM does not systematically track this data.

We made 7 recommendations to help BLM better manage its risk, including improving the way it tracks reclamation costs and potential liabilities.

Question-summary annotations: questions: question: What does GAO's analysis infer about BLM's actual costs?
answer: 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.
child_questions: question: What did GAO's analysis of data show about BLM's liabilities for reclaiming oil and gas wells?
answer: 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.

question: What information is BLM's database missing?
answer: 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.
child_questions: question: Why is the lack of information tracking an issue for BLM?
answer: 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.

questions: question: Why was GAO unable to fully assess the extent to which BLM field and state offices have implemented agency policies?
answer: 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.

question: What discrepancies did GAO identify?
answer: 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.
child_questions: question: How effective is BLM's monitoring of field offices?
answer: 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.

question: What are leading practices for monitoring the implementation of agency policies?
answer: Leading practices for monitoring the implementation of agency policies call for taking steps such as collecting and analyzing data on performance indicators.

questions: question: What happens once wells cease production?
answer: 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.

question: Why does BLM consider oil and gas wells on federal and Indian lands as potential liabilities?
answer: 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.
child_questions: question: How does BLM manage these potential liabilities?
answer: To better manage its potential liabilities, BLM issued well and bond adequacy review policies in 2012 and 2013, respectively.

questions: question: What did GAO review about BLM?
answer: GAO was asked to review how BLM manages its potential oil and gas well liabilities.
child_questions: question: How did the GAO go about reviewing BLM?
answer: GAO analyzed BLM's policies and data and interviewed BLM officials and representatives from stakeholder organizations.

question: What does the report examine?
answer: 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.