Oil and Gas Lease Management: BLM Could Improve Oversight of Lease Suspensions with Better Data and Monitoring Procedures
Released: 2018-06-19T00:00:00

Letter

Background

This section provides information on oil and gas leasing and development on federally managed lands, lease revenues, lease suspensions, and BLM’s LR2000 database.

Oil and Gas Leasing and Development on Federally Managed Lands

BLM is responsible for managing approximately 700 million acres of subsurface mineral estate throughout the country, including the acreage it leases to operators for oil and gas development. At the end of fiscal year 2016, about 41,000 oil and gas leases accounted for approximately 28.2 million acres in 32 states, according to BLM data (see app. II for additional details).

The Federal Land Policy and Management Act of 1976, as amended, requires the Secretary of the Interior to develop land use plans for public lands. These plans identify federal lands and mineral resources that will be available for oil and gas leasing and development and other activities. The act requires the plans to be revised as appropriate, and BLM generally evaluates plans for potential revisions at least every 5 years.

As part of developing or revising land use plans, BLM is required under the National Environmental Policy Act of 1969, as amended, to evaluate likely environmental effects of any decisions in the plan, such as selecting areas for oil and gas development. Generally, Interior prepares an environmental impact statement—a detailed statement of the likely environmental effects of the proposed action—in preparing land use plans. BLM officials said the agency uses the land use plans and environmental impact statements to (1) help develop “reasonably foreseeable development scenarios” to estimate outcomes, such as the number of wells and likely surface disturbance that may occur under the land use plan; (2) identify lands open and closed to leasing; (3) identify resource-protection measures, such as lease stipulations and environmental best management practices; and (4) establish monitoring protocols. With a completed land use plan and its associated environmental impact statement, BLM can offer for lease the mineral rights identified in the plan.

The parcels of land that BLM offers for potential leasing and development are nominated by industry and the public or identified by BLM. BLM offers leases through a competitive bidding process and requires a uniform national minimum bid of $2 per acre, due as a one-time payment when a bidder is awarded the lease. If BLM receives any bids on an offered lease, the lease is awarded to the bidder with the highest bid. Since 1992, BLM has offered leases with a 10-year primary term—the initial period of time prescribed in a lease to begin oil and gas development. Operators generally begin oil and gas exploration on leased lands by analyzing available geologic and seismic information and other testing to determine if economically viable oil and gas reservoirs exist. If the findings are positive, the operators may begin efforts to prepare for development, such as completing the environmental studies required to apply for permits to begin lease development activities. For example, operators holding leases for oil and gas development must submit a drilling permit application to BLM and obtain approval before preparing the land and drilling new oil or gas wells. After receiving a permit application, BLM generally communicates with operators until they provide all of the required documents, including necessary environmental information or studies. The Energy Policy Act of 2005 requires BLM to approve or defer permit applications within 30 days of submission by the operator. After such applications are approved, operators may begin development activities, including building roads to the well site, constructing platforms, drilling wells, and constructing additional pipeline transportation necessary to transport the oil and gas to market.

BLM has the authority to inspect federal oil and gas sites, including well pads and production facilities, under the Federal Oil and Gas Royalty Management Act of 1982, as amended. According to the agency’s handbook for its inspection and enforcement program, BLM must ensure that oil and gas operations on federal lands are prudently conducted in a manner that ensures protection of the surface and subsurface environment.

Lease Revenues

For issued leases, the operator pays a fixed amount of rent each year until the lease begins producing or expires. Under the Mineral Leasing Act of 1920, as amended, once a federal lease begins producing, the operator pays royalties on the oil and gas it produces in lieu of paying rent. The act sets the royalty rate for competitive leases at not less than 12.5 percent of the amount or value of production. A producing lease remains in effect so long as the operator continues to produce oil and gas in paying quantities.

The Office of Natural Resources Revenue, within Interior, is responsible for managing and collecting revenues from operators that produce or extract resources from federal leases. In fiscal year 2016, approximately 164 million barrels of oil and 3.25 trillion cubic feet of gas were produced on federal lands, according to agency data. According to Office of Natural Resources Revenue data, in fiscal year 2016, the federal government collected approximately $1.6 billion in gross revenue from the production of these resources on federal land. The majority of this revenue—nearly $1.5 billion, or 91 percent—came from royalties. The remaining revenue came from bids made on new leases—more than $120 million—and rent for existing leases—more than $20 million.

Lease Suspensions

According to agency guidance, specifically the Suspensions of Operations and/or Production Manual, BLM generally uses two types of suspensions for oil and gas leases: (1) suspension of operations or (2) suspension of operations and production. A suspension of operations halts the operations associated with a particular lease, such as drilling or developing a well pad and roads. A suspension of operations and production—the most common type of suspension, according to BLM officials—is broader because it halts both operations and any production of oil and gas. BLM’s guidance also states that a suspension of operations may be granted in cases in which the operator is prevented from operating or producing on the lease for reasons beyond the operator’s control, and a suspension of operations and production may be granted only in the interest of the conservation of natural resources. During either type of suspension, the time remaining in the primary term of the lease is reserved until the suspension is terminated, so that the operator is not penalized for the time the lease is in suspension.

According to BLM officials, lease suspensions typically are initiated by the operator but may also be initiated by BLM. BLM guidance states that before an operator can request a suspension, the operator must first demonstrate being hampered in performing some operation or activity on the lease. The operator must submit thorough documentation of the reason for requesting a suspension and should include evidence that activity has been attempted on the lease, such as filing an application for a drilling permit, and that the activity has been prevented by actions beyond the operator’s control. For BLM’s part, according to BLM’s guidance, requests filed less than 30 days prior to the expiration of the lease are considered late and should normally be denied. If a request is filed in a timely manner, BLM is to assess the request and, if the reasons for the request are acceptable and justify a suspension, BLM should approve the request, according to BLM guidance. The state director at each BLM state office is responsible for reviewing and approving requests for lease suspensions; however, BLM’s guidance encourages the delegation of this responsibility to the field manager at the field office with jurisdiction over the lease. According to BLM officials, BLM state offices generally delegate responsibility for monitoring lease suspensions to their field offices.

BLM’s LR2000 Database and Other Interior Databases

According to BLM officials, LR2000 is a national database that provides internal and external users with access to, among other things, land and mineral use authorizations for oil, gas, and other mineral development; land titles; and other data extracted from case files that support BLM land, mineral, and resources programs. LR2000 contains information on approximately 6 million land and mineral case files. BLM designed the database for use by the oil and gas industry, mining industry, land and mineral title companies, utilities, state and local governments, interest groups, and members of the public that need access to BLM land and mineral case files.

The agency has conducted a series of reviews of LR2000 over the last 5 years in an attempt to improve the accuracy of the data in the system, according to BLM officials we interviewed. In particular, the officials informed us that they created a tool, known as Data Flux, to improve the accuracy of the data, and that the tool has helped identify numerous data errors. BLM officials told us that each spring a report is generated using Data Flux that highlights the errors found in LR2000, and BLM state offices are responsible for taking action to address the identified errors for their respective states. These officials also told us that BLM plans to either significantly update or replace LR2000 but has not set a definitive date for doing so.

Interior and BLM manage several other databases that contain information about the development and production of oil and gas on federal lands. In prior work, we found weaknesses in how Interior tracks and uses some information in its data systems. Specifically, in July 2010, we reported that BLM’s publicly available data related to protests, or challenges, to lease sales were incomplete or inconsistent, and we recommended that Interior determine and implement an agency-wide approach for collecting protest information that is complete, consistent, and available to the public. BLM agreed with the recommendation and issued guidance to standardize data collection. In addition, we found in July 2016 that Interior could improve the data it collects to help track progress toward its goal of reducing methane emissions from oil and gas operations. We made four recommendations to improve BLM’s reporting of emissions data. The agency generally concurred with all of the recommendations and has implemented two of them. Further, in April 2017, we found that BLM field offices had not effectively used data collected during environmental inspections, which could have enhanced BLM’s ability to assess and mitigate environmental impacts. We recommended that BLM develop guidance and consistently track inspections data, among other things. BLM generally concurred with these recommendations.

BLM Uses a Multistep Process in Determining Whether to Suspend Leases

BLM uses a multistep process to determine whether to suspend oil and gas leases, and this process, according to BLM guidance and officials, typically begins with an operator submitting a suspension request to the appropriate BLM field office. Once the request is received, the cognizant BLM field official—usually a petroleum engineer at the field office— reviews it for completeness and whether the reasons cited meet the suspension criteria established in federal regulations and BLM’s Suspensions of Operations and/or Production Manual. These criteria require that lease suspensions be approved only in the interest of the conservation of natural resources or for circumstances beyond the operator’s control. Officials we interviewed stated that field officials generally have broad discretion in how to apply suspension criteria when considering a request. See figure 1, below, for examples of circumstances for which suspensions can be issued.

According to BLM officials, if the field office recommends approving the operator’s request for suspension, the field office is to forward the request to the appropriate BLM state office for final review, as shown in figure 2 below. In cases in which the state office agrees with the field office’s recommendation, the state office is to issue a decision letter to the operator noting the changes to the terms and conditions of the lease. A copy of the letter is also to be sent to the Office of Natural Resources Revenue, if necessary, requesting deferment of rent and royalty payments while the lease is suspended.

Conversely, if the field office recommends that the suspension request be denied, the field office is to inform the operator in writing, BLM officials said. According to agency guidance, the operator can appeal the field office’s recommendation to the state office director within 20 days after receiving the notification. The state director then has 10 days to render a decision. If the state director denies the request for suspension, the operator can challenge the decision at the Interior Board of Land Appeals. After the board’s decision, the operator may make additional appeals in federal court. In cases in which a decision is overturned, the state office is to issue a decision letter to the operator that highlights changes in the lease’s terms and conditions. The state office is to record the new terms and conditions in LR2000, notify the Office of Natural Resources Revenue of any rental or royalty payments that are to be deferred, and update the official lease file in the state office. Other affected parties (i.e. any party who is adversely affected by a decision) can also appeal a suspension decision, according to BLM officials.

Agency officials stated that BLM field offices are primarily responsible for monitoring the status of lease suspensions they issue to ensure that the conditions for granting the suspension still exist. If the conditions have changed, the field office is to recommend that the lease suspension be terminated and notify the operator. The state office is to terminate the suspension and send a letter to the operator with the updated lease terms and conditions, which should extend the original lease expiration date to reflect the length of the suspension. BLM guidance states that the state office also is to send a copy of the suspension termination letter to the Office of Natural Resources Revenue to alert that office that any rental and royalty payments on hold for the lease should resume. The state office is then responsible for updating LR2000 and the official lease file regarding any new lease terms and conditions, according to BLM officials.

A Small Portion of BLM’s Oil and Gas Leases Were Recorded as Suspended, but Reasons for Suspensions Were Difficult to Determine

A small portion of BLM’s oil and gas leases were suspended as of the end of fiscal year 2016, according to the agency’s LR2000 data, but the reasons for the suspensions were difficult to determine. These data indicated that as of September 2016, about 2,750 of BLM’s approximately 41,000 oil and gas leases were suspended in various locations for various lengths of time. LR2000 did not always contain the reasons for suspensions, which required us to take additional steps to identify the reasons.

As of September 2016, about 2,750 Oil and Gas Leases Were Recorded as Suspended and Varied in Their Location and Length of Suspension

According to LR2000 data, approximately 2,750 oil and gas leases were suspended at the end of fiscal year 2016. Our analysis of these data showed that the lease suspensions spanned 16 states and accounted for about 3.4 million acres of federally managed land. The data also showed that most of the suspensions were in five Mountain West states: Colorado, Montana, New Mexico, Utah, and Wyoming. These five states accounted for more than 2,350 of the approximately 2,750 recorded lease suspensions and encompassed more than 2.9 million acres of federally managed land (see app. II for additional details). Figure 3, below, provides information on the location of oil and gas leases and recorded suspensions across the United States.

Our analysis of LR2000 data showed that, of the approximately 2,750 recorded lease suspensions, about 630 had been in place for less than 3 years, about 1,150 had been in place for 3 years to less than 10 years, about 190 had been in place for 10 years to less than 20 years, about 130 had been in place for 20 years to less than 30 years, and about 650 had been in place for 30 years or more.

See figure 4 and appendix III for additional details.

Reasons for Suspensions Were Not Always Recorded in BLM’s Database and Required Reviews of Official Lease Files to Identify

BLM’s database, LR2000, did not always contain information on the reasons for oil and gas lease suspensions. BLM officials said that while LR2000 does not have a field to specifically capture the reason for a suspension, and inclusion of this information is not mandatory, the general remarks field could be used for this purpose.

Because we found this remarks field was rarely used to capture the reason for suspensions, we reviewed the official lease files for a sample of 48 leases in Montana and Wyoming that were suspended as of September 30, 2016, and we interviewed field office staff for clarification. The reasons for suspensions in this sample generally fell into four broad categories: environmental reviews, delays in reviewing applications for permits to drill, logistical conflicts, and other reasons.

Our review of the official lease files for our sample found the following reasons cited for suspensions:

Sixteen leases were suspended for large-scale environmental concerns, such as wilderness or wildlife protection areas or environmental reviews that affected large parcels of land. These 16 suspensions had been in effect for approximately 6 years to 38 years. One of these leases was suspended because of a court order that also resulted in suspension of 422 other leases; the leases suspended as a result of this court order accounted for most of the suspensions that had been in place for more than 30 years.

Fourteen leases were suspended because BLM required additional time to complete its review of the operator’s drilling permit application. These 14 suspensions had been in effect for approximately 1 year to 13 years. Seven of these 14 suspensions were issued because BLM needed additional time to review the environmental assessments submitted with the drilling permit applications.

Eight leases were suspended because they faced logistical conflicts with other surface development, such as mining activities occurring on the lease or adjacent lands. These suspensions had been in effect for approximately 4 years to 25 years.

Five leases were suspended for other, short-term reasons, such as weather-related issues or economic conditions, but were recorded in LR2000 as suspended for approximately 22 years to 74 years.

We were unable to determine the reasons why the 5 remaining leases were suspended. These leases were recorded as suspended for approximately 28 to 82 years. The agency was unable to provide lease files for 1 of the leases. Field officials said that some of these suspensions may have been issued at the state level, and the officials had no additional information on them.

According to Standards for Internal Control in the Federal Government, management should use quality information to achieve the entity’s objectives; quality information may be defined as appropriate, current, complete, accurate, accessible, and provided on a timely basis. BLM does not have quality information on the reasons for suspensions, in part because such reasons are not routinely included in LR2000, and there is no specific data field for them. To obtain this information, BLM officials would have to review the official lease files, as we did, and most of the files were available only in hard copy in BLM state offices. Therefore, the information is not readily accessible across the agency. Field officials we interviewed from one field office said that additional information on reasons for suspension in the database would be helpful in monitoring lease suspensions and in communicating with others, such as management or the public, about suspensions. BLM headquarters officials said they are planning to update or replace LR2000. By including a data field in the update or replacement for LR2000 to record the reasons for suspensions, BLM could better ensure that federal lands are not being inappropriately kept from development—potentially foregoing revenue—or from valuable uses of public lands.

BLM Relies on an Informal Monitoring Approach That May Not Provide for Consistent and Effective Oversight of Lease Suspensions

BLM uses an informal approach to monitor lease suspensions and does not have procedures in place for monitoring suspensions, which may not ensure consistent and effective oversight. We also found that BLM’s state offices do not always maintain current information on lease suspensions in the official lease files or LR2000, and BLM headquarters and state officials told us they generally do not oversee the monitoring of lease suspensions.

Monitoring Varies Among Field Offices, and BLM Does Not Have Procedures for How to Conduct It

Field offices vary in how they monitor lease suspensions, and BLM does not have official agency procedures in place for monitoring, relying instead on an informal approach. We found that the field offices we reviewed differed in the frequency of their monitoring activities for lease suspensions. According to officials we interviewed from these offices:

8 field offices monitor with varying frequency, depending on the

3 field offices monitor rarely.

Officials who monitored with varying frequency said that the frequency depends in part on the nature of the suspension. For instance, they said suspensions that involve seasonal protection of wildlife habitat, which can last for several months, typically require relatively little monitoring because the time frames for these suspensions are more clearly defined. In contrast, suspensions involving environmental reviews often require more frequent monitoring because the time frames associated with these suspensions are less definitive and can range from several months to several years. Several of these officials said that their offices have established prompts to alert staff when to conduct monitoring activities. For example, an official from 1 field office told us the office’s staff use handwritten notes to track their lease suspensions. An official from another field office informed us that their office uses an electronic calendar feature to alert staff when to monitor, and several other field office officials reported that they rely on various spreadsheets and emails to remind them when to monitor. Officials from 1 field office also stated that their office uses an estimated end date for every suspension—that is, the date the suspension is expected to terminate—to prompt them to review the current conditions to ensure that the suspension is still warranted.

Officials who monitored with varying frequency also said that the frequency depends on the availability of staff for monitoring. These officials said they generally rely on petroleum engineers in their respective offices to monitor lease suspensions because these individuals are normally the most familiar with leases. However, some officials added that staffing limitations, particularly a shortage in petroleum engineers, have hindered their ability to monitor lease suspensions in a timely manner. Several of the field officials we interviewed noted that, in recent years, they have had to rely on other staff or petroleum engineers who were on loan from other field offices because their offices did not have a petroleum engineer on staff. According to two field officials we interviewed, while assistance from other field offices is needed and appreciated, there is invariably a lack of consistency in the knowledge that engineers from other offices have about the lease sites involved. Field officials also said that there have been instances in which petroleum engineers left the agency for the private sector, resulting in a loss of institutional knowledge about certain leases, possibly contributing to lapses in follow-up on particular leases. Officials from offices that rarely or never conduct monitoring also cited problems with staff availability. We reported on human capital challenges at BLM, specifically in hiring and retaining petroleum engineers, in March 2010. We also noted BLM’s human capital constraints in our High-Risk Series update report in February 2011, and we reported on human capital issues at BLM in January 2014 and September 2016. In several of these reports, we recommended that BLM take a number of actions, including using existing authorities and incentives to improve staff retention. BLM generally agreed with these recommendations and has taken action on some, but not all, of these recommendations.

Nonetheless, the extent of variability we found, including 3 field offices that monitor rarely or not at all, indicates that allowing individual field offices to determine when to monitor suspensions may not ensure that monitoring takes place. Under Standards for Internal Control in the Federal Government, management should design control activities, such as procedures, to ensure the objectives of the program are achieved. The Office of Management and Budget has also acknowledged the importance of internal guidance documents to channel the discretion of employees, increase efficiency, and enhance the fair treatment of similarly situated parties. Some field officials we interviewed said that procedures to help guide them on monitoring could be beneficial and provide a level of consistency. By developing procedures for monitoring lease suspensions, including when to conduct monitoring efforts, BLM could promote more consistent monitoring to better ensure that lease suspensions in effect are warranted.

BLM State Offices and Headquarters Generally Do Not Oversee Field Office Monitoring of Lease Suspensions and Do Not Always Have Current or Complete Information on Suspensions

Officials from BLM’s state offices told us that they do not oversee field office monitoring of suspensions, and we found that they did not always have current or complete information on suspensions. We found that more than three-quarters of the official lease files in BLM state offices we reviewed contained outdated documentation regarding the status of lease suspensions. Specifically, files for 37 of the 48 lease suspensions we reviewed did not contain updated information on whether the lease suspension had been monitored or reviewed since the suspension was initially issued. For example, we reviewed a lease file for a suspension issued in 1949 for economic reasons, but the file only contained information on the suspension issuance and not whether monitoring occurred to assess the economic conditions associated with the lease. Additionally, we discovered that some official lease files were not complete and did not have certain required information, such as letters issuing the suspension. For example, three of the lease files we reviewed were missing required information. We could not verify the reasons these leases were suspended, their current status, or any information concerning monitoring efforts associated with them. Field officials we interviewed did not have any information on these suspensions and said that they may have been initiated by the state office more than 30 years ago. However, BLM state officials were unable to confirm or deny this. For another lease, there was no lease file. Officials in BLM headquarters and state offices said that there is no requirement for them to oversee the field offices’ monitoring activities. However, they said that performing such oversight could help to ensure effective and consistent monitoring of lease suspensions.

We also identified some instances in LR2000 where data on suspensions were not up to date. Specifically, 7 of the 48 leases we reviewed were recorded in LR2000 as suspended, but information we received from agency officials indicated that the suspensions were no longer warranted. We later confirmed with state and field officials that none of the 7 suspensions remained in effect. Five of these 7 leases were recorded as being in suspension for 22 years or more for what appeared to be short- term reasons, such as weather-related issues or economic conditions. One Wyoming suspension, for instance, was granted in 1990 because of low oil prices at the time, which made repairing wells uneconomical. While this lease was still recorded as suspended in LR2000 as of September 2016, a termination letter in the lease file indicated that the suspension was terminated in 1991. In another example, a lease was listed in the official lease file as suspended for 3 years because of delays in processing a drilling permit application. When we followed up with field officials about the lease, they informed us that the suspension should have been terminated years ago; however, we found no termination letter in the official lease file maintained by the state office. Field officials speculated that the letter may not have been sent because the case manager had retired and no one in the field office knew to follow up on the lease. Because field officials informed us that these leases were no longer suspended, we confirmed with officials from Interior’s Office of Natural Resources Revenue that payments were being appropriately collected for these 7 leases.

Moreover, these data are not available in a standardized report that could be used to help oversee monitoring, such as a report showing the average length or frequency of suspensions. BLM produces standardized reports from LR2000 for other aspects of oil and gas leases, such as when leases have been issued or are set to expire. BLM officials said that a standardized report for lease suspensions could assist headquarters and state officials in conducting oversight of field offices’ monitoring efforts.

Standards for Internal Control in the Federal Government state that management should design control activities, such as conducting top- level reviews of actual performance, to ensure the objectives of the program are being achieved. By requiring that management, particularly cognizant headquarters and state office officials, conduct top-level reviews of field offices’ monitoring efforts, as well as top-level reviews of official lease files and databases, BLM could better ensure that lease suspensions in effect continue to be warranted and that information on suspensions is current and complete. Additionally, federal standards for internal control state that management should design control activities, such as developing mechanisms that enforce management’s directives, to achieve the entity’s objectives and address related risks. By developing mechanisms, such as summary reports on lease suspensions, as BLM updates or replaces LR2000, BLM could assist cognizant officials in headquarters and state offices with their oversight of monitoring.

Conclusions

The ability of federal agencies to manage their programs effectively depends in part on the information systems the agencies use and the quality of the data within these systems. Over the past several years, BLM has worked to improve the quality of the data in LR2000, including data related to oil and gas lease suspensions. These efforts have helped to improve the accuracy of certain data, but they do not address some constraints of LR2000. In particular, LR2000 does not contain a data field for recording the reasons for suspensions. BLM officials told us that they will upgrade or replace LR2000 in the near future. By including a data field in the update or replacement for LR2000 to record the reasons for suspensions, BLM could better ensure that federal lands are not being inappropriately kept from development—potentially foregoing revenue— or from other valuable uses of public lands.

BLM’s ability to effectively manage the program also depends on the establishment of effective internal controls. To date, BLM has not developed procedures for monitoring lease suspensions. By developing procedures for monitoring lease suspensions, including when to conduct monitoring efforts, BLM could promote more consistent monitoring to better ensure that lease suspensions in effect are warranted. Additionally, BLM does not conduct top-level reviews to oversee field offices’ monitoring efforts, and we found instances in which BLM’s information on suspensions was outdated or incomplete. By requiring that management, particularly cognizant headquarters and state office officials, conduct reviews of field offices’ monitoring efforts, as well as official lease files and databases, BLM could better ensure that information on suspensions is current and complete. Finally, BLM does not have mechanisms to provide officials with some key information relevant for oversight, such as when suspensions were last reviewed or the average length and frequency of suspensions. By developing mechanisms, such as summary reports on lease suspensions, as BLM updates or replaces LR2000, BLM could assist cognizant officials in headquarters and state offices with their oversight of monitoring.

Recommendations for Executive Action

We are making the following four recommendations to BLM: As BLM updates or replaces its database, the Director of BLM should include a data field to record the reasons for suspensions. (Recommendation 1)

The Director of BLM should develop official agency procedures for monitoring oil and gas lease suspensions, including when to conduct monitoring activities. (Recommendation 2)

The Director of BLM should require cognizant officials in headquarters and state offices to conduct top-level reviews of field offices’ monitoring of oil and gas lease suspensions, as well as of official lease files and databases to ensure they are current and complete. (Recommendation 3)

As BLM updates or replaces LR2000, the Director of BLM should ensure the development of mechanisms, such as standardized summary reports on lease suspensions, to assist cognizant officials in headquarters and state offices with oversight of field offices’ monitoring efforts. (Recommendation 4)

Agency Comments

We provided a draft of this report to Interior for review and comment. In its comments, reproduced in appendix IV, Interior generally agreed with our findings and recommendations. Interior also outlined plans for addressing the recommendations.

Regarding our first recommendation, Interior stated that it agrees that any future database used to track information on oil and gas lease suspensions should include a data field to more explicitly record the reasons for suspensions.

Interior also stated that it will develop standardized procedures for monitoring oil and gas lease suspensions, consistent with our second recommendation. These procedures will be instituted agency-wide, according to Interior, and agency policy and handbooks will be updated as needed to implement the procedures.

With respect to our third recommendation, Interior stated that it will provide updated guidance and online training to assist the state and field offices in managing, monitoring, and reviewing lease suspensions. These actions are positive steps and may address our recommendation depending on their implementation.

Finally, consistent with our fourth recommendation, Interior stated that any future update to or replacement of LR2000 database will include the capability to create standardized reports for oil and gas lease suspensions.

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 members have any questions about this report, please contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our Office 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 V.

Appendix I: Objectives, Scope, and Methodology

This report examines (1) the process the Bureau of Land Management (BLM) uses to determine whether to suspend oil and gas leases; (2) the extent of oil and gas lease suspensions and the reasons for the suspensions of selected leases; and (3) the approach that BLM uses to monitor the status of lease suspensions and the extent to which this approach allows for oversight of such lease suspensions.

To examine the process BLM uses to determine whether to suspend oil and gas leases, we reviewed applicable laws, agency documents, and the criteria BLM uses when considering lease suspensions. Specifically, we reviewed BLM’s statutory requirements for granting a lease suspension. We also reviewed BLM’s guidance for reviewing suspension requests—Suspensions of Operations and/or Production Manual––which outlines the process and criteria BLM uses to approve or deny a lease suspension request as well as the process for appealing a suspension decision. We interviewed BLM officials at headquarters, as well as state and field offices responsible for leases in our review, about how they apply these criteria when assessing suspension requests. We also interviewed representatives from the Interior Board of Land Appeals about suspension decisions that are appealed to the board, how these appeals are handled, board decisions that are subsequently appealed, and the process involved with those appeals.

To examine the extent of oil and gas lease suspensions and the reasons for the suspensions of selected leases, we analyzed data on lease suspensions from BLM’s Legacy Rehost 2000 System (LR2000) database as of September 30, 2016. We took a number of steps to assess the reliability of suspension data and related fields in LR2000. Specifically, we performed electronic tests to check the extent to which data were complete and within expected ranges. Testing included comparison of data extractions prepared by BLM officials for us against data we downloaded directly from LR2000. We also interviewed BLM officials responsible for managing the system about how data are collected and entered into the system as well as the steps the officials take to help ensure that the data are accurate and complete. We also clarified discrepancies regarding lease suspension data with these officials when necessary. We determined the data were sufficiently reliable to give a high-level summary on suspensions, including information on the number and location of leases, the number in suspension, and suspension length.

LR2000 contains information on activities related to an oil and gas lease’s status, among other things. For each lease, we identified the latest record, if any, for actions in fiscal year 2016 and earlier that indicate suspension initiation or termination. We determined that a lease was in suspension if the most recent action related to a suspension indicated that the suspension was initiated. We determined the length of suspension based on the date of that initiation record. We then determined distributions of the numbers of leases recorded as still in suspension in each state as of the end of fiscal year 2016.

We also reviewed the official lease files, maintained by BLM state offices, for a nongeneralizable sample of leases recorded as suspended as of September 30, 2016, in Montana and Wyoming to assess their status and the reasons behind the suspensions. We chose these two states because they were among the states with the largest numbers of suspended leases. Montana’s official lease files were electronically maintained and easily accessible, while Wyoming, which had leases recorded as suspended for the longest period of time as of September 30, 2016, maintained hard copy official lease files. Montana and Wyoming collectively represent about 50 percent of all oil and gas leases recorded as suspended. We used the following approaches to select a sample of 48 suspended leases in these states and limited the extent to which we selected multiple leases that were suspended at the same time for the same reason.

For Montana leases, we found that only 12 suspension initiation dates were recorded for the leases in suspension as of the end of fiscal year 2016. We therefore randomly selected for review a single lease from those suspended on each of these dates. For Wyoming, the suspension initiation dates were much more dispersed, so we identified groups of 15 or more leases based on a combination of suspension date, similarity of lease numbers, and the field office of jurisdiction. From these groups, we selected 19 suspended leases—each lease was the lease with largest acreage from each field office within its group. There were a number of leases that did not fit into these groups because there were fewer than 15 suspensions on a given date with similar lease numbers, so we selected a single lease file with the largest acreage from each year that was at least 20 years old. This allowed us to review suspensions that have been in effect for a relatively long period of time. This approach resulted in our selection of an additional 17 suspended leases in Wyoming. While our review of suspended lease files is not generalizable to other BLM lease suspensions, our findings provide examples of types of reasons that are cited for lease suspensions.

To verify the status of each selected lease, we compared information in LR2000 and the official lease file to information in the Offices of Natural Resources Revenue’s database. The Office of Natural Resources Revenue, within the Department of the Interior, is responsible for collecting rental and royalty payments associated with oil and gas leases. We also interviewed the BLM state and field office officials responsible for the specific lease files we reviewed to obtain additional information about the status of certain lease suspensions and the reasons these suspensions remained in effect. We compared how BLM maintains and verifies its lease suspension information with Standards for Internal Control in the Federal Government for information and communication.

To examine the approach BLM uses to monitor the status of lease suspensions and the extent to which the approach provides for oversight, we reviewed agency data, guidance and requirements, and official lease documents. In particular, we reviewed monitoring information in LR2000, BLM’s Suspensions of Operations and/or Production Manual, and monitoring information in the official lease files for our sample of 48 leases recorded as being in suspension as of September 30, 2016. We also interviewed officials from BLM headquarters, as well as BLM’s state offices in Montana and Wyoming and the field offices responsible for the 48 selected leases in our review—a total of 12 field offices, 2 from Montana and 10 from Wyoming. We interviewed officials from 11 field offices about the approaches they used to monitor lease suspensions, including the frequency of monitoring and the staff involved. We also interviewed officials at headquarters and state offices to examine the extent to which these approaches provided for oversight of lease suspensions. We compared BLM’s actions and documentation with agency guidance, federal regulations, and federal standards for internal control for control activities.

We conducted this performance audit from September 2016 to June 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.

Appendix II: Bureau of Land Management Oil and Gas Leases, Suspensions, and Acreage, as of September 30, 2016

Number of leases 242

Appendix III: Bureau of Land Management Oil and Gas Leases Recorded as in Suspension

Appendix IV: Comments from the Department of the Interior

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Dan Haas (Assistant Director), Karla Springer (Assistant Director), John C. Johnson (Analyst-in-Charge), Richard Burkard, Cindy Gilbert, John W. Hocker, Cynthia Norris, Daniel Purdy, Stuart Ryba, Sara Sullivan, Kiki Theodoropoulos, Barbara Timmerman, Jack Wang, and Khristi Wilkins made key contributions to this report.