Onshore Oil and Gas: BLM's Management of Public Protests to Its Lease Sales Needs Improvement
Released: 2010-08-30T00:00:00

Letter

Background

The Mineral Leasing Act of 1920 charges Interior with responsibility for oil and gas leasing on federal lands and on private lands where the federal government has retained mineral rights. Several other statutes and regulations also affect oil and gas leasing and development on federal lands. For instance, the protection of resources that may be affected by oil and gas activity is governed by resource-specific laws, such as the Clean Air Act, the Clean Water Act, and the Endangered Species Act. Under the National Environmental Policy Act (NEPA), federal agencies are to evaluate the likely environmental effects of proposed projects, including oil and gas lease sales, through an environmental assessment or, if projects are likely to significantly affect the environment, a more detailed environmental impact statement. In addition, under the Federal Land Policy and Management Act, BLM manages federal lands for multiple uses, including recreation; range; timber; minerals; watershed; wildlife and fish; and natural scenic, scientific, and historical values, as well as for the sustained yield of renewable resources. BLM manages oil and gas development on federal lands using a three-step process. First, BLM develops areawide land use plans, called resource management plans, specifying what areas will be open to oil and gas development and the conditions to be placed on such development. Second, BLM may issue leases for the development of specific sites within an area, subject to requirements in the plans. Finally, a lessee may file an application for a permit to drill, which requires BLM review and approval.

BLM’s lease sale process includes several key steps: Nomination of lands for sale. Interested members of the public and industry can nominate lands for competitive lease by sending to a particular BLM state office letters expressing interest in specific tracts of land desired for lease. BLM itself may also identify parcels for potential lease, although the majority of parcels leased in recent years have been nominated by the oil and gas industry. Parcels nominated for lease can vary in size; in the contiguous 48 states, the maximum size of a parcel nominated for competitive lease is 2,560 acres.

Review of parcels. Parcels nominated for lease are evaluated by BLM field staff to determine whether the proposed land is available to be leased and whether it conforms with BLM policies, regulations, and land use plans. If the parcel is determined to be available, the potential impacts of oil and gas leasing on the environment are then evaluated as required under NEPA. If required, leasing restrictions (called stipulations) are added to the proposed parcel to mitigate potential impacts of leasing.

Notice of lease sale. Once BLM has completed its reviews of nominated parcels, it identifies those parcels it has determined may be offered at the lease sale. These eligible parcels are included in a public “notice of competitive lease sale,” which is to be published at least 45 days before the lease sale. BLM may, however, withdraw, or defer, parcels included in the lease sale notice at any time before the lease sale takes place. Such parcels may be subsequently offered in a future lease sale if the agency conducts further review and determines the parcels’ suitability for leasing.

Public protest period. The publication of a lease sale notice starts the public protest period, in which concerned entities can file a protest to BLM’s inclusion of any or all parcels in that lease sale notice. Included in the lease sale notice is guidance to the public on the process to follow for protesting BLM’s decision to offer lands identified in the notice. Under BLM guidance, the agency considers only protests received at least 15 calendar days before the date of the lease sale, generally providing 30 days for the public to submit protests. BLM dismisses a protest if the protest lacks a statement of reasons to support it. Although BLM aims to review and resolve protests before lease sales, if it cannot do so, it may elect to include protested parcels in a lease sale. In such cases, BLM resolves the protests before issuing leases for those parcels. If BLM finds a protest to have merit, the agency does not issue leases for the affected parcels, and it refunds any payments made.

Competitive lease sale. The lease sale itself is a public auction, with leases sold to the highest qualified bidder. Federal oil and gas leases operate under a system in which the lessee receives the right to develop and produce oil and gas resources under a specified time frame and conditions in exchange for certain payments, including a lump-sum payment called a bonus bid. Under the Mineral Leasing Act, “leases shall be issued within 60 days following payment by the successful bidder of the remainder of the bonus bid, if any, and the annual rental for the first lease year,” thus completing the lease transaction. BLM policy also directs agency staff to resolve any protests related to a parcel before issuing the lease on that parcel. The company pays annual rent on the leased parcel until it begins to produce oil or gas (at which time, the lease owner or operator pays royalties on the volume of oil and gas produced) or until the lease expires or ends. Parcels that do not receive competitive bids are available noncompetitively the day after the sale and remain available for leasing for up to 2 years after the competitive lease sale date. The Energy Policy Act of 1992 requires BLM to offer all competitive and noncompetitive leases at 10-year primary terms.

Over the past two decades, the number of federal onshore oil and gas leases BLM has issued, as well as the number of acres, have varied. Leasing activity was highest at the beginning of the period, with more than 9,000 leases and over 12 million acres leased in fiscal year 1988. Both the number of leases and area leased then fell sharply for several years, and in recent years the number has fluctuated between 2,000 and about 4,500 leases, and the area did not exceed 5 million acres leased (see fig. 1).

The issuance of a lease starts a series of steps toward exploring for and producing oil, gas, or both on the leased land. Along the way, variables such as the market price of oil and gas and the costs of infrastructure influence industry’s estimates of the economic viability of pursuing development on leased lands. Lease owners may analyze available geologic information and conduct seismic or other testing to ascertain the land’s oil or gas potential and find the resource. Companies may also try to acquire leases for surrounding parcels to ensure they have sufficient acreage to make exploration and production worthwhile. If companies believe that economically viable reserves exist on their leased lands, they may begin preparing for drilling, including completing environmental studies required to apply for drilling permits. Before an oil and gas company can drill on federally leased lands, it must submit to BLM an application for a permit to drill. Once such permits are approved, companies may begin exploration or development activities, including building roads to well sites, drilling wells, and constructing pipelines and pipeline facilities needed to transport the oil and gas to market. This entire process can take as little as a few years or as long as 10 years, and ultimately, leased areas may not necessarily contain oil and gas in commercial quantities.

BLM Maintains and Makes Publicly Available Incomplete and Inconsistent Information Related to Protests to Its Lease Sales

Although BLM has taken steps to collect information related to protests to its lease sales, we found that the information it maintained and made available publicly was incomplete and inconsistent across the four state offices we reviewed. In addition, protester groups have raised concerns about the timing and extent of publicly available information. In May 2010, the Secretary of the Interior announced several agencywide leasing reforms that are to take place at BLM, some of which may address concerns raised by protester groups, by providing the public with earlier and more consistent data on which parcels may become available for leasing, thereby giving these groups longer to consider or prepare protests.

BLM Collects Agencywide Protest Data, but These Data Are of Poor Quality and Limited Utility

Although BLM has taken steps to collect agencywide protest data, we found that these data were incomplete, inaccurate, inconsistent or ambiguous, and therefore of limited utility. To better track protests, BLM in 2007 required its staff to begin using a new module, which it had added as a component of its LR2000 lease record-keeping system specifically to capture, among other things, information related to lease sale protests. All parcels included in a lease sale notice are to be entered into LR2000, each with an assigned serial number and other basic information, including location and acreage. In addition, for each protested parcel, staff are to enter into the LR2000 module who filed the protest; reasons for the protest; and the outcome, or status, of the protest. The module should therefore contain complete information on every parcel listed in lease sale notices that was protested during the lease sale process. These parcels include parcels deferred before a competitive lease sale, parcels sold at a competitive lease sale, and parcels that did not receive a bid at a competitive lease sale.

Concerning the completeness of the data, we found that some data identifying parcels that had been protested were missing from the module, particularly in the case of parcels that were deferred. We compared the module’s data with protest records obtained from BLM state offices for a random sample of 12 of the 53 lease sales held in Colorado, New Mexico, Utah, and Wyoming during fiscal years 2007 through 2009. For this sample, we found that the four state offices varied in the extent to which data identifying protested parcels had been entered into the module, ranging from fully complete to missing information on deferred parcels, and potentially missing information on parcels that had not been sold at a competitive lease sale (see table 1). Specifically, data obtained from BLM state offices in our sample showed that 68 parcels were protested and deferred. When we looked for these same data in the module, however, we found that 28 of the parcels—over 40 percent of deferred and protested parcels in our sample—were missing. Although the results from our sample of 12 lease sales cannot be generalized to all 53 lease sales, the extent of missing information we found suggests that information on protested parcels beyond our sample could also be missing.

Further, when we examined protest data available in the module for all 53 lease sales, we found that protest information recorded in the module was inaccurate, inconsistent or ambiguous, and therefore of limited utility. For example, we found that the field in the module identifying the status of a protest was left blank or read “pending” for more than 1,100 parcels, even when leases for those parcels had already been issued. In such cases, any protests would presumably have been resolved, either because the protest was deemed to have no merit or because concerns raised in the protests were addressed. We also found that BLM state offices often used the same term in the module to describe different outcomes in the leasing process. For example, in some cases, the term “dismissed” was used for protests to parcels that had been deferred, without indicating whether the agency had deemed the protest to have merit. In other cases, the term “dismissed” was applied to parcels for which protests had been found by the agency to be without merit, and the parcels had been leased. In addition, much of the information was entered into the module so generically that it was difficult to discern what the information meant. Specifically, BLM guidance calls for staff to enter the reason for a protest, but the corresponding data field is limited to 255 characters (approximately three lines of text). In practice, staff in the four state offices entered only basic information, such as two- or three-word phrases, without explanation or a reference to fuller information contained in the protests themselves. For example, staff in the Colorado and Wyoming state offices often listed “environmental concerns” as the issue raised in protests. In matching descriptions of issues in the module with the original protest letters, however, we found that “environmental concerns” included a broad range of issues, including concerns over threats to sensitive species or water quality, as well as economic issues such as loss of recreational or agricultural land uses.

BLM officials at both headquarters and state offices told us that although staff are entering protest data into the module, they are not using protest information from the module to monitor protest activity but instead rely on other sources of information. According to a BLM headquarters official, to monitor protests to lease sales, headquarters officials rely on regular briefing memos provided by the state offices for each lease sale, rather than review information in the module. Similarly, across each of the four state offices, BLM officials said that instead of the module, they use their own detailed, informal spreadsheets to track protest activity and their responses, which they can easily maintain and organize, often lease sale by lease sale. BLM officials acknowledged that maintaining protest information is important, although they also said that the LR2000 module is not the most efficient or effective way to do so. BLM state officials added that not only is the module’s software unable to extract and summarize data easily, but it is also inefficient for entering certain information into the module. For example, if a protest letter covers multiple parcels, initial protest information, including who protested and the reasons for the protest, can be entered into the module once and automatically applied to multiple parcels in a single batch. But after BLM resolves and responds to the protest, the module’s software does not allow the response to be entered once and applied automatically to the batch of parcels, instead forcing the outcome of the protest to be entered separately for each of the parcels. According to BLM state office officials, this process can be time-consuming. (During the period of our review, the total number of parcels in a lease sale notice ranged from 13 to 265.)

Protest-Related Information Varies across BLM State Offices, and Protester Groups Have Raised Concerns about This Information

We found that the amount of protest-related information BLM makes publicly available varies across the four state offices in our review. For example, the Utah state office is the only office of the four to provide protest letters, as well as BLM’s responses, on its Web site. Similarly, only the New Mexico state office publishes on its Web site an advance list of the parcels under consideration for inclusion in a notice of lease sale. The other three state offices do not make this information available on their Web sites, although a BLM Wyoming state office program manager said the office would provide this information upon request. According BLM guidance, the agency uses preliminary parcel lists primarily to request concurrence and stipulation recommendations from selected federal or state entities. Generally, such lists are not available to the publ ic and do not constitute official notice of a proposed BLM action, accordingto the guidance. Nonetheless, protester groups we spoke with stated that e to they wanted information in a time frame that was more conduciv meaningful public participation. Specifically, several representatives of protester groups said that because the protest period was generally the one opportunity BLM provided for public input during the lease sale decision-making process, it was critical that they have enough time to thoroughly review each parcel included in a lease sale notice before the formal 30-day protest period.

During its land use planning under the Federal Land Policy and Management Act of 1976, as amended (43 U.S.C. § 1701 et seq.), in which BLM determines, among other things, which lands in a planning area may be available for leasing, BLM provides opportunities for public involvement and comment, as well as a specific protest period, before finalizing its land use plans. It is not uncommon, however, for many years to pass between the time the land use plan is issued and when a specific parcel is reviewed for lease sale. Our review focuses only on the information made publicly available during the lease sale process. its release. BLM officials also said that in general, all documents supporting a lease sale decision—including parcel reviews conducted with other federal, state, and local entities; recommendations from BLM field offices regarding the leasing of parcels; and protest letters and decisions— would be available for review by the public upon request. Some protester groups we spoke with stated that although BLM’s deferral of protested parcels from a lease sale achieved their intended result, they nevertheless could not determine from publicly available information whether this outcome was tied to reasons raised in their protests. They also said they lacked information from BLM as to whether deferred parcels would be offered at a future sale or to what extent their concerns would be factored into BLM’s future decision making on those parcels.

In May 2010, the Secretary of the Interior announced several agencywide leasing reforms that are to take place at BLM. Some of these reforms may address some concerns raised by protester groups, by providing the public with earlier and more consistent data about which parcels may become available for leasing. BLM field offices are to provide a new 30-day public review-and-comment period that precedes the 30-day protest period. Doing so will potentially give stakeholders longer to review parcels and decide whether to file a protest and, if so, longer to prepare the protest. The reforms also require BLM state offices to make available on their Web sites their responses to protest letters filed during the protest period after a notice of lease sale. According to BLM, among other goals, the intent of these changes (which we have not evaluated) is to provide meaningful public involvement, as well as more predictability and certainty, in the leasing process.

Most Parcels Identified for Lease Were Protested by a Diverse Group of Entities for a Variety of Reasons

Most parcels identified in BLM lease sale notices from fiscal year 2007 through fiscal year 2009 in Colorado, New Mexico, Utah, and Wyoming were protested; protests came from a diverse group of entities, including nongovernmental organizations representing environmental and hunting interests, state and local governments, businesses, and private individuals. These groups and individuals listed a wide variety of reasons for their protests, including concerns that oil and gas activity would (1) impair fish and wildlife habitats or air and water quality or (2) adversely affect recreational or agricultural uses of the land.

Most Parcels Identified for Lease Sale Were Protested

Overall, we found that 74 percent of parcels whose leases were competitively sold in the 53 lease sales that took place in the four state offices from fiscal years 2007 to 2009 were protested, although this percentage varied considerably by state (see table 2).

Similarly, in our review of a sample of lease sales, we found that most parcels were protested. To gain a further understanding of the extent of protests beyond those parcels competitively sold (in other words, to capture parcels deferred before lease sale and those that did not sell competitively), we examined protest information for our random sample of 12 of the 53 lease sales. Overall, we found that 1,035 of the 1,244 parcels (about 83 percent) in our sample were protested over the 3 fiscal years, although the number of parcels that were protested varied across the state offices (see table 3). We also found that at least half the parcels were protested for each lease sale in our sample (see app. II). Of the 1,035 protested parcels in our sample, 68 parcels (about 7 percent) were deferred before lease sales; BLM dismissed protests for 763 parcels (about 74 percent); and as of March 2010, BLM had yet to issue responses for protests to 204 parcels (about 20 percent).

Parcels Were Protested for a Variety of Reasons by Nongovernmental Organizations, Governments, Businesses, and Individuals

We found that a diverse group of entities filed protests for parcels included in our sample of lease sales, including nongovernmental organizations, governments, businesses, and individuals (see app. II). Many of the nongovernmental organizations were environmental organizations; for example, the Center for Native Ecosystems was listed as a party on 13 of the 86 protest letters across three state offices in our sample. Other nongovernmental organizations representing hunting, fishing, and recreational interests also commonly filed protests. Governments included both state and local governments, such as a state natural resource department and county commissioners. Businesses were represented by ranching and recreational interests, and private individuals were often residents concerned that their lifestyles or properties would be affected by the proposed leasing activity. In many instances, several groups jointly filed a single protest letter. For example, for one lease sale in New Mexico, multiple businesses—representing ranching, recreational, and other interests—and several nongovernmental organizations submitted a protest letter. Similarly, in one lease sale in Wyoming, an association of churches signed a protest letter alongside five nongovernmental conservation organizations. In addition, according to BLM officials, the agency also often received “repeat” protests, where the same groups raised issues they had previously raised in protests that BLM had dismissed in earlier lease sales; “blanket” protests, where all the parcels identified in a lease sale notice were protested for general reasons; or “mass duplicate protests,” where multiple entities filed the same letter. For our sample of protest letters, we did not analyze the extent to which any of the protests fell into these categories.

In our analysis of each of the 86 protest letters in our sample, we found that the reasons cited for the protests varied considerably. We found that the reasons outlined in the letters generally fell into four broad areas: alleged impacts on fish and wildlife and their habitats; degradation of the natural environment, such as air or water quality; effects on human uses, such as recreation or agriculture; or potential violations of statutes or policies (see app. II). For instance, many of the letters stated that certain parcels identified for oil and gas leasing were located on lands of high conservation value and that oil and gas activities would disrupt important species’ habitats, such as sage grouse breeding and nesting sites; migratory routes and winter ranges for big game, such as elk and mule deer; or the riparian habitats of sensitive fish species, such as cutthroat trout. Several of the letters stated that because some of the parcels were located in areas that had been proposed for or had received a wilderness or other conservation designation, leasing the area to oil and gas development would come into direct conflict with that proposed designation. Many of the letters also raised concerns that oil and gas development on the land would affect use of the land for recreational or business-related purposes, including hunting, fishing, hiking, horseback riding, ranching, and other agricultural uses. In addition, entities filing protests frequently raised concerns that offering certain parcels for lease would violate particular statutes or policies. For instance, a number of the protest letters stated that offering certain parcels for lease would be in potential violation of the Federal Land Policy and Management Act because leasing those parcels would be inconsistent with BLM’s current land use plans or responsibility to ensure that public lands were not unnecessarily or unduly degraded. Other protest letters stated that BLM had potentially neglected to (1) conduct sufficient site-specific environmental analyses, (2) identify potential adverse environmental effects, or (3) consider an adequate range of alternatives when selecting certain parcels for lease sale—allegations that, if true, could put BLM in violation of NEPA.

Effects of Protests on BLM’s Leasing Decisions and Overall Oil and Gas Development Activities Were Difficult to Determine

We could not measure the extent to which protests influenced BLM’s leasing decisions through the information BLM maintains because the agency did not document the role protests played in its decisions to defer parcels; protests were, however, associated with delays in leasing. In addition, we found that despite industry concerns, protests did not significantly affect bid prices and that the effects of protests on nationwide oil and gas production in the near term are not likely to be significant.

The Extent to Which Protests Affected BLM’s Lease Sale Decisions Could Not Be Measured

We could not measure the extent to which protests affected BLM’s lease sale decisions because of limited information BLM maintains on protests. Not only were protest data incomplete, but BLM did not consistently document the reasons for its deferrals or the extent to which it found protests to have merit. In our review of a sample of 12 lease sales in the four state offices, we found that when BLM deferred a protested parcel before the lease sale, the agency did not provide the reasons for the deferral in its response to the protest letter. Rather, BLM stated that because the parcel was deferred, the protest was “dismissed as moot” or the parcel was “not subject to protest.” For such deferrals, BLM did not indicate whether the protest had merit or to what extent, if at all, the protest factored into the agency’s decision to defer the parcel. Similarly, although in principle a protest could also play a role in BLM’s decision to modify the acreage or stipulations on a parcel, in reviewing BLM’s responses to the protest letters in our sample, we could not determine if BLM made any such changes because of a protest.

BLM officials explained that many interacting factors influenced leasing decisions, and it was not always possible to specify the extent to which protests affected their decisions. In our sample of protested parcels deferred before lease sales, however, we found that issues similar to those raised in the protest letters were often cited by BLM officials as the reason for deferrals. Specifically, we found that for 56 of the 68 deferred protested parcels in our sample, the reasons BLM cited were similar to issues raised in the protest letters for those same parcels. For example, several conservation groups protested the lease sale of several parcels in Utah’s February 2007 lease sale because, according to the protest letter they filed jointly, recent archaeological research showed that a particular mountain gap had special significance as an ancient astronomical observatory. According to BLM officials, BLM deferred the sale of these parcels, on which they had already placed some restrictions to oil and gas development, so they could further review the area’s importance as a cultural resource and the potential need for additional protection. On the other hand, some protested parcels were deferred for administrative reasons unrelated to issues cited in protest letters. For example, the New Mexico state office deferred one parcel from its July 2008 lease sale after it determined that land within the parcel was already under lease.

BLM officials provided anecdotal accounts in which protests influenced their decisions, and they acknowledged that the protest process can serve as a check on agency decisions to offer parcels for lease sale. In some instances, according to the officials, protests brought issues to their attention that they may not otherwise have factored into their decision making and therefore ultimately improved their decisions. For example, according to a BLM Colorado state office program manager, the office deferred the lease sale of several parcels after a conservation group alerted the office through the protest process that the parcels potentially contained habitat for a threatened plant species, as well as areas that had been designated for state and national historic and natural preservation. Similarly, officials in the New Mexico state office said they deferred the lease sale of multiple parcels after reviewing information submitted by protesters, including a letter submitted by the New Mexico Department of Game and Fish, and determining that the areas contained key habitat for the desert bighorn sheep, a state endangered species, and that further review of the lands’ leasing suitability would therefore be warranted.

In addition, some protests resulted in appeals to the Interior Board of Land Appeals or litigation in federal court, which could have ultimately affected BLM’s leasing decisions. Although data were not available to determine how many appeals or legal challenges were associated with the protests submitted during the period of our review, we did examine appeals and litigation associated with our sample of lease sales. Within our sample, one appeal to the Interior Board of Land Appeals was filed by a group that had protested parcels included in Wyoming’s April 2008 lease sale. The board dismissed this appeal in October 2009, holding that the protesting organization lacked standing to appeal because it failed to establish that it or any of its members had used, or in the future would use, any of the protested parcels. In addition, groups filed lawsuits challenging BLM’s lease sale decisions from New Mexico’s July 2008 lease sale and Colorado’s August 2008 lease sale; both cases were pending as of May 2010 (see app. III).

Leases on Protested Parcels Were Often Delayed

We found that a majority of leases for protested parcels in the four state offices from fiscal year 2007 through 2009 were issued after the 60-day window specified in the Mineral Leasing Act. BLM officials explained that, starting in the early 2000s, the overall number of protests rose in tandem with an increase in oil and gas development activities and an increase in activities in contentious areas, such as those potentially containing wilderness-quality lands or areas that had not before been leased for oil and gas. According to BLM officials, responding to the large number of protests, some of which raised complex issues, increased staff workloads and made it difficult for them to respond to protests and issue leases within the 60-day window.

When we examined lease issuance time frames for all competitively sold leases for parcels from the 53 lease sales held in the four state offices during fiscal years 2007 through 2009, we found that BLM was able to issue leases within the 60-day window for almost all unprotested parcels. But BLM was not able to meet this window for almost 91 percent of the protested parcels it sold competitively during this time. The percentage varied by state office: In New Mexico the percentage was about 52 percent, while in the other three state offices it was more than 91 percent, ranging up to almost 100 percent in Wyoming (see table 4). The Wyoming state office prepared one consolidated response to all protest letters filed for a particular lease sale, and thus, a BLM official explained, leases were not issued for any protested parcels until concerns raised in each of the protests were resolved and BLM had responded.

The time it took BLM to issue the leases also varied. For the protested parcels for which leases were issued, about 46 percent were issued within 6 months, about 54 percent were issued within 6 months to 1 year, and less than 1 percent took up to 2 years. In addition, as of March 2010, BLM had not issued leases for more than 1,200 protested parcels (representing about 24 percent of all parcels sold competitively during this time), the majority of which were from lease sales held during fiscal year 2009 in Utah and Wyoming. While our analysis is consistent with the assertion from BLM officials that an increased workload from protests resulted in delays issuing leases, it was not sufficient to establish a cause-and-effect relationship because the available data did not allow us to examine whether factors other than protests, such as other workload demands in the state office, may also have contributed to lease issuance delays.

Despite Concerns, Protest Activity and Delayed Leasing Have Not Significantly Affected Bid Prices, and Near-Term Effects on Nationwide Oil and Gas Production Are Not Likely to Be Significant

We found that protest activity did not systematically decrease bid prices for leases during the period we reviewed and that overall effects on near- term nationwide oil and gas production are not likely to be significant, despite industry concerns over protests and delays in issuing leases. Specifically, industry officials we spoke with said that if an energy company cannot count on timely issuance of leases, it could be hard- pressed to make fully informed decisions on how to develop a group of leased parcels. If the lease on one parcel within a group is delayed, for example, a company may not find it cost-effective or feasible to develop the rest of the parcels in that group. In some cases, companies are concerned that capital may be tied up while BLM is resolving protests and deciding whether to issue the companies’ leases. Because companies make payments to BLM at the time of lease sale, they may find themselves financially constrained while awaiting BLM’s decision and at the same time have no assurance that BLM will grant their leases. According to industry representatives, uncertainty over protested parcels—including delays in lease issuance, parcels’ ultimate availability, and additional restrictions that may be placed on them—might lower the amount potential lessees may be willing to bid for those parcels. In addition, industry representatives expressed concern that the delays and uncertainty related to protests could result in reduced acreage available for leasing and therefore ultimately also limit domestic oil and gas production.

The results of our analysis showed no systematic effect of measures of protest activity on bid prices, although our analysis did not account for all possible determinants of bid prices. For example, when we compared the average bid price per acre for protested parcels against the average bid price per acre for unprotested parcels for lease sales held in the four state offices during fiscal years 2007 through 2009, we did not find a systematic effect of protest activity on bid price. In the 29 lease sales where estimation was possible, we found that for 3 lease sales in Wyoming, the average bid price per acre was significantly higher for unprotested parcels than for protested ones. In 3 other lease sales in Colorado, New Mexico, and Utah, however, we found a significant association between higher bid price per acre and protested parcels. In the 23 other sales, we found no statistically significant correlation. Similarly, when we analyzed the number of protests per parcel and average bid prices, we did not find a systematic effect. Here, in the 36 lease sales where estimation was possible, we found that for 4 of them—1 in Colorado and 3 in Wyoming— higher average bid prices per acre were associated with fewer protests. For 2 lease sales in New Mexico and Utah, the converse was true, and lower average bid prices per acre were associated with fewer protests. In the 30 other sales, there was no significant relationship. Finally, for the number of days of delay in issuing leases on protested parcels, we found no consistently significant statistical relationship with lower average bid price.

While industry representatives also expressed concern that protest activity could result in reduced acreage available for leasing, it was not possible to determine the extent to which acreage was withheld from leasing as a result of protests because BLM did not document whether protests influenced its decisions to defer parcels from lease sales. During the period of our review, about 1 million acres, or 15 percent, of the approximately 6.9 million acres of land included in the lease sale notices in the four state offices were deferred before lease sale. Given the limitations of BLM’s data, however, we could not determine how much of this deferred acreage was protested or, for deferred acreage that was protested, whether it was subsequently leased in a later sale. This deferred acreage thus represents an upper limit to the potential acreage that could have been withheld from leasing because of protests to date in the four state offices. In addition, BLM had not yet resolved protests filed on another 1.4 million acres, or about 20 percent, of the approximately 6.9 million acres of land identified in the lease sale notices, and resolution of many of these protests has been on hold following direction from BLM headquarters to await specific policy changes before resolving pending protests. For instance, according to officials in the Wyoming state office, the office was directed not to issue protest responses for its protested parcels—which included more than 1,000 parcels covering approximately 1.2 million acres for parcels protested during our review period—until the parcels’ suitability for leasing was reviewed in light of new guidance covering sage grouse habitat and wilderness policy. As a result, it is too early to determine the effects of protests on the acreage where protests have yet to be resolved, and ultimately it may not be possible to distinguish the effects of protests from the effects of simultaneous policy changes. Further, because oil and gas producers generally have up to 10 years from a lease’s issuance in which they can begin developing the lease, the effect of leasing decisions may not be felt for several years after the lease sale.

At the national level, the near-term effect of protests on U.S. oil and gas production is likely to be relatively modest because federal lands account for a small fraction of the total onshore and offshore nationwide oil and gas output. Specifically, in fiscal year 2009, federal lands accounted for 5.8 percent of the nation’s total oil production and 12.8 percent of total natural gas production. Assuming the federal share of production remains comparable in the future, and production on federal lands falls by 15 percent (the percentage of deferred acreage), nationwide oil production would be reduced by 0.9 percent, and natural gas production would fall by 1.9 percent. If, in addition to the 15 percent of deferred acreage, BLM were to withdraw the acreage represented by the additional 20 percent of protested parcels whose protest decisions were still pending—a total reduction of 35 percent—the corresponding combined loss nationwide would be 2.0 percent for oil and 4.5 percent for natural gas.

With the current supply of federal lands already under lease, however, oil and gas development and production may be able to increase along with any demand for such production. Of federal lands that are currently leased, 12 million acres are producing oil or gas, whereas 33 million acres have not been developed. Factoring in both federal onshore and offshore leases, a total of 67 million acres have not been developed, while 22 million acres are producing oil or natural gas. While they may not all contain viable resources, some of these 67 million acres may provide a buffer for the energy industry—federal lands or waters that could be developed—if producers wanted to respond to market conditions with a rapid rise in development and production activity. Energy industry representatives said that while various factors influence a company’s decision to develop leases, the prices of oil and gas are a big driver. We examined the movements of oil and gas prices from 1990 through 2009 in relation to development activities as measured by oil and gas wells drilled and found that percentage changes in the prices of oil and gas closely paralleled percentage changes in development activity (see fig. 2). The peaks and troughs in the patterns of these variables largely overlapped, strongly suggesting that during the past two decades, development activity reacted quickly and proportionally to changes in the prices of oil and gas.

Conclusions

BLM must continue to balance interest in developing the nation’s domestic sources of oil and natural gas on federal lands with ensuring that such development is done in an environmentally responsible manner and in line with its mandate to manage these lands for multiple uses. The protest period provided before new oil and gas leases are issued allows the public an opportunity to comment on a parcel before the right to develop that parcel passes to a private company, and protests provide an opportunity for BLM to carefully examine lease sale decisions in light of the issues that protests raise. This protest process has its trade-offs, however. Specifically, issues raised in protests can help BLM ensure that the best leasing decisions are made, but protests have also been associated with delays and may increase industry uncertainty over the availability of federal lands for oil and gas leasing. Although BLM has taken steps to collect agencywide protest data, when we tried to evaluate the effects of protests, we were hindered by the incompleteness, inconsistency, and ambiguity of these data. Protester groups have also been dissatisfied with BLM’s lack of protest-related information. Without more robust protest information, BLM, Congress, and the public lack a full picture of protest activity and how protests affect leasing decisions. As Interior reforms the leasing process, BLM has an ideal opportunity to (1) revisit how it maintains protest-related information and makes it publicly available and (2) develop the means to respond to protests and issue leases with fewer delays, without compromising the thoroughness of review.

Recommendations for Executive Action

To improve the efficiency and transparency of BLM’s process with regard to protests of its lease sale decisions and to strengthen how BLM carries out its responsibilities under the Mineral Leasing Act, we recommend that the Secretary of the Interior direct the Director of BLM to take the following two actions: revisit the agency’s use of the module for tracking protest information and, in so doing, determine and implement an approach for collecting protest information agencywide that is complete, consistent, and available to the public and in implementing the Secretary of the Interior’s leasing policy reform issued in May 2010, take steps to improve (1) the transparency of leasing information provided to the public, including information to explain the basis of agency decisions to include or exclude particular parcels in a lease sale and, to the extent feasible, documentation of the role, if any, that protests played in final lease decisions, and (2) the timeliness of lease issuance, without compromising the thoroughness of review.

Agency Comments

We provided the Department of the Interior with a draft of this report for review and comment and received a written comment letter from Interior (see app. IV). In its written comments, Interior generally agreed with our findings and concurred with our recommendations. The department also identified specific actions it has taken and plans to take to implement these recommendations. With regard to our first recommendation, about revisiting BLM’s use of the module for tracking protest information, Interior wrote that by the end of calendar year 2011, BLM will determine if the module can be redesigned or if another application would be more effective and will implement an approach to better track protest-related information. In addressing our second recommendation, on improving the transparency of its lease decisions and the timeliness of lease issuance, Interior wrote that its onshore leasing reform policies will provide the increased public participation, transparency, and timeliness called for in the recommendation. Interior’s letter states that with leasing reform, there will be additional environmental review and a new opportunity for public comment and that adjustments to the “lease parcel list” may be made on the basis of public comments received. We stress, however, that as any adjustments to parcel lists are made, it will be important for BLM to explain and document the rationale behind its decisions to include or exclude particular parcels in a lease sale. Interior’s letter also stated that the department believes its ability to adequately address a protest within required time frames will be addressed by posting the lease sale notice 90 days before lease sale (instead of 45 days), extending the period BLM has to evaluate and respond to protests before a lease sale.

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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 Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

This report examines (1) the extent to which the Bureau of Land Management (BLM) maintains and makes publicly available information related to protests, (2) the extent to which parcels were protested and the nature of protests, and (3) the effects of protests on BLM’s lease sale decisions and on oil and gas development activities.

For all three report objectives, we reviewed relevant laws, regulations, and Department of the Interior and BLM guidance. We interviewed officials in BLM headquarters and visited and interviewed officials from BLM state offices in Colorado, New Mexico, Utah, and Wyoming. (The New Mexico state office has jurisdiction over Kansas, Oklahoma, and Texas, as well as New Mexico, and the Wyoming state office has jurisdiction over Wyoming and Nebraska. The data presented in this report for the New Mexico and Wyoming state offices include data for all the states under their jurisdiction.) We selected these four states because collectively they accounted for 69 percent of oil and 94 percent of natural gas produced on federal lands from fiscal year 2007 through fiscal year 2009 and, according to BLM headquarters officials with whom we spoke, received a high number of protests to their lease sales over this same period. In addition, we interviewed stakeholder groups, including representatives from the energy industry, state government, and nongovernmental organizations, to discuss their concerns about BLM’s lease sale and protest process, including the effects—both actual and potential—associated with protests to BLM oil and gas lease sales.

To conduct our work, we obtained and analyzed BLM data from three different sources. First, using lease sale records from the BLM state offices for the 53 lease sales held in the four selected state offices from fiscal year 2007 through 2009, we gathered data on each of the parcels contained in the lease sale notices, including parcel number, acreage amount, and whether the parcel was deferred or the acreage was modified before lease sale. The 53 lease sales comprised 6,451 parcels covering 6.9 million acres of land. For those parcels that were offered at lease sale, we gathered data on final acreage amounts and whether the parcels sold competitively (that is, during the lease sale auction; parcels unsold at auction may be leased noncompetitively later). For parcels that sold competitively, we also recorded the winning bid amount per acre, as well as the total bid amount. Second, we obtained lease information from the agency’s lease record- keeping system, Legacy Rehost System 2000 (LR2000), for all leases issued in the four state offices from fiscal year 2007 through March 25, 2010, including the type of lease (competitive or noncompetitive), the lease sale date, and the date the lease was issued. Third, for fiscal years 2007-2009, we obtained protest information from BLM’s “public challenge module,” which it developed as a component of LR2000 to track protests, among other things, to its lease sales. (BLM required staff to begin entering protest information in the module starting in 2007.) Using unique identifiers assigned to each parcel, we then matched the records obtained from the three data sources and merged them to conduct various data analyses.

To determine the reliability of the three data sources, we interviewed officials responsible for the data and data systems; reviewed system documentation including manuals, users’ guides, and guidance; and performed electronic and logic tests of the data. On the basis of our assessment, we concluded that the lease sale record data and the LR2000 lease data were sufficiently reliable for our purposes. To further assess the completeness of the protest information contained in the module, we compared the module’s data with protest records obtained from BLM state offices for a random sample of 12 of the 53 lease sales held in the four state offices during fiscal years 2007-2009. The 12 lease sales comprised 1,244 parcels covering roughly 1.4 million acres of land. From our assessment of the module, we found that it did not contain complete records: While the module was sufficiently reliable in containing parcels that sold competitively, it did not always contain records for parcels BLM withdrew (deferred) before lease sales. Additionally, we found that the protest-related information the module did contain was not always complete, accurate, or consistent and therefore was not reliable.

To determine what information BLM makes publicly available related to protests, we reviewed the process followed by each BLM state office for reviewing protests and providing information about such decisions to the public, which included interviewing BLM state office officials, reviewing protest-related information available on BLM’s Web site and through other sources, and synthesizing information gathered during our interviews with stakeholder groups. To determine the extent to which parcels were protested and the nature of protests, we compared BLM’s lease sale records with the data available in BLM’s public challenge module. In addition, we further reviewed protest information for our random sample of 12 lease sales. Specifically, for each lease sale in our sample, we obtained and analyzed all submitted protest letters, which totaled 86, and BLM’s responses to these letters. We analyzed information on whether each parcel included in the notice for each of these lease sales was protested and, for protested parcels, the outcome of the protests, including whether BLM’s protest decisions were subsequently appealed or litigated. We also analyzed information on the groups filing the protests and their reasons for filing them (see app. II). For protested parcels BLM deferred from lease sales, we also interviewed BLM state office leasing officials about the reasons they deferred these parcels and compared their reasons with the protest letters for the same parcels.

To determine the extent to which protests could affect the timing of BLM’s lease sale decisions, we analyzed data on all parcels BLM sold competitively in the four state offices during fiscal years 2007-2009, using BLM’s lease sale records, lease issuance dates from LR2000, and protest information from the public challenge module. Specifically, for all parcels sold competitively during this period whose leases had been issued or remained unissued as of March 25, 2010, we calculated the length of time between each parcel’s sale date and lease issuance date. We based our determination of whether a lease was issued late on the date of the lease sale plus 15 days to allow for the 10 business days that winning bidders have to submit required payments to BLM. We cross-tabulated the data into a three-way table and examined the association among whether a parcel was issued late, whether it was protested, and the state in which the parcel was located. In conducting tests of statistical significance, we found that protested parcels were significantly more likely to be issued late, even after accounting for state office. Given the data available, however, we were unable to examine the association between whether a lease was issued late and other potentially relevant factors, including workload in the state offices, the number of protests, the validity of concerns raised in protest letters, and the amount of review that was required by BLM to resolve protests. Thus, although our analysis is consistent with the hypothesis that protests contribute to lease delays, it is not sufficient to establish a cause-and-effect relationship.

To examine the extent to which protests could affect the bid prices of leases, we analyzed BLM’s lease sale and protest data for all competitively sold leases for parcels in the four state offices during fiscal years 2007- 2009. Specifically, to determine if bids and protest activity were associated, we conducted several statistical analyses. We analyzed data on the price of bids per acre and several measures of protest activity, including whether the lease sale was protested, the number of protests received for a specific parcel, and various measures of delay in issuing leases on protested parcels after a lease sale. We conducted a separate statistical analysis for each lease sale in each of the four state offices, which allowed us to control for location (at the state office level) and for factors that might vary over time, such as oil and natural gas prices.

To analyze the extent to which protests could affect oil and gas development activities, we collected and analyzed national data on oil and gas development and production activities, specifically, the number of exploratory and developmental wells drilled and data on oil and gas prices from the Bureau of Labor Statistics and the Energy Information Administration. To assess the ability of development and production in the oil and gas industries to respond to changes in oil and natural gas prices, we analyzed how movements in those prices from 1990 through 2009 changed in relation to development and production activities over the same period. To determine the proportion of federal lands that were leased, the proportion leased and under production, and how these proportions compared with total oil and gas production nationwide, we obtained from BLM and analyzed oil and gas leasing and production data on federal lands, and we obtained U.S. production data from the Energy Information Administration; these data were for fiscal year 2009. We assessed the reliability of these data and found them to be sufficiently reliable for the purposes of this report.

We conducted this performance audit from June 2009 through July 2010, 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: Protest Information from a Sample of Lease Sales in Four Selected State Offices, Fiscal Years 2007-2009

The following tables present information based on our review of a sample of 12 lease sales held in the state offices of Colorado, New Mexico, Utah, and Wyoming from fiscal year 2007 through fiscal year 2009. The tables are based on a total of 86 protest letters associated with the 12 sampled lease sales.

To analyze the reasons for filing protests, we reviewed each of the 86 protest letters associated with the 12 lease sales in our sample. To document the concerns raised in each letter, we developed categories through an inductive process that involved reviewing a small number of protest letters and then identifying natural groupings, or categories, of concerns. Two analysts then independently reviewed the letters and compared the categories. Table 7 presents the overall categories of concern we encountered and illustrates the types of concerns we identified in reviewing the protest letters.

Appendix III: Description of Litigation on Selected Lease Sales

This appendix describes litigation surrounding several of BLM’s oil and gas lease sales held during fiscal years 2007-2009: New Mexico’s April and July 2008 lease sales of parcels across New Mexico, Colorado’s August 2008 lease sale of parcels atop the Roan Plateau in northwestern Colorado, and Utah’s December 2008 lease sale of parcels in eastern Utah.

New Mexico’s April and July 2008 Lease Sales

In March 2008, several environmental and community organizations filed a protest opposing the leasing of all 51 parcels located in the state of New Mexico that BLM identified in its lease sale notice for its April 2008 lease sale, arguing, among other things, that BLM failed to adequately analyze the environmental effects of greenhouse gas emissions that would result from past, present, and future oil and gas development on BLM lands. In April 2008 BLM carried out the lease sale after removing 40 of the 100 originally proposed parcels from the sale, and in July it dismissed the protests on the remaining parcels that were offered at the lease sale. The agency noted that on receipt of the groups’ protest letter, it directed each BLM field office in New Mexico to prepare a new environmental assessment to analyze the potential impacts from lease exploration and development and to account for potential greenhouse gasses during exploration, development, and transportation.

In May 2008, BLM announced the next lease sale, identifying 80 parcels, to be held in July. Numerous groups filed protests against all the parcels located in New Mexico, raising issues similar to those that were raised at the April sale. BLM field offices completed their greenhouse gas environmental assessments just before the July sale. BLM held the sale in July, offering 78 parcels for lease, and dismissed all the protests the following October. In January 2009, several of the groups that had filed protests challenged the April and July 2008 New Mexico lease sales in federal court. The groups argued, among other things, that BLM’s planning and decision-making process for the lease sales failed to address the global-warming impacts of the oil and gas development, in violation of the National Environmental Policy Act, the Federal Land Policy and Management Act, and Department of the Interior Secretarial Order 3226. As of May 2010, this case was pending.

Colorado’s August 2008 Lease Sale

In June 2007, BLM approved a resource management plan providing for oil and gas development on the Roan Plateau. In August 2008, BLM conducted a lease sale including parcels on top of the plateau, all of which were protested by multiple groups. The Assistant Secretary of the Interior for Lands and Minerals dismissed the protests related to the parcels on the plateau, and BLM issued these leases in September 2008. Environmental organizations filed a lawsuit challenging both the resource management plan and the lease sale, arguing that these actions violated the National Environmental Policy Act and the Federal Land Policy Management Act. Four settlement conferences have occurred, the most recent in May 2010, but the parties did not reach agreement, and as of May 2010, the case was pending. See table 8 for a more detailed chronology of the events surrounding the Roan Plateau lease sale.

Utah’s December 2008 Lease Sale

In December 2008, BLM’s Utah state office held a lease sale offering over 100 parcels in eastern Utah, many of which were protested. In January 2009, in response to a lawsuit by several environmental groups, a federal district court entered a temporary injunction against the sale of 77 of the parcels after concluding that the groups had established a likelihood of success on their claims that the lease sale violated the National Environmental Policy Act, the Federal Land Policy and Management Act, and the National Historic Preservation Act.

In February 2009, the Secretary of the Interior concluded that the issues raised by the court, along with other concerns that had been raised about the lease sale, merited a special review. Citing controversy over the degree of coordination between BLM and the National Park Service regarding some of the parcels offered for sale, as well as over the adequacy of BLM’s environmental analyses associated with the parcels, the Secretary issued a memorandum to BLM’s Utah state office, directing it to withdraw the 77 parcels covered by the injunction from further consideration in this lease sale.

In May 2009, several winning bidders and three Utah counties filed suits in federal district court in Utah, seeking to compel the government to issue the leases. The bidders and counties argued, among other things, that the Secretary’s action violated a provision of the Mineral Leasing Act stating that “leases shall be issued within 60 days following payment by the successful bidder of the remainder of the bonus bid, if any, and the annual rental for the first lease year.” The government contends that nothing in the 60-day provision prevents the Secretary from withdrawing a parcel from consideration in a lease sale at any time before lease issuance. As of May 2010, these cases were still pending.

Appendix IV: Comments from the Department of the Interior

Appendix V: GAO Contact and Staff Acknowledgments

Acknowledgments

In addition to the individual name above, Tim Minelli, Assistant Director; Catherine Bombico; Adam Bonnifield; Mark A. Braza; Ellen W. Chu; Bernice Dawson; Justin Fisher; Charlotte Gamble; Alyssa M. Hundrup; Richard P. Johnson; Michael Kendix, Michael Krafve; Jena Sinkfield; Douglas Sloane; and Jeff Tessin made key contributions to this report.