Improving Oversight of Oil and Gas Royalties

In fiscal year 2007, the Department of Interior's Minerals Management Service (MMS) collected more than $9 billion in oil and gas royalties, but GAO's work on the collection of federal royalties has found numerous problems with policies, procedures, and internal controls that raise serious doubts about the accuracy of these collections. GAO also found that past implementation of royalty relief offered to some oil and gas companies during years of low oil and gas prices did not include provisions to remove the royalty relief in the event that oil and gas prices rose as they have, and this failure to include such provisions will likely cost the federal government tens of billions of dollars over the working lives of the affected leases. Finally, GAO has found that the federal government ranks low among nations in terms of the percentage of total oil and gas revenues accruing to the government. Based on GAO's prior work, GAO believes there are opportunities to improve the accuracy of royalty collections and a need to comprehensively reassess federal royalty policy, both of which have the potential to increase federal oil and gas revenues. Because federal oil and gas royalties account for such a large amount of revenue to the federal government, there may be significant opportunities to either save money from improved operations or increase revenues.

Specific actions that could lower costs or increase revenue:

To improve oversight of the existing royalty programs and potentially increase the collection of royalties due to the federal government under existing policy, GAO has recommended that Interior

• make improvements to its production inspections, which could result in improved oversight of production and more accurate measurements of oil produced from federal lands and water, for which royalties are owed.


• make improvements to its information technology systems to limit data problems that limit MMS’s ability to ensure that the federal government is receiving all royalties it is due.


• require improvements in how MMS determines if companies are complying with, among other things, rules regarding payment of royalties.
  

To evaluate whether federal oil and gas revenue policy should be changed to potentially increase the royalties collected, GAO determined that Interior had not conducted a recent evaluation of whether federal oil and gas policy was reasonable in light of what other countries did and that Interior was unwilling to conduct such an analysis on its own, GAO raised two matters for consideration:

• Congress may wish to consider directing the Secretary of the Interior to convene an independent panel to perform a comprehensive review of the federal oil and gas fiscal system.


• Congress may wish to consider directing the Secretary of the Interior to direct the Minerals Management Service and other relevant agencies within Interior to establish procedures for periodically collecting data and information and conducting analyses to determine how the federal government take and the attractiveness for oil and gas investors in each federal oil and gas region compare to those of other resource owners and report this information to Congress.

^ Back to topKey Reports

Oil and Gas Royalties: MMS's Oversight of Its Royalty-in-Kind Program Can Be Improved through Additional Use of Production Verification Data and Enhanced Reporting of Financial Benefits and Costs

GAO-08-942R, September 26, 2008

Summary (HTML)   Full Report (PDF, 16 pages)   Accessible Text   Recommendations (HTML)

Mineral Revenues: Data Management Problems and Reliance on Self-Reported Data for Compliance Efforts Put MMS Royalty Collections at Risk

GAO-08-893R, September 12, 2008

Summary (HTML)   Full Report (PDF, 18 pages)   Accessible Text   Recommendations (HTML)

Oil and Gas Royalties: The Federal System for Collecting Oil and Gas Revenues Needs Comprehensive Reassessment

GAO-08-691, September 3, 2008

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 44 pages)   Accessible Text

Oil and Gas Royalties: Litigation over Royalty Relief Could Cost the Federal Government Billions of Dollars

GAO-08-792R, June 5, 2008

Summary (HTML)   Full Report (PDF, 17 pages)   Accessible Text