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GAO Report Raises Concerns About Interior Revenue Collection System

The Interior Department over the past couple of years has taken action, particularly in the offshore, to ensure that taxpayers receive a fair return on oil and natural gas produced on federal lands, but it has not taken similar steps onshore, according to a new report released by the Government Accountability Office (GAO).

Interior has changed its offshore lease terms -- such as increasing royalty rates, minimum bids and rental rates -- but onshore lease terms have not changed in recent years though onshore and offshore leasing programs are subject to many of the same market conditions, said the report, which was requested by Sen. Ron Wyden (D-OR), chairman of the Senate Energy and Natural Resources Committee.

"...Onshore royalty rates have remained at 12.5%, [while] certain offshore royalty rates began increasing in 2007 to the current offshore royalty rates of 18.75%," it said.

The GAO report called on Interior to establish documented procedures for periodically assessing the federal oil and gas fiscal system; and to determine whether and how to change new offshore lease terms. "Although Interior recently contracted for such an assessment, it was the first in well over 25 years. Without documented procedures, Interior will not have reasonable assurance that it will consistently conduct such assessments in the future and without periodically conducting such assessments, Interior cannot know whether there is a proper balance between the attractiveness of federal leases for investment and appropriate returns for federal oil and gas resources."

The GAO report "raises concerns about how well the department has been doing to ensure that taxpayers are getting a fair return for oil and gas development on both offshore and onshore public lands. I think it's fair to say that it is not clear the Interior Department, and especially BLM [Bureau of Land Management], has always kept up with the times," Wyden said.

In fiscal year 2012, companies received more than $66 billion from the sale of oil and gas produced from federal lands and waters, and they paid just $10 billion to the federal government for developing these resources, according to Interior. Under the fiscal system, companies pay royalties, rents and other payments -- payments generally specified in lease terms -- and taxes on profits from the sale of oil and gas produced from federal leases.

In May 2007, GAO concluded, based on several studies, that the government received one of the lowest percentages of value of oil and gas produced in the world (see Daily GPI, June 5, 2007). A year later, the agency said Interior had not evaluated its federal oil and gas fiscal system for more than 25 years and said a periodic assessment was needed (see Daily GPI, Sept. 15, 2008).

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