Oil and Gas Lease Management: BLM Could Improve Oversight of Lease Suspensions with Better Data and Monitoring Procedures

Oil and gas leases on federal lands generate billions of dollars in rents and royalty payments for the federal government each year, but these revenues can be reduced if leases are suspended (i.e., placed on hold). Questions have been raised about whether some suspensions, particularly those in effect for more than 10 years, may hinder oil and gas production or adversely affect the use of federal lands for other purposes, such as recreation.

GAO was asked to review oil and gas lease suspensions on federal lands managed by BLM. This report examines, among other things, (1) the extent of and reasons for such suspensions and (2) the approach BLM uses to monitor the status of lease suspensions. GAO analyzed all data on suspensions in a BLM database and the official lease files for a nongeneralizable sample of 48 leases recorded as suspended in, Montana and Wyoming, which GAO selected based in part on the large number of suspensions these states had. GAO also reviewed BLM documents and interviewed BLM officials.

According to data at the end of fiscal year 2016 from the Bureau of Land Management (BLM), a small portion of oil and gas leases were suspended for various lengths of time (as shown below), but the reasons for the suspensions were difficult to determine. During a suspension, the government generally does not collect revenues from the lease. Determining the reasons for suspensions is difficult, in part because BLM does not require the inclusion of this information in its database. To obtain this information, BLM officials would have to review the official lease files, of which many are in hard copy. Under Standards for Internal Control in the Federal Government , management should use quality information to achieve the entity's objectives. BLM field officials GAO interviewed said that additional, more detailed information in the database on reasons for suspensions would be helpful in tracking lease suspensions. By including a data field in the database 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.

The approach BLM uses to monitor lease suspensions does not ensure consistent and effective oversight because BLM does not have procedures in place for monitoring. BLM state offices generally delegate responsibility for monitoring lease suspensions to their field offices. Officials from 12 selected field offices in two states with relatively large numbers of lease suspensions reported various frequencies in their monitoring of suspensions, ranging from every few months to rarely or not at all. In the absence of BLM monitoring procedures, field officials have discretion in how and when to monitor. By developing procedures for monitoring lease suspensions, including when to conduct monitoring efforts, BLM could better ensure that lease suspensions in effect are warranted.

To better ensure that federal lands are not being inappropriately kept from development, GAO is making four recommendations, including that BLM record the reasons for lease suspensions in its database and develop procedures for monitoring suspensions. Interior concurred with GAO's recommendations.

Oil and gas leases on onshore federal lands managed by the Department  of the Interior’s Bureau of Land Management (BLM) generate billions of  dollars in rents and royalty payments for the federal government each  year. According to BLM’s database for mineral and land use—the Legacy  Rehost 2000 System (LR2000)—approximately 41,000 oil and gas leases  cover 28 million subsurface acres. Under the terms of these leases,  operators have 10 years to begin drilling for oil and gas unless BLM  suspends their leases. BLM may suspend leases, for example, when an  environmental review is necessary to avoid harm to endangered species  on the leased lands or during periods of extraordinary weather conditions,  such as hurricanes or other natural catastrophes. Suspensions typically  remain in effect until the conditions that led to the suspensions no longer  apply. There is no limit on how long a lease can be suspended. During a  suspension of operations and production, the government does not  collect rents or royalty payments and the time remaining to begin drilling  is reserved so that the operator is not penalized for the time the lease is  in suspension.

BLM is responsible for implementing the Federal Land Policy and  Management Act of 1976, as amended, which directs Interior to manage  federal lands for multiple uses, such as recreation and resource  extraction, while also taking any action required to prevent “unnecessary  or undue degradation” of these lands. Members of Congress and others  have raised questions about whether some suspensions, particularly  those that have been in effect for more than 10 years, may hinder oil and  gas production or adversely affect the use of federal lands for other  purposes, such as recreation.

You asked us to review oil and gas lease suspensions on lands that BLM  manages. This report examines (1) the process 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 provides 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 used by BLM officials when considering lease suspensions.  We also interviewed BLM officials about how they use these criteria. To  examine the extent of oil and gas lease suspensions and the reasons for  the suspensions, we analyzed data on all lease suspensions recorded in  BLM’s LR2000 database as of September 30, 2016. We took a number  of steps to assess the reliability of these data—such as checking the  extent to which the data were complete and within expected ranges and  interviewing BLM officials about how the data were collected—and  determined that the data were sufficiently reliable to give a high-level  summary of suspension information, such as the number of leases in  suspension and the lengths of the suspensions (see app. I for additional  detail).

We also analyzed information contained in the official lease files,  maintained by BLM state offices, for a nongeneralizable sample of leases  in suspension in Montana and Wyoming to identify the reasons behind  the suspensions as well as to assess their status. We chose these states  because they were among the states with the largest numbers of  recorded lease suspensions. We also selected Montana because their  files were electronically maintained and easily accessible and Wyoming  because it had some leases recorded as suspended for the longest  period of time of any state as of September 30, 2016. We selected 48  suspended leases in these two 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 there were only 12  suspension dates. Therefore, we randomly selected a single lease from  each date. For Wyoming, we selected leases based on a combination of  suspension date, similarity of lease numbers, and field office of  jurisdiction. In addition, to review suspensions that had been in effect for  a relatively long period of time, we selected suspensions that had been in  effect for 20 or more years. The results of our review of selected leases  are not generalizable to other BLM leases in suspension but provide  examples of the types of reasons given for suspensions.

To verify the status of each selected lease, we compared information in  LR2000 and the official lease file with information in the Office of Natural  Resources Revenue’s database. We also interviewed officials from the  BLM state and field offices in our sample about specific lease files to  learn more about the status of specific lease suspensions and the  reasons why these suspensions were still 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 this approach  provides for oversight of such lease suspensions, we reviewed agency  databases and documents, including information in LR2000 and selected  lease files from the Montana and Wyoming state offices. These two state  offices comprised a total of 12 field offices that were responsible for  monitoring the 48 suspended leases in our sample. We also interviewed  BLM officials from BLM headquarters and those state and field offices to  learn about how, if at all, they monitor lease suspensions or oversee such  monitoring. We compared their actions 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.

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.

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.

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

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.

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.

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)

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.

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

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

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.

Oil and gas leases on federal land generate billions of dollars in revenues to the government. Lease holders typically have 10 years to begin drilling for oil and gas. However, the clock is stopped (sometimes for decades) and payments can be halted if the Bureau of Land Management suspends the lease—for example, due to permit issues or environmental reviews.

We looked at a sample of lease suspensions and found that BLM doesn't consistently monitor them or track the reasons for suspensions in their database. We recommended that BLM develop a procedure to monitor lease suspensions, and that it track the reasons for suspensions in its database.