Dept. of Interior needs to make changes to guarantee fair return on oil and gas, study finds

Dec 17, 2013

The Department of Interior’s oil and gas royalty program has been examined repeatedly in the past for weaknesses and high risk of mismanagement and a new Government Accountability Office study suggests more can be done to guarantee a fair return on extracted natural resources. The study says one of the biggest issues is that the DOI does not have set procedures for reviewing the royalty program.

Director of the GAO’s Natural Resources and Environment team, Frank Rusco, says that’s a problem because the industry has seen big changes, like extraction in tight shales.

“We’ve actually seen growth in the total production of oil in the United States for the first time in decades, and then a huge growth in natural gas production,” says Rusco. “We also saw in the mid-2000s a big increase in the price of oil. Those kinds of changes would lead you to want to evaluate your rules and regulations to make sure that they’re rational given the new technologies and the new terms the industry is dealing with.”

The report suggests developing a defined system for assessing the program, and recommends establishing clear rules for offshore lease adjustments.

Rusco says that although onshore and offshore leases are ultimately subject to the same market conditions, they adhere to different rules and that has allowed offshore royalty rates to rise recently, while onshore rates have stayed at 12.5 percent.