GAO Report a Testament to States’ Effective Regulation of Oil and Gas

This week, the U.S. Government Accountability Office (GAO) released a new report, which states that the Bureau of Land Management’s (BLM) regulation of oil and gas development leaves room for improvement.  But while the Associated Press published a headline purporting high risk from inadequate regulation, the report actually shows that the risks associated with shale development are being effectively managed by state regulations.

For example, on well integrity requirements, GAO has this to say:

“In September 2012, we reported that well integrity is essential to isolate the well and protect the environment, including the groundwater. Some states we reviewed have revised regulations for well construction to require well-integrity testing, pressure monitoring testing, and new casing and cementing standards. For instance, in 2013, Texas updated its rules for cement quality, cementing, well equipment, centralizers, and well control. Specifically, the state established a minimum cement thickness for casing strings and consolidated requirements for well control and blowout preventers. The revised rule also adds requirements for wells that will be hydraulically fractured, such as pressure testing of the casing, and it requires operators to notify the state when a test fails and remedial work is necessary.” (p. 25)

GAO also showcases Colorado’s new rules on baseline water testing; California’s and Oklahoma’s updated waste disposal rules; North Dakota’s recent well spacing rules; and Colorado’s new air emission regulations – all as examples of how states are consistently updating their standards and keeping up with new technologies to enhance public safety. GAO juxtaposes states’ effective efforts with BLM’s rules, which are outdated, inefficient and “have not kept pace with technological advancements.”

One of the biggest problems is that BLM’s efforts are duplicative of what states are already successfully doing.  From the report:

“Both BLM and state regulatory agency officials told us that some wells have been inspected by both BLM and state regulatory inspectors, and other wells have not been inspected at all. In addition, state regulatory officials said that the increasing number of horizontal wells that will likely traverse federal or Indian resources and state or private resources is expected to increase the number of duplicative inspections.” (p. 32)

GAO goes on to explain:

“Without formal agreements to coordinate inspections with state regulatory agencies or a process to leverage or utilize state inspection resources, BLM is not maximizing the number of oil and gas wells that can be inspected with existing resources. According to a state regulatory official, by minimizing or eliminating duplicate inspections between BLM and the state regulatory agency, the agencies could increase the total number of inspections conducted within the state.” (p. 32)

This is important: GAO does not conclude that because BLM is falling short in its oversight capabilities that development should be stalled. In fact, there’s next to nothing in this entire report that suggests state regulatory authorities are doing an inadequate job (although, to be fair, BLM was the focus of GAO’s report).

Instead, it’s clear that because of BLM’s inefficiency and its “limited coordination with state regulatory agencies,” development is (unfortunately) not as robust as it could be, and therefore the government is missing out on millions in revenues it could be receiving from development on federal lands. From the report:

“As a result, some of BLM’s rules and guidance governing oil and gas development have not kept pace with technological advancements, such as its guidance on well spacing, which, among other things, determines how to maximize oil and gas production from a formation. Improper spacing guidance could lead to lower levels of oil and gas production and, therefore, less revenue for the federal government and tribes.” (From the introduction)

In addition, because BLM often takes more than a year to review agreements, when it should be taking 120 days maximum, royalty payments to resources owners have been significantly delayed:

“Oil and gas are produced on private, state-owned, federal, and Indian lands across the United States, and recovery of these resources from federal and Indian lands is a significant source of revenue for the federal government and tribes. For example, federal energy production generates one of the largest nontax sources of federal government revenue, accounting for more than $14 billion in fiscal year 2013, according to the Department of the Interior (Interior).  In addition, development of Indian energy resources provided almost $1 billion in revenue to tribes and individual Indians in fiscal year 2013.” (p. 1)

These delays can be particularly damaging to communities that rely on oil and gas revenue to fund basic needs.  As GAO states,

“This is a concern because, according to a 2010 BLM report, individual Indian oil and gas resource owners may rely on revenue from oil and gas development to pay for daily expenses such as food, shelter, health, and education.”(p. 37)

GAO’s findings provide additional insight into what the Congressional Research Service (CRS) found last month: while oil and gas production across the country has soared, production on federal lands has plummeted. According to CRS, oil production fell by 11 percent while onshore and offshore natural gas production dropped by 28 percent on federal lands.  Meanwhile, CRS found that oil production on non-federal lands increased by an amazing 61 percent since 2009, while natural gas production increased 33 percent.  The U.S. Energy Information Administration (EIA) came to a similar conclusion last year, finding that sales of fossil fuels from production on federal and Indian lands in fiscal year (FY) 2012 dropped four percent from FY 2011.

So to recap: states are effectively and efficiently addressing the risks to shale development, updating and enhancing their rules, and keeping up with new technologies.  Meanwhile, BLM’s rules are often inefficient and outdated. As a result, BLM is stifling production on federal lands that could be bringing enormous revenues to the government and communities in need.  And while GAO’s report did not focus specifically on state regulatory authorities, it is telling that GAO nonetheless credited states with enhancing their rules and standards to provide additional public protections, even as oil and gas production grew considerably across the United States.

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