Royalty measurement for oil and gas flawed, audit finds

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The federal government’s efforts to ensure accurate measurement of oil and gas being extracted from federal lands is ‘ineffective and inefficient,’ raising questions about whether petroleum companies are paying proper royalties, a government audit has found.

The report by the Government Accountability Office (GAO) faulted the Department of Interior for not updating some of its measurement standards in two decades, for falling behind current technologies, and for failing to meet inspection and calibration goals aimed at maintaining accurate measurements. The two agencies of the department that manage land-based leases and offshore activities did not coordinate information and practices, and provided little oversight of officials making crucial decisions on measurement, the report said.

The audit does not quantify the potential lost royalty revenue from onshore and offshore leases, which amounted to $6.5 billion last year.

The GAO’s report was the second recent critique of the federal government’s program for collecting royalties from companies extracting resources from public lands. Two years ago, Interior’s inspector general found that staff members in a Colorado office of a program overseeing ‘in kind’ payment of royalties had ‘inappropriate relationships with oil industry that could compromise their objectivity.’ Nearly a third of that staff either socialized with or received gifts from oil companies doing business with Interior’s Minerals Management Agency, which oversees onshore leases, the inspector general reported. At the time, more than 40% of royalties were paid in kind.

The Interior Department has concurred with most of the latest report’s conclusions and has agreed to key suggestions for improving the programs, according to the GAO report.

-- Geoff Mohan