Expanded gas and oil development of federal lands has been a point of pride for the Obama administration — the cornerstone, even, of the president’s “all of the above” program for enhancing energy security and curtailing greenhouse gas emissions while ensuring, of course, that the environment is looked after as well.
On that last point it might seem better, at a glance, to have more of the current fracking boom on federally controlled lands and somewhat less of it on the private or state-managed lands where regulation has been so contentious and plainly inadequate.
Dream on, I guess.
It turns out that the Bureau of Land Management, which oversees energy development on lands owned by the American public and, separately, by its Indian tribes, hasn’t inspected more than about 40 percent of the 3,700 recent wells it considers at high risk of contaminating groundwater or causing other environmental harm.
- BLM continues to approve drilling operations under outdated rules on well spacing, which may sound like a technical detail but in fact is the key method for maximizing energy production, minimizing surface disturbance and making sure underground assets aren’t being stolen.
- Because the bureau gets so far behind in the paperwork on gas and oil royalties, there are at least long delays and possibly long-term losses in producers’ payments both to the U.S. Treasury (for which such royalties are among the largest non-tax revenue sources) and also to Indian tribes, for whom they may be one of the only large revenue streams.
These are among the most appalling findings in a new report from the Government Accountability Office, ordered by Congress in late 2012 and released yesterday.
I don’t know which is more appalling: 1) its list of undisputed oversight failures; 2) the responses from BLM overseers in the Interior Department that well, you know, there’s just never enough time (or money, or staff) to do things right, or 3) the sense none of this is really likely to change.
Because, as the report notes, these findings are hardly the first of their kind:
Our past work has highlighted the importance of Interior’s oversight of the roughly 700 million subsurface acres for which the federal government holds mineral rights, and we identified a range of weaknesses. For example, we reported, in March 2010, that Interior did not have reasonable assurance that it was collecting its share of revenue from oil and gas produced on federal lands, and that it continued to experience problems hiring, training, and retaining sufficient staff to provide oversight and management of oil and gas operations in part because of the department’s human capital challenges. In February 2011, we added Interior’s management of federal oil and gas resources to our list of government programs at high risk of waste, fraud, abuse, and mismanagement or in need of broad reform. In 2012, we reported that the extent and severity of environmental and public health risks associated with oil and gas development depend, in part, on federal and state regulations.
18th-century view of lands
The current boom in energy production is driven by two technological advances above all:
- Directional drilling, which enables operators to sink a vertical well and then gradually change the bit’s orientation so it drills at a diagonal or even perpendicular angle to the initial shaft, at various depths and for long distances.
- Injection of fluids to fracture shale formations, followed by delivery of silica sand or other “proppants” to hold open the new fractures while the gas is withdrawn.
By extending the reach from single wellhead over or a large area, these techniques have greatly lowered the unit cost of producing natural gas. They have also extended the range of potential damage underground from each wellhead; the degree to which that can be assessed, monitored, prevented and mitigated is hotly contested and far from settled.
Clearly, directional drilling can minimize the amount of surface that must be consumed for drilling pads, roads, pipelines and all of the other infrastructure associated with gas production.
So, assuming there’s going to be any drilling at all on a particular patch of land, it certainly makes sense to sink as few shafts from the surface as possible, to space them as close together as is practical, and to place all owners of the mineral rights under a “communitization” agreement that allows all to share in the sale without each having to drill a separate well.
And yet BLM, the auditors find, is working from a rulebook that hasn’t been updated in more than 20 years, with the last revisions coming before the fracking boom got under way. Amazingly, it still applies its regulations in the 640-acre increments established in the 18th century laws that governed homesteading and the forced relocation of Indians from their land — in exchange for unwanted private property rights it still fails to defend— even though modern drilling can extend over areas twice that size or larger.
Despite requirements to evaluate such rules every five years and revise them as needed, the auditors found,
BLM has not recently reviewed its guidance related to communitization agreements, which addresses well spacing. BLM’s guidance states that the agency usually will not approve or, in the case of Indian lands, recommend approval of agreements combining more than 640 acres for oil or gas production irrespective of well location and federal or Indian acreage within a unit.
According to federal officials and industry representatives we spoke with, BLM’s guidance on communitization agreements is inconsistent with industry practices because the limit of 640 acres does not accommodate horizontal drilling. ….
A unit larger than 640 acres may be needed to allow operators to maximize oil and gas resource recovery and prevent waste. Due to the economic and strategic importance of oil and gas, BLM’s guidance should provide reasonable assurance that well spacing will provide for maximum allowable production, thereby ensuring the federal government, tribes, and individual Indian resource owners are capitalizing on the development of the resource.
14,000 wells in four years
More than 14,000 wells were drilled on federal or Indian land managed by BLM from fiscal year 2009 through fiscal 2012. Of these, 3,702 were designated as high priority for inspection because of their potential risk to contaminate groundwater, trigger seismic events, release hydrogen sulfide or create other problems.
BLM’s policy is to inspect every such high-priority well at critical stages of drilling, production and closure, but it turns out the agency doesn’t even count them all. Of the 14,000 wells drilled in that four year period, the BLM database lacked a priority classification for 1,784, or about 13 percent. Moreover,
Our review of available data from AFMSS determined that more than 2,100 of the 3,702 wells that were identified as high priority in BLM’s AFMSS database and drilled from fiscal year 2009 through fiscal year 2012 were not inspected. BLM officials told us that the agency has limited staff to complete drilling inspections, which is consistent with our prior report stating that Interior’s human capital challenges have made it more difficult to carry out some oversight activities and that the agency conducted fewer inspections because of inspector vacancies.
And then there’s the money.
By law, BLM is required to sign off on how the proceeds of a “communitization” project are shared — and federal royalties paid — within 120 days of receiving the developers’ proposed agreement. As a matter of policy, it promises to do it within 30 days when the deal involves Indian land the agency is administering in trust for a tribe. However:
[W]e reviewed data for 61 Indian and federal wells drilled from fiscal year 2009 through fiscal year 2012 in the state of Oklahoma and found that BLM averaged 229 days to approve Indian communitization agreements and 126 days to review federal communitization agreements. BLM officials told us that they are unable to review the agreements within the required time frame because, in part, the agency does not have the staff needed to review them.
As a result of these delays, approval of a communitization agreement may lag production and delay royalty payments to the federal government, tribal nations, and individual Indian oil and gas resource owners. According to several tribal and federal officials we met with during our review, the delay to process communitization agreements has resulted in a delay of royalty payments. 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.
Those are the main findings of the report, which ends in a set of tepid recommendations that the Interior Secretary and director of BLM fix all the things that are broken, and have stayed broken, despite many earlier reports recommending similar repairs.
If you think your stomach can take it, all 52 pages can be read here.