SALT LAKE CITY — U.S. onshore oil and gas revenues averaging $3 billion a year are at risk because the federal agency responsible for approving permits takes too long to process applications to drill, a new audit concludes.
The report released this week by the Office of Inspector General also notes that the Vernal field office of the Bureau of Land Management is one of three in the country handling well more than half the annual workload.
"Long review times create uncertainties in the (application) process for both industry and BLM. This adversely affects developing the nation’s domestic energy resources. Specifically, the federal government and Indian lands mineral owners risk losing royalties from delayed oil and gas production," the report notes.
Uintah County Commissioner Mike McKee said delays chase away industry, and thus dollars, from federal lands, which occupy 90 percent of Uintah County.
"I will take my hat off to the Vernal office because I believe they are doing a good job, as much as they can, but with that said, there has been a backlog for a number of years," McKee said.
He said he believes that backlog in Vernal is well over 1,000 applications to drill, constituting more than a third of the national backlog of 3,500 applications noted by the report.
Nationally, Utah follows Wyoming and New Mexico for the largest amount of drilling activity occurring on federal lands, with private and state-owned lands in North Dakota experiencing the largest overall increase, according to the audit.
How it works
Each year, the BLM gets about 5,000 applications to drill that include an assortment of documents relating to oil and gas extraction, such as drilling and operational plans. Those applications kickstart what the report describes as a complex process involving a multi-agency review of environmental, geologic and engineering issues.
Those applications are processed at 33 offices, mostly in the Western United States.
The review notes that oil and gas production is a major activity on federal and Indian lands, with annual royalty revenues averaging $3 billion since fiscal year 2011. It added that about 92,000 oil and gas wells currently exist on federal lands, and industry drills more than 3,000 new wells annually.
Processing the industry's applications to drill took the BLM an average of 228 days, or 7.5 months, in 2012, compared to states' claims of about 80 days, the report said. While conceding some delays are attributable to industry, the report said the BLM review process has many inefficiencies which accounts for the bulk of the problems.
Other findings in the audit were reported:
• The review process is open-ended and provides no "finish-by" answer for either the BLM or the energy industry planning.
• Most applications are processed without supervision that would ensure timely completion.
• Most applications are reviewed manually without the expediency or efficiency of an electronic format.
• Long processing times occur because, until recently, it has not been a high departmental priority.
"We determined that inefficiencies in processing (applications) primarily related to weaknesses in oversight and accountability, and staffing," the review said.
The inspector's report acknowledged staffing and resource challenges for the BLM but said the agency could make better use of the personnel it does have.
The review observed that in offices where a project manager had direct responsibility for drilling applications, processing times were significantly reduced. In Silt, Colorado, the wait time was cut to 108 days, compared to the bureau average of 228 days. In addition, an automated tracking system helped to reduce wait time in Carlsbad, New Mexico, to 110 days.
The report also noted that in offices that made more use of "virtual inspections," such as the Vernal field office, delays were reduced, although it did not recommend this type of inspection for all applications.
The majority of reviews, too, do not incorporate an electronic format, with workers relying on a "hard copy" review and storage system, the audit said. That creates efficiency challenges as well as physical constraints, with the report observing that in Vernal, the office is in danger of running out of room and may have to store files off-site.
The Office of Inspector General noted that it had conducted a review in 2003 in which long delays were observed and that in August of 2013, the General Accountability Office criticized the agency for long processing times that persisted. The BLM at that time said it would implement a list of recommendations by the end of this year.
In this review, the office had six recommendations for the BLM to decrease wait times on applications to drill, including adoption of an electronic and automated format and assigning a specific manager to oversee the process.
Kathleen Sgamma, vice president of governmental affairs for Western Energy Alliance, a group of independent oil and gas producers, said she welcomes the recommendations but is not optimistic much will change.
"The report makes several common sense recommendations, but they involve structural deficiencies that BLM has been unable to correct for quite some time," she said.
"With all the additional requirements piled on by (the interior department) and a lack of priority on oil and natural gas, it's unlikely that this report will result in meaningful changes any time soon. We believe it's time to explore other options such as a greater role for the states in the permitting process."
The report also noted the need to continue federal funding for the half-dozen "pilot" offices created with the implementation of the Energy Policy Act of 2005, which included the Vernal office in Utah.
Sgamma said the alliance supports a bipartisan bill that would direct funding to field offices based on actual work flow.
For its part, a BLM response to the OIG report said that if industry bore more of the cost for processing the applications to drill, the agency's efficiency would improve in that area.
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