Fed Red Tape = Lost Production and Royalties

Mark Green
Posted July 2, 2014

An inspector general’s report issued this week really underlines what industry has been telling Washington over the past couple of years: Permitting for oil and natural gas drilling on federal lands takes too long, generates too much uncertainty and is a hindrance to developing reserves that are critical to the country’s energy security today and tomorrow.

The Interior Department inspector general’s assessment of the effectiveness and efficiency of the Bureau of Land Management’s (BLM) onshore drilling permit process basically shows that the process  is neither very effective nor efficient. Key points:

• BLM approves 99 percent of all applications for permits to drill (APDs) it receives, but approves only 6 percent of these within 30 days of receipt, as directed by law.
• The reported backlog of unprocessed APDs is about 3,500.
• BLM reports it took an average of 228 days, or about 7.5 months, to process an APD during FY 2012. State governments claim they can process an APD in 80 days or less, the IG said.

From the report:

We found that neither BLM nor the operator can predict when the permit will be approved. Target dates for completion of individual APDs are rarely set and enforced, and consequently, the review may continue indefinitely. The process at most field offices does not have sufficient supervision to ensure timely completion. BLM also does not have a results-oriented performance goal to address processing times. Processing delays have occurred because, until recently, improving the APD process has not been a high priority for (the Interior Department).

The IG said the current federal permitting process is hurting the country:

Long review times create uncertainties in the APD process for both industry and BLM. This adversely affects developing the Nation’s domestic energy resources. Specifically, the Federal Government and Indian mineral owners risk losing royalties from delayed oil and gas production. Industry officials informed us that delays cause some wells not to be drilled, resulting in additional lost production and royalties.

The findings help explain two separate reports showing declining oil and natural gas production on federal lands. A recent Congressional Research Service analysis that found crude oil and natural gas production was down 6 percent and 23 percent, respectively, from 2009 to 2013 – while over the same period oil and gas production on non-federal lands was up 61 percent and 33 percent.

Similarly, a report last month by the U.S. Energy Information Administration found that sales from oil and natural gas produced on federal and Indian lands are down 16 percent and 24 percent, respectively, since 2010.

The numbers in both reports are stark – and fairly easily explained: Energy companies know what to expect in the non-federal permitting process, and it takes significantly less time to navigate. On the other hand, the federal process is filled with uncertainty and delay. Little wonder, then, that investments in energy development are occurring in non-federal areas. That’s why virtually all of the recent growth in U.S. energy production, our “energy revolution,” is occurring in areas outside of Washington’s control.

This is a national dilemma. Access to oil and natural gas reserves in federal areas, onshore and offshore, is critical to sustaining that energy revolution – one that creates jobs, boosts our economy and makes the United States more energy secure in the world.  

Action is needed to follow up on the IG report and the other studies. The U.S. House of Representatives moved in this direction last week with legislation designed to make the federal permitting process more effective and efficient. The IG offered specific recommendations for the offices processing the permits, including:

• Appoint field-office-level project managers to establish accountability over the APD process while ensuring timeliness.
• Development of report performance timelines for APD processing.
• Develop outcome-based performance measures to help management improve productivity.
• Improve data collection to allow better workflow management, efficient APD processing and tracking.
• Work with Congress on reauthorization of a 2005 program establishing special pilot office funding for seven BLM field offices that increased staffing levels at offices with the greatest workloads. The program expires in 2015.

Industry’s goal is establishing reasonable, consistent timeframes for permitting while reducing undue backlogs. Industry supports funding of the pilot office project, as well as building in flexibility so that BLM can move funding resources to offices with the most demand. Senate legislation would reauthorize and expand the program and would authorize the Interior secretary to designate new project offices as industry priorities shift.

The pilot office program alone won’t solve the problems identified by the IG report. But it’s an important step to improve federal energy permitting and help grow U.S. energy production.