Mineral Resources

To prevent the concentration of control over federal oil and gas resources in a few companies or individuals, Congress has limited number of acres of oil and gas leases that one party may control in a single state. An exception to this limitation involves lease acreage within the boundaries of development contracts. These contracts permit oil and gas lease operators and pipeline companies to contract with enough lessees to economically justify large-scale drilling operations for the production and transportation of oil and gas, subject to approval by the Secretary of the Interior, who must find that such contracts are in the public interest. Since 1986 Interior has entered into or approved 10 contracts with 12 lease operators for exploration of largely unleased federal lands--ranging from about 180,000 to 3.5 million acres in four western states--and has designated them as developmental contracts. GAO believes that the 10 contracts do not satisfy the legal requirements for development contracts because they are for oil and gas exploration on largely unleased federal lands, rather than for developing existing leases. By designating the 10 contracts as development contracts, Interior has enabled 9 of the 12 contract parties to accumulate lease acreage that vastly exceeds the statutory acreage limitation. All nine of the contract parties were major or large independent oil companies. As a result, other parties who wish to participate in developing federal oil and gas resources within the four states may be adversely affected because the parties to Interior's contracts have been able to compete for and obtain lease acreage beyond the statutory acreage limitation. Although Interior believes that the Secretary has the discretion under law to use development contracts in the current manner, in April 1989 it ceased issuing these contracts pending completion of GAO's review. Congress needs to resolve the matter by amending mineral leasing laws to expressly permit or prohibit Interior to enter into or approve development contracts for oil and gas on largely unleased federal lands or to increase or remove the acreage limitation.

GAO found that: (1) the 10 contracts entered into or approved by Interior since 1986 do not satisfy the legal requirements for development contracts because those contracts are for oil and gas exploration on largely unleased federal lands, rather than for developing existing leases; (2) rather than being between lessees and lease operators, 9 of the 10 contracts are between Interior and lease operators, and in all 10 contracts the sole parties, other than the Interior, are the operators; (3) by designating the 10 contracts as development contracts, Interior has enabled the contract parties to accumulate lease acreage that exceeds the statutory acreage limitation, resulting in increased concentration of control over federal oil and gas resources and preventing other parties who wish to obtain federal oil and gas leases and participate in developing these resources from doing so; and (4) although Interior believes that the 10 contracts are in the public interest, since they promote exploration for and development of federal oil and gas resources that otherwise might not have been accomplished, using development contracts in this manner equates to rescinding the statutory acreage limitation for the nine major and large independent oil companies that have exceeded acreage limitations in the states where they have contracts.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Team: Phone: