Washington (Platts)--14Apr2010/631 pm EDT/2231 GMT

The two offices charged with verifying oil and natural gas production volumes at the US Department of the Interior could not reasonably prove to congressional auditors that US oil and gas production on government leases is accurately measured.

A two-year audit of the Bureau of Land Management and the Minerals Management Service released Wednesday by the Government Accountability Office said Interior's rules for measuring production volumes haven't been updated in 20 years and the two offices in charge of reporting volumes used in calculating royalty payments to the government suffer from a lack of qualified petroleum engineers.

The US government last year collected $6.5 billion in royalty payments from offshore and onshore producers with wells on government lands.

The GAO did not put a price tag on how much royalty revenue the US government may be losing because of inaccurate production measurement.

"Interior's varied approaches for developing and revising its measurement regulations are both ineffective and inefficient," GAO auditors said.

The report added that the department's "onshore measurement regulations have not been updated in 20 years and do not address current measurement technologies."

When provided with a draft of the audit, Interior agreed with the GAO's findings and recommendations, GAO said.

Offshore inspectors only met their annual goal of meter inspections once between 2004 and 2008, GAO said, while onshore inspectors from the BLM only met their inspection quota one-third of the time over 12 years.

The GAO found that Interior's efforts to give its staff laptops and software to electronically document production volumes have shown few results, partially because the department's information technology systems were frozen by the court hearing the Cobell lawsuit brought by American Indian tribes asserting slipshod accounting for royalties from tribal leases.

While the GAO found laptops in use in the field at three of seven BLM offices, it said there were no common electronic forms and that data gathered in the field had to be manually reentered in the BLM's database. BLM has jurisdiction over onshore oil and gas leases.

MMS, which is charged with measuring offshore production volumes, is still discussing electronic measurement techniques and has allocated no money to develop software or hardware to accomplish the task, GAO said. Currently, GAO said, offshore inspectors carry up to 50 pounds of paper out to oil and gas rigs, record production data by hand and give a paper copy to data entry staff when they come ashore.

Complicating its data collection efforts is a lack of training for inspectors, the GAO found. "Knowledge gaps exist department-wide," GAO said, "but are particularly pressing in some disciplines and in some BLM field offices. Compounding this, according to agency staff, program operations at many BLM locations are being further impeded by high staff turnover rates."

The GAO recommended that the Interior secretary appoint a panel to coordinate the efforts of BLM and MMS to update their training and data collection efforts, specifically developing common hardware and software tools.

GAO further recommended that both BLM and MMS have standardized training for new inspectors and determine what incentives are needed to keep staff members working for the government.

The study was requested by the Republican and Democratic leadership of the Senate Energy and Natural Resources Committee and the House Natural Resources Committee.

--Bill Holland, bill_holland@platts.com