This blog entry is a follow up to the previous post discussing the Government Accountability Office (“GAO”) report presented to Congress on Bureau of Land Management’s (“BLM”) management of oil and gas development.  The first post discussed review of BLM’s permitting program.  This post discusses GAO’s review of BLM’s environmental inspections of oil and gas operations.

In addition to reviewing the BLM’s oil and gas permitting workload, the GAO report analyzed actions BLM took to mitigate the environmental impacts of federal oil and gas development.  Based on its review, the GAO recommends that BLM should take steps to improve its ability to identify wells that are a high priority for inspection based upon the risk to the environment.

BLM is responsible for mitigating the environmental impacts of oil and gas development on federal land.  This responsibility includes oil and gas well inspection, a task that appears to have been a challenge for BLM to fulfill.  Recently, however, BLM took efforts to increase the number of annual inspections it performs, resulting in a 63% rise in inspections over the last 5 years: from 10,941 wells in fiscal year 2007 to 17,866 wells in fiscal year 2012.  BLM achieved this by hiring more personnel and devoting more work hours to environmental inspections.  Despite this effort, the GAO revealed that 41% of the wells managed by BLM (24,840 out of 60,330) have never been inspected. The environmental impacts of these wells are, therefore, unknown.  The GAO explains this deficiency by noting BLM’s lack of any mechanism to identify which wells pose the greatest environmental risk and its failure to properly collect and record in its central database the result of prior well inspections and enforcement actions.

The GAO report faults BLM for not establishing a prioritization process that would ensure that the wells posing the greatest risk are flagged for inspection.  Currently, BLM prioritizes inspections based on “the knowledge and memory” of BLM staff because BLM’s central database, the Automated Fluid Minerals Support System, is not capable of flagging individual wells as high priority for environmental concerns.  BLM staff also make inspection decisions based on convenience, e.g., selecting wells that are close together, rather than on the environmental risk factors.

When wells are inspected, the information collected during the inspection process is not always recorded in the central database.  The GAO noted that in certain years, such as fiscal years 2005 and 2006, no information regarding environmental inspections was entered into the database.  The database also does not contain records of verbal warnings given during the inspection process, despite a requirement to do so in the BLM Handbook.  Additionally, the database is set up so that when ownership of a well changes, some of the prior inspection data is deleted.  BLM even noted in an internal memorandum that some wells had never been inspected despite being operational for 10 to 12 years.

In the report, BLM acknowledged that it continues to face challenges with its inspection process, but indicated that it intends to change its approach for prioritizing environmental inspections by 2015.  BLM states that it will implement a new, risk-based strategy for its oil and gas inspection and enforcement program, in which risk factors are assigned to each type of inspection BLM performs.  For example, one risk factor would be the date of the last inspection; priority would be given to wells that have not been inspected in the last 5 years.  Additionally, BLM will implement new documentation procedures to improve its record keeping and data collection efforts.

The GAO report highlights the inconsistencies in BLM’s environmental inspection efforts and may serve to change how BLM selects wells for inspection and documents the inspection process.  If BLM can meaningfully improve this process, it will likely result in more consistent and predictable regulation of oil and gas development on federal lands.

In addition, it is reasonable to expect that the scrutiny from the GAO report will lead to a more aggressive inspection and enforcement strategy for BLM, particularly in future years.  As a result, we believe it would be prudent for operators and service providers on federal lands to review their environmental practices to ensure that they are consistent with applicable legal requirements.  In our experience, third party auditing programs, implemented under the attorney-client privilege, can be an excellent approach to identifying and correcting environmental deficiencies prior to discovery by the BLM.  If you have any questions on how such a program could work, please do not hesitate to contact the author of this post or the national contacts of Baker Hostetler’s Shale Practice, W. Ray Whitman or Martin T. Booher.