Oil and Gas Royalties: Congress and Interior Should Strengthen Safeguards to Better Ensure Accurate Payments

Why This Matters

Royalties on the sale of oil and gas produced on federal lands and waters generated more than $14 billion in revenue in 2024. The Department of the Interior's Office of Natural Resources Revenue (ONRR) oversees these payments by companies.

Companies can revise, or make adjustments to, royalties if they over- or underpaid, or they can request a refund to be reimbursed if they overpaid.

GAO Key Takeaways

Companies' net adjustments decreased their originally reported royalties from about $96 billion to $93 billion, or by 2.8 percent, in fiscal years 2014-2024. Adjustments included $300 million to royalties initially paid 4-6 years prior. ONRR also approved $352 million in refunds. Royalties must be processed within defined time frames:

• Companies can make adjustments up to 6 years after their original payment.
• Concurrently, ONRR has 7 years to verify that royalties were accurately paid. This can take an average of 18 months or much longer, according to ONRR officials.

ONRR may not have enough time under current statutory requirements to ensure royalties are accurate. This is especially true when companies submit adjustments toward the end of the 6-year statutory time frame, which provides ONRR one year to review. ONRR recommended to Congress in 2011 that it shorten the statutory time frame for a company to adjust royalties from 6 to 3 years, but this change was not enacted. Industry representatives noted that companies generally use electronic systems, which has improved efficiency and reduced the need for a longer time to submit adjustments. At present, the opportunity still exists to provide ONRR with additional time to verify adjustments, thereby ensuring that it is safeguarding federal revenues.

Net Royalty Adjustments of Oil and Gas Royalties from Federal Leases, 2014-2024

Note: Adjustments made based on fiscal year of original royalty payment.

How GAO Did This Study

GAO analyzed ONRR data extracts from fiscal years 2014 through 2024, reviewed documentation, assessed data systems and tools, and interviewed ONRR officials and two industry stakeholder organizations.