On December 15, the Government Accountability Office (GAO) released a new report, "Oil and Gas Royalties: Congress and Interior Should Strengthen Safeguards to Better Ensure Accurate Payments," calling for additional time to verify adjustments to royalty payments from oil and gas development and warning that current statutory deadlines may undermine effective oversight.  

Royalty calculations can be complex, and after-the-fact adjustments are common. GAO reported that companies submitted $2.7 billion in net royalty adjustments in fiscal years 2014 through 2024, decreasing originally reported royalties by 2.8 percent. As part of these adjustments, the Office of Natural Resources Revenue (ONRR) approved $352 million in refunds. The problem: ONRR may not have enough time under current statutory requirements to ensure royalties are accurate, leaving the door open to waste, fraud, and abuse. 

The management of federal oil and gas royalty collection has been on GAO's High Risk List since 2011, in part due to concerns about ensuring timely and accurate royalty reporting and collection. While GAO notes that some progress has been made, additional steps are needed to improve ONRR's royalty determination and collection and reduce long-standing compliance risks. 

The Department of the Interior's ONRR oversees the collection, verification, and disbursement of royalties from federal oil and gas production. Under federal law, companies and ONRR must follow specific time frames for reporting royalty payments and verifying their accuracy. Companies must report production volumes, sales values, and royalty payments monthly. ONRR then has seven years to verify that companies have paid the correct amount of royalties and, if needed, request backpay. Compliance activities include data mining, which examines large sets of company-reported data for common errors; compliance reviews, which provide quicker, more limited checks; and full audits, which involve detailed examinations of companies' royalty payments and reports.  

However, companies can also make adjustments up to six years after their original royalty payment—adjustments that do not reset the seven-year clock for ONRR to verify accuracy. This means that if a company submits royalty adjustments six years after the original payment, ONRR has only one year to ensure they are accurate. This is not enough time. According to ONRR officials, verifying royalty adjustments takes an average of 18 months or longer. Over the last decade, $300 million in royalty adjustments fell into this "high-risk window," involving royalties initially paid four to six years earlier. Furthermore, if a company requests a refund, ONRR is on an even shorter timeline and has just 120 days to approve or deny it before the refund is automatically issued.  

To better ensure accurate royalty collection, GAO recommends Congress shorten the time frame for companies to make adjustments, echoing the same recommendation ONRR made nearly 15 years ago. Even some industry representatives agree, according to GAO. Companies no longer need the same adjustment window they did in 1996, given the shift from paper-based reporting to more efficient electronic systems. 

This is not the first time GAO has criticized ONRR's ability to accurately collect royalty revenue from oil and gas development on federal land. A 2024 report found that ONRR lacks data on royalty violations, interfering with its ability to select companies for audits and estimate the royalty gap—the difference between the payments collected and what should have been collected. GAO also found that declining audit activity and inconsistent data systems further weaken ONRR's ability to target high-risk cases. 

ONRR's compliance program is essential to ensuring taxpayers receive a fair return from the development of federally owned oil and gas resources. As GAO previously reported, "if the agency could improve its royalty collections by even one percent, it could increase royalties collected by tens of millions of dollars per year." Improving oversight of ONRR's royalty collection would help prevent fraud and generate additional revenue for federal and state taxpayers while strengthening confidence in the integrity of the federal royalty system.