Reported by Staff

The Bureau of Land Management has taken several positive steps toward improved protection of its oil and gas leasing from fraudulent bids but must do more, the Interior Department’s chief investigator concluded in a recent report.

Click here to review the full report.

The touchstone event for the report was an auction last year involving Utah leaes. An environmental activist was able to bid on and win $1.8 million in oil and gas lease sales that he had no intention to actually purchase. But he got away with the move because BLM did not have adequate deterrence for bad-faith bidders or other “bid-walkers,” the department’s inspector general said in a report released last week.

The agency did not have a policy requiring verification of lease bidders’ identities, nor did it track bid-walkers that the BLM handbook says must be banned from auctions if they have defaulted on leases three times in a single state, the report says. In addition, the report found that BLM state offices were also inconsistent in their efforts to collect money for unpaid parcels on the day of the sale.

These shortcomings with the BLM’s oil and gas lease sale process became a major issue be in Salt Lake City last year when University of Utah student Tim DeChristopher fraudulently bid on and won 14 of 77 parcels sold at the auction in a protest of leasing near national parks and other protected areas.

Interior Secretary Ken Salazar canceled the lease sale in February, but DeChristopher was still indicted by a federal grand jury in April for making false bids. His trial is expected to begin sometime this fall.

Since that ill-fated auction, BLM has issued and started implementing a memorandum for improving security at lease sales, including requiring the central tracking of bid-walkers and mandating that potential bidders’ identities to be verified prior to auctions.

Equally important, the memorandum also clarified that a winning bid creates a debt to the government for the amount due on the day of the sale, a change the inspector general says would strengthen not only the commitment of bidders but also the penalty for defaulting on a won bid.

Department officials are confident the proposed measures will reduce the risk of bad-faith bidders from interfering with auctions, still, the inspector general recommends several additional steps, including establishing a nationwide ban on persons or companies that have defaulted on repeated parcels from participating in BLM auctions and exploring whether alternative auction methods are preferable to the existing oral auctions.

“Through our evaluation, we concluded that other auction methods such as sealed bids and Internet-based, would provide BLM some benefits such as increased revenues or streamlined processes,” the report says. It adds that such a change would require Congress to revise the Mineral Leasing Act of 1920 to eliminate the mandate for quarterly oral auctions.

The report says the outcome of DeChristopher’s trial could affect participation of bad-faith bidders during auctions. A conviction and subsequent penalties would be deterrents, it says, while an acquittal might encourage similar incidents and force BLM to further reassess its leasing practices.

Kathleen Sgamma, director of government affairs for the Independent Petroleum Association of Mountain States, told Greenwire in an email she believes BLM’s actions will be sufficient to protect auctions against bad-faith bidders but said the group could not support a sealed-bid system because it would make the auction process less open.

“IPAMS supports a public, competitive bidding process that is not overly burdensome for the small, independent producers who drill the vast majority of the natural gas wells in the Intermountain West,” Sgamma said.