• Good Morning. It’s good to see you all again, and I would like to say how much I appreciate each of you taking the time to join us here today.

• I would like to start by acknowledging some very important people in MMS—employees whose dedication and professionalism have been recently recognized. .

• In our Alaska Region, Albert Barros was named the Alaska Federal Employee of the Year by the Federal Executive Association. Albert is the Community Liaison our Alaska office and was recognized for his efforts in establishing the Internship for Native Student Training and Education Program (INSTEP) between Department of the Interior and the University of Alaska Anchorage.

• This internship program allows Alaska Native college students to gain experience with Federal agencies, with a goal of bringing more Alaska natives into Federal service. INSTEP is beginning its second year. Albert competed against 14 other nominees from agencies throughout Alaska.

• Additionally, the MMS Onshore Model Team received the Outstanding Productivity or Process Improvement Award for 2001 from the Denver Federal Executive Board. The team was selected for its success in testing and implementing new business practices under the reengineered MMS compliance and asset management process (CAMP).

• CAMP uses modern technology and streamlined business practices to collect Federal revenues. The reengineered process will reduce the compliance review time by 50 percent and be more in line with industry and financial institution practices.

• Nominations for this very prestigious award come from all Denver/Boulder metro area Federal agencies, state and local government offices, and all Colorado National Association of Retired Federal Employees Chapters.

• As you all know, President Bush released his National Energy Policy last Thursday. MMS was represented on the DOI task force that helped formulate the NEP, and Walter Cruickshank will comment on the report later today. One item the NEP highlights is the nation’s need for increased supplies of natural gas.

• This Committee’s Natural Gas Subcommittee started working on this issue after the last Policy Committee meeting, and Jerome Selby will be presenting their report later today.

• In your packets you will find the MMS 2001 Facts and Figures book; our Annual Report; and the OCS activities report. Please look over these publications to learn more about the current issues and activities of MMS.

• Another recent publication in your packet is the MMS OCS assessment for 2000. This report estimates that the United States OCS contains undiscovered conventionally recoverable resources of 75 billion barrels of oil and more than 362 trillion cubic feet of natural gas, which amounts to about 50 percent of the nation’s remaining oil and gas reserves.

• OCS oil and natural gas currently represent more than a quarter of the total national domestic production for both resources. Slightly more than 522 million barrels of oil and almost 5 trillion cubic feet of natural gas were produced from the OCS last year.

• As we discussed in our meeting last fall, growth of U.S. demand for natural gas is currently projected to reach as high as 30 trillion cubic feet (Tcf) annually by the year 2015, a 50 percent increase over current levels. If the OCS is expected to maintain the same percentage contribution towards future U.S. gas consumption, annual gas production from Federal waters will have to increase by 7 to 8 Tcf.

• We drafted this assessment as part of our preparation for formulating the next 5-year oil and gas-leasing program for 2002-2007. This is the sixth 5-year program we have prepared since the OCS Lands Act requirement was enacted in 1978. Departmental approval is expected in March of next year.

• With much of our oil and gas reserves located in the Gulf of Mexico, its no surprise that oil production in the Gulf of Mexico rose again to record levels in 2000. About 522 million barrels of oil were produced, more than 5 percent higher than 1999 oil production.

• The rise in oil production occurred solely because of the tremendous increase coming from the deepwater area (greater than 1000 feet). Deepwater oil production grew 20 percent in 2000 as compared to 1999.

• In fact, a new record was set this month in the Gulf. While drilling their Trident project in 9,743 feet of water, Unocal broke the world record for water depth. And month after month the number of rigs drilling in deepwater continues to grow with the latest count numbering 43 – setting another record for the deepwater Gulf.

• Conversely, natural gas production in the Gulf in 2000 continued to drop for the third straight year, declining more than 3 percent since 1999. Shallow water gas production was 7 percent lower in 2000 than in 1999, and has declined nearly 19 percent since 1996. This is precisely why the natural gas incentives we have implemented are so important.

• While we develop the next 5-year program we continue to implement the current one. Our most recent lease sale, Sale 178, in the Central Gulf, was held on March 28 and attracted more than $505 million in high bids from 90 companies.

• While the sale reflects a continued interest in deepwater, there was also high interest shown in shallow water where deep gas deposits and subsalt prospects may be present. About 60 percent more bids were received on shallow water tracts in Sale 178 than in the central Gulf sale held last year.

• We believe this is due to the three incentives we developed to help stimulate oil and natural gas production for this sale.

• We announced our royalty relief program for deepwater leases, which is primarily a crude oil incentive.

• The first natural gas incentive encourages industry to drill for deep gas deposits located in less than 200 meters of water. We will suspend royalty payments for the first 20 billion cubic feet of production from a well drilled below 15,000 feet subsurface.

• The second incentive involves subsalt oil and gas development. We are providing a two-year extension of the five-year lease term when an operator has drilled a first subsalt well and needs additional time to determine the appropriate next drilling target. This will avoid premature expiration of the lease.

• These provisions will also be in place for upcoming Lease Sale 180 in the Western Gulf and part II of Sale 178. Both sales will be help in August in year.

• In our view, these provisions were a major factor in making the March sale a success—notwithstanding the robust natural gas prices of the last 6 to 8 months. We are in the early part of planning for Lease Sale 182, which will include what is commonly known as the Western Gap blocks. This is an area in international waters sandwiched between US and Mexican waters. I think we talked at our last meeting that US Senate ratification of this treaty was imminent. We anticipate the same type of natural gas and deepwater incentives will be used in Sale 182.

• Another Gulf development relates to the Destin Dome unit, which is located about 25 miles offshore Pensacola, Florida. This is currently under litigation, but we hope there will be decision in the near future. There was a recent offer from the Department of Commerce to Florida and Chevron to submit briefs on information added to the consistency appeal record which includes: the MMS "administrative" final Environmental Impact Statement on the Destin Dome 56 project; the Fish and Wildlife Service biological opinion; and the Environmental Protection Agency’s ocean discharge criteria evaluation.

• The briefs are due to the Department of Commerce on June 29th. It is hoped the Department of Commerce will close the consistency appeal record shortly after receipt of the briefs. Once the appeal record is closed, the Department of Commerce has a maximum of 135 days to issue a decision.

• There are two other Gulf issues I’d like to mention: FPSOs and Sale 181.

• We are currently waiting for guidance from the Department about how to proceed with the issue of FPSOs, so there is very little we can tell you other than we continue with our evaluation process.

• Lease Sale 181 is on currently scheduled for December this year and we expect to have a decision by the Secretary in October.

• The major activities in the Pacific Region involve the preparation of an Environmental Impact Statement for several of the 36 undeveloped leases in the Santa Barbara Channel area and Environmental Assessments for planned development activities at the Rocky Point and Cavern Point units.

• Our Pacific OCS Regional Director, Lisle Reed will update you tomorrow on these activities as well as on cooperative plans with the state to develop state tidelands from OCS facilities and the ongoing negotiations to redefine the limits of the Channel Islands Marine Sanctuary.

• John Goll, our Alaska OCS Regional Director, will update you on activities in that region where the key area of OCS activity is the Beaufort Sea. As you might expect, that activity has undergone a great deal of scrutiny from Federal and State agencies and the environmental community

• Recent activities include the upcoming production from Northstar and the draft Environmental Impact Statement for BP Exploration (Alaska) Inc.’s Liberty Development and Production Project. When Northstar begins production—we believe this will occur in 2002--it will be the first OCS production in Alaska.

• Another issue on the horizon is the discussion about possible routes for a natural gas pipeline to bring North Slope natural gas to the lower 48. Industry leaders plan to select a preferred route by the end of 2001.

• Let me wrap up with some odds and ends:

• The National Academy of Sciences book Oil in the Sea, last published in 1985, is currently being updated. Some preliminary data released last fall and shows the volume of oil released into the ocean from OCS activities has decreased significantly since 1985. The final report is slated for completion in late spring or early summer of 2002.

• On the Sand and Gravel front, we recently renewed our cooperative agreement with the Bureau of Economic Geology at the University of Texas. Additionally, we are working with the National Park Service and the Army Corps of Engineers to restore the northern end of the Assateague Island National Seashore this fall with about 1.8 million cubic yards of sand

• You will get the complete details tomorrow in a briefing by the Hard Mineral Subcommittee on the sand and gravel program.

• In April, MMS held our annual industry awards program, where we recognize and honor companies that make a concerted effort to train and motivate their employees to conduct offshore operations in a safe and environmentally responsible manner, and to honor companies whose payment and reporting practices demonstrate a high level of mineral royalty stewardship.

• As you know, MMS is the agency that ensures industry maintains high standards—which is why we recognize those in the industry who meet and exceed those standards. We will continue to enforce high standards even as we work with industry to increase oil and natural gas production.

• We were very pleased to have Secretary Norton attend our industry awards program this year—a first for any Secretary of the Interior. At the ceremony, the Secretary called on industry to "join together and maintain high standards" and "help to aggressively enforce our safety and pollution prevention requirements."

• These are very exciting times at MMS. We are wrapping up a multiyear program to reengineer our revenue management program, and our offshore program is continuing to work hard to help meet the energy needs of the nation.

• We are striving to maintain our high standards and work with industry and other countries that share the same goals. We know we don’t do this alone. Your role as an advisory committee is very important to us and I look forward to the next two days and the excellent exchange of information that is the norm for our meetings.

Thank you.