<DOC>
[105th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:47602.wais]
OVERSIGHT HEARING ON THE PRESIDENT'S FISCAL YEAR 1999 BUDGET REQUEST
FOR AGENCIES
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON ENERGY
AND MINERAL RESOURCES
of the
COMMITTEE ON RESOURCES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
on
THE PRESIDENT'S FISCAL YEAR 1999 BUDGET REQUEST FOR AGENCIES WITHIN THE
DEPARTMENT OF THE INTERIOR: OFFICE OF SURFACE MINING, MINERALS
MANAGEMENT SERVICE, AND THE ENERGY & MINERALS PROGRAMS OF THE BUREAU OF
LAND MANAGEMENT
__________
FEBRUARY 26, 1998, WASHINGTON, DC
__________
Serial No. 105-74
__________
Printed for the use of the Committee on Resources
-----------
U.S. GOVERNMENT PRINTING OFFICE
47-602 cc WASHINGTON : 1998
COMMITTEE ON RESOURCES
DON YOUNG, Alaska, Chairman
W.J. (BILLY) TAUZIN, Louisiana GEORGE MILLER, California
JAMES V. HANSEN, Utah EDWARD J. MARKEY, Massachusetts
JIM SAXTON, New Jersey NICK J. RAHALL II, West Virginia
ELTON GALLEGLY, California BRUCE F. VENTO, Minnesota
JOHN J. DUNCAN, Jr., Tennessee DALE E. KILDEE, Michigan
JOEL HEFLEY, Colorado PETER A. DeFAZIO, Oregon
JOHN T. DOOLITTLE, California ENI F.H. FALEOMAVAEGA, American
WAYNE T. GILCHREST, Maryland Samoa
KEN CALVERT, California NEIL ABERCROMBIE, Hawaii
RICHARD W. POMBO, California SOLOMON P. ORTIZ, Texas
BARBARA CUBIN, Wyoming OWEN B. PICKETT, Virginia
HELEN CHENOWETH, Idaho FRANK PALLONE, Jr., New Jersey
LINDA SMITH, Washington CALVIN M. DOOLEY, California
GEORGE P. RADANOVICH, California CARLOS A. ROMERO-BARCELO, Puerto
WALTER B. JONES, Jr., North Rico
Carolina MAURICE D. HINCHEY, New York
WILLIAM M. (MAC) THORNBERRY, Texas ROBERT A. UNDERWOOD, Guam
JOHN SHADEGG, Arizona SAM FARR, California
JOHN E. ENSIGN, Nevada PATRICK J. KENNEDY, Rhode Island
ROBERT F. SMITH, Oregon ADAM SMITH, Washington
CHRIS CANNON, Utah WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas CHRIS JOHN, Louisiana
JOHN PETERSON, Pennsylvania DONNA CHRISTIAN-GREEN, Virgin
RICK HILL, Montana Islands
BOB SCHAFFER, Colorado RON KIND, Wisconsin
JIM GIBBONS, Nevada LLOYD DOGGETT, Texas
MICHAEL D. CRAPO, Idaho
Lloyd A. Jones, Chief of Staff
Elizabeth Megginson, Chief Counsel
Christine Kennedy, Chief Clerk/Administrator
John Lawrence, Democratic Staff Director
------
Subcommittee on Energy and Mineral Resources
BARBARA CUBIN, Wyoming, Chairman
W.J. (BILLY) TAUZIN, Louisiana CARLOS ROMERO-BARCELO, Puerto Rico
JOHN L. DUNCAN, Jr., Tennessee NICK J. RAHALL II, West Virginia
KEN CALVERT, California SOLOMON P. ORTIZ, Texas
WILLIAM M. (MAC) THORNBERRY, Texas CALVIN M. DOOLEY, California
CHRIS CANNON, Utah CHRIS JOHN, Louisiana
KEVIN BRADY, Texas DONNA CHRISTIAN-GREEN, Virgin
JIM GIBBONS, Nevada Islands
------ ------
Bill Condit, Staff Director
Michael Henry, Professional Staff
Deborah Lanzone, Professional Staff
C O N T E N T S
----------
Page
Hearing held February 26, 1998................................... 1
Statements of Members:
Cubin, Hon. Barbara, a Representative in Congress from the
State of Wyoming........................................... 1
Romero-Barcelo, Hon. Carlos A., a Delegate in Congress from
the State of Peurto Rico, prepared statement of............ 3
Statements of witnesses:
Fry, Tom, Director, Bureau of Land Management, U.S.
Department of the Interior................................. 11
Prepared statement of.................................... 20
Karpan, Kathy, Director, Office of Surface Mining and
Reclamation and Enforcement, U.S. Department of Interior... 7
Prepared statement of.................................... 22
Quarterman, Cynthia, Director, Minerals Management Service,
U.S. Department of the Interior............................ 8
Prepared statement of.................................... 31
Additional material supplied:
OCS Report, MMS98-0013, Gulf of Mexico Outer Continental
Shelf...................................................... 52
OVERSIGHT HEARING ON THE PRESIDENT'S FISCAL YEAR 1999 BUDGET REQUEST
FOR AGENCIES WITHIN THE DEPARTMENT OF THE INTERIOR: OFFICE OF SURFACE
MINING, MINERALS MANAGEMENT SERVICE, AND THE ENERGY & MINERALS PROGRAMS
OF THE BUREAU OF LAND MANAGEMENT
----------
THURSDAY, FEBRUARY 26, 1998
House of Representatives, Subcommittee on Energy
and Mineral Resources, Committee on Resources,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2 p.m., in
room 1334, Longworth House Office Building, Hon. Barbara Cubin
(Chairman of the Subcommittee) presiding.
Members present: Representatives Calvert, Romero-Barcelo,
Rahall, and Christian-Green.
STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WYOMING
Mrs. Cubin. [presiding] The Subcommittee on Mineral
Resources will come to order.
The Subcommittee is meeting today to hear testimony on the
administration's fiscal year 1999 budget request for three
Interior Department agencies within our jurisdiction. These are
the Minerals Management Service, the Bureau of Land
Management's Energy & Minerals programs, and the Office of
Surface Mining, Reclamation & Enforcement. Under rule 4(g) of
the Committee rules, any oral opening statements are limited to
the Chairman and the Ranking Minority Member. I mean like I'm
worried that all these people that are here are going to take--
[Laughter.]--a lot of time. This will allow us to hear from our
witnesses sooner and help members to keep their schedules.
The bureaus before us today serve primarily in a regulatory
role, overseeing environmentally sound exploration of and
development of federally owned mineral rights and ensuring the
revenues therefrom are collected and distributed properly.
Unique among the Subcommittee's purview is the Office of
Surface Mining, which administers the Surface Mining Control
and Reclamation Act of 1997--excuse me, 1977--governing the
manner in which all coal deposits are mined in this country,
public or private, from the standpoint of surface impacts of
strip mining or underground mining.
Today, I am pleased to have before us Ms. Kathy Karpan, of
Rock Springs, Wyoming, who was confirmed by the Senate last
September as the Director of OSM. This is the first opportunity
that Ms. Karpan has had to testify before the Subcommittee,
and, being a fellow cowgirl or cowboy from the ``Cowboy
State,'' I really welcome you. I'm glad you're here, and I
really look forward to working with you. I think we'll have a
long and workable and beneficial relationship. So, welcome.
Ms. Karpan. Thank you.
Mrs. Cubin. You want to tell a little bit more about you?
[Laughter.]
Ms. Karpan. Well, it depends.
Mrs. Cubin. It's nice.
[Laughter.]
Ms. Karpan is the daughter of a Wyoming coal miner, and so
I think it's really appropriate that she should be in this job.
I think that as she--will have some insight into coal mining
that maybe other people wouldn't have, having lived in the
circumstances that surround coal mining most all of her life.
Under her, guidance--oh, by the way, Ms. Karpan has
received praise from all sides of all the issues in the 5
months that she has been here. I have heard compliments on her
management skills and her skills just in general.
Under her guidance, OSM is making good faith efforts to
involve the States, industry, and coal field residents alike in
seeking solutions to issues that have spawned tons of
litigation in the past. And that, in itself, is truly wonderful
and quite remarkable. Thank you, Director Karpan, for these
efforts, and I know that you'll keep up the good work.
Ms. Karpan. Thank you, Madam Chair.
Mrs. Cubin. The Minerals Management Service administers
Federal leases for energy and mineral resources on the outer
continental shelf of the United States, and collects mineral
royalty payments for onshore Federal and Indian leases as well
as offshore. It's an important job collecting $6 billion of
mineral revenues each year, as well as managing booming
development in the Gulf of Mexico, which generates a large
fraction of those moneys for the treasury. Ms. Cynthia
Quarterman--and I just called her Emily because there was a
reporter on the Casper Star Tribune staff that was called Emily
Quarterman, and so excuse me for just calling you Emily. I knew
you were Cynthia.
Ms. Cynthia Quarterman, Director of MMS, will testify today
as to her agency's budget needs.
The Bureau of Land Management Energy and Minerals programs
also fall under our Subcommittee's oversight. The BLM, among
other jobs, administers the laws governing the disposition of
energy and mineral resources from our public domain lands and
reserved Federal mineral estates, including the Mineral Leasing
Act of 1920 and the Mining Law of 1872.
In my State and in much of the West, the BLM manages vast
tracts of public land and the subsurface of split-estates. If
you want to explore for and develop oil, gas, coal, trona, or
uranium or other hard rock minerals, you simply have to deal
with the BLM. It's an agency from which there is no escape. Mr.
Tom Fry, Deputy Director----
[Laughter.]
Mrs. Cubin. I know. That's a good one, isn't it?
Mr. Tom Fry, Deputy Director of BLM, will testify as to his
program's needs for the coming fiscal year.
I welcome both Ms. Quarterman and Mr. Fry, neither of whom
is a Wyoming native to my knowledge, but who, I trust, are
prepared to work with this Subcommittee nonetheless.
Now the Chair will recognize Mr. Rahall for any statement
that he might have.
Ms. Rahall. Thank you, Madam Chair. I do ask unanimous
consent that the Ranking Minority Member, Mr. Romero-Barcelo's
comments be made part of the record.
Mrs. Cubin. Without objection.
[The statement of Mr. Romero-Barcelo follows:]
Statement of Hon. Carlos Romero-Barcelo, a Representative in Congress
from the Territory of Puerto Rico
Madame Chair, I am pleased to join you in welcoming our
three witnesses from the Department of the Interior to discuss
the Administration's requests for fiscal year 1999 funding for
the Bureau of Land Management's energy and minerals program,
the Minerals Management Service, and the Office of Surface
Mining.
President Clinton has proposed a balanced budget for 1999,
3 years earlier than agreed to in last year's Bipartisan Budget
Agreement. Within the framework of a balanced budget, the
Administration has protected the basic operating programs for
the programs for which we have oversight duties. The OSM
request is $277 million; the MMS request is approximately
$222.5 million, and the BLM energy and minerals request is
approximately $72 million, including the Alaska minerals
account.
Underlying these requests are several key policy matters
that this Subcommittee has a duty to consider.
The Outer Continental Shelf oil and gas leasing program
raises a great deal of revenue--on average, about $4 billion
each year--and I note that this program raised $6.2 billion
last year, largely due to increased activity in the Gulf of
Mexico. In fact, MMS is requesting a $7.5 million supplemental
appropriation to accommodate this increased activity which I
believe we should support.
It is worth noting that of the royalties collected, MMS
distributed more than $617 million to 36 states during 1997,
more than in any previous year. This amount is $89 million more
than in 1996, and $144 million more than in 1995. The money
represents the states' cumulative share of revenues collected
for mineral production on Federal lands located within their
borders and from Federal offshore oil and gas tracts adjacent
to their shores.
The MMS request is about $13.9 million above the 1998
enacted level. This request is modest compared to the revenue
return MMS will generate.
As part of its request, BLM proposes permanent extension of
the $100 holding fee currently charged basis individuals who
stake and hold Federal land under the 1872 Mining Law. These
funds are used to offset the costs of running the mining law
program. The authority for the fee is scheduled to expire in
1998. We should support the President's proposal to permanently
extend the $100 holding fee and $25 recordation fee.
As part of its budget request, OSM is requesting an
additional $2 million for its Clean Streams Initiative and
$100,000 for its Western Lands Initiative as part of the
President's Clean Water Initiative. These funds, raised through
fees on coal mining, will be used along with an additional
$168.6 million--with $143.3 million going directly to coalfield
States--to clean up abandoned mine sites. Our colleague,
Congressman Rahall believes additional funds should be made
available for this purpose. I ask unanimous consent that his
letter to Appropriations Subcommittee Chairman Regula be
included in today's hearing record.
All in all, these budgets appear to be reasonable. I look
forward to hearing the testimony of our witnesses.
Mr. Rahall. Thank you.
While I recognize that all of the budgets that are under
consideration during today's hearings are important, I would
like to focus my comments on one particular aspect of today's
hearings.
Like many Americans, I'm growing increasingly concerned
with the failure of our Federal Government to keep the faith
with taxpayers when it comes to the trust funds we've
established on the books of the Treasury. And before I proceed,
I'll be glad to yield to the Ranking Minority Member if he
wishes to make his statement himself.
OK.
What I'm referring to, Madam Chair and my colleagues, is
when people go to the gas pumps and they fill up their
vehicles, when those dials continue to spin in front of us,
we're paying taxes into the Highway Trust Fund. And we expect
that money to be returned in the form of improved bridges and
highways. Yet, today over $24 billion is being held hostage in
the Highway Trust Fund.
And we have a very similar situation when the coal industry
pays a fee on every ton of mined coal into the Abandoned Mine
Reclamation Fund. Coalfield citizens expect that money to be
returned to than in the form of environmental restoration work.
Yet today, there's about $1.5 billion sitting idle here in
Washington in that fund, and it's used by the OMB and
congressional budgeteers to mask the true size our Federal
deficit.
Meanwhile, throughout the coalfields of the United States,
there's an unfunded inventory of over $2.4 billion worth of
high-priority threats to the health, safety, and general
welfare of our coalfield citizens. Annually, we receive about
$266 million from reclamation fee collections. Yet, during the
1990's, appropriations for the AML State Grants program have
averaged only about $140 million a year.
Both Republican and Democratic administrations have failed
to keep faith with the promise that we made in 1977 when we
enacted SMCRA, which established the AML program.
I believe it is incumbent upon us, as Members of Congress,
to rectify this situation. In this regard, I am pleased to note
that the Associated General Contractors of America have joined
with such groups as the United Mine Workers and the Citizens
Coal Council in support of my ``Coal Field Jobs Environmental
Justice and Trust'' campaign. What we are seeking is a minimum
$200 million State AML grant appropriation.
We're doing so because every $1 million spent under this
program creates jobs, jobs, jobs--to the tune of 17 direct
construction jobs, 14 off-site, and 28 ancillary jobs in areas
where unemployment levels often exceed the national average.
We're doing so because of the pressing need for environmental
justice in our coalfields, to address the pressing threats to
the health, safety, and welfare of the citizens caused by
abandoned mine sites.
And we're doing so to restore trust--trust--to the
Abandoned Mine Reclamation Fund so that we can better fulfill
the promise that we made to our coalfield citizens with the
enactment of SMCRA more than 20 years ago.
So, in conclusion, perhaps one day some administration will
see the error of its ways. Perhaps some day, some
administration will conclude that allowing millions of dollars
worth of interest to accrue to unappropriated trust fund
balances is not a physically responsible way of doing business.
Rather, I hope some day, some administration will realize that
spending those moneys for their intended purposes would much
better meet the public good.
The administration, as reflected by its budget
recommendations for AML, has failed to come to this
realization. So, I conclude by saying: set these trust funds
free.
Thank you, Madam Chair.
Mrs. Cubin. Certainly. Mr. Barcelo did you want to give
your remarks orally?
Mr. Romero-Barcelo. Thank you. Thank you, Madam Chair.
And Madam Chair, I am pleased to join you in welcoming our
three witnesses from the Department of the Interior to discuss
the administration's request for the fiscal year 1999 funding
for the Bureau of Land Management Energy and Mineral Program,
and the Minerals Management Service, and the Office of Surface
Mining.
President Clinton has proposed a balanced budget for 1999,
and 3 years earlier than agreed in last year's bipartisan
budget agreement. And within the framework of a balanced
budget, the administration has protected the basic operating
programs for the programs for which we have oversight duties.
And the OSM request is $277 million; the MMS request is
approximately $222.5 million; and the BLM Energy and Mineral
request is approximately $72 million, including the Alaska
minerals account.
Underlying these requests are several--policy--key policy
matters that this Subcommittee has a duty to consider. The
Outer Continental Shelf and Oil and Gas Leasing program raises
a great deal of revenue, on average about $4 billion each year,
and I note that this program raised $6.2 billion last year,
largely due to the increased activity in the Gulf of Mexico. In
fact, the MLS is requesting a $7.5 million supplemental
appropriation to accommodate this increased activity, which I
believe we should support. And it is worth noting that of the
royalties collected, MLS has distributed more than $617 million
to 36 states during 1997, more than in any previous year. The
amount is $89 million more than in 1996 and $144 million more
than in 1995. And the money represents the States' cumulative
share of revenues collected for mineral production on Federal
lands located within their borders and from Federal offshore
oil and gas tracts adjacent to their shores.
The MMS request is about $13.9 million above the 1998
enacted level, and this request is modest compared to the
revenue return MMS schools generate. And as part of this
request, BLM proposes permanent extension of the $100 holding
fee requested currently charged basis individuals who stake and
hold Federal land under the 1872 mining law. And these funds
are used to offset the costs of running the mining law program,
and the authority for the fee is scheduled to expire in 1998.
We should support the President's proposals to permanently
extend the $100 holding fee and the $25 recordation fee. And as
part of its budget request, OSM is requesting an additional $2
million for its clean streams initiative and $100,000 for its
western land initiative, as part of the President's clean water
initiative.
These funds, raised through fees on coal mining, will be
used along with an additional $168.6 million, with $143.3
million going directly to coal fields States to clean up
abandoned mine sites. And our colleague, Congressman Rahall,
believes additional funds should be made available for this
purpose. And I ask unanimous consent that this letter to
Appropriations Subcommittee Chairman Regula be included in
today's hearing record. And I point out that these budgets
appear to be reasonable, and I look forward to hearing the
testimony of our witnesses.
Thank you, Madam Chair. I would like to submit for the
record.
Mrs. Cubin. Thank you, Mr. Barcelo.
Now, I would ask, before you begin your testimony--that--
ask the witnesses to stand and raise your right hand to be
sworn. We do this routinely on this Subcommittee; it is
absolutely nothing personal.
[Witnesses sworn.]
Mrs. Cubin. Thank you.
Welcome to the hearing, Mrs. Green. Did you have an opening
statement or would you like submit something for the record. Or
whatever you'd like----
Ms. Christian-Green. I do have a brief opening statement.
Mrs. Cubin. Go right ahead.
Ms. Christian-Green. Thank you, Madam Chairman, and good
afternoon. Welcome to the panelists and my colleagues on the
Subcommittee. I am pleased to be here at this the first meeting
of the Subcommittee for 1998--and--to discuss the
administration's fiscal year 1999 budget request.
While I am pleased to welcome all the witnesses who are
here today, I am especially pleased to welcome back Ms.
Quarterman, who I believe is making her third appearance before
us. It's good to see you again.
Based on the statements that you have submitted to us, it
appears that there are quite a lot of good things going on at
the various agencies. I notice that the Mineral Management
Services is requesting $14 million more than was appropriated
last year, and the Office of Surface Mining is asking for a
$3.9 million increase. These, I might add, are modest increases
when compared to the level of revenue that all or your agencies
generate for the Federal Government. In fact, I almost wished
that, when I read that most of the money appropriated to us is
passed to the States and tribes in the form of grants, if we
had a few mines in my district in the Virgin Islands--
[Laughter.]--and go home and look for some.
I am also pleased to see, though, that even as the
President was able to submit a balanced budget to Congress this
year, the funding levels for your various important programs
were protected. And so, I look forward to hearing your
testimony today and working with you to ensure that you are
given the resources that you need to complete your various
missions.
Thanks. Thank you, Madam Chair.
Mrs. Cubin. Thank you.
Let me remind the witnesses that, under our Committee
rules--I think in the letter it said we would give you 10
minutes for your testimony, and so we'll ask you to stick to
that if you can. And so the Chair now recognizes Ms. Karpan.
STATEMENT OF KATHY KARPAN, DIRECTOR, OFFICE OF SURFACE MINING
AND RECLAMATION AND ENFORCEMENT, U.S. DEPARTMENT OF INTERIOR
Ms. Karpan. Thank you very much, Chairman Cubin.
I'll try not to even consume half that in the interest of
attracting some questions. As Yogi Berra used to say, ``this is
deja vu all over again,'' since in a former life for both of us
I, from time to time, worked with then State representative
Cubin, when I was Secretary of State in Wyoming. And I enjoyed
that working relationship, and I think some very good laws came
out of it. And I have respected and admired you, and I'm
delighted that we can be working together. And I thank you for
the nice reception you've given me and the kind comments you've
passed along, and in being generous in not passing along those
that might not be kind.
Yes, I am the daughter of a coal miner. In fact, the--
minority--Ranking Minority Member might be interested to know
that my grandparents emigrated to this country from what was
then the Austro-Hungarian Empire and came here to mine coal--
both my grandfathers: one to Iowa and one to Wyoming. And my
father moved from Iowa to Wyoming in 1938 to work in the old
Dale Clark mine, which was a huge mine for the Union Pacific.
And I, in fact, grew up in a neighborhood that was called No.
4, for No. 4 mine of the Union Pacific. And it was a
neighborhood that was filled with immigrants and filled with
hard work and high hopes. And when people turned 40, the women
all started wearing clothes that were black. And when their
hair got gray, the men and women alike, we all thought spoke a
different language because, in our neighborhood, none of the
older people spoke English. So, I grew up in a community where
coal meant so much, and I've appreciated ever since then the
tremendous contribution that industry makes to our national
security and to our economy.
But I also grew up in a community that has struggled with
the subsidence problem for 20 years. And it was my good fortune
for then-Congressman Teno Roncaglio, one of your distinguished
predecessors, Madam Chairman, and worked 6 years in this
building, including a few years while he was struggling with
the language in SMCRA. I wasn't here at the time it was passed,
but I recall the circumstances that led to its enactment. And,
as irony would have it, it was 26 years ago today that the
Buffalo Creek disaster destroyed the lives of 125 people and
helped provide the impetus for the enactment of the law.
By coincidence, too, I just missed being sworn in on the
20th anniversary of SMCRA. I was sworn in on August 1, and so I
bring the zeal of someone who's new to the job, and even a
little bit of sentimentality.
I that time, I have traveled to every one of our regions--
visited a lot of field offices. I've been to the coal fields,
met with citizen groups. And while I can appreciate some of the
difficulties our agency went through in the last few years, I
think I can report to the Subcommittee confidently that this is
a stronger and better agency today. We are on a very stable
course now. As a member observed, we are only seeking under a
$4 million increase, so we are staying at a fairly constant
level. And we're working to improve every area of our work,
noting in particular, Madam Chair, the relationship with the
States. I think I bring to this position, as a former elected
State official, a particular sensitivity to the importance of
our working hand in hand with the regulatory authorities who
have primacy under the statute.
So, I thank you for this opportunity. I believe our budget
is pretty straightforward, but I know that we have many
activities we engage in that might interest you, so I would
welcome your questions and comments. And if I can't answer
them, we'll be sure to provide a written answer. I would ask
that the letter that I submitted be included as part of the
record.
And with that, I would thank the Chair.
[The prepared statement of Ms. Karpan may be found at end
of hearing.]
Mrs. Cubin. Thank you for your testimony. The Chair now
recognizes Ms. Quarterman.
STATEMENT OF CYNTHIA QUARTERMAN, DIRECTOR, MINERALS MANAGEMENT
SERVICE, U.S. DEPARTMENT OF THE INTERIOR
Ms. Quarterman. Madam Chairwoman and members of the
Subcommittee, I appreciate the opportunity to come to speak
with you today and discuss the Minerals Management Service
fiscal year 1999 budget request. I'll limit my opening remarks
to an overview of our budget request. However, my written
testimony provides substantially more detail on our activities
and the reasons we are asking for this request.
As you have no doubt heard me say before, MMS is an agency
that's constantly changing and evolving, due, in part, to many
external forces, but also due to our desire to do our job
better. I believe that we have made significant strides, and my
testimony before this Subcommittee over the years has
highlighted our progress on many fronts. However, there are
still substantial challenges that we must meet if we are to
continue to successfully accomplish our mission.
Our budget requests for fiscal year 1999 reflects that
fact. For example, in our Offshore Minerals Management program
we are addressing a range of issues associated with the huge
resurgence in oil and gas interest in the Gulf of Mexico,
particularly the deep water gulf, including critical
technological, safety, and environmental issues. We are
continuing to focus our efforts on appropriately managing oil
and gas activities offshore California and Alaska. We are also
attempting to address the dramatic increase in State interest
in using OCS sand and gravel resources and requests from other
nations to assist them on mineral leasing regulation and
revenue collection. And we're looking at ways to streamline the
offshore program.
Within the Royalty Management program, we are reengineering
our current processes and systems to develop the most cost
effective operations, to ensure that revenues are paid on time
and accurately. We are revising our evaluation regulations to
respond flexibly to market conditions while ensuring a fair
return on the public's resources. And we are looking to
alternatives to taking royalties and value and are planning to
conduct pilots to determine the best way to take oil in-kind.
With those remarks as an introduction, I will now highlight
our fiscal year 1999 request.
Overall, in 1999, MMS is asking for $222.5 million to carry
out its responsibilities. That amount is $13.9 million more
than our current fiscal year 1998 enacted level. It is
predicated on receiving a supplemental increase in fiscal year
1998 of $6.7 million, and reflects significant investments in
both the offshore and royalty programs. It is important to note
that our request for appropriated dollars is actually
decreasing. Our fiscal year 1996 request is about $15.1 million
less than our fiscal year 1998 enacted level, and that is due
to programmatic reductions of almost $4 million and an
expansion of our authority to retain a portion of OCS rental
receipts, from $65 million to $94 million. In short, our
proposed fiscal year 1999 increase is more than offset by
raising the cap on these collections.
The investments that we are proposing in fiscal year 1999
will be directed to two primary areas. One is supporting
workload increases in the Gulf of Mexico, and the other to
reengineering the Royalty Management program.
I will summarize our planned investments to this point, but
I would like to submit for the record two white papers that we
have developed which detail the rationale for these proposed
increases.
With respect to the offshore program, the administration
recently sent a fiscal year 1998 supplemental budget request to
Congress. In it, we are asking for an additional $6.7 million
to carry out our significantly increased responsibilities in
the deep water Gulf of Mexico. This is the first time that we
have come to the Committee with a proposed supplemental budget
request to handle our ongoing workload. Surging activities in
the Gulf have surpassed even our most bullish predictions at
the time we formulated our fiscal year 1998 budget request, and
now they threaten our ability to perform our regulatory
responsibilities. Without the staff and resources to support
and oversee increased activity, the benefits of more
domestically produced energy resources, royalty revenues, and
employment opportunities--may be--may not be realized.
I just want to illustrate for you some of the things that
have happened in the past year in the Gulf of Mexico.
In 1996 and 1997, we had four record Gulf of Mexico sales
in a row. Bonuses totaled $2.4 billion. That's three times more
than we received in the previous 4 years. In less than 3 years,
existing leases have increased from 5,000 to over 7,600. Almost
half of those are in greater than a thousand feet of water.
This past year, for the first time, the majority of tracts that
we leased were in more than 2,400 feet of water. Last year, we
received a record 11 deep water discoveries--were announced.
And this year, we expect a record nine projects in deep water
to go online. Last year, there were four deep water world
records set in the Gulf of Mexico.
In 1997, the Gulf Regional office received 849 plans to
process. That's a 95 percent increase from the past 4 years. I
could go on and on.
This increased production is estimated to bring in an
additional $700 million on royalties to the treasury. These
statistics underscore why our workload has increased so quickly
and dramatically and why we critically need the additional
moneys. If we cannot continue to perform our responsibilities
in a timely manner, then at the very least the Federal
Government will not receive the significant revenues that have
been generated from OCS activity in a timely manner; and
industry will incur expensive downtime. It's also very critical
that we ensure that industry maintains an excellent safety and
environmental record. A serious accident in the Gulf of Mexico
would undermine the public's confidence in the entire program
and jeopardize all of these benefits.
I firmly believe that the $6.7 million we are requesting in
supplemental funding will be an excellent investment in the
nation's energy and economic future.
Now as the to Royalty Management program: MMS's top
priority in the new millennium is to reengineer its royalty
management program. We are requesting $5 million to begin this
effort. The first question, you may ask, is, ``in particularly
in these tight budget times, why is this initiative
necessary.'' The answer is straightforward.
First, the current software required to support the myriad
Royalty Management program functions is based on programs that
are over 15 years old, and had exceeded their--life
acceptance--life cycle standard. These systems, if not
upgraded, present a major risk for MMS and its customers.
Second, implementing the Royalty Simplification and
Fairness Act has been particularly difficult for us. State
delegation provisions of the Act will not be able to
effectively be accommodated with our current royalty systems.
Finally, there are numerous other factors that are
influential in pursuing this initiative, including changing
energy markets, meeting customer demands, the recommendations
of our Royalty Policy Committee, best practices that we've
observed in State programs, inspector general reports calling
for greater operational efficiency, and Federal downsizing, to
name only a few.
Given all of these things, we concluded that the status quo
which, as you know, includes significant improvements on the
margin was not acceptable strategy for the future. Our
reengineering effort will rethink our current operations by
focusing on royalty management from a process rather than a
functional perspective. And it's goal is to provide better
service at less cost.
In developing our new core business processes, we have been
guided by two goals. The first is to ensure compliance with all
relevant laws for all leases in the shortest time possible, but
no longer than 3 years from the due date. That's less than half
the current time. And providing revenue recipients with access
to their money in 24 hours rather than 30 days, as is the
current standard. These are lofty goals, but ones that we think
that we can achieve.
While the reengineering effort will require an up front
cost, we expect that the moneys expended will be a good
investment, with a return in no more than 2 years. At the end
of the process, we will have a program that is highly
integrated, process centered, focused on outcomes, less costly,
and viewed by our customers and others as the best in the
business.
Madam Chairwoman, that concludes my opening remarks.
[The prepared statement of Ms. Quarterman may be found at
end of hearing.]
Mrs. Cubin. Thank you very much.
Mr. Fry is recognized.
STATEMENT OF TOM FRY, DIRECTOR, BUREAU OF LAND MANAGEMENT, U.S.
DEPARTMENT OF THE INTERIOR
Mr. Fry. Thank you, Madam Chairman.
It's a pleasure to be here to participate with this
distinguished panel before this Subcommittee.
Madam Chairman, let me say that I have been to Wyoming, and
I've never had to escape from Wyoming, nor from Puerto Rico or
the Virgin Islands or California.
[Laughter.]
Mr. Fry. So, so far, my history is pretty good.
It is a pleasure to be here with you today and talk to you
about some of the programs--the MM, excuse me--the Bureau of
Land Management is involved in.
The President's fiscal budget for fiscal year 1999 has a
request for approximately $1.2 billion for the BLM. This level
of funding includes moneys for operation of the bureau, payment
in lieu of taxes, firefighting activities, and the central
hazardous materials management for the Department of the
Interior.
Of that total budget, approximately $71 million is for
energy and mineral activity, and $33 million is intended as a
one-time appropriation for mining law administration. As this
Committee is undoubtedly aware, the public lands produce about
33 percent of the nation's coal, 10 percent of its natural gas,
and 5 percent of its oil. At the end of 1997, more than 46,000
leases existed on Federal lands covering about 37,000,000
acres. And about 20,000 of those leases were in producing
status, with more than 63,000 producing wells on public land.
This figure is up nearly 30 percent since 1985, while natural
gas production has increased over 60 percent in the last 10
years. We expect in 1998 for royalties from the Federal lands
to exceed $785 million.
There are couple of initiatives that I would just like to
point out to you that are very important to our new director
who was confirmed this year with director Karpan. Pat Shea has
said that he has a couple of things that he was to make sure
happen. One of those things is the implementation of our
Automated Land Management Record System, which has a great deal
of interest in the oil and gas and mineral community, because
it would allow us to link land descriptions, geographic
coordinates, land and mineral ownership and resource data into
a single data base. And he is committed to having the first
phase of that up and running in this year. First, we've gotten
started turning on the system in New Mexico, and we are adding
some other States shortly.
Another initiative of his is the renewed emphasis on
production verification, which we may have an opportunity to
talk about a little later.
Four other initiatives that I would like to briefly bring
the--Committee up to date on--the Subcommittee up to date on.
One is the REGO II efforts, or Reorganization of Government
efforts, which has been an ongoing project between the bureau
and the IOGCC. The States, through the IOGCC, have indicated
that they do not have an interest in delegation authority,
which would be allowed by the Federal Oil and Gas--Management--
Royalty Management Act. However, we have been able to enter
into a number of MOUs with a number of States, and are willing
to continue to work with the IOGCC and other States to share
responsibilities.
Another area that we have been involved in is stripper well
rate reduction. Earlier this month, the BLM announced that it
would extend its royalty rate reduction for Federal stripper
wells which produce an average less than 15 barrels a day on
oil properties. While working closely with industry, we did
similar look at marginal gas wells and found that that would
not be revenue neutral. However, given the recent, dramatic
downturn in oil prices, continuing this royalty rate reduction
for oil will keep many stripper oil wells producing that might
otherwise be shut in. What this means is that under certain
conditions, the royalty rate can be reduced substantially from
the normal 12.5 percent.
Concerning mining law administration--this year's budget
contains a one-time appropriation to support a legislative
proposal to permanently authorize collecting of mining claims,
maintenance and location fees. Since 1993, the BLM has
collected a mining claim maintenance fee of $100 and a claim
location fee of $25 to offset the costs of the mining law
program. The authority to collect these fees expires in
September 1998. This budget proposal would permanently extend
the collection of the mining claim fees and the location fees.
Lastly, let me mention the 3809 regulations, or the Surface
Management Regulations. In 1997, the Secretary directed that
the BLM renew its regulatory efforts that they had begun in
1991 to revise the 3809 regulations. The task force held a
number of well-attended meetings throughout the West and in
Washington, DC, and received over 1,800 written comments. The
task force will continue to consider changes to this rule, and
will continue to consult with States as a part of that
initiative. For example, representatives of this task force
will meet with State and State Governors, representatives next
week, March 3, in Denver, Colorado, to discuss proposed changes
to these rules. I am sure there will be many other things that
the Subcommittee would like to talk about, but I will like to
submit my written remarks for the record.
[The prepared statement of Mr. Fry may be found at end of
hearing.]
Mrs. Cubin. Thank you, Mr. Fry.
I will start the questioning. We'll have 5 minutes. OK.
Then if the members want further questioning, we'll go a second
round.
I'll start my questioning with Mr. Fry. You reported that
the--IOG--or that the States and IOGCC didn't want State
delegation, that that's their position. Now, the way I--as I
understand it, in fact, as I know, they actually want
legislation to be introduced which we're looking at. I think it
isn't perfect, and so that's sort of contradictory. So, would
it be accurate for me to say that they don't want delegation
under the terms that the BLM has presented to them?
Mr. Fry. I think there's two things we're talking about
here, Madam Chairman. We have delegation, which they've
indicated they don't want, which would mean that the primary
responsibility would still be with the Federal Government, and
then we would delegate the responsibility to carry out those
functions to the States. What some of the States seem to be
interested in is not a delegation but a transfer of all of that
authority and responsibility to the States and have the Federal
Government out of the picture altogether. So that is the
distinction that I'm trying to make here, where, under REGO II,
the discussion was centered around a delegation. And we've come
the conclusion that at least, from a blanket standpoint, the
IOGCC has indicated to me that they did not want to have a
delegation; that they were interested in a transfer function.
And I think that is what the bills that have floated around
indicate.
Mrs. Cubin. Thank you. In March, 1995, President Gore
proposed that oil and gas inspection and enforcement on Federal
lands be transferred to the States. Since then, I know the BLM
has had countless meetings with many people. This Subcommittee
has held hearings on the proposal, and I myself, or I find
myself in the unusual position of being on the same side as the
Vice President, working hard, wanting to see that accomplished.
Is BLM committed to transferring certain functions to the
States?
Mr. Fry. Let me assure you that I'm on the same side as the
Vice President, too.
[Laughter.]
Mrs. Cubin. Always a wise place to be in your position.
Mr. Fry. The difficulty--and I have not been a part of
those discussions until recently. But my understanding the
difficulty has been this whole question of delegation that we
spoke about a moment ago. The I and E function that we're
talking about certainly could be delegated, and the BLM is more
than willing to work on delegation of the I and E function. But
there's been a reluctance, from my understanding, on behalf of
the IOGCC and the States to take delegation of the I and E
function. They would rather take over the entire program, which
would take legislation.
Mrs. Cubin. Well, last February, the States and BLM met in
Phoenix to compare their oil and gas regulatory programs. And
at that meeting, it was concluded that both the Federal and the
State Governments share the same goals, although may wish to
accomplish those objectives in different ways. Given those
shared objectives, there was discussion, including by this
Subcommittee, that the BLM and the States should get together
to, at a very minimum, establish uniform standards. Has the BLM
initiated any discussions with the States? Or are you
interested in undertaking that project?
Mr. Fry. Absolutely. I'm not sure whether specific
discussions that you're talking about occurred or did not
occur. I've had discussions about the whole question of uniform
standards. My concern, I think, is the same one that the
Chairman expresses. What I don't like is the situation where
you have two pickup trucks show at an oil well. One has BLM on
the side, and one has the State of Wyoming on the side; and
both are doing the same inspection. And that is not good
government, and that's not what I want to see happen. We have
seen work in a number of situations where we've allowed the
people locally to work together, rather than on some sort of
national cram down program. For people who have worked locally
together we have divided those responsibilities, but we don't
have two pickup trucks showing up because we do have the same
shared interest in protecting not only the land, but the
resources under the land. So, that is certainly, as you
suggest, something that we would like to see and want to
continue to work on.
I'm afraid that this issue is one that has--gotten--become
politicized, and we haven't allowed the people on the ground to
work it out. We have a number of arrangements in States where
it has worked out. We have success stories in California; we
have success stories in Colorado. We have MOUs working in other
States, and I'm hopeful that we can allow our local managers
and local States to work together to try to resolve these
issues locally on things that they can decide make sense for
them locally, rather than us try to decide that in Washington.
Mrs. Cubin. You know I completely agree with you. As a
general rule in all the work that I've done, I find on the
ground the land managers and the decisionmakers who are there
dealing with the resource at the point do a good job. They're
committed to that. But wouldn't you agree with me that there
really is a long way to go; that while there are some
successes, we really good improve on this duplication but not
quite a lot.
Mrs. Fry. We absolutely can improve.
Mrs. Cubin. Thank you.
Ms. Green, would you like to question the panel?
Ms. Christian-Green. No questions. Thanks.
Mrs. Cubin. Mr. Calvert.
Mr. Calvert. Thank you, Madam Chairman.
Ms. Quarterman, I was interested in your testimony. You
know, it just seems like yesterday we were here talking about
deep water, and I remember some of our colleagues, primarily on
the other side, were saying that we were--this was a terrible
thing to do when we were putting through the deep water
legislation to promote drilling in the Gulf and that we were
going to lose all this revenue. Can you explain to us, again,
what is happening in the Gulf?
Ms. Quarterman. It's booming.
[Laughter.]
Mr. Calvert. Have we lost any revenue because of the Deep
Water Royalty Fairness legislation we put together?
Ms. Quarterman. Not that I'm aware of. As you recall, the
President signed it, the administration supported the bill, and
things are going very, very well.
Mr. Calvert. And again, how much additional money has come
in this year partly because of that legislation?
Ms. Quarterman. Well, in the past four sales--and those are
all sales since the Deep Water Royalty Relief Act as passed--
there was about--$2.7 billion--$2.4 billion as compared to the
last four sales before, where there was only $0.7 billion
coming in.
Mr. Calvert. That's quite a difference, isn't it? So you
would say that that legislation was a successful piece of
legislative art, wouldn't you?
Ms. Quarterman I would have to say it's a success.
Mr. Calvert. I think it is. But let's move on to how we're
doing on transferring some of the obligations over the States
as far as collecting royalties. How is that moving along?
Ms. Quarterman. Well, I think that's going along well, as
well. If you'll recall in the Royalty Simplification and
Fairness Act, the Committee put a 1-year timeframe around
coming out with a final rule, which is somewhat unheard of
these days in terms of actually having that happen. It was
signed in August 1996, which means that we had to have a final
rule in August 1997. We got it passed one day early. The final
rule passed. We have not, so far, had a State come forward and
ask for delegation, but we are ready, willing, and able to
comply if they were to ask.
Mr. Calvert. I ran into a colleague of mine from one of the
larger oil-producing states here in the lower 48, and he
mentioned to me, and I'm going to follow through on this, that
his State has asked and that they have been going through some
difficult periods in trying to get this transition together.
You never heard any problems with Oklahoma?
Ms. Quarterman. None whatsoever. I have not heard from
Oklahoma at all.
Mr. Calvert. OK. I'll follow through on that.
Ms. Quarterman. So will I.
Mr. Calvert. OK.
Thank you.
------------
To the best of our knowledge, the State of Oklahoma has not
contacted the Minerals Management Service (MMS) about assuming
royalty functions that can be delegated pursuant to the
``Royalty Simplification and Fairness Act.'' In 1996 and 1997,
when MMS was developing the regulations to implement the
delegation provision, the agency held outreach sessions with
interested states, and Oklahoma was represented at those
meetings. Mr. Mike Smith, Secretary of Energy for the State of
Oklahoma attended a meeting which discussed the framework for
the regulation in December 1996; he also attended a meeting in
April 1997 to discuss the proposed regulation. He indicated
that his plan was to return to the state and determine what
interest, if any, it had in delegated activities. However, he
has never contacted us, nor has MMS heard from other officials
in the state government of Oklahoma.
Mrs. Cubin. Well, I think I'll just start a second round.
Mr. Calvert. Go ahead.
Mrs. Cubin. For director Karpan. My Subcommittee colleague
from West Virginia, Mr. Rahall, and I sparred last Congress
over my legislative effort to amend SMCRA with respect to
Federal enforcement in primacy States. But with respect to the
AML side of your agency, I think that we are and always have
been pretty agreeable in principle at least that insufficient
moneys are being appropriated back out of the trust fund for
State reclamation grants. Your testimony noted that the acreage
and national inventory of abandoned sites and has an estimated
cost for cleanup.
My question is, how committed is OSM and the Department to
making a concerted effort in the fiscal year 2000 budget to
convince OMB and the President to back this program more
aggressively?
Mr. Fry. Well, I think that I can represent to the
Committee that our agency considers the AML program one of the
most successful reclamation programs in the history of the
world, and we are well aware of the outstanding need. In fact,
in some respects, as soon as we reclaim an area, we seem to
find other problem areas. So it's a growing problem in some
respects.
The requests that we have made, of course, have been made
by my predecessors, but I would say they've had to be made
within the context of competing considerations in a rather
discouraging at times fiscal picture. And I think that any
interpretation of what our requests have meant must take that
into account.
I can say to you that I know that there is strong support
around the country for more spending. Congressman Rahall isn't
here to hear me say this, but I know that he has shown
leadership in organizing the groups he's mentioned, and I hear
everywhere across the country of the need for it. The States
have indicated that they can spend the money wisely, that they
have their priority 1 and 2 projects in mind. We think they can
put that money to good use.
I can't make a commitment in advance of how well I can do,
Madam Chairman, but I can tell you, speaking personally, that
to the extent that I can as a Director help our agency make the
case for AML funding, given all these competing considerations,
I will make the case. And I say that as someone who grew up in
Rock Springs, Wyoming, who has benefited from $70 million worth
of investment to take care of those subsidence problems. So
I'll do the best I can.
Mrs. Cubin. I'm sure that you will, and I realize the
constraints of your job, but it is difficult. As last year, I
am most likely this year going to push for additional AML
funds, but it is difficult, when the President's request is
lower, to really get the Appropriations Committee to take us
very seriously on this, and certainly the AML trust fund isn't
the only trust fund that is in the situation that we have here:
social security, highway. It's up to us to work that out, and I
certainly hope that we can. I know we can; I hope we will.
You mentioned, Ms. Karpan, the Clean Streams Initiative as
an example of leveraging AML moneys--this was in your written
testimony--for watershed improvements. And I see the budget
requests statutory authority to fund both clean streams and
western mineland partnership from only the cumulative interest
earned on the AML fund, which I support. We in the West are
always a little wary when the Department of Interior comes to
the western Governors and says, ``We're from the Federal
Government. We've come to help.''
[Laughter.]
Mrs. Cubin. But I trust the $100,000 you seek for the
beginning of the latter initiative is for joint study purposes
with the WGA; is that correct?
Ms. Karpan. Yes, Madam Chair. In fact, really this is not
so much at our own instance as a response to two different
initiatives. One is from the western Governors and NMA. We're
aware of their discussions about reclamation needs, and then we
have our own Federal Government team with western Governors
talking about the Federal land initiative. As part of that,
there's been the identification of some private in-holdings in
Federal lands that might require reclamation.
What I would like to say--and I probably as keenly as
anyone at this table understand the view in the West about the
Federal Government's role. So I'd hasten to make a couple of
points. The first is, our interest is in reclamation, and not
regulation--reclamation, not regulation; that we see this
$100,000 as serving several functions. One, it's an expression
of support and encouragement to the western Governors to deal
with the problem. We feel that we have some benefits of
experience that we might be able to share with them. We have
technical assistance, our TIPS program; for example, that
wonderful software we could make available to them for free.
What we basically see is this being money to supplement a
project that would either be ongoing or is contemplated so that
someone else is driving that decision. Like clean streams,
we're just helping make it happen.
Mrs. Cubin. Thank you.
Mr. Calvert, did you have any followup questions?
Mr. Calvert. I have no further questions.
Mrs. Cubin. Then it's my turn again.
[Laughter.]
Mrs. Cubin. These questions are for Ms. Quarterman. And you
are aware of my strong feelings in finding ways to efficiently
collect royalties that are owed. Again, I want to make it clear
that I think we should collect every cent that is legitimately
owed, and that the producers should pay every cent that is
legitimately owed to the Federal treasury and obviously the
States, too.
I promise that we are going to have the opportunity to
discuss legislative language for royalty in-kind, but since you
brought that up--and we're not going to get into it in detail
today at all, but there were a couple of things that I wanted
to touch on, based on the budget request.
Your request for $5 million to increase--or the $5 million
increase for the royalty management program's computer system,
it seems to me to beg the question of what sort of
modernization needs will be appropriate next year or just a few
years down the road, since we--well, even say, for example, the
proposed crude oil valuation rule were to become final rule
later this year. Wouldn't you need to modify that system to
track the different benchmarks, and so on? I mean, won't there
have to be a lot of changes in that, which will be expensive?
Ms. Quarterman. The re-engineering that we're performing in
the royalty management program is more than just a computer
system. We have, in terms of hardware, up-to-date hardware for
our computer system. What we're speaking about now is the
software program and the processes upon which the software
relies. We have over the past year begun to, and have met, all
of the processes within the royalty management program in terms
of how things work and/or don't work, and have begun to
completely reform that.
One of the considerations that we have is the ability not
only to take royalty in-value, but to take it in-kind. We have
to have a system that is able to adapt to any sort of valuation
system going forward. All of those things are part of our
equation in the new system and process that we will put in
place. It is not merely something that can't be changed.
Mrs. Cubin. Does the fiscal year 1999 request factor the
royalty in-value regulation changes that might occur without
knowing how the comments might affect the proposal?
Ms. Quarterman. Yes. Again, we're talking about really the
process of the way we collect royalties, not so much the value.
The re-engineering will be able to----
Mrs. Cubin. Would you tell me what you mean by process----
Ms. Quarterman. OK.
Mrs. Cubin. [continuing] because I'm sure you're being
clear. I'm just not catching it exactly.
Ms. Quarterman. Over the past 15 years, the royalty
management program has been really created and recreated due to
changes in the marketplace, customer demands. We started out
with a software system about 16 years ago that was put into
place that is really a functional-based system. It's almost
like an assembly line, if you can imagine one transaction
coming in on lease and one person working with it, then handing
it off to the next person, and a series of people along the
lines; maybe five or six different parts of the organization
deal with the same transaction.
The re-engineer process that we're looking at now will be
one that is completely process-centered. So you would look at a
piece of land, a particular lease, and follow that transaction;
the same group of people would follow the transaction from
beginning to end, so that you won't have continual contacts
along the way. That requires us to change the way our software
runs. Right now we have a large mainframe that's operated by
contractors that requires 24-hour people on duty. In order to
change one little thing, it takes a week to do in terms of
changing the software. Because it's so cumbersome, we have
probably 100 different, what we call, workarounds or PC
software programs that feed back into the main program. It's,
frankly, given the amount of money that we collect, not as good
as it should be. That's why we see a need for reform. Even if
we would go into a royalty in-kind program, we would still have
a number of things remaining on the table that would have to be
collected--all Indian tribes, all solid minerals, any remaining
oil and gas that were collected in value.
Mrs. Cubin. That clarifies it very well. Thank you.
I know my time's up, but I'm sure that Mr. Calvert doesn't
mind if I just take a couple more minutes.
MMS currently receives considerable royalties in-kind as
part of a special setaside program for eligible small refiners.
In 1996, some 38 percent of total oil royalties were paid in
kind. It seems that MMS already has considerable experience
with collecting royalties in-kind. So I wonder, while I
appreciate the offer of the royalty in-kind pilot program for
Wyoming, I wonder why our additional pilot programs need it,
considering the extent of experience that you already have in
that?
Ms. Quarterman. The royalty in-kind program that is
currently operating is entirely different from the kind of
royalty in-kind program that we are considering. The small
refiner royalty in-kind program, as we call it, is meant to
assist those small, independent refiners who cannot receive oil
from another place. The Federal Government in legislation has
determined that it's appropriate to--it's a governmental
benefit to help those folks have oil available to them at
reasonable prices. That is entirely different from the royalty
in-kind pilots that we are considering, in which case the
Federal Government would try to market the oil or gas itself to
receive the same amount in value.
Mrs. Cubin. Could I interrupt for just one second? How is
it different, No. 1, and then, No. 2, while the Federal
Government certainly could be the marketer, I think under all
the proposals that I've seen the government would or the
Secretary would be able to identify or hire other professional
marketers. So would you respond to that?
Ms. Quarterman. When I say ``market it,'' I was speaking
more broadly in terms of not only the government perhaps itself
marketing, but hiring someone to market on their behalf.
Mrs. Cubin. OK, could you just, then, tell me, as
specifically as you can, how the royalty in-kind program that
you have, that we have with the small refiners, is so different
or is different from what is being proposed? Because, as I
said, 38 percent in, I think, 1996, 38 percent of the royalties
paid were from royalty in-kind. So what are the specific
differences?
Ms. Quarterman. Well, perhaps if I give you a comparison of
our 1995 pilot, we took 8 percent of the Federal Government's
share of gas in-kind offshore. In that pilot, we hired a
marketer or a series of marketers, in that we accepted gas in-
kind, and then we put it up for bid for marketers to purchase
it. They, at that point, gave us plus or minus an index price
for the gas. In the proposed pilots that we have planned for
the next few years, in the gas marketing example, we would
propose to hire a marketer who would work on our own behalf,
and perhaps instead of just selling at the lease, could take
the gas and market it upstream to a power company or something
like that. In the royalty in-king oil program, as I said, the
oil producers accept the oil and use it in their own refinery.
Mrs. Cubin. And I do understand the program. I really don't
understand--I really can't see that there's all that much
difference, but, yes, we'll do that another day.
Ms. Quarterman. OK.
[Laughter.]
Mrs. Cubin. I do have other questions, but I'm not going to
hold everyone here to do that. So I would ask, if we submit our
questions in writing to you, if you would respond to them in a
reasonable amount of time; we would appreciate that very much.
[The information referred to may be found at end of
hearing.]
Mrs. Cubin. And I would like to thank the witnesses for
being here. It truly is beneficial and helps with
understanding.
Please feel free any time to contact Committee staff, me,
my staff, whatever.
Thank you very much for being here today.
[Whereupon, at 3:03 p.m., the Subcommittee adjourned
subject to the call of the Chair.]
[Additional material submitted for the record follows.]
Statement of Tom Fry, Deputy Director, Bureau of Land Management
Madam Chairman, members the Subcommittee, I appreciate the
opportunity to appear before you today to provide an overview
of the Bureau of Land Management's (BLM's) budget priorities
for its minerals programs. Our projects and initiatives reflect
our commitment to a collaborative approach to managing our
public lands.
Budget Overview
The President's fiscal year 1999 budget proposes
$1,233,659,000 for the BLM. This level of funding includes
moneys for operation of the Bureau, Payments in Lieu of Taxes
(PILT), and firefighting activities and central hazardous
materials management for the entire Department. Of the
$660,310,000 requested for management of lands and resources,
$71,646,000 is for energy and minerals activities and
$33,272,000 is intended as a one-time appropriation for mining
law administration. Of the amount requested for energy and
minerals, $53,470,000 is for oil and gas management, $7,151,000
is for coal management, $8,943,000 is for management of other
minerals such as geothermal, potassium, phosphate, and sodium,
sand, gravel, and building stone, and $2,082,000 is for Alaska
minerals.
Energy and mineral resources generate the highest
commercial economic production values of uses of the public
lands. Of the total $1.2 billion in revenues generated on BLM
lands in 1997, energy and mineral development on public lands
accounted for nearly $1 billion through royalties, rents,
bonuses, sales and fees.
The public lands produce 33 percent of the Nation's coal,
10 percent of its natural gas, and 5 percent of its oil. At the
end of 1997, more than 46,000 leases existed on Federal lands
covering about 37 million acres. About 20,000 of those leases
were in producing status with more than 63,000 producing wells
on public lands. This figure is up nearly 30 percent since
1985, while natural gas production has increased by 60 percent
over the past 10 years. The BLM is also responsible for
operational management oversight of about 3,750 producing
leases on Indian lands, supervision of drilling on non-
producing leases, and advising BIA, Indian tribes, and
allottees on leasing matters.
The onshore oil and gas program is one of the major mineral
leasing programs in the Department of the Interior. It
generates receipts from filing fees, bonuses, rents, and
royalty payments. In 1998, we expect such royalties to exceed
$785,000,000. All receipts, except for filing fees, are shared
with the State in which the leasing occurs. These oil and gas
revenues play an important role in the economies of many
western States and communities.
Our leasing program will continue to be focused in those
areas where the prospect for discovery is highest. A
significant aspect of the BLM's strategic plan is to provide
opportunities for commercial production from public lands,
especially energy and minerals, in an environmentally sound and
responsible manner. The BLM will continue to focus on programs
and activities that best serve the public interest while
maintaining a balanced approach to the management of the public
lands. These areas include:
Renewed Emphasis on Production Verification
Production verification is one of the BLM's top goals. As a
part of this effort, we will rely on our existing records to
improve our verification of production for fluid and solid
minerals. This will not be an intrusive initiative, but an
internal housekeeping matter and will increase the return of
revenues to the Treasury through additional emphasis on record
and field inspections. As with our coal verification program,
we will work to improve our other minerals programs to better
serve industry and meet our responsibility to the taxpayer.
Automated Land and Mineral Resources System (ALMRS)
Completing Release 1 of our ALMRS deployment remains one of
the highest priorities for the BLM. ALMRS will link legal land
descriptions, geographic coordinates, land and mineral
ownership, and resource data in a single data base to provide a
complete picture of current use of the public lands and
availability for future use. We anticipate a direct benefit to
our lessees and permittees because it will provide mineral and
realty operators with immediate access to information that
affects their businesses.
Status of REGO II I&E
As I am sure you are aware, the Federal Oil and Gas Royalty
Management Act (FOGRMA) provides that states may submit
proposals at any time to assume responsibility for Federal
inspection and enforcement (I & E) activities. We will continue
to work with States that may have an interest in taking on
these functions in the future. The REGO II initiative helped
the BLM to identify ways we could work with the States more
closely to achieve greater efficiency and realize cost savings.
For example, we have established MOUs under the Federal Land
Policy and Management Act with states such as California and
Colorado to perform various oil and gas functions. Further, the
BLM continues to hold discussions with the Interstate Oil and
Gas Compact Commission to determine the feasibility of any
further transfer efforts.
Ecoroyalty Relief
Under the Green River Basin Advisory Committee's (GRBAC's)
ecoroyalty relief proposal, the nominal 12.5 percent royalty
would be reduced by 1-2 percent in return for extra efforts by
operators to improve the environment. Department of the
Interior Solicitor John Leshy has testified before this
Subcommittee that the Secretary of the Interior has no
authority under current law to grant ecoroyalty relief under
the circumstances proposed by the GRBAC. However, the BLM is
pursuing other options to provide incentives for operators to
ensure their production activities are as environmentally
responsible as possible. We will continue our work with
industry and other interested parties to explore alternatives
which will benefit operators as well as the Federal Government.
Stripper Well Royalty Rate Reduction
Earlier this month, the BLM announced that it would extend
its royalty rate reduction for Federal ``stripper'' (wells
which produce an average of less than 15 barrels of oil per
day) oil properties.
The royalty rate reduction has proven itself since 1992,
when the agency put the rule into effect. Given the recent
dramatic downturn in oil prices, continuing this royalty rate
reduction will keep many stripper oil wells producing that
might otherwise be shut in. The rule establishes the conditions
under which an operator or owner of Federal stripper oil
property can obtain a reduction from the normal royalty rate of
12.5 percent. The regulations provide an incentive for
operators to maintain or restart production of marginal or
uneconomic wells. The goal is to increase recoverable reserves.
After conducting a review of the rule's impact the Department
and the BLM have concluded that the lower royalty rate for
stripper properties is working as intended.
Mining Law Administration
This year's budget includes a one-time appropriation to
support a legislative proposal to permanently authorize
collection of mining claim maintenance and location fees. Since
1993, the BLM has collected a mining claim maintenance fee of
$100 and a claim location fee of $25 to offset the cost of the
mining law program. Authority to collect these fees expires in
September, 1998. The budget proposal would permanently extend
the collection of the mining claim maintenance and location
fees and will periodically adjust these fees for inflation. In
1999, collection of the mining claim maintenance fee is set at
$116 and the location fee at $29. The fees would then be
available to the BLM in 2000 to manage the mining law program.
As previously mentioned, this requires a one-time appropriation
of $33,272,000 to manage the program in 1999.
3809 Regulations
In January 1997, the Secretary directed the BLM to renew a
regulatory effort begun in 1991 to revise the Surface
Management regulations (43 CFR 3809) for 1872 Mining Law
activities on public lands. The task force held a number of
well-attended scoping meetings throughout the West and in
Washington, DC. In addition, BLM received over 1,800 written
comments. The BLM has consulted with the state governments on
this matter and, in accordance with the 1998 Interior
Appropriations Act, the proposed rules will be published after
November 15, 1998. The 3809 Task Force is continuing to
consider changes to the rule and will continue to consult with
the States as part of that initiative. For example,
representatives of the Task Force will meet with State and
Governors' representatives on March 3, 1998, in Denver,
Colorado to discuss proposed changes to the rules.
We will continue to work with members of the Subcommittee,
the public, and industry to improve the BLM's minerals
programs. This concludes my statement and I am pleased to
respond to any questions you may have.
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