Remarks of

The Honorable

**Rebecca W. Watson**

**Assistant Secretary, Land and Minerals Management**

Department of the Interior

Rocky Mountain Natural Gas Strategy Conference

and Investment Forum

Denver, Colorado

August 3, 2005

**Introduction**

Thank you. I am very pleased to be here today to talk to you about our
Nation's energy supply and the role for Federal lands in energy
production. It is particularly appropriate to be here in Denver with the
Rocky Mountain Natural Gas Producers just days after Congress passed the
long awaited Energy Bill.

President Bush entered office four-and-a-half years ago and almost
immediately, put together a National Energy Policy. He called on
Congress to adopt legislation to help implement the plan.

Today, the bipartisan Energy bill paves the way for the President's
vision of a brighter and more secure energy future. He will sign the
Energy Bill Monday in New Mexico -- and that sends a strong message of
support for our onshore producers. Development of Rocky Mountain natural
gas is a vital component of our national energy strategy.

I want to focus on the theme of your conference. How can federal lands
-- particularly in the Rocky Mountains -- help meet energy demand? How
has the Bureau of Land Management implemented the National Energy Policy
-- what are our accomplishments and challenges? And what can we do -- as
land managers and operators -- in balancing other demands on our public
lands in a way that fosters a stable environment for investment and
development.

**Record Prices**

But first, a brief background on how we got to where we are today with
record-high prices for natural gas and lots of development activity on
public lands. We made a choice in the 1990s, back when gas prices
hovered below \$2 per mcf, to turn to clean natural gas to help meet our
electricity and environmental demands. As a result, today some 95% of
new power plants are gas-fired, and prices have more than tripled.

The demand has grown and the supply simply has not kept up. You've all
seen the chart in EIA publications and in the natural gas supply study
by the National Petroleum Council -- there is a growing gap between the
supply of this abundant domestic fuel and the domestic, and now
world-wide, demand for natural gas.

As discussed earlier in this conference, China's thirst for raw
commodities is only expected to increase. China is already the world's
biggest consumer of aluminum, steel, copper and coal. It is the second
biggest consumer of oil -- and has accounted for one-third of the
increase in global oil demand since 2000. And there is still only one
car for every 70 people in China -- compared to one car for every two
Americans.

**The Energy Connection**

We've all been reading about China's bid for Unocal and the recent
withdrawal of that bid. But lost in the reports is this simple fact:
China is serious about energy. While Americans are debating the best
color to paint a LNG terminal -- China will have secured a supply and
have a dozen terminals already built. China's government and its rapidly
urbanizing population understand the connection between energy and their
prosperity. They see the connection on the corner of the street -- a
generator belching diesel fumes to keep the shop lights on and computers
running.

Americans need to get serious about energy. But there is a major
disconnect between Americans' enthusiasm for [using]{.underline} energy
-- particularly clean-burning natural gas - and their support for
[developing]{.underline} it. We've lost the energy connection.

Consider this -- since 1970, the size of the average house has increased
55 percent while the size of the American family decreased 13 percent.
Many of these homes are heated with natural gas and are filled with
sophisticated electronics that use even more power -- multiple computers
or home theatres -- power that is increasingly supplied by natural gas.
Our technology-enabled service economy has not reduced energy
dependence, it has increased it.

Americans need to connect the dots. It is not energy producers who are
driving demand for natural gas in this country -- it is American
consumers. It is all of us. And in many instances, it is these same
consumers who are objecting to energy development on public lands.

Americans have forgotten Economics 101: When demand for a commodity
grows, supply has to grow with it -- or prices rise.

Some Americans are learning this hard lesson. The manufacturing sector
of our economy has been particularly hard hit by rising natural gas
prices. Natural gas feedstock industries like the fertilizer and ammonia
makers have closed factories. These industries were built for natural
gas feed stock at \$2.00, not \$6.00. We have lost over 100,000 jobs in
the United States chemical industry alone.

For the past 3 years, Secretary Norton and I have been meeting with
industrial natural gas user groups concerned about natural gas prices.
We've met with Dave Parker of the American Gas Association, put on an
energy conference with the Industrial Users Association and worked
closely with individual chemical companies including Dow and Dupont.
We've encouraged them to become more involved in BLM land use plans, MMS
5-year lease plans and passage of the Energy Bill. They understand the
energy connection.

But a major challenge is to help Americans make this connection. Nowhere
is the challenge greater than in the development of natural gas on
federal lands in the Rocky Mountain West.

**Federal Energy Potential**

The federal government manages tremendous energy potential. Right now,
35 % of domestic natural gas comes from federal resources and more than
50% of undiscovered natural gas is expected to underlie Federal lands --
onshore and in the Outer Continental Shelf.

In fact, five Rocky Mountain basins hold the largest on-shore resource
of natural gas in the country and the second largest resource after the
Outer Continental Shelf. These onshore basins contain an estimated 139
tcf - enough to the heat 55 million homes for almost 30 years. More than
half of these lands are under federal management.

These federal resources are managed for the benefit of the American
people.

Unlike China, the government of the U.S. does not develop these
minerals. Federal oil and gas are developed in partnership with business
under a structure of law. Congress created an industry directed,
competitive market driven leasing system in 1987 to encourage leasing
when demand (and prices) are high.

The Interior Department is implementing an aggressive program to
encourage industry to develop energy resources in an environmentally
responsible manner consistent with the framework of environmental laws
Congress has put in place. We -- and by that I mean the American
people - depend on you, the energy industry, to help the country meet
the demand for domestic energy.

And I realize that you are depending on us, the federal government, to
help provide what I call a "business-aware" approach to development on
public lands.

What do I mean by that? It starts with an understanding that business
needs certainty of regulation so that it can plan and invest over a
period of years.

It needs efficient, effective processes so that plans and time-tables
have some degree of reliability. And it needs competent employees, with
adequate resources, implementing those processes so they are applied
fairly, impartially, and in a way that keeps things moving.

Under the guidance of the National Energy Policy, BLM has taken a number
of steps to try to create that business-aware environment to allow you
to produce the energy our citizens demand.

**Interior's Accomplishments**

![](media/image1.jpeg){width="6.0in" height="4.5in"}

For example, we are processing APDs in record numbers and reducing the
backlogs that you and the Congress have rightly complained of. The
current administration has issued more than 17,000 APDs over the last
four years. This is a 74 % increase from the last administration.

This graph depicts the number of APDs approved by the BLM over the last
6 years, with and without the Buffalo, Wyoming, Field Office. (The blue
bar is all States and the green excludes Buffalo) Since Buffalo handles
primarily coalbed natural gas and many of those wells are permitted in
batches, excluding this office may give a more representative picture of
conventional operations.

Last year alone, the Buffalo Field Office approved 2,380 APDs, or about
25 % of BLM's national total. But even when Buffalo is excluded, you can
see a steady upward trend in permit approvals over the last 3 years.

**Efficient Processes**

"Business aware" means efficient, effective processes. We are
encouraging Plans of Development (or PODs), Block Archeology surveys,
and Master Drilling Plans to eliminate redundant paper work and minimize
surface disturbance.

A July 21 General Accountability Office report on oil and gas
development found these strategies to be a good thing, stating that the
bundling of permit applications \"can encourage companies to plan their
drilling operations more carefully and help BLM better assess the
cumulative environmental impacts of drilling activities.\"

We are making other changes to create a business-aware environment. On
June 27, we changed our policy on protests. From now on, protests to
lease sales must be filed a full 15 days before the date of the sale.
This advance notice of a protested parcel will allow industry to plan
accordingly.

We are piloting a new in-kind royalty program. Royalties can be paid
with a share of the oil or natural gas produced. This relieves producers
of the burden and cost of accounting for oil and gas sales. It also
saves MMS considerable auditing costs. Again, these in-kind royalty
programs have been favorably reviewed by GAO and the Inspector General
as useful improvements not just for business, but for the American
public. The Energy Bill made Royalty-In-Kind a permanent program.

**Operational Guidance Revisions**

"Business aware" means up-to-date. We've recently updated two important
oil and gas operational guidance documents that were last revised back
in the 1980's. Both were rewritten in plain, easy to understand
language.

Onshore Order Number One was announced just last week and provides
instruction on processing APDs. It contains many of the policy
initiatives that have been issued in separate directives over the last
several years.

Second, we will have a new Gold Book Revision out to you very soon. The
Gold Book governs Surface Operating Standards and has not been revised
since 1989. This new edition will help operators incorporate the
Bureau's Best Management Practices, or BMPs.

I want to stop here to make an announcement. Several of you in the room
have written to ask for an extension of time to the comment period on
Onshore Order Number One. I am happy to tell you that we will grant that
request for an additional 60 days. We will shortly issue a notice
extending the comment period for 60 days and will include in that notice
an invitation to comment on those provisions in the Energy Bill that
address APD process improvements. This will allow us to promptly
incorporate the provisions of the Energy Bill into the final Onshore
Order Number One so that it will be up-to-date.

**Budget**

![](media/image2.jpeg){width="6.0in" height="4.5in"}

We have good news to report on the budget front. The Oil & Gas budget
for the BLM has continually grown over the last ten years with
substantial growth over the last 4 years.

Comparing administrations, there has been a 46% increase, from an
average of about \$55 million in the previous administration (1997 --
2000) to an average of about \$80 million in the current administration.
This year, the budget is \$87.3 million and our 2006 budget just passed
by Congress would appropriate \$90.3 million.

The BLM recently proposed a cost recovery rule that would have added an
extra \$14 million for increased oil and gas management staffing.
Congress took a different approach.

The new Energy bill would shift some existing rental money into the BLM
to improve permitting-related activities in 8 BLM field offices in 5
states. This could add \$20 million or more per year, through 2015.

**Challenges Ahead**

That's the positive side of the ledger, and perhaps I should stop here.
But I also want to share with you the challenges we face. I know access
to natural gas supplies continues to be a complex and controversial
issue.

As I mentioned earlier, public lands, especially in the Rocky Mountain
region, hold tremendous energy potential. The President has said, "I
believe we can develop our natural resources and protect the
environment." Because public lands are managed for "multiple uses,"
development must be compatible with land use plans that allow for a
variety of activities -- not just energy development but livestock
grazing, recreation, wildlife habitat, and protection of ancient
artifacts.

As many of you know all too well, development on federal lands must also
comply with numerous federal environmental laws, such as the Clean Air
Act, Clean Water Act, National Historic Preservation Act, Endangered
Species Act, to name just a few, and comply with the NEPA review
process. This sets up an inherent tension among multiple interests. By
law, BLM must strike a balance. BLM does this through its public
land-use planning process.

The President and Secretary Norton laid out a vision for a new
relationship with the West that was decidedly different from the
previous 8 years -- It is called

"Cooperative Conservation". This relationship is based on mutual respect
and the belief that a healthy democracy depends on the active
involvement of citizens at the local level. It is implemented by
collaboration and consultation with state and local governments on
federal actions -- BLM's cooperating agency rule for land use plans is
one example.

Yesterday, Jim Martin proposed that we needed a new way of framing the
issues to move from confrontation to collaboration. He suggested that
the Secretary of Interior was an indispensable party to sit down with
folks from the environmental community, their donors and energy
companies. But he wasn't sure if there was an interest on her part. I
would respectfully remind Jim that he should know that there is a
demonstrated interest on this Secretary's part to just such a dialogue.
She sent me, her Assistant Secretary over all things energy to "break
bread" at the Boulderado with Jim, Bill Meadows, President of the
Wilderness Society, a major environmental group donor, several Rocky
Mountain natural gas producers over a year ago to discuss a better way
to approach these issues. The discussions among the participants didn't
end with the dinner at the Boulderado.

Over the last 3 years, Interior, member companies and associations in
your industry and the wildlife conservation community have also been
working together to first understand each other's respective interests
and second, to find common ground on which to create practical solutions
to develop natural gas and continue to provide for wildlife habitat.

Your willingness to work with BLM, the conservation community and local
government is important and highly appreciated.

Cooperative conservation will go a long way to build good will, and over
the long-term, it could deter or reduce the severity of legal action or
other delays and generally result in better decision-making. That is our
goal with new or revised plans such as the one for the Roan Plateau
which is being finalized right now.

**Roan Plateau**

The Roan Plateau -- the Naval Oil Shale Reserve -- is one of the most
energy rich areas around -- with an astounding 9 tcf of recoverable gas
on Federal lands. That is over 25% of all the natural gas resources in
the State of Colorado.

The draft Resource Management Plan was released in November and the
comment period closed in April. BLM received about 74,000 comments from
as far away as Australia. Most opposed development. We also received
thoughtful comments from industry and from the State wildlife agency
about our proposal to delay drilling on the top of the plateau.

We are working with our cooperators to take another look at how we
develop this resource and provide the balance necessary to manage other
resources that the public values at Roan. We are now in the process of
reviewing all the comments and working with cooperators with the goal of
developing a plan that has State and local government support.

Resource Management Plans are being updated throughout BLM's 162
planning units. Yesterday someone made the comment that these plans are
the "most restrictive plans" ever written and they will last for 20
years. I would ask you to consider what has happened to the West since
BLM first wrote plans in the early 1980's -- Where once BLM lands and
their commodity activities were "out of sight and out of mind", the
demographics of the West have changed dramatically. The West is the
fastest growing area in the United States, it is also the most urbanized
area of the country.

Now 22 million people live with 25 miles of BLM lands. BLM lands are
their playgrounds, their open space and in some cases, literally their
back yards. Westerners care deeply what happens on BLM lands and the
"open" plans of the 1980's don't have protections that reflect the
values of a 21^st^ century largely urban west.

And these plans don't last for 20 years, we write new plans when needed
as shown in the Powder River Basin. All that being said, Land Use
Planning is a major challenge. Plans are costly, time-consuming, subject
to uncertainty (except the certainty of litigation.) We are taking a
look at our approach to see if there is a better way and where we can
make improvement to the existing process. Suggestions are welcome.

**Leasing**

![](media/image3.jpeg){width="6.0in" height="4.5in"}

We continue to lease where plans are in place. Overall, leasing numbers
have been relatively stable. When comparing the last four years of the
previous administration to the last four years of the current
administration, the total number of new acres leased has dropped by only
2.2% (from 13.3 million to 13.0 million acres).

As I mentioned earlier, this is a market-based program. The Federal
Onshore Oil and Gas Leasing Reform Act (1987) requires that lease sales
be held quarterly if industry expresses interest and the land use plan
provides for leasing. In other words, leasing is driven by nominations
by industry and land use plans.

Although we don't know why leasing may be flat in a time of high demand,
it is most likely a combination of factors: BLM is receiving fewer
nominations; more leases are being deferred due to incomplete Land Use
Plans; there may be cases of delayed consent from other Surface
Management Agencies (U.S. Forest Service), and post-lease protests are
delaying final lease issuance.

**Oil & Gas Protests**

![](media/image4.jpeg){width="6.0in" height="4.5in"}

Oil and gas protests have risen sharply during the past four years.
Pre-Lease parcel protests increased from 666 to 4,425 - a staggering
664% from one administration to the other. Additionally, lease appeals
have jumped from 366 to 925 over the same period, resulting in a 253%
increase.

The graph on your left depicts the number of parcels protested for the
EPCA states. The graph on your right shows the dramatic increase last
year in State Director Reviews (SDRs) on APD approvals.

As long as the NEPA, ESA, and NHPA procedures are sound, these
challenges have little chance of success. However, they take time. And
this detracts from BLM's work on permitting and environmental compliance
inspections.

**APD Processing Times**

I want to talk now about APD processing times. I mentioned earlier that
the APD count is rising based on market demand. But APD processing times
have not improved overall. This is related to the quantity and perhaps
the quality of applications received.

A BLM review team recently found that the time required to process an
APD/POD is directly related to the deficiencies in the initial
submission, and the industry's response time to those deficiencies. Last
year it took an average of 117 days to approve APDs/PODs in the Buffalo
Field Office. According to BLM's review, 86 days were for industry
deficiency response and 31 days for BLM processing.

Now I suspect that there are people in this room who might have another
perspective on why APD delays occur or why BLM says there are
deficiencies in APDs. I think it would be useful for BLM and industry to
have facilitated discussions on this issue as we implement the APD
process improvement measures included the Energy Bill.

As you heard yesterday, the Bill includes several sections to improve
processing of leases and APDs -- such as more coordination between
Departments and agencies as well as the elimination of redundant
processes. (for example, an MOU between Forest Service and BLM to create
the timely processing of leases and APDs, and best management practices
for APD processing.) It also puts in place some APD process deadlines.

Another aspect of this enhancement is the piloting of multi-agency teams
(Agriculture, EPA, Corps of Engineers and DOI) for one-stop shopping of
APDs. Teams will focus on proposed energy projects in high-volume BLM
offices -- the proceeds from the rentals will go towards funding of
these efforts.

Looking to the future, the Energy Bill includes incentives for increased
production but also for research into promising new energy resources.
For example, it directs BLM to continue to develop an oil shale research
program and to begin preparation of a programmatic EIS to support
commercial development of oil shale.

**Inspection and Enforcement**

I'd like to say a few words about the GAOs Inspection and Enforcement
report because this issue also is addressed in the energy bill.

The July 21 GAO report on BLM's permitting activities concluded BLM is
behind in I and E inspections due to heavy APD workloads. Our I and E
staff continues to grow, with the budget for enforcement up \$4.8
million in the last 3 years. We also allocated an additional \$1 million
this year to help with monitoring. Field managers are working to
prioritize their workforce to meet their environmental inspection and
enforcement obligations.

But we still have a hard time finding qualified people and I suspect
that's something we share. Until recently, the job market for energy
development was not attractive and people chose other careers. Now we
are struggling to find petroleum engineers and other technically skilled
people to fill vacancies.

The Energy Bill recognizes this and calls on the National Academy of
Sciences to study the availability of skilled workers. As we prepare our
budget for 2007 and look at workforce planning for BLM, we are focusing
on the GAO report and its identification of the need for I&E.

**What Industry Can Do**

Why do we have these hurdles, these challenges to energy development on
public lands? The tensions inherent in public land management I
mentioned earlier are in making the trade-offs we as a country must make
to balance the values that are dear to us -- a high quality of life
provided by energy, and a high quality of life provided by a clean and
healthy environment.

As Federal Reserve Chairman Alan Greenspan put it "We're looking at two
really incompatible value systems, and both are crucial to human
existence. And the only way to make judgments is for individuals to make
those tradeoffs."

This is played out in all of the challenges I've talked about today --
in land use plans, lease appeals, state director reviews, APD challenges
and plan litigation.

Industry can help here and I would like to recognize the creative
measures you have already taken, not only through innovation and new
technology as were highlighted yesterday by the Williams Company,
Western Gas and Questar, but more importantly, by partnering with
wildlife organizations and community groups -- the wildlife work that
Fidelity, BP and Shell are doing in Wyoming -- Encana's award for their
work in Garfield County and helping to make that energy connection for
Americans.

(Here I think about Dave Parker and American Gas Association and their
work with energy consumers.)

In New Mexico, Wyoming and Colorado you have shown yourselves to be open
to new ways to make this work and to be a "good neighbor" tackling the
issues of legacy wells and split estate relations.

But the industry's opponents are working just as hard to take a positive
environmental story -- the production of clean-burning natural gas - and
turn it into an environmental negative. -- If you want an example, visit
<http://www.wilderness.org/OurIssues/BLM/>

You can help Americans connect the dots by getting your story out. The
public does not know, for instance, that industry has spent \$9 billion
per year over the last decade to address environmental concerns. In
fact, many Americans do not even know where their energy comes from.

Americans need to clearly understand the nature of the trade-offs we as
a nation must make to provide for sustained energy resources to power a
modern, vibrant, and sustainable economy while managing our public lands
for all of the resources that we value.

**Conclusion**

In closing, I want to assure you that this administration recognizes the
importance of the energy industry to America's economy and national
security, and this is the story we are communicating to the American
public.

We are committed to implementing the National Energy Policy and
provisions of the Energy Policy Act of 2005. We want to help industry
tackle the challenges that are inherent in public land energy
development.

We will continue looking for ways to inject more certainty, timeliness
and efficiency into our work; to knock down barriers, eliminate
backlogs, and meet our stewardship and environmental responsibilities in
a more effective and efficient manner. In other words, to create that
"business aware" environment.

Progress will be made collaboratively. The panel that follows will
address this in more detail. I encourage you to help us change the
dialogue on energy and public policy. I think we at Interior have shown
that we are open to trying new approaches.

The President recently made this statement regarding our energy
situation -- he said, "We\'re going to harness our innovative spirit in
this new century, and by doing so we will leave our children and
grandchildren a cleaner, a healthier, and a more secure America."

I look forward to working with you to meet this challenge. Thank you.

-end-