U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

47–602 CC 1998

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

(
(II)

COMMITTEE ON RESOURCES

DON YOUNG, Alaska, Chairman

W.J. (BILLY) TAUZIN, Louisiana

JAMES V. HANSEN, Utah

JIM SAXTON, New Jersey

ELTON GALLEGLY, California

JOHN J. DUNCAN, JR., Tennessee

JOEL HEFLEY, Colorado

JOHN T. DOOLITTLE, California

WAYNE T. GILCHREST, Maryland

KEN CALVERT, California

RICHARD W. POMBO, California

BARBARA CUBIN, Wyoming

HELEN CHENOWETH, Idaho

LINDA SMITH, Washington

GEORGE P. RADANOVICH, California

WALTER B. JONES, JR., North Carolina

WILLIAM M. (MAC) THORNBERRY, Texas

JOHN SHADEGG, Arizona

JOHN E. ENSIGN, Nevada

ROBERT F. SMITH, Oregon

CHRIS CANNON, Utah

KEVIN BRADY, Texas

JOHN PETERSON, Pennsylvania

RICK HILL, Montana

BOB SCHAFFER, Colorado

JIM GIBBONS, Nevada

MICHAEL D. CRAPO, Idaho

GEORGE MILLER, California

EDWARD J. MARKEY, Massachusetts

NICK J. RAHALL II, West Virginia

BRUCE F. VENTO, Minnesota

DALE E. KILDEE, Michigan

PETER A. DEFAZIO, Oregon

ENI F.H. FALEOMAVAEGA, American

Samoa

NEIL ABERCROMBIE, Hawaii

SOLOMON P. ORTIZ, Texas

OWEN B. PICKETT, Virginia

FRANK PALLONE, JR., New Jersey

CALVIN M. DOOLEY, California

CARLOS A. ROMERO-BARCELO ́ , Puerto

Rico

MAURICE D. HINCHEY, New York

ROBERT A. UNDERWOOD, Guam

SAM FARR, California

PATRICK J. KENNEDY, Rhode Island

ADAM SMITH, Washington

WILLIAM D. DELAHUNT, Massachusetts

CHRIS JOHN, Louisiana

DONNA CHRISTIAN-GREEN, Virgin Islands

RON KIND, Wisconsin

LLOYD DOGGETT, Texas

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

JOHN L. DUNCAN, JR., Tennessee

KEN CALVERT, California

WILLIAM M. (MAC) THORNBERRY, Texas

CHRIS CANNON, Utah

KEVIN BRADY, Texas

JIM GIBBONS, Nevada

CARLOS ROMERO-BARCELO ́ , Puerto Rico

NICK J. RAHALL II, West Virginia

SOLOMON P. ORTIZ, Texas

CALVIN M. DOOLEY, California

CHRIS JOHN, Louisiana

DONNA CHRISTIAN-GREEN, Virgin Islands

——— ———

BILL CONDIT, Staff Director

MICHAEL HENRY, Professional Staff

DEBORAH LANZONE, Professional Staff
(III)

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
(1)

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.
2

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
3

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.
4

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 ac5

crue 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.
6

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.
7

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 re8

lationship 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.
9

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
10

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.]
11

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
12

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
13

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
14

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?
15

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
16

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
17

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——
18

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 inkind 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 cer19

tainly 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.]
20

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
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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 wellattended 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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