BLM OIL AND GAS 

OVERSIGHT HEARING 

BEFORE THE 

SUBCO:VLVII'l''l'EE OX EXERGY 

A. \D YIIXERAlj RESOURCES 

OF THE 

; COl\1MITTEE ON RESOURCES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTH CONGRESS 

SECOND SESSION 

ON 

IMPROVING LEASE MANAGEMENT OF FEDERAL OIL AND GAS 

RESOURCES 

26-475CC 

JUNE 20, 1996---WASHINGTON, DC 

Serial No. 104-79 

Printed for the use of the Committee on Resources 

U.S. GOVERNMENT PRINTn:G OFFICE 

WASHINGTON : 1996 

For sale by the U.S. Government Printing Office 

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 

ISBN 0- 16-053412-7 
COMMI'ITEE 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 ALLARD, Colorado 

WAYNE T. GILCHREST, Maryland 

KEN CALVERT, California 

RICHARD W. POMBO, California 

PETER G. TORKILDSEN, Massachusetts 

J.D. HAYWORTH, Arizona 

FRANK A. CREMEANS, Ohio 

BARBARA CUBIN, Wyoming 

WES COOLEY, Oregon 

HELEN CHENOWETH, Idaho 

LINDA SMITH, Washington 

GEORGE P. RADANOVICH, California 

WALTER B. JONES, JR., North Carolina 

WILLIAM M. (MAC) THORNBERRY, Texas 

RICHARD (DOC) HASTINGS, Washington 

JACK METCALF, Washington 

JAMES B. LONGLEY, JR., Maine 

JOHN B. SHADEGG, Arizona 

JOHN E. ENSIGN, Nevada 

GEORGE MILLER, California 

EDWARD J . MARKEY, Massachusetts 

NICK J. RAHALL II, West Virginia 

BRUCE F. VENTO, Minnesota 

DALE E. KILDEE, Michigan 

PAT WILLIAMS, Montana 

SAM GEJDENSON, Connecticut 

BILL RICHARDSON, New Mexico 

PETER A. DEFAZIO, Oregon 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

TIM JOHNSON, South Dakota 

NEIL ABERCROMBIE, Hawaii 

GERRY E. STUDDS, Massachusetts 

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 

DANIEL VAL KlsH, Chief of Staff 

DAVID G. DYE, Chief Counsel 

CHRISTINE A.KENNEDY, Chief Clerk/Administrator 

JOHN LAWRENCE, Democratic Staff Director 

SUBCOMMI'ITEE ON ENERGY A.ND MINERAL RESOURCES 

KEN CALVERT, California, Chairman 

W.J. (BILLY) TAUZIN, Louisiana NEIL ABERCROMBIE, Hawaii 

JOHN J. DUNCAN, JR., Tennessee EDWARD J. MARKEY, Massachusetts 

JOEL HEFLEY, Colorado NICK J. RAHALL II, West Virginia 

J .D. HAYWORTH, Arizona CALVIN M. DOOLEY, California 

FRANK A. CREMEANS, Ohio SOLOMON P. ORTIZ, Texas 

BARBARA CUBIN, Wyoming 

HELEN CHENOWETH, Idaho 

WILLIAM M. (MAC) THORNBERRY, Texas 

WILLIAM CONDIT, Professional Staff 

SHARLA BICKLEY, Professional Staff 

LIZ BIRNBAUM, Democratic Counsel 

(II) 
CONTENTS 

Page 

Hearing held June 20, 1996 ........ ......................................... ........................... ..... ... 1 

Statements of Members: 

Calvert, Hon. Ken, a U.S. Representative from California; and Chairman, 

Subcommittee on Energy and Mineral Resources ...................................... 1 

Chenoweth, Hon. Helen, a U.S. Representative from Idaho ............ ... ...... .... 2 

Thomas, Hon. Craig, a U.S. Senator from Wyoming ............................ .. ....... 28 

Statements of witnesses: 

Brown, Bob, Acting Associate Director, Royalty Management Program, 

Minerals Management Service .. . . ... ... .. ... .. . . . .. . . .. . . .. .. . . . .. .. . . . . ... . . .. .. .. . . . .. . . . . . . ... 7 

Carter, James W., Director, Utah Division of Oil, Gas and Mining ............ 19 

Kozlowski, Gene, President, MAKOIL, Inc. ................ .................................. . 29 

Prepared statement ................................................................................... 68 

Kramer, Dan, Executive Director, California Independent Petroleum As· sociation .. . . . .. . . .. . . .. . . . . . .... ...... .. . .. .. . . ......... .. .. ...... .. .. . . ... . . .. . . ... . . . . .. . . .. .. .. . .. . . .. . . .. .. . . 36 

Maebon, Randy, Regulatory Coordinator, Rocky Mountain Region, Marathon Oil Company . . .. . . .. . .. ... . .. . . . . .. . .. .. . . .. .. .. . . . . ... . . .. . . .. .. ... .. ...... ... .. .. . . .. . . .. . . . .. . . .. . 37 

Prepared statement .. .. .. . .... ...... ......... ..... ... ... . . .. .. ..... ... ..... .... ...... ....... .. .... ... . 83 

Mason, Donald L., Chief, Ohio Department of Natural Resources .... .... .. .... 17 

McDougle, Janice, Associate Deputy Chief, National Forest Systems, 

USDA Forest Service ... . . .... ... . . .. .. . . .... .. . ...... .. . . .. . .. . . .. . . ...... ... . . .. . . . . .. . . . . . .. . . . . .. . . .. 6 

Miller, Elin D. , Director, California Department of Conservation ............ ... 15 

Thompson, Danny, General Manager, Carlton Oil Corporation ............... .. .. 34 

Prepared statement ............... .............. ............... ....... ........ .................. ... . .. 75 

Tipton, W. Hord, Assistant Director, Resource Use and Protection, Bu- reau of Land Management ... ...... ... .. .. ... ..... .. .. ... . . ... ... ...... .... .. . . . . .... .. .. . ... ...... 3 

Prepared statement .. ............................................... .............................. .... 41 

Yates, Frank, Jr., Vice President, Yates Petroleum Corporation .............. ... 32 

Prepared statement ............ ............ .... ................................ ............... ...... . 72 

Additional material supplied: 

BLM: 

Resolution 96.503-Regarding IOGCC/BLM Dialogue on Regulatory 

Issues ......... .......................... ..................................................... ........ ...... 48 

The Transfer of Oil and Gas Inspection and Enforcement Responsibilities on Federal Lands from the Bureau of Land Management 

to the States . . .. .. .. .. . . . . . .. . . .. .. . .. . . . .. . . .. . . . . . .. . . .. . . .. . . . . . . . .. . . .. . . . . . . .. . . .. . . ... . . .. .. . . . 49 

BLM OIL AND GAS 

THURSDAY, JUNE 20, 1996 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY 

AND MINERAL RESOURCES, COMMITTEE ON RESOURCES, Washington, D.C. 

The Subcommittee met, pursuant to call, at 2:07 p.m., in room 

1334, Longworth House Office Building, Hon. Ken Calvert (Chairman of the Subcommittee) presiding. 

STATEMENT OF HON. KEN CALVERT, A U.S. REPRESENTATIVE 

FROM CALIFORNIA; AND CHAIRMAN, SUBCOMMITTEE ON 

ENERGY AND MINERAL RESOURCES 

Mr. CALVERT. The Subcommittee will come to order. The Subcommittee meets today to continue oversight on improving lease 

management of Federal oil and gas resources. To date this Congress, the Subcommittee has held two hearings on the Clinton Administration's Reinvent Government II, or otherwise known as 

REGO II, proposals concerning MMS offshore and royalty management programs, oversight and legislative hearings on H.R. 1975, a 

bill to improve the efficiencies of royalty collections, and two hearings on domestic energy policy related to increasing domestic production and creating jobs. 

Today's hearings will investigate the Department of Interior's 

progress on a proposal to transfer the Bureau of Land Management's oil and gas inspection and enforcement functions to the 

States. Of course, the relatively new requirement that States bear 

a portion of the Federal Government's costs to administer the Mineral Leasing Act of 1920 for leases within their borders is in large 

measure why we are here today addressing the possible transfer of 

certain functions to those States which seek an alternative. Federal bureaucratic inefficiencies now cost States twice, once 

when royalties which may be properly owed go uncollected because 

the Department of Interior's Mineral Management Service has 

other priorities-or as I have said before, spending dollars to chase 

dimes-and, secondly, when the BLM, Forest Service, and MMS 

costs to run the leasing program-from initial land-use planning 

through royalty. collections-are forced upon States without a 

means for control of those costs. 

Except, perhaps, in a cumulative fashion only through the Interior Department appropriations bill which we struggle with each 

year. Unfortunately, that doesn't provide sufficient detail necessary 

to rein in Federal agency costs on a State-by-State basis. 

But that is not the only reason. If oil and gas operators are significantly affected through redundant regulation by the Feds and 

(1) 
2 

the States, then there must be an impact manifested in lesser competition for Federal leases initially, and premature shut-in of marginal wells. I have asked our last panel of witnesses today to address this important perspective. 

My bill to make reforms in the royalty management program 

would provide an avenue for those States which are ready, willing, 

and able to audit Federal lease obligations and enforce the results 

of such audits. Along a parallel track, the BLM proposal has moved 

internally at the Department of the Interior as a regulatory initiative. One thing we hope to discuss here today is any possible legislative changes needed to implement this proposal. 

Our ultimate goal is to develop sound streamlining proposals 

that not only decrease costs of Federal and State governments, but 

also promote investment in domestic exploration and producbon 

through reduced government burdens on industry, where appropriate. 

Of the many onshore mineral leasing and operational activities 

performed by BLM, the REGO II proposal was limited to transferring only the inspection program to the States. Under a broader 

shift of responsibilities, including leasing and drilling permits, the 

States would enjoy more land management discretion for development within their State. Oversight of this program is necessary to 

determine what transfer can be effected administratively versus 

that which may require statutory fixing. 

My friend and ranking member is not yet here. There is a meeting that he has to attend so we will wait for his opening statement 

a little later, but we will be happy to recognize my other good 

friend from the great State of California, Mr. Dooley. 

Mr. DooLEY. Thank you, Mr. Chairman, but I have nothing. 

[Statement of Mrs. Chenoweth follows:] 

STATEMENT OF HON. HELEN CHENOWETH, A U.S. REPRESENTATIVE FROM IDAHO 

Chairman Calvert, Ranking Member Abercrombie, I would like to thank you for 

calling this hearing today on the Bureau of Land Management's oil and gas inspection and enforcement responsibilities. While I don't have any of the energy resources in my area in Idaho that are effected by these regulatory burdens, this hearing fo- cuses on two very important issues to me. First, State primacy for inspection programs. State management gives the people 

who are closest to the projects a greater say in the standards involved in a given 

project. It is the neighbors to an oil and gas development who are most effected by 

the environment; and it is those neighbors who will directly experience the repercussions of mistakes and oversights. Therefore, maintaining strong communication between the regulators, neighbors and operators is of the utmost importance. The lines 

of communication must be locally designed on a case by case basis so that high safety standards and proper attention to local interests can be ensured. This concept 

and direction is not a radical idea-it was all detailed in the Clinton Administration's Reinvent Government II proposal unveiled on March 27, 1995. The States 

must have primacy in these inspection programs. 

Second, is the government's policy to reduce costs, to promote domestic production, and create jobs? If so, I firmly believe that one factor that should be taken into 

account every time we consider new regulations is jobs. Are we going to simply implement a regulatory agenda that, while protecting a snail the size of a poppy seed, 

will devastate a local economy? And for that matter, is our inspection process/oing 

to be flexible enough to cover new technology that will benefit efficiency an eost 

effectiveness, as well as the environment? We must look to where more of the expertise resides in the United States. And at the same time, we must ask about how 

many duplicative regulations our resource businesses have to comply with. 

Balancing the inspection and enforcement with the need for continued development is difficult. I believe this is better done with State primacy over such programs. There is a fine line between profitability and insolvency, and we must re-
3 

main vigilant so that regulations are not pushing our industries into the red, resulting in a risk to the United States' energy and job security. Although I have no oil and gas in Idaho, I recognize and encourage the benefits we derive from State oil and gas inspection. I believe these State primacy inspections should be duplicated for phosphate inspection which is in my district. The is- sues are very much the same. I cannot think of a better way of giving the taxpayers their money's worth than 

through local accountability. I have received numerous letters from the people of 

Idaho who worry whether Federal regulations are sufficient to protect their water 

and lands. Here, I want to be clear, I am not advocating increased Federal presence. 

By returning safety authority back to the States, these citizens can be assured their 

locally elected officials-officials who share their health and safety interests-will 

safeguard the community. 

Again, I would like to thank the Chairman. 

Mr. CALVERT. OK With that then, we would like to recognize our 

first panel from the Federal Government, the witness list. Let us 

see: Mr. W. Hord Tipton, Assistant Director, Resource Use and Protection, Bureau of Land Management; Bob Brown, Acting Associate 

Director, Royalty Management Program, Minerals Management 

Service; and Janice McDougle-that is a name we hear a lot of 

lately-Associate Deputy Chief, National Forest Systems, USDA 

Forest Service. If you would please come on up to the witness 

stand. We certainly appreciate your attendance today, and, Mr. 

Tipton, would you like to begin your testimony? 

STATEMENT OF W. HORD TIPTON, ASSISTANT DIRECTOR, RESOURCE USE AND PROTECTION, BUREAU OF LAND MANAGEMENT 

Mr. TIPTON. Thank you, Mr. Chairman. Again, it is a pleasure 

to testify before you today on our oil and gas program. Rather than 

reading my entire testimony, I would just like to highlight some 

things from our oil and gas program and our progress on the 

reinvention of government, but do request that my entire testimony 

be submitted for the record. 

Mr. CALVERT. Without objection. 

Mr. TIPTON. Thank you. The onshore oil and gas program is, of 

course, a major program of the Department of Interior. At the end 

of 1995, we have had more than 51,000 onshore oil and gas leases 

on 37 million acres of Federal land. About 19,000 leases are in producing status, with more than 63,000 producing wells on these 

public lands. We also have operational oversight of about 4,200 producing leases on Indian lands. Royalty income from onshore oil and gas production on these 

lands is over $500 million per year. All receipts, except filing fees, 

are shared with the State in which the leasing occurs. We want to 

also recognize that we recognize the important role that these receipts and moneys play in the economies of several Western States 

and communities. 

On our leasing, leasing is a discretionary action. However, most 

of our post-leasing actions are mandatory. And the reason for this 

is to ensure compliance with governing of our lease terms, regulations, onshore orders, notices to lessees, and conditions of approval, 

and also to protect other resources present as the lessee uses the 

rights contained in this lease. 

The objectives of our oil and gas I & E and Environmental Compliance Programs are quite simple. First, we want to ensure that 
4 

public and Indian oil and gas reserves are developed in a manner 

that maximizes resource recovery. Secondly, we want to ensure 

proper accounting of all production from Federal and Indian land.s. 

And then, third, we must protect the environment, public health, 

and safety. Although these are easily said, they are quite complex 

and very difficult to carry on. In addition, BLM also conducts inspections regarding drilling, abandonment, and other operations 

pursuant to our regulations. 

With respect to Reinventing Government, Round II, as we call it, 

a little more than a year ago BLM proposed a transfer of the oil 

and gas I & E responsibilities concerning production verification 

and environmental compliance to individual States and Indian 

tribes. 

For purposes of trying to implement this proposal, BLM formed 

a task force comprised of State, Federal, and tribal representatives 

to prepare a report on the transfer proposal and initiate some consultation with State and tribal representatives. 

On May the 7th of this year, the Department of Interior, with 

the BLM and the Interstate Oil and Gas Compact Commission, at 

a meeting in Indianapolis resolved to support discussion between 

BLM, the States, the IOGCC to identify opportunities and propose 

implementation plans to delegate to the States as much of the I & 

E functions as permitted under FOGRMA as they are willing to ssume. 

Earlier this year, the IOGCC shared a proposal to devolve most 

of BLM's oil and gas regulatory activities to the States. This led to 

the adoption of a resolution in the May meeting that would continue discussions to identify opportunities and propose these implementation plans to eliminate duplicate State and Federal regulation of oil and gas production in production activities, and to also 

streamline, simplify, consolidate Federal and State regulatory oil 

and gas programs. 

BLM is in the process of forming a position relative to this effective transfer, and at the request of the IOGCC and many representatives of industry, we have agreed to provide some parameters, if you will, to our State directors and to assure among one 

thing consistency amongst the agreements that we have asked our 

State directors to negotiate with individual States. 

Some of the things that we want to discuss during these negotiations include the agreements ensuring that States conduct inspections consistent with uniformly interpreted Federal standards. 

There has been several negotiating points about whose rules, 

whose standards do we use. 

Secondly, agreements cannot be signed if the action will not 

produce a cost savings or eliminate some duplication of effort. 

States will not inspect Indian leases since this is prohibited by 

FOGRMA without the direct consent of the Indian mineral owner. 

Fourth, BLM will retain authority to evaluate State inspection ac- tivities and intercede if the appropriate action should occur. We 

recognize this is a contentious point. 

Let me summarize by saying we recognize some State concerns 

with our proposal. One of these concerns is funding. We are now 

open to negotiating funding with the States and hope to find ways 
5 

to save some money. There are concerns of the degree of authority 

and responsibility, and then there is the concern about consistency. 

Operators have concerns primarily centered around being subjected to a greater variety of rules and reporting where each State 

would require adherence to different policies, thus the reasoning 

for our closely monitoring negotiations to try to maintain the highest degree of consistency that we can. 

At this point, we have issued in final the I & E transfer report, 

and I would like to note that this has been acknowledged by our 

partners in the IOGCC as an excellent document which will serve 

as a very constructive road map for States as they begin their individual in-depth analysis of accepting or rejecting transfer of all or 

part of these programs. BLM realizes and agrees that by parting 

with the States and IOGCC, we can move forward with the I & E 

transfer to the benefit of all parties involved. 

The second subject of the hearing, the net receipts sharing, just 

let me briefly say we recognize that this process is required by the 

1991 Appropriations Act and includes a provision to recover approximately 25 percent as a bottom line of the Federal Government's cost of conducting mineral leasing activities on Federal 

lands within State boundaries. And these costs are apparently 

being deducted from royalty payments to the States and are derived from cost contributed by MMS, the BLM, and the Forest 

Service. 

Our role in this process is to provide the MMS, Minerals Management Service, with our cost data, and we have a series of steps 

that we go through to arrive at that cost. And they very quickly 

are determining our direct cost for conducting minerals program in 

each of the States, and then there are a number of things that we 

deduct off the top of those costs so as not to affect the administrative burden that is passed onto the States. 

One of those things is the money for the management of Indianowned minerals. And we also deduct the amount of money that we 

spend on the management of minerals materials because receipts 

from minerals materials sales are not shared with the States. And 

then, finally, costs relating to mining law administration are excluded from the calculations. 

A factor of 19 percent is added to the above total to account for 

the direct program share of administrative costs which are applicable to all of our programs. A separate figure for filing fees, which 

is not a very large number, about $2.5 million last year, is also collected and provided to the MMS. And these fees are not shared 

with the States so they are not figured in the calculations either. 

Our methodology is applied on a State-by-State basis, and when 

a BLM State office has jurisdiction over more than one State, these 

costs are then prorated on the basis of the number of producing 

leases in each State. 

Although this may tend to overestimate costs to any particular 

State if producing leases are large, the methodology is sound in our 

minds because both the majority of the expenditures and the majority of the revenues tend to be associated with producing leases. 

Once BLM completes these calculations, they are forwarded to the 

MMS for processing into a final number for the Department. Mr. 
6 

Chairman, that concludes my testimony, and I will remain open for 

questions. 

[Statement of Mr. Tipton may be found at end of hearing.] 

Mr. CALVERT. Thank you, Mr. Tipton, for your testimony. Next, 

Janice McDougle, Associate Deputy Director, National Forest Systems. Welcome. 

STATEMENT OF JANICE MCDOUGLE, ASSOCIATE DEPUTY 

CHIEF, NATIONAL FOREST SYSTEMS, USDA FOREST SERVICE 

Ms. McDOUGLE. Mr. Chairman and members of the Subcommittee, thank you for the opportunity to provide information conceming the Forest Service's role in managing mineral resources on National Forest System lands. The Forest Service is responsible for 

making energy and mineral resources available for development as 

part of its mission. 

The role of the Forest Service is primarily that of the surface resource manager and as such involves land-use planning, ensuring 

compliance with environmental statutes governing the issuance of 

leases, deciding where leases may occur, and surface resource protection and mitigation. The sole royalty-related function of the Forest Service is as disbursing agent for mineral revenues generated 

from national grasslands. 

The Mineral Management Service collects all mineral revenues 

from lands under the jurisdiction of the Forest Service. The MMS 

transfers the receipts from the national grasslands to the Department of Agriculture's National Finance Center. There, mineral revenue collections are merged in Forest Service accounts with revenues from other resources such as timber sales and grazing fees. 

Twenty-five percent of these receipts are disbursed to States and 

counties under Public Law 60-136 procedures for the benefit of 

public schools and roads. This royalty disbursement responsibility 

of the Forest Service requires no more than one person-year of effort on a national scale. 

The Forest Service's cost of managing the leasable minerals program is reported to MMS for purposes of determining net receipts 

shared with States under the Omnibus Budget and Reconciliation 

Act of 1993. Forest Service program management costs, along with 

those of the BLM and MMS, are deducted from the total receipts 

to determine net receipts sharing with the States. 

The Forest Service program costs include environmental study 

and analysis for determining leasing suitability, administration 

and compliance work on exploration and development projects for 

leasable minerals such as oil, gas, coal, phosphate, and geothermal 

energy resources. These costs also include the day-to-day monitoring of exploration and production sites operating on National Forest System lands. 

In fiscal year 1995, total receipts for mineral activities on National Forest System lands were more than $200 million. For the 

same fiscal year, $10.5 million was reported to MMS as the Forest 

Service's share of costs for managing the leasable program as described above. It is important to note that while these costs are reported, no Forest Service costs are funded by mineral receipts. All 

costs are funded through appropriations. 
7 

For purposes of responding to the committee's interest in overhead costs, we identified those regional and Washington office costs 

in accordance with your request. In fiscal year 1995, those costs 

were $2.3 million out of the total $10.5 reported. These costs are 

tracked through our accounting system or charge-as-worked 

records, which summarize actual expenditures from the mineral 

management appropriations. We would note that these overhead costs support the mineral 

program at the field level in various ways, which are important to 

project activities, including providing costly technical expertise and 

skills which are most efficiently provided on a regional or national 

basis. 

Other common and necessary overhead functions include responding to appeals and providing the Department of Justice the 

background information, documents, and witness statements in the 

event of litigation. This concludes my prepared statement, Mr. 

Chairman. I would be pleased to respond to any questions you may 

have. 

Mr. CALVERT. Thank you. Bob Brown, Acting Associate Director, 

Royalty Management Program, Minerals Management Service. You 

may begin your testimony. 

STATEMENT OF BOB BROWN, ACTING ASSOCIATE DIRECTOR, 

ROYALTY MANAGEMENT PROGRAM, MINERALS MANAGEMENT SERVICE 

Mr. BROWN. Good afternoon, Mr. Chairman and members of the 

committee. I am pleased to be here today to provide testimony on 

net receipts sharing. Your letter requested that we provide a specific description of our costs. However, I would like to first briefly 

review the background of net receipts sharing and the requirements of the '93 legislation, which permanently enacted it. 

In fiscal year 1991, Congress decided that States should share in 

the costs the Federal Government incurs in managing onshore mineral leases and revenues. States share in the revenues and in most 

cases get half of revenues. Therefore, full cost sharing would require that they share 50 percent of the costs. However, to reduce 

the full impact of net receipts sharing, Congress provided the 

States pay only approximately 25 percent. Each State's share of the costs is deducted from the monthly royalty distributions made by the Minerals Management Service. 

While MMS is responsible for making those monthly deductions, 

our costs make up only about 30 percent of the total charged to the 

States. The Bureau of Land Management and the Forest Service 

comprise the other 70 percent of the costs. BLM and the Forest 

Service submit cost estimates and allocations to MMS. We use 

those figures, merge them with our own, and then allocate costs according to methodologies authorized in statute. To estimate and allocate MMS costs for the onshore minerals 

program, we initially developed a methodology which was based on 

the ratio of Federal onshore producing leases to total producing 

leases--onshore, offshore, and Indian. 

This amount, along with BLM and Forest Service estimates, 

were then allocated to each State in the same proportion as that 

State's revenues to total revenues. This is referred to as the Reve-
8 

nue Method. Several States objected to this method, arguing that 

costs allocated to them were too high and not representative of the 

actual costs expended in managing leases within their State. 

As a result, the Department's fiscal year '92 Appropriations Act 

required MMS, in conjunction with BLM and the Forest Service, to 

study the costs to collect onshore revenues. This study confirmed 

that MMS costs to perform onshore mineral activities for a ~ew 

States were less than costs allocated to those States under the Revenue Method. 

Permanent net receipts sharing language was enacted in the 

Omnibus Budget Reconciliation Act of '93. This Act statutorily established two methodologies for calculating net receipts amounts. 

One method was the Revenue Method previously described. T'he 

other was the Cost Method, which is designed to cap some of the 

higher cost allocations derived from the Revenue Method. 

The Cost Method is the best estimate of the three agencies' actual costs to conduct onshore mineral activities in each State. The 

language of the Act calls for MMS to calculate the State shares 

using both methods and then charge each State the lower of the 

two. Report language accompanying the legislation further specifles 

the process to be used. 

Because net receipts sharing has been a contentious issue wiith 

respect to MMS's relationship with the State partners, we have 

sought to make our costs accurate and to operate as cost effectively 

as possible. 

We have looked for more efficient ways to do our business. F'or 

example, a common reference data reinvention laboratory resulted 

in the reengineering of the mineral lease and payer data process. 

Also, we now offer a variety of electronic reporting options to payers, thereby increasing significantly the accuracy of the data we receive. 

We believe MMS is cost effective. Federal onshore revenue coU.Olctions of $1.04 billion compares to MMS's Federal onshore revenue 

management costs of $32.9 million, a cost of slightly more than 

three percent. 

Additionally, MMS performs many compliance functions in a cost 

effective manner. For example, in audit, for every dollar we expend, 

we collect $8. In the area of production volume comparisons, for 

every dollar we spend, we collect $15. 

We have made an effort to lower our costs, and as a result, the 

costs charged to States for royalty collection has decreased about 

26 percent over the last two fiscal years. In the past, we hired Coopers and Lybrand, a certified public accounting firm, to look at our 

methodologies. They concluded that our allocation methods were 

acceptable. Additionally, each year we have sought refinements in 

our process. 

In fiscal '95, MMS formed a team which included a representative of the Department's Inspector General to again review the 

methodologies used in allocating costs to States. This group recommended a number of changes which have been implemented. 

Last fall, prior to implementing the recommendations, we consulted 

with the States impacted by net receipts sharing, as well as other 

interest groups. 
9 

Eight States responded. While some remain irrevocably opposed 

to net receipts sharing under any circumstances, most supported 

the methodological changes recommended by the team. When the 

proposals are fully implemented, State deductions will decrease 

overall by approximately $5 million annually, and each State's individual deduction will decrease. 

As I stated above, MMS has already implemented most of the 

improvements recommended by the team. They include improved 

procedures for allocating program support and executive direction 

costs and more precise workload factors for the Audit and the Systems Management Divisions. These changes will result in a $3 million savings for the States this year. 

I would like now to turn to a discussion of how MMS allocated 

its '95 costs, as specified in OBRA, to the States for fiscal year '96. 

Since our original allocation of fiscal year '95 costs, we have reviewed the way in which we have categorized and aggregated them 

in a manner which is more reflective of how we operate. 

However, while some of our terminology describing these costs 

has been recently modified, the bottom line allocation to the States 

did not change. Our costs are now broken out as to program, program support, and executive direction costs. 

Program costs include payroll and other costs that can be directly 

identified to processes that a division performs. Program support 

costs include the administrative costs such as office space and telecommunications. And executive direction costs include the Minerals 

Management Service and Royalty Management Program's management costs. 

Our MMS Washington headquarter's budget is first divided 

among the Offshore Minerals Management and Royalty Management Programs. The portion allocated to royalty management, program support, and executive direction, is further allocated to RMP 

divisions based on each division's budgeted dollars in proportion to 

the total royalty budget. 

The divisions further allocate the combined program costs and its 

allocated portion of program support and executive direction costs 

among onshore Federal, offshore Federal, and Indian revenue management. 

In analyzing the activities in its divisions, MMS looks for indications of where the work is being done or workload indicators to 

identify relationships between a division's allocated budget and the 

three areas of revenue management-Federal onshore, Federal offshore, and Indian. Workload indicators include reported royalty 

lines, production lines, producing leases, nonproducing leases, et 

cetera. This analysis is done for each category of MMS costs. 

Audit costs are handled somewhat differently because some of 

the States actually do the audit work under the FOGRMA Section 

205 contracts with MMS and are fully reimbursed for their work. 

For States that do not perform audits under a Section 205 delegated audit, direct audit program costs are allocated based on that 

State's revenue collections. For example, Alaska does not have a 

funded 205 audit agreement. Therefore, direct audit costs are allocated to Alaska based on revenue collections for Alaska leases compared with total revenue collections. 
10 

The appropriation of $4 million for 205 audit agreements is not 

included in the net receipts calculation, as directed by the OBRA 

report language. However, States such as Wyoming and New Mexico, as an example, which perform funded delegated audits share 

audit management and support costs. 

Again, for example, the RMP division that oversees these 205 audits provides coordination and contract monitoring. These types of 

audit management costs and others such as audit training, computers, audit manuals and other support functions are allocated to 

States that have funded audit agreements based on the amount of 

their contract. 

Further refinements. The Department formed the Royalty Policy 

Committee in fiscal year 1995 as part of the Minerals Management 

Advisory Board to provide advice to the Secretary on the Department's management of Federal and Indian mineral leases and to 

serve as a sounding board for new procedures and policies. 

The committee formed eight subcommittees, one of which is the 

Subcommittee on Disbursements and New Receipts Sharing. This 

subcommittee presented an interim report to the Royalty Policy 

Committee on June 4, 1996, and will likely have a final report later 

this year. 

The Net Receipts Subcommittee is chaired by Ms. Johnnie Burton of Wyoming and includes representatives from Colorado, Montana, New Mexico, Wyoming, and Utah. MMS has provided extensive information to the subcommittee to assist in its efforts and will 

continue to work diligently with the Royalty Policy Committee to 

pursue any recommendations that the committee adopts. 

MMS also continues to conduct ongoing dialogs on this issue with 

the Interstate Oil and Gas Compact Commission and the State and 

Tribal Audit Committee. In addition, currently the Department of 

Interior's Office of Inspector General and the General Accounting 

Office are concurrently performing reviews of net receipts sharing. 

Finally, MMS plans to continue to examine the issue to identify 

areas where we can further improve our cost estimates and refine 

the formulas set out in the statute. We have recently begun a 

benchmarking study to compare our costs to those of the States. 

This concludes my prepared testimony. However, I would be 

pleased to answer any questions that you might have. 

Mr. CALVERT. Thank you, Mr. Brown. I first have a question for 

Mr. Tipton. I understand the DOl solicitor has reviewed IOGO:=!'s 

proposal. Has the Department made a determination if any of the 

inspection and enforcement functions listed in the REGO II report 

for the IOGCC proposal are inherently Federal? And will legislation enable the transfer of such functions to the States? 

Mr. TIPTON. Mr. Chairman, there has been a lot of discussion on 

those functions that go beyond the inspection and enforcement in 

the environmental compliance areas. However, there is no final decision within the Department on how we can interpret that. 

The way we have chosen to deal with those questions is to flush 

out, first of all, the inspection and enforcement component of it 

with the States, make sure that all parties understand what is expected on both sides, and having developed some success, at that 

point, we will continue our deliberation on what the government 

functions might have to be. 
11 

We will continue to try to interpret the OMB guidance on that 

along with our solicitors. And at the right point in time, during the 

negotiations, also discussed within those States and tribes, which 

of those functions do they really want? 

And my intent is to collectively prepare a report back after we 

have our meetings and discussions with States and tribes to voice 

what their preferences are with our attorneys, with the Department, and to see just what the final Department position will be 

on it. 

Mr. CALVERT. How soon do you think that report or analysis will 

be ready? 

Mr. TIPTON. I issued just yesterday instructions to the State offices, with BLM to rapidly begin the discussions with their counterparts. We didn't put them a definite time line to come back because 

we know these are complicated issues. However, we did ask that 

they give us indications of a schedule that they thought was workable with their State on the parts and also on those parts that the 

State was interested in. And we would hope to have a clear indication of the interest of those States by the 1st of September. 

Mr. CALVERT. I certainly would like to get a copy of that once you 

are in receipt of it. 

Mr. TIPTON. Yes, sir. 

Mr. CALVERT. In testimony before this Subcommittee in June of 

1995, the Deputy Assistant Secretary of Interior said that the 

REGO II Task Force on this issue would report to the BLM Director by October 1 of last year. The report appears to be dated April 

of 1996. Just how strong is the Department's commitment to see 

this transfer proposal through? 

Mr. TIPTON. Mr. Chairman, we had a preliminary report by October the 1st. We worked along with the State and the tribes very, 

very diligently on that. However, the State, through the IOGCC, 

was also in the process of developing their report. 

And they asked that we hold off before issuing our report in final 

until we could get our heads together and say there is progress to 

be made from that area. So we did hold off, and we had further 

meetings in the first of this year involving the State counterparts, 

and as a result of that, our report did not get out until March. 

Mr. CALVERT. In your REGO II report, reference is made to continued Federal oversight after transfer of the inspection and enforcement functions that was mentioned earlier. As you may know, 

given your prior services, OSM's Acting Director, the issue of Federal oversight of State primacy under SMCRA remains contentious, 

to say the least. How can the BLM, States, and perhaps Congress 

help avoid a like situation in this area? 

Mr. TIPTON. You can rest assured, Mr. Chairman, that I haven't 

forgotten the scars of trying to administer oversight programs with 

the Office of Surface Mining. On the other hand, I think all parties 

here recognize a need of oversight of some sort at least through a 

transition period to make sure that the interests of all parties are 

protected. 

Now, it would be my vision that oversight would diminish rapidly. Once agreements are consummated with States, once there is 

experience gained with operating under new standards, once the 
12 

State folks are trained in our ways, then to some extent, I gueEs, 

we are trained in the ways of the States. 

So, again, we may not even save any money the first year on this 

due to the need to have some reserve of oversight or assistance, if 

we want to call it that. But I would hope in the very rapid outyears 

that we could reflect those savings. And that is why I have asked 

the State directors-to not look at this as a narrow period in time, 

limited only to transition, but what are the forecasts of how you 

might save money two to three years from now? 

Mr. CALVERT.· As you know, my philosophy on that is that the 

transferring functions would reduce redundant costs and save everybody money-Federal Government, the States, operators, everyone involved. So I hope we rush along, and I don't think we need 

to compromise the ability to protect the surface and downhole environments or necessarily begin to hurt the environment in any way. 

So I am hoping that we can move along with this as quickly as possible. Then I would like to ask Mr. Dooley if he has any questions? 

Mr. DOOLEY. I have no questions. 

Mr. CALVERT. OK Then I will go ahead and continue until our 

associate comes in. Mr. Brown--

Mr. BROWN. Yes, Mr. Chairman. 

Mr. CALVERT. [continuing]-are MMS employees required to 

track the amount of time spent related to a specific State-the offshore or Indian leases? And, if not, why not? 

Mr. BROWN. Individual employees don't track the time, but, as I 

indicated earlier, you used measurable workload measures that are 

recoverable without the actual intervention of each individual employee, the presumption being that you could introduce into the 

mix of misreporting when you were relying on an individual employee to write down, "Today I did so much onshore, and I did so 

much offshore." 

So depending on the division that we are working with, we u.se 

a workload indicator that is recoverable from our automated systems or from some other methodology that doesn't require individual employee intervention. 

Mr. CALVERT. Do you track any type of time management at all 

as far as offshore or onshore type of activities? 

Mr. BROWN. No. The division of workload in terms of people's 

time is not tracked by onshore or offshore activities. As I said, as 

an example, in our compliance verification division where a unit is 

responsible for tracking producing leases, we divide up the costs in 

that unit by the amount of producing leases that are attributable 

to onshore activity, attributable to offshore activity, and are attributable to Indian activity, and then divide the entire costs of the 

unit by those indicators. 

We find that to be the easiest and best methodology that avoids 

any misrepresentations as a result of somebody misreporting their 

time. And it divides up the costs of such things as annual leave, 

sick leave, and Workmen's Compensation, and other costs that are 

attributable to operating the division. 

Mr. CALVERT. I just wouldn't think it would be that difficult to 

'It a track in your computer system just to track your various 

"e allocations. But I was just curious to find out how that is allo-
13 

cated through the system, but you don't have that type of statistics 

available? 

Mr. BROWN. No. 

Mr. CALVERT. Speaking of Indian lands, I realize they do not 

share in these costs-the States. At Mr. Hayworth's hearing yesterday, it gave us an idea of how much the Indian Trust Fund managers can't account for. But I am curious about how much money 

MMS spends on royalty collection on the Indian leases? And based 

on the previous question, do you have any idea? 

Mr. BROWN. Yes. I don't know how we could give you that. I am 

prepared to talk about how much was spent on onshore activities 

and what goes into the net receipts sharing formula. But we have 

available that information. I could provide that for the record. 

Mr. CALVERT. I would be curious to find out. Do you have that 

broken down by reservation, by tribe? 

Mr. BROWN. Well, certainly for the costs that we provided to, the 

202, which is the ancillary part of Section 205. Section 202 is contract, audits as performed by the tribes. I can give you specific information by tribe there. I don't want to be-not be forthcoming, 

but I am not certain that we have broken down the costs of the 

processing of production and royalty volumes by tribe within the 

system. I am not certain that I could do that. 

Mr. CALVERT. For those States with cooperative agreements to 

perform auditing, does the MMS deduct its own audit costs from 

receipts due that stayed under the net revenue sharing formula? 

Mr. BROWN. No. The amount of costs that are provided to the 

States for audit under 205 is not a part of the net receipts sharing 

formula. However, as I testified earlier, some costs associated with 

managing those contracts and costs associated with the training 

and audit manuals are spread across all the States that have 205 

agreements. 

Mr. CALVERT. Are some of those auditing procedures under Section 205 redundant? Do you move through those more than once? 

And I guess the question also would be if they are, do you count 

those costs duplicative back to the States? 

Mr. BROWN. Well, we struggle very manfully to avoid double 

counting of costs. I don't believe the costs of those manuals are redundant. What we are doing is, as I noted earlier, we spread the 

costs of the entire division and break it out by the offshore costs, 

the onshore costs, and the Indian costs. 

In the case of the audit division, approximately 77 percent of its 

costs are attributable to offshore, and the other 23 percent are a 

charge to the onshore and Indian activity. Because the methodology 

you use there is to distribute it by revenue. Collections in the vast 

preponderance of the revenues collected are offshore. 

Mr. CALVERT. And that was going to be my next question. What 

is a split on the onshore/offshore/Indian leases, and how did you 

formulate the split? You mentioned 70 what? 

Mr. BROWN. Again, speaking strictly about the audit function, 77 

percent of the costs are attributable to offshore activities, and the 

other 23 percent of the costs are attriLmtable to onshore and Indian. 

Mr. CALVERT. And you don't know what the split between the onshore and the Indian would be? 

26-475 0 - 96 - 2 
14 

Mr. BROWN. I don't have that at the tip of my fingers. No, Mr. 

Chairman, we could provide that for the record. 

Mr. CALVERT. I would appreciate that. 

Mr. BROWN. Sure. Mr. CALVERT. Thank you. Ms. McDougle, in your testimony you 

identify overhead costs as costly technical expertise and skills 

which are most efficiently provided on a regional and national 

basis. Could you describe for me these types of expertise and skill.s? 

Ms. McDOUGLE. Yes, I can, Mr. Chairman. Our surface minerals 

program is comprised of about two major components. One is determining land suitable for leasing, and the second one is reviewing 

and deciding on proposals to explore or develop. We also have the inspection and monitoring component as well. 

But in terms of the primary cost, we are talking about the leasing 

exploration and development components which require a NEPA 

analysis. The way we go about that is to form an interdisciplinary 

team of specialists to comply with NEP A. And this team includes 

geologists and foresters, range conservationists, biologists, botanists, engineers, archaeologists, mineral technicians, depending on 

the issues involved. 

These jobs are in the range of the GS-9 to 13 level, and the forest inspection and monitoring is performed by employees with various science or engineering backgrounds, depending on the expertise that is needed. 

Mr. CALVERT. These overhead costs count for $2.3 million of the 

total of $2.5 million in annual costs, which is mentioned in your 

testimony. What type of tasks or functions account for the remaining $8.2 million? 

Ms. McDouGLE. Of the $10.5 million that we estimated at the 

beginning of fiscal year 1995, we actually spent $9.8 million in 

total. The field activities such as I described a moment ago cost it 

$7.5 million, and the remainder is the overhead, the $2.3 million. 

Some of the things that we provide at the national and the regional level-some of the services, some of the technical skills we 

provide at those levels. We provide them there because we no 

longer can duplicate those skills everywhere. We have downsized. 

We have lost some of our institutional knowledge. 

And what we have done is determined who we have out there 

with these skills, and we deploy them to measure complicated 

projects on an as-need basis. It is easier for us to do it that wa.y, 

and to view national priorities and deploy them that way because 

we can no longer afford to have them at all units. 

Mr. CALVERT. What type of leasing moratoria exists on Federal 

service lands, and how much acreage is off limits because of that 

moratorium? 

Ms. McDouGLE. Moratorium? 

Mr. CALVERT. Moratoria on leasing on Federal property. Do you 

have a moratorium on any type of leasing on Federal property? Already leased but not drilled, to be more specific. 

Ms. McDoUGLE. Only in one region, and that is our northern region. And in terms of the acreage, I will be happy to provide that 

to the committee and staff. I don't have it here. 

Mr. CALVERT. Could you do that for us please? While you are 

doing it, I would like to know what portion of the $10.5 million 
15 

charge is attributable to the leases for which no drilling and oil exploration activities are permitted. 

Ms. McDoUGLE. I will be happy to provide that to the committee. 

Mr. CALVERT. And, lastly, before I turn it over to Mr. Abercrombie, does the Forest Service have an obligation to balance commodity needs with the ecology and its needs, and how is that accomplished? 

Ms. McDouGLE. The Forest Service, as all Federal agencies, have 

responsibility to comply with the statutes of the regulatory agencies always. And, however, they are viewed on a case-by-case, sitespecific basis in terms of what the issues are on the local level. It 

is very difficult to generalize in terms of what the compliance is, 

but it is very, very site-specific. 

We do it at several stages. When we develop our forest plans, we 

invite review and assessment of those plans if it contains any decision at that level. We also, when we get to the specific projects, do 

it again in a more rigorous way. And the outcome of those assessments by those agencies with regulatory authority determine how 

the project looks, if it goes forward at all. 

Mr. CALVERT. Thank you. Mr. Abercrombie. 

Mr. ABERCROMBIE. No questions. 

Mr. CALVERT. Mr. Abercrombie doesn't have any questions for 

this panel, but I want to thank you for your attendance, and we 

appreciate your testimony and answering the questions and look 

forward to your additional answers to questions we may be sending 

to you. 

Next, I would like to recognize our second panel. First, Elin D. 

Miller, Director of the California Department of Conservation; Donald L. Mason, Chief, Ohio Department of Natural Resources; and 

James W. Carter, Director, Utah Division of Oil, Gas and Mining. 

And, Elin, you can start your testimony whenever you like. 

STATEMENT OF ELIN D. MILLER, DIRECTOR, CALIFORNIA 

DEPARTMENT OF CONSERVATION 

Ms. MILLER. Mr. Chairman, Mr. Abercrombie, thank you for the 

opportunity to speak before you today. I appreciate being able to 

provide you with information regarding California's efforts related 

to the Federal Government's 1995 Reinventing Government II initiative. 

The State is very interested in the proposal to transfer oil field 

inspection and enforcement operations on Federal lands from the 

U.S. Department of Interior's Bureau of Land Management to the 

States, and I believe California has taken the first step toward that 

end. 

The Department of Conservation is responsible for regulating oil 

field production operations on both public and private lands 

throughout California. The Department also regulates producedwater injection for enhanced oil recovery and disposal operations. 

Because most Federal leases are interspersed with other leases 

in California's oil fields, the Department and the BLM have worked 

to develop compatible regulatory programs. Our most recent effort 

has been the development of a comprehensive memorandum of understanding that delineates areas of regulatory responsibility and 

eliminates duplication. 
16 

For any given activity on the BLM administered land within t::1e 

State of California, oil and gas operators are now obtaining only 

one permit and receive inspection from only one agency. 

The MOU was the culmination of an intensive two-year process 

by BLM and the Department staff that included the input and support of industry representatives. Its purpose is to clarify and simplify the permitting and regulatory process for operators and to 

avoid duplication wherever possible. 

The format is a general statement of purpose and intent follow~d 

by six operating agreements. The operating agreements may be 

changed as further streamlining opportunities are identified or as 

the need arises. 

During the development of the MOU, differences in the scope of 

our respective agencies' jurisdictional responsibilities were identified. The Department's primary focus is on downhole permitting 

and inspection, with emphasis on the protection of hydrocarbon reservoirs and groundwater aquifers. 

The BLM has similar responsibilities and, as landowner and royalty owner, requires environmental impact evaluations for surface 

land-use decisions and production audits for royalty verification 

purposes. 

To address these program differences, the MOU was designed to 

be flexible and intended to incorporate additional activities. The 

MOU was implemented fully on March 15, 1996, although certain 

provisions of this MOU have been in effect for some time. The most 

significant change is that with few exceptions permit applications 

will be filed with only one agency, and that agency will conduct all 

required field inspection activities for the permitted operation. 

For downhole well permitting-that is drilling, reworking, and 

abandoning--Dperations file essentially all applications for the production well permits with BLM. This eliminates duplicate filing 

and streamlines procedures. Conditions and approvals are prepared 

and issued by BLM. Likewise, BLM performs the field inspections 

for the downhole operations it permits. This operating agreement 

includes a list of more stringent State requirements than BLM enforces. 

To eliminate duplicative field activities, BLM permits all surface 

operations and performs inspections to ensure compliance with environmental and lease maintenance requirements. 

With the exception of injection wells and facilities, BLM permits 

and inspections cover tank, pipeline, and other facility operations, 

the closure of surface impoundments, and site restoration following 

well plugging and abandonment activities. Also, BLM issues rightsof-way for pipelines. 

The Department has primacy for the U.S. Environmental Protection Agency for the Underground Injection Control permitting and 

approves all water injection projects, including all oil field wells 

that inject liquid, steam, or gas. The Department inspects injection 

facilities, including injection pumps, pipelines, well heads, et 

cetera. 

Wells used for cyclic steaming are permitted by BLM. Also, observation wells which do not inject fluids are permitted by BLM. 

The BLM approves notices to convert injection wells to production 

status or other use. The BLM and the Department idle-well policies 
17 

are similar and require testing of long-term wells to ensure mechanical integrity and protection of groundwater and oil and gas 

resources. 

The BLM conducts an idle-well monitoring program on ELM-administered land, addressing both its land management and regulatory responsibilities. Both agencies conduct programs to minimize 

the number of orphan wells and work with industry to address 

wells without a responsible operator. When required by statute, State well-bond coverage must still be obtained in addition to BLM 

leased bonds. However, the agencies are committed to eliminating 

this dual requirement. 

The BLM and the Department worked cooperatively, sharing information, provided only to one agency, and striving for well record 

automation which can be managed and accessed electronically. 

Furthermore, the agencies may exchange personnel so staffs are 

more familiar with each others' functions and operational processes. 

The MOU described serves to reduce costs, eliminate duplication, 

and streamline procedures. I will identify it as goals and the first 

recommendation of States for the REGO II transfer report. While 

we continue to evaluate the effectiveness of the MOU, California 

will begin discussions with BLM regarding the next logical step in 

the process-identification of costs and savings, if any, that State 

assumption of ELM's permitting and inspection programs might realize. 

It is our expectation that California could undertake all 

downhole permitting and well inspection activities on BLM administered leases at no cost to the Federal Government. This is possible because California is in a unique position of having the most BLM leases concentrated in one geographic area and 

interspersed in the checkerboard fashion among private leases in 

a heavily developed area. 

The assumption of other responsibilities would require additional 

State resources, and our decision to assume these responsibilities 

can only be made after we thoroughly examine the costs and benefits to the State, the operators, and taxpayers. Thank you, Mr. 

Chairman. 

Mr. CALVERT. Thank you, Ms. Miller. Could you please submit 

for the record the copy of the MOU for us? 

Ms. MILLER. Yes. I would be happy to give that to you. 

Mr. CALVERT. Thank you very much. Next, Donald Mason, Chief, 

Division of Oil and Gas. You may begin your testimony. Thank you. 

STATEMENT OF DONALD L. MASON, CHIEF, OHIO 

DEPARTMENT OF NATURAL RESOURCES 

Mr. MASON. Good afternoon, Mr. Chairman, and members of the 

House Energy and Mineral Resources Subcommittee. Thank you 

for providing this opportunity to present testimony on a subject of 

transferring oil and gas inspection and enforcement authority from 

the Federal Bureau of Land Management to the State governments. My name is Donald L. Mason, Esquire, Chief of the Division 

of Oil and Gas, Ohio Department of Natural Resources. 

Additionally, I have been designated as the associate representative to the Interstate Oil and Gas Compact Commission by the 
18 

Governor of Ohio, George V. Voinovich. As a member of the 

IOGCC, I am Chairman of the Illinois-Appalachian Basin Regulatory Directors and am here today to represent their concerns and 

viewpoints as they pertain to REGO II. 

As regulatory chiefs, we are accustomed to managing State programs according to Federal delegation or to State law, whichever 

pertains to the appropriate situation. Secondly, by being close to 

our constituents and to industry organizations, we are able to understand how government can best serve the needs of the citize'J.S. 

To summarize, REGO II is the distribution of enforcement and 

inspection workload from the Federal Government's Bureau of 

Land Management to the respective State governments, oil and gas 

regulatory programs. We support the REGO II concept because it 

can lead to reduced government overlap and an increased likelihood that the oil and gas industry will be regulated with the appropriate controls. 

The eastern States have unique concerns that do not exist in the 

States west of the Mississippi River. Presently, operators of many 

wells are burdened with strict reporting requirements that may be 

applicable to large producing wells in western States. But when applied to older, lower volume Appalachian wells, create an artificial 

economic hardship to the operator and ultimately cause the premature plugging of the wells. For example, operators must measure and report on a monthly basis oil and tank facilities whether 

or not it has been picked up for sale. 

Secondly, highly technical expensive equipment for measuring 

volume based on temperature is specified, even though temperature does not play a role in low production wells for which the operator may never recapture his investment. 

Our wells are typified by low but steady production. It is not unusual for wells to operate 30 to 50 years providing oil and natural 

gas. The need to keep these wells on line and producing is in our 

States' and national best interest. 

For example, in Ohio, many rural gas consumers are served off 

gathering lines that collect natural gas directly from the well head. 

This is especially true in southern Ohio and the area known as the 

Wayne National Forest. State rules are more than adequate to deal 

with any situation that may arise in connection with operation at 

these wells. And State inspectors are present in almost every producing county. 

We encourage the transfer from the Federal Government to the 

State government the authority to regulate permit and inspect all 

wells on Federal leases. Presently, State inspectors oversee these 

functions, and the Federal involvement is at best redundant and at 

worse, conflicting with State requirements. 

Typically, State law and regulations are based on decades of information gathering and analysis of geologic situations, unique to 

every geographic area. Such laws directly relate to local environmental, health, and safety concerns. For example, the States are in 

the best position to play surface case requirements to protect underground sources of drinking water because the States are mapping such zones. 

The States have field enforcement staffs providing advice based 

upon years of local experience to operators, even though ma.ny 
19 

times these wells are drilled or operating on Federal leases. When 

problems arise, the State inspector is the first to be called out to 

the site. It has the authority to oversee corrective action. 

These low producing wells are an asset to the States because 

they provide a local supply of natural gas during extreme cold 

months when interstate transmission lines do not have the capacity to handle the extreme demand. 

In Ohio, last calendar year saw a 10 percent increase over the 

35-year-average in cumulative degree days. Therefore, the rural 

customers-schools, institutions, hospitals and homes- were kept 

warm because a local production was available. We encourage these wells to continue to operate even through 

their later years. Practical, tailor-made, environmental and business practices must apply to them. By transferring enforcement 

and inspection functions to the States, such tailor-made rules can 

be put in place in lieu of Federal regulations that attempt to apply 

cookie-cutter standards that do not work well in all parts of the 

country. 

In closing, let me refer to a speech made February 6, 1996, by 

President Clinton to the National Governors Association. He states 

that we cannot solve the complex problems of the modern world unless we have worked together in a genuine spirit of community 

where everyone does his or her part, where we sharply define what 

the role of the government is and what the role of the Federal, 

State, and local governments are. He goes on to say that we know 

that one-size-fit-all regulation of government does not work. Thank 

you very much for this time. Mr. CALVERT. Thank you for your testimony. Next, Mr. Carter, 

Director of Utah Division of oil, gas, and mining. Mr. Carter. 

STATEMENT OF JAMES W. CARTER, DIRECTOR, UTAH 

DIVISION OF OIL, GAS AND MINING 

Mr. CARTER. Thank you, Mr. Chairman, members of the committee, we appreciate the opportunity to discuss with you the Bureau 

of Land Management's 1995 REGO II proposal to transfer Federal 

oil and gas inspection and enforcement functions to the States. 

I am appearing before you here today as a representative of the 

Interstate Oil and Gas Compact Commission, an association of 29 

member States and 6 associate States, originally formed by the 74 

U.S. Congress in 1935 to conserve the country's oil and gas resources and support the oil and gas producing States in effective 

regulation of petroleum exploration and development activities. In March of 1995, the Bureau of Land Management proposed to 

transfer certain Federal oil and gas field inspection and enforcement functions to States and tribes. The thrust of the BLM proposal is to transfer Federal inspection and enforcement functions 

under the existing authorities contained in the Federal Oil and Gas 

Royalty Management Act of 1982, FOGRMA. 

Last fall, the IOGCC convened a working subgroup of its standing Public Lands Committee to evaluate the BLM transfer proposal 

and to provide the BLM with a coordinated State response. As you 

would expect, the 29 IOGCC member States don't have identical 

views of the petroleum world, but their regulator objectives of all 

the State programs are very similar. 
20 

It was, therefore, possible to develop a consensus response to the 

BLM proposal, which response was formally adopted by the IOGCC 

at its 1996 spring quarterly meeting and was presented to the Department of the Interior and the BLM shortly thereafter. A copy of 

that proposal is attached to my submitted written testimony, and 

I ask that it be made part of the record. 

Mr. CALVERT. Without objection, so ordered. 

Mr. CARTER. Thank you. In a nutshell, the IOGCC believes that 

the BLM transfer proposal is a step in the right direction, and that 

cost savings and program efficiencies are possible. However, the 

IOGCC believes that the scope of the BLM proposal is too narrow, 

and that in order to fully realize the program economies and efliciencies available, the States and the BLM must step out of the box 

and take a fresh comprehensive look at the whole regulatory program free of the constraints of existing policies, procedures, guidelines, and perhaps even the regulations themselves. 

The existing FOGRMA delegation authorities essentially allow 

the BLM to hire States to perform Federal inspections against Federal regulatory requirements. Violations written by State inspectors would be appealed through Federal administrative and judicial 

processes. 

While some economies of operation may be available with sueh 

limited delegation, the IOGCC States believe that far more significant program improvements are achievable by utilizing more efficient, and cost effective means to obtain desired results. 

The broad objectives of the oil and gas regulation, the program 

for States and the Federal Government are so similar as to be almost identical. In fact, the BLM's own regulatory program was designed in the late 1950's based on the IOGCC model program. 

The IOGCC believes that the only significant differences between 

the State and Federal oil and gas regulatory programs are the d:iffering methods which have evolved over time from that common 

IOGCC-designed root. The benefits of streamlined and consolidated 

regulatory programs are several. The IOGCC believes that substantial cost savings to both the States and the Federal Government 

are possible. 

In the event, consolidation of a single State and Federal programs can be accomplished, the operators in that State will have 

a single regulatory agency to work with. In the event, a numb-er 

of State and Federal programs can be consolidated, it is likely that 

the differences between State and Federal programs and between 

State programs will diminish. On a more philosophical level, the IOGCC believes that it is incumbent upon all levels of government to operate more efficiently 

and cooperate more fully in providing public services. To date, a 

number of IOGCC member States have been conducting productive 

discussions with our BLM counterparts. 

Several, as you heard including California and Colorado, have 

identified efficiencies and entered into agreements with the BLM 

to take advantage of them. 

While we remain cautiously optimistic, we have not yet received 

a clear commitment from the Bureau of Land Management to discuss functions beyond the somewhat limited delegations currently 

authorized by FOGRMA. 
21 

No State has yet taken advantage of existing FOGRMA delegation opportunities. Our concern is that the absence of support by 

the BLM for comprehensive discussions of streamlining, simplification, and consolidation of Federal and State oil and gas regulatory 

programs may stifle otherwise productive discussions. And they ultimately thwart the objectives of the REGO II initiative itself. 

The breadth and objectives of the discussions IOGCC States hope 

to have with the BLM are set out in an IOGCC resolution dated 

May 7, 1996, a copy of which is also attached to my testimony. We 

are cognizant of ELM's concerns that there may be legal impediments to delegation of certain functions. 

We are also cognizant of ELM's need to ensure that Federal 

standards are met. IOGCC's proposal is to set aside discussion of 

impediments for the moment and to work with the BLM to identify 

and quantify the on-the-ground performance standards the ideal oil 

and gas regulatory program would achieve. We should then evaluate the effectiveness and efficiency of both 

Federal and State tools now in use in pursuit of those performance 

standards and select the best tools for the ideal program. Only then 

should we identify impediments to implementing the best program 

when we are in a position to make the necessary corrections. 

There is no doubt that implementing the IOGCC's proposal, or 

even consummating a single FOGRMA transfer, will be complex 

and difficult. It is, however, the work the States and the BLM 

should be doing now. We appreciate the committee's interest in this 

important initiative and request your support for comprehensive 

and innovation-seeking discussions between the BLM and the 

IOGCC member States. Thank you. [Report may be found at end of hearing.] 

Mr. CALVERT. Thank you for your testimony. Director Miller, 

once again it seems like California is leading the way for the rest 

of the nation. Your testimony makes that quite clear, but we both 

know Ed Hasty-he is certainly a unique individual. He is the 

State Director for the BLM. It makes me want to go out and get 

a haircut just thinking about him. Do you think that other BLM 

State directors could do the MOU's that you just described or the 

other States can do just as well? 

Ms. MILLER. Actually, with this MOU, although it took a couple 

of years, and I think a lot of times it is motivating at the middlemanagement level as well as from the top. It took a couple years 

to get this together. But at this stage at least we-our main goal 

in the first phase was to make sure we were in sync with environmental protections and all, and in California's case, ours are more 

stringent in many cases than BLM so BLM is actually enforcing 

our standards. 

But the whole idea was to have a one-stop shop for the regulated 

industry. So now there is one permit-a singular place to go. This 

next step is the critical part as far as I am concerned. When we 

take a look at the costs and efficiencies of doing it the way we are 

doing it now, unless you might have understood my testimony-a 

lot of it BLM is doing under this MOU. And it is our feeling that 

we can take it over at no cost to the Federal Government. 

Most of the inspection-enforcement so that is really where the 

rubber is going to meet the road, and our discussion of the next 
22 

step that !-hopefully we will be proceeding on in the next couple 

of months. Mr. CALVERT. Well, that sounds great. Maybe States like Wyoming will just want to copy California. Mr. Mason, in your testi- mony, you speak to Ohio's ability to properly and effectively enforce 

environmental and operational guidelines. How can the Federal 

Government be sure that the Ohio program is adequate? 

Mr. MASON. There is probably a couple of ways. One is just recently the United States EPA, with the IOGCC, did a peer review 

of many of the States. Ohio was one of them. We were found to be 

extremely solid. There was no shortcomings. We were encouraged 

to do more studies in terms of bioremediation. But as far as our 

programs, they are rated amongst the best in the nation. 

Secondly, the State of Ohio has the ability to environmentally 

protect the waters of the State, literally. The waters of the Stateis everything-that is not an artificial holding pond. So, therefore, 

we can protect all waters in the United States-excuse me-in the 

State of Ohio. So, therefore, our standards are actually more stringent than what Federal standards are, for example, for SPPC and 

things of that nature. 

Mr. CALVERT. Mr. Carter, throughout the discussions we have 

been having, it is my understanding that the transfer of the inspection and enforcement responsibilities would produce cost savings 

and program efficiencies, obviously. With those thoughts in mind, 

what amount of funding do you expect from the Federal Government to perform these functions? 

Mr. CARTER. Well, Ms. Miller is going to be tough to follow. I 

think that the objective certainly is cost savings. I think that 

should be the primary objective. And IOGCC's suggestion is that 

there are substantial differences between the States, existing State 

regulatory programs, and Federal regulatory programs, and differences in where the lands are located. 

Now, I can speak for Utah. I think there are aspects of the 

BLM's regulatory program that the State of Utah is currently already performing, and that BLM can simply cease performing those 

activities. We can initiate some reporting mechanisms or something 

of the kind to ensure that their objectives are being met for no cost. 

I think there are other aspects of the regulatory program that 

would require the State of Utah to assume additional workload 

burdens depending, again, on the flexibility we have to reinvent the 

process if we are to simply assume the work BLM is now doing is 

exactly the way they are doing it. I think there is a relatively small 

incremental savings we can offer. But if we are allowed to reengineer their process to more closely 

align with our existing processes, we think there could be substantial savings. Since we are bidding here, I will say in the neighborhood of 50 to 60 percent of their program cost. 

Mr. CALVERT. You are getting closer to California. 

Mr. CARTER. This is going to be very tough to put it against. 

Mr. CALVERT. Mr. Abercrombie. Mr. ABERCROMBIE. No. I appreciate the testimony, and while it 

seems quite detailed, nonetheless, it seems much too general for 

me. I don't understand what all the difficulty in figuring out what 
23 

the costs are. I can't find anything in any of the testimony here. 

It just simply puts how much it costs to do each of these things. It doesn't seem to me that hard to figure out. You already sayMr. Carter-! will use you as-because you had it here the transfer 

of oil and gas inspection-responsibilities-this addendum here. I 

have gone through it. It seems to me pretty good. You have everything in here. 

The Federal Government sets the minimum standards at least 

that everybody has to follow so you don't get off into some kind of 

50 State morass, particularly because we know that where minerals are concerned, you cross boundaries, there is all kinds of regional problems associated with everything from marketing to extraction. 

All right. There are geological problems, geographical problems, 

regional problems, water commissions, dams, rivers running 

through States across lines, et cetera. All those things that come 

into play. So it is not as if it was simply a matter of, you know, 

shrugging off a mantle of Federal bureaucracy or whatever the cliche of the moment might be. The point would be is to have a series of, or a set of, standards, 

rules, regulations, which would be applicable in virtually every instance in a generic way, and then apply them as it makes sense, 

either State by State or intrastate. Are you with me so far? 

Mr. CARTER. I think I am. 

Mr. ABERCROMBIE. If that is the case then, and the idea then, 

once that is set up, is to minimize the role of the Federal Government and actually doing things that States could do or are already 

doing. 

I am not quite sure exactly where the savings would be because-unless there was a showing of duplication where someone 

was merely verifying that you are doing what they already do at 

the Federal level. 

In that instance, I am perfectly content to let the States do it all 

and simply establish a reporting mechanism where there is someone and perhaps particularly under circumstances where you have 

computerization now, where you could be monitored in that sense. 

Now, obviously, you are going to have to be dependent upon professionalism and standards of conduct that would not allow for fudging information and all those things. 

But presuming professionalism and presuming good faith and 

good will being exercised, there is no reason why States and/or regions couldn't do this kind of thing and indicate whether they are 

in compliance with these generic rules and regulations and standards, and meet such further specific standards, rules, and regulations as might be required given the context of whatever mineral 

or other aspect was being pursued. 

So if that is the case, and it appears from reading all of this that 

there is a good contact between the Federal Government and the 

State's already. The people know one another. The forms and functions are pretty clear. Couldn't the Chairman have in relatively 

rapid order a proposal from the States and the Federal Government to move and do this? 

Mr. CARTER. I think there is a sufficient difference between the 

circumstance of the States. This is really what we ran up against 
24 

as we were working with the 29-member States to come up with 

a comprehensive proposal. 

We couldn't get very specific because, for instance, in Wyoming 

and New Mexico they are very well established and have quite separate Federal regulatory programs and State regulatory programs. In Utah, we see the Federal inspectors everywhere we go, and they 

see us. And there is, I think, a great deal of duplication and overlap that can result in a lot of savings if we eliminate it. 

But I think the hangup in my perception right now is that there 

has been not a willingness on the part of the Bureau of Land Management to discuss standards in the general sense. In other words, 

I read the proposal to be we would like you to do our inspections 

exactly the way we do them against our regulations. 

And the States are saying, "We have got regulations that cover 

those exact same subject areas, and since we have been doing this 

since 1935, have figured out more efficient ways to get those same 

results." 

Mr. ABERCROMBIE. I understand. 

Mr. CARTER. We think we can make you an offer that will be attractive, much like a contract. We can deliver the results. Mr. ABERCROMBIE. I understand. Well, how long will that take? 

Mr. CARTER. We could put together a proposal I think in 60 days. 

Mr. ABERCROMBIE. OK That is what I was thinking, because if 

I just look at the May resolution of the IOGCC, BLM dialog on regulatory issues that is attached to your testimony. What it really 

comes down-the last-the be it resolved section is just one long 

sentence--well, I shouldn't say one long sentence. It is a summary sentence of the dialog that we have just had .. I 

think, and there is nothing to prevent a State from having more 

stringent-just as constitutionally there is nothing to prevent aay 

State from, say, expanding the First Amendment or the Second 

Amendment or the Third Amendment provided they don't diminish 

it to the Constitution. 

Same here. There is nothing to say-prevent a State from saying, "Well, with respect to-let us say that. You know, with respect to 

bauxite, whatever it is. Because of the unique characteristics and 

circumstances of our topography and all that, we want even more 

strict or a broader range of responsibilities to be met before we will 

sanction or certify some activity. " 

You could do all of that, but I guess my point then is like I say, 

60 days. I am certainly not trying to say this is easy or it is some 

kind of perfunctory exercise, but to the degree that there is already 

from what I gather relatively sophisticated inspection and fee process, then maybe we could just move ahead with this in fairly rapid 

order. Mr. CARTER. I think the only impediment is if I made--actually 

I could put together an offer in less time. We have a proposal in 

draft. We are not sure though that the Utah State Director has direction from his higherups to discuss with us the kind of proposal 

we would make because our proposal would be driven by existing 

Utah regulations. We would invite them to evaluate our program 

and the performance of our program against their objectives and 

make recommendations to us about improvements, we might 

make-
25 

Mr. ABERCROMBIE. Well, the Chairman has shown me some more 

of the detail, and I think the proposal is 90 days. Am I reading that 

correctly? 

Mr. CALVERT. This is fiscal year '97, Mr. Abercrombie. 

Mr. ABERCROMBIE. On the Interior appropriations bill it would be 

90 days. Do you think that would be a sufficient amount of time? 

Mr. CARTER. I think it would be. 

Mr. ABERCROMBIE. Does everybody else agree? 

Ms. MILLER. I would agree. 

Mr. ABERCROMBIE. OK. 

Mr. MASON. Can I add one point to answer a question? 

Mr. ABERCROMBIE. You can if the Chairman indulges me because 

the red light is on. Mr. CALVERT. Go ahead. 

Mr. MASON. One of the difficulties we have had in Ohio in identifying what the savings would be in the eastern States that work 

out of the BLM Milwaukee Office, the cost is not broken down on 

a State-by-State basis. So once BLM would break that down for us 

on a State-by-State basis, we could turn around and tell you how 

much you are going to save. For Ohio, since we are doing everything anyway, whatever is being spent in Ohio is money that could 

be moved to the save column. Mr. ABERCROMBIE. Well, I appreciate that. Let me just conclude 

then, if you will indulge me just a moment further. I would not presume myself that all of this is going to amount to savings. There 

may be some instances or maybe several or I don't know, I won't 

say a majority of instances, but in such instances where more expense is required in order to do the job right, I think then that 

should be brought forward to. What we are looking for is to safeguard the public interest here as well. 

So it is not an axiom, at least from this member's point of view, 

that in every instance there will be what can be construed as being 

a savings. Because I am sure just like any other category of savings 

and expenses, it depends on who is doing the books and what the 

accounting methodology is. 

And without trying to say that there is going to be trickery in- volved, what I mean is is that depending on the accounting approach that is taken, I am presuming that not in every instance 

you will be able to put a savings column category to it. 

Mr. MASON. May I respond briefly? The context of the IOGCC 

proposal is a negotiation, and our vision is that the States would 

be free and the BLM State directors would be free to negotiate free 

of the constraints of-you can only delegate it exactly the way it 

is already written up. 

Mr. ABERCROMBIE. So the bottom line would be is that where you 

could get savings and be efficient, fine. Where it costs a little more 

in order to be efficient, that would be the recommendation based 

on professional judgment. And overall one would hope then that 

you would achieve the most efficient and cost saving approach. Is 

that a fair summary? 

Mr. MASON. That is. 

Mr. MILLER. Mr. Chairman, if I may also add, I think when you 

look at our relationship with EPA, with the underground injection 

control program, and that being a performance-based program, that 
26 

would be an ideal way to look at this we think with BLM. The EPA 

and California has periodic review meetings, and we file annual reports to them to meet their overall standards. So once again them-basically having us in charge of that program in the State of California with the type of oversights on a 

performance base versus the widgets, and this is exactly how you 

will perform the inspection. And I hope that will be the dialog we 

will get to with BLM. 

Mr. CALVERT. Thank you. Just as a comment as a side on this, 

I wonder from some testimony I heard the other day regarding the 

Native American Indian Tribes where we absorbed the entire cost 

of collection on royalty collection on tribes, but yet we are missing 

about $2.4 billion. And I know the Osage Tribe already collects on their own-the 

royalties, and gives it to the United States Treasury, and they 

wouldn't have it any other way. I wonder if some tribes may feel 

the same way about now--collect their own revenues just to make 

sure they receive them, even if it is an additional cost to them. 

With that, I will ask the gentlelady from Wyoming if she has any 

questions. 

Mrs. CuBIN. Yes. Thank you, Mr. Chairman. I would like to address a couple questions to Mr. Carter. You have testified in front 

of this committee on the issue of redundant regulations in inspections and so on-in cooperations. And as you are aware, I have introduced a bill, H.R. 2372, that is intended to fix these 

redundancies in the coal industry. 

How do you think, if this devolution occurs in oil and gas, h•)W 

do you think you will be able to avoid those same kind of problems? 

Mr. CARTER. Let me start with a reason that I believe they won't 

occur-won't be as severe initially, and that is that in this circumstance, we are talking about regulatory programs that have 

been running for years and years. In the coal program circumstance, we had a brand new Federal program with initial implementation by a Federal agency, and then devolutioned to the 

States on a primacy basis. 

So right off the bat, I think we don't have to argue too much 

about whether the States can do it or are going to be tough enough 

or whatever because all you have to do is look at the State's history 

and draw your own conclusions. 

I think that what Ms. Miller spoke about is really the key to 

oversight, and that is that the oversight that is performed needs 

to be performance based. And I am pleased to report then in the 

coal regulatory program, the Office of Surface Mining and the 

States are beginning a new performance-based oversight plan 

which will focus on the actual outputs of results of the implementation of the program in Utah and compare those against the objectives of the law-adequate reclamation and environmental protection. 

So oversight that is focused on the result rather than on the 

process, and the means by which the result is achieved is really the 

only oversight that tells you anything. And I think for years and 

years the difficulty that OSM and the States experienced was OSM 

was trying to perform oversight by critiquing the inputs-the 

mechanisms-and was unable to measure anything much by doing 
27 

that, and it drove the States nuts. So I think a key would be an 

appropriately designed oversight plan. 

Mrs. CUBIN. Well, frankly, I think all of our environmental laws 

and rules and regulations should be based on outcomes rather than 

technologies and certain regulations that don't fit either in an area 

or a technology or something like that. 

And I am aware of the fact that OSM has really made progress 

as far as the problem with notices of violations are concerned. My 

main worry and the reason that I continue on with H.R. 2372 is 

that when the personnel changes in OSM, the policy could change 

too. And that is something that I, frankly, would like to avoid. 

I think that the industry deserves to have stability and predictability, the oil and gas industry, the coal industry, whatever, and 

that we ought to deal with the industries that create good paying 

jobs for our workers in a manner that helps them stay in business 

and pay for government and all those things they do. Thank you 

very much. 

Mr. CARTER. Thank you. 

Mr. CALVERT. Well, on the personnel changes on OSM, I wouldn't 

mind doing that through an election process. The gentleman from 

Ohio. 

Mr. CREMEANS. Thank you, Mr. Chairman. Mr. Mason, welcome. 

Glad to have you from the great State of Ohio. I, a number of years 

ago, and since then even, have been on different occasions asked 

the question about the duplication of both the State environmental 

people and the Federal and not only environmental agencies and 

representatives, but surface mining in Ohio and a number of other 

equally important agencies. 

And the claim that has been made is that many times as a ven- dor or an operator either in pursuit of natural gas or other minerals, namely coal or aggregates, the question has arisen about the 

conflict between the interpretation of the law, and which usually 

results in the vendor or the private owner being the victim if I 

could stretch it that far. 

I never heard-and perhaps you would want to comment on 

this-I have never heard anyone step forth and say that there is 

a positive side to having both a Federal agency and also a State 

regulatory agency. I would like to ask your comment on that as I am very-seem 

to be over the last at least 15 years, I think that the great State 

of Ohio is doing a very adequate job as far as regulating, you know, 

these protected mechanisms throughout the State of Ohio. Do you 

have a comment either for or against that particular comment that 

I am frequently asked? 

Mr. MASON. Mr. Chairman, Mr. Congressman, that is an excellent question that goes to the very heart of what we are discussing. 

And I can honestly tell you I cannot think of an instance where duplication has yielded a better product. If we have a question at 

State government regarding a matter, a lot of times we do go to 

the Federal Government for insights, how other States handle it, 

things like that. That is just good communication. We basically can run a better program locally because we know 

where the geology is, we know where the geography is, we know 

who the players are. If there is a problem in one part of our State, 
28 

we can deal with that. Again, on private property versus-we can 

deal with the problem on a Federal lease. So I cannot think of any 

additional arrows that we can have by having two different entities 

out there. 

My background is primarily oil and gas. I do have knowledge of 

the coal mining industry in Ohio. Again, I am from southern Ohio, 

and there seems to be a lot of duplication there also. Mr. CREMEANS. The issue about environmental protection, as a 

matter of fact, continues to surface, and the question that I am 

asked, given the shift from Washington back to the States, can we 

be assured that the great State of Ohio or Utah or any other State, 

Wyoming, will actually provide the same level of protection without 

the strong arm of the Federal Government? And, if so, how? 

Mr. MASON. Let me give you a good example. Two nights ago, I 

was at a public meeting north of Youngstown 30 miles. The Bureau 

of Land Management is looking at leasing out property underneath 

Mosquito Creek, which is about a 9-mile long by one-mile wide 

lake. 

The citizens of that area asked what kind of casing protection 

can be required by the BLM? Their answer was to protect the aquifer. Their answer came back, "Well, we really can't make it more 

stringent here than anywhere else." The nice thing is I was abJ.e 

to answer that. 

The State of Ohio does have a law in place that we use very routinely, where we can upgrade casing requirements to protect 

aquifers. And in this case, it was a well head protection area. So, 

frankly, to answer your question, we can do it better because, in 

fact, we have the authority to protect waters of the State, whereas 

the Federal Government really does not. 

Mr. CREMEANS. Thank you, Mr. Mason. Thank you, Mr. Chairman. I yield back. 

Mrs. CUBIN. Mr. Chairman? 

Mr. CALVERT. Yes. 

Mrs. CUBIN. I would like to put into the record a statement from 

Senator Craig Thomas who is not able to be with us today. 

Mr. CALVERT. Without objection, so ordered. 

Mrs. CUB IN. Thank you. [Statement of Senator Thomas follows:] 

STATEMENT OF HON. CRAIG THOMAS, A U.S. SENATOR FROM WYOMING 

Mr. Chairman, I want to thank you for holding this hearing today to further ex- amine the royalty management program at the Minerals Management Service 

(MMS) and other Federal land management agencies. This is not a new issue. I 

have long been an advocate of looking for ways to allow States, such as Wyomir;.g, 

to manage the collection of Federal mineral royalty receipts. 

Collection of mineral royalties on Federal lands is vital to the economy of Wyoming. As many of you know, rou~hly 50 percent of my State is owned by the Federal 

Government. This has some senous consequences for Wyoming's residents and re- quires the State and the Federal Government to work together on numerous issues. 

Resources collected from the mineral royalty program are used to support various 

programs including education, road construction and payments to towns and coun- ties. 

For a number of years, I have been interested in the way the MMS collects royalties on Federal lands. Wyoming is by far the largest producer of mineral receipts on Federal lands and has an important stake in ensuring these funds are collected 

in an efficient and cost-effective manner. Unfortunately, the MMS has not been 11p 

to the task and continues to operate inefficiently. 
29 

The MMS is a Federal agency that must be overhauled. It is a classic example 

of a Federal bureaucracy that is both costly and performs the same function as State audit agencies. Most of the States have similar collection programs, but they 

do this work far more efficiently and with less expense. In fact, in a hearing before 

this Subcommittee in 1993, then Governor Mike Sullivan of Wyoming testified that 

it costs the State of Wyoming roughly $5 in administrative costs to collect $1000 

in royalties, while it costs the MMS roughly $58 to collect $1000 in royalties. This 

is nearly a 12-fold increase in the administrative costs. 

There have been a number of proposals discussed to address this situation and 

give the States more authority over the royalty collection program. The House has 

passed and the Senate is currently considering the "Federal Oil and Gas Royalty 

Simplification and Fairness Act of 1996," which is designed to streamline the royalty collection process and give the States the opportunity to assume some royalty 

collection and audit functions. In addition, in 1995 the Clinton Administration proposed abolishing the MMS and transferring the royalty collection functions to the 

States. However, the proposal was never seriously considered by the Department of 

the Interior and was withdrawn a few months after it was proposed. 

In an effort to gather additional information regarding the costs of the MMS royalty collection program compared to the States, I have asked the General Accounting Office (GAO) to conduct a review of costs associated with the onshore portion 

of the royalty collection program at the MMS. Specifically, I have asked the GAO 

to compare the costs of royalty collection and audit programs in Wyoming, New 

Mexico and California and contrast those with MMS. I am hopeful the GAO will 

be able to provide additional insight into this situation and give some answers re- garding the high cost of the MMS program. 

Mr. Chairman, it is clear the current net receipts program at the MMS is not 

working. Although there have been some positive actions taken by the agency to 

streamline operations and reduce costs, the program is still inefficient and costs significant amounts of money. Rather than trying to preserve the same old system of 

royalty collection on Federal lands, I believe we should give the States the opportunity to assume the royalty collection and audit functions. 

Thank you again, Mr. Chairman, for holding this hearing today. I look forward 

to continuing to work with you and the Subcommittee to develop some solutions 

that will give the States more authority to collect these royalties. 

Mr. CALVERT. Any other questions for this panel? If not, thank 

you very much for coming out long distances or little distances. We 

appreciate your testimony. The last panel today from industry. 

First, Gene Kozlowski, President, MAKOIL, Inc.; Frank Yates, Jr., 

Vice President, Yates Petroleum Corporation; Danny Thompson, 

General Manager of Carlton Oil Corporation; Dan Kramer, the Executive Director, California Independent Petroleum Association; 

and Randy Maebon, Regulatory Coordinator of the Rocky Mountain 

Region, Marathon Oil Company. Gene Kozlowski, you may begin 

your testimony. 

STATEMENT OF GENE KOZLOWSKI, PRESIDENT, MAKOIL, INC. 

Mr. KoZLOWSKl. Mr. Chairman and members of the committee, 

it appears as though all the bureaucrats have left, and now we are 

down to the folks with desperation in their heart every day and 

night who go out and try to find more oil and gas so we can be in 

here talking about royalties. 

I am Gene Kozlowski, an independent oil and gas producer. My 

company, MAKOIL--and we, incidentally, make oil-is the largest 

producer of oil and gas from Federal lands in the State of Nevada. 

As you may know, 85 percent of the State of Nevada is Federal 

lands. I am here today on behalf of the Independent Petroleum Association of America, the IP AA, a national trade association representing more than 5,500 independent oil and natural gas producers. 

26-475 0 - 96 - 3 
30 

I also appear on behalf of the Independent Petroleum Association 

of Mountain States, IPAMS, which represents independent producers in 11 western States in the Rocky Mountain region. My comments reflect the views of independents producing from Federal 

leases throughout the West where most of the Federal lands are located. 

Independents are the major force in developing America's oil and 

natural gas resource base. We drill 85 percent of the nation's wells, 

produce 65 percent of the natural gas, and 40 percent of the domestic oil. Despite this record nationwide, independents generally have 

not looked to onshore Federal lands as a promising place to do 

business. We believe that Federal lands hold enormous potential oil 

and natural gas. 

However, we know that operating on Federal lands can be expensive and subject to frequent and costly delays in acquiring needed 

permits. As a result, independents are not expanding their exploration and production on onshore Federal lands. With your help, 

however, we hope to change that. 

Of the almost 2.3 billion acres of land in our nation, nearly 650 

million acres, or 29 percent, is owned by the Federal Government. 

More than one-fifth of the total oil production and one-third of the 

natural gas production in the United States comes from public 

lands. A recent U.S. Geological Survey report concluded that the 

greatest potential for oil and gas development in America is on 

lands under Federal stewardship. 

The orderly development of domestic oil and natural gas resources makes more than just economic sense. Less than 18 

months ago, President Clinton reported to Congress that his investigation through the Department of Commerce under the Trade Expansion Act found that America's increasing dependence on imported oil threatened to impair U.S. national security. 

Now, unfortunately, nothing was done about it. Therefore, maintaining access to public lands for oil and gas development is essential to America's energy security. However, the people who decide 

where to invest in oil and gas development are shying away from 

onshore public lands. 

The first step in encouraging development of oil and gas on Federal lands should be a cooperative effort to identify and eliminate 

any and all duplicative and unnecessary costs associated with onshore development. There are currently unnecessary costs associated with obtaining Federal leases, getting permits to drill, payment of royalties, and auditing procedures. 

The cost and uncertainty associated with each of these steps 

drives independent oil and gas producers away from Federal onshore lands. A result is that America is more dependent on foreign 

oil than it really needs to be or has ever been. We must step up 

the efforts to get the Federal Government, State government, the 

industry, and the public to work together on Federal lands for the 

good of all involved. 

In the Federal royalty arena, your bill, Mr. Chairman, the Royalty Fairness bill, demonstrates the type of reform that can occur 

when all parties work together. Your bill reforms costly royalty 

practices and increases the involvement of States in royalty colleetions. 
31 

Your bill serves as a model for future public legislation by bringing together various States and receiving bipartisan support on 

Capitol Hill, unanimous support from a diverse oil industry, and, 

finally, support from the Clinton Administration. I think you got it 

all. We hope we can get this important bill signed into law in the 

very near future. 

I am pleased to see that Washington policymakers are rethinking 

the relationship between the Federal Government and the States 

and, where justified, are giving the States greater responsibility for 

managing a single program for both State and Federal leases. 

The States have the basic motivation for prudently managing the 

oil and gas programs. First of all, it is their constituents who find 

employment, and this is high paying job employment, in the industry. New wealth is created, and the States receive a 50 percent 

share of the 12.5 percent royalties from oil and gas production. 

These funds then are normally invested in the State in local education programs that benefit all of the citizens. So the incentive is 

clearly there. 

I agree with those who believe that the States can responsibly 

administer oil and gas production on Federal lands within their 

borders. The States already have their own oil and gas programs 

and have as much, if not more, experience in managing them than 

does the Federal Government. The States too are currently undergoing a reevaluation of their energy development programs. It is 

time to combine State and Federal efforts to streamline these programs. 

Through the Interstate Oil and Gas Compact Commission, the 

IPAA is participating in a framework that will attempt to reduce 

administrative burdens facing producers on Federal and State 

lands. Making cost reductions and eliminating duplication can be 

achieved without compromising essential government programs. 

To this end, the IOGCC proposal before you deserves a chance. 

This proposal was prepared in response to a BLM proposition to 

transfer partial responsibility for the oil and gas inspection and enforcement programs to the States. 

The IOGCC believes, as we do and as the BLM does, incidentally, that there is extensive duplication by the BLM and State oil 

and gas regulatory authorities, and that a consolidation of BLM 

and State regulatory activities will result in significant cost savings 

through a single coordinated regulatory regime. 

If this transfer of authority and responsibility is done correctly, 

the end result will be saving taxpayers dollars, eliminating duplication in State and Federal oil and gas administration, reducing the 

size of government, and transferring decisionmaking to the States 

and communities most directly affected. 

We must, however, under any downsizing proposal prevent the 

reduction of Federal costs being shifted to an already troubled and 

heavily regulated industry. To secure cost savings for all those involved, we must strive, when possible, to eliminate duplication and 

multiple sets of laws and regulations. 

Effective transfer of responsibility must also include adequate 

funding and authority for the States to enforce the activities they 

are performing. As you can imagine, uncertainty and litigation 
32 

costs increase if an action taken by the State is second-guessed by 

the Federal Government. 

If Federal regulations and standards are not folded into a clear 

State legal authority, then the State employee is required to enforce two different sets of regulations causing inconsistency and resulting in no cost savings to the government or the producers. The 

only benefit then becomes the elimination of personnel at the Federal level. 

However, if the State has laws and rules, and most do, consistent 

with the requirements of the Federal Government, then there 

would be no need for Federal "oversight and enforcement," which 

is very costly. 

In conclusion, the IOGCC proposal allows for the orderly transfer 

of BLM oil and gas post-lease activities to the States. It is the consensus of IPAA and IPAMS that the States are well equipped to 

carry out this responsibility if adequately funded. 

The States have been performing many of these duties for some 

time, as I pointed out, and they have a vested interest in seeing 

that it is done expeditiously and accurately. As this work progresses, we suggest that producers be consulted each step of the 

way to prevent unintended consequences and to ensure that cost 

savings will be realized for both the government and producers on 

Federal land. Thank you, Mr. Chairman, and members of the committee. 

[Statement of Mr. Kozlowski may be found at end of hearing.] 

Mr. CALVERT. Thank you, Mr. Kozlowski. I only hope you can get 

over and see Senator Reid and encourage him to-he is the only 

one left in town that hasn't supported my bill. 

Mr. KozLOWSKI. I have already. 

Mr. CALVERT. OK Thank you. Next, Mr. Yates, Vice President 

of Yates Petroleum Corporation. 

STATEMENT OF FRANK YATES, JR., VICE PRESIDENT, YATES 

PETROLEUM CORPORATION 

Mr. YATES. Thank you, Mr. Chairman. And it might be a hard 

act to follow here, but I will give it a shot. My name is Frank 

Yates, Jr. I am Vice President of Yates Petroleum Corporation in 

Artesia, New Mexico, which is the largest oil and gas production 

company native to the State of New Mexico. We are a closely held 

family corporation that has been in the business for four generations. And I am here to promote the transfer of regulatory responsibility for oil and gas operations to the States. 

I would like to touch on about three reasons today why I think 

that this is important. One is that I believe that there is more expertise that exists with the State agencies. Another is the fact that 

there are redundancies in the regulations imposed by the Federal 

Government, as well as the States. And the third reason is I believe that there is greater accountability in the State regulatory 

programs than there is in the Federal programs. 

Getting back to my first reason with regard to expertise, one of 

the reasons I would like to bring this up is a recent e-mail excerpt 

from our production manager-well, he is actually the head of o1;.r 

engineering department and oversees production operations, c.s 

well as drilling and completion operations. That goes like this. 
33 

He says that, "I am disturbed that the Bureau of Land Management is checking our casing designs and in some cases requesting 

modifications to our designs. This is most disturbing because I believe that the BLM engineers checking the designs are unfamiliar 

with many critical design concepts, are inexperienced or have no 

prior experience doing casing designs. 

"They lack detailed, well-specific knowledge, and are using computer programs to check designs without knowing what criteria 

need to be checked. In other words, garbage in, garbage out. In 

short, I think they are unqualified and possibly incompetent to be 

checking our casing designs. Amateurs are checking the experts." 

We do not necessarily have this type of a problem with the State 

people because we worked fairly well with the States, and in most 

cases representatives from the Oil Conservation Division have 

worked in the industry for a considerable period of time. They have 

grown up in the oil field. Many of them have had jobs in the oil 

and gas industry and understand the criteria involved in designing 

casing programs and so forth. 

Brian Collins is a good example-have experts in this area that 

do nothing but casing designs and designing completion techniques, 

and these gentlemen have master's degrees in petroleum engineering and are very capable individuals with a considerable amount 

of expertise. So this does tend to be a problem occasionally. 

The other area or the second area I mentioned was redundancy. 

Certainly, the Oil Conservation Division has responsibility for the 

protection of freshwater. This can present conflicts with some Federal regulations such as the Clean Water Act, and here recently I 

participatE:d in the review process which was sponsored by this 

joint venture between the Interstate Oil and Gas Compact Commission and the Environmental Protection Agency. 

We concluded that in the State of New Mexico that the Oil Conservation Division rules and guidelines with respect to the oil and 

gas waste programs were adequate in the State of New Mexico, 

and that with a few refinements that our program met the guidelines that were published by the Interstate Oil and Gas Compact 

Commission. 

Oh, and if you are looking for the specific words, I am kind of 

shooting from the hip a little bit here. But at any rate, the point 

is here that the State program is adequate, has been determined 

to be adequate by the review process. 

The third reason that I brought up was accountability. We feel 

that the accountability with the Federal programs goes one direction, and that is directly to the oil and gas industry and that there 

is little or no accountability on the part of Federal regulators if 

they make mistakes or if they are overburdensome or overzealous 

in their efforts to protect health and safety in the quality of the environment. 

With regard to the State programs, accountability goes both 

ways. The States have a little bit more flexible guidelines in some 

cases. Industry has access to the Director of the Oil Conservation 

Division. And if we have a problem, we can go directly to him, and 

we can work those problems out fairly quickly. 

One reason is because I think that we do not have to deal with 

a uniform regulatory policy that establishes specific standards for 
34 

all 50 States. Certainly, standards that may be established in New 

Mexico may not be appropriate for Ohio. 

The Clean Water Act, for example. We have a lot of areas in New 

Mexico where we have tributaries of streams which don't have 

water in them for as much as seven years at a time. It certainly 

makes much more sense to go do a bit of remediation onsite in an 

area like that rather than try and clean all that up and haul it to 

some other facility, and you run actually less risk of generating 

contamination along the way. 

So accountability is also important, but I don't think that the solution would simply be to delegate responsibility for the-imposin15 

the Federal regulations on the States because of this because I 

don't think that unifonn regulatory policies always work. 

One example of that, and I believe it was mentioned earlier, was 

the premise that the Oil Conservation Division in the State of New 

Mexico has for implementation of the underground injection control 

program in the State. And the OCD in New Mexico is responsible 

for all underground injection control for the purpose of disposing of 

produced waters in the State of New Mexico. 

So to conclude, I think that that is three reasons. There are other 

reasons that I think might also be important, but we do feel that 

that would be of benefit to the State and the people of New Mexico 

to pass that responsibility of regulating oil and gas waste to the 

States. Thank you very much. 

[Statement of Mr. Yates may be found at end of hearing.] 

Mr. CALVERT. Thank you. Thank you for your testimony, Mr. 

Yates. Next, Danny Thompson, General Manager of the Carlton On 

Corporation. 

STATEMENT OF DANNY THOMPSON, GENERAL MANAGER, 

CARLTON Oll.. CORPORATION 

Mr. THOMPSON. Mr. Chainnan and Congressman Cremeans, 

members of this Subcommittee, I would first, if I could, Mr. Chairman, request that I do a revised short summary of my statement. 

Your staff has advised that I had a very lengthy presentation. 

However, I would make a request that my full presentation be entered as part of the record. Mr. CALVERT. Certainly. Without objection, so ordered. 

Mr. THOMPSON. Mr. Chainnan, Congressman Cremeans, members of the Subcommittee on Energy and Minerals, I appreciate the 

opportunity to appear before you today to discuss my views on 

transferring oil and gas regulations from the Federal Government 

to the States. 

The views I am expressing represent those of the vast majority 

of oil and gas producers in southeastern Ohio. While the decision 

to transfer enforcement would affect producers across America, my 

comments are directed solely toward those producers in Ohio. 

Mr. Chainnan, I am the Owner and President of Carlton Oil Corporation located in Newport, Ohio. My operation is, for lack of a 

better tenn, a mom and pop operation. The wells which I run operate on a very slim revenue margin. These wells are burdened with 

the unnecessary and overburdensome Federal regulations. They 

are quickly becoming uneconomical to operate. 
35 

The issue entailed here is not one of safety or of protecting the 

environment. Ohio has some of the most stringent environmental 

and safety laws of any State in the nation. The real issue here and 

the debate within this Subcommittee should be on how to reduce 

the overburdensome double, sometimes triple, regulations. It would 

seem to me that if one set of regulations, whether Federal or State, 

reached the desired level of acceptable standards, that should be 

sufficient. 

In today's world, a producer in southeastern Ohio must meet regulations of Ohio Chapter 1509, Federal CFR 43, BLM standards, 

the U.S. Forest Service Management Plan, Federal DOT, and the 

Federal Regulatory Commission to name a few of the regulatory 

bodies I must deal with when operating a well. 

Let me give you an example of one issue which is a clear example of the overburdensome regulation which operators must endure-operational bonding. Ohio has a $15,000 plugging bond, the 

U.S. Forest Service has a $20,000 plugging bond, and the BLM requires a $25,000 bond. 

I would ask a member of either agency to advise me why one 

bond would not be sufficient. Bonding is just one of the many issues. There are different tank standards for each agency, different 

meter measurement, different site plans, and different valving systems. 

Members of the committee, I would suggest to you that while 

transferring enforcement of regulations is a good move and has 

been needed for a long time, there needs to be more done. The double and triple bureaucratic regulations need to be removed. Transferring enforcement simply is not enough. Likewise, these 

intergovernment turf battles to gain ground and agency security 

need to stop. 

I would like to mention a short story which illustrates the problems I have had dealing with excessive bureaucrats. I first became 

involved in reverting mineral leases around 1979. Being a little 

cautious, several producers, including myself, questioned the Forest 

Service about what happens when the mineral reservation runs out 

and reverts to the Federal Government. 

The response was the same as what happens in the private sector. You continue to operate your lease and wells while switching 

royalty payments to the government. After being in several informal discussions and being somewhat reassured, I jumped in and 

leased some of these reverted minerals. 

All negotiations took place between the mineral holder and the 

producer, in this case myself. The Forest Service took no part as 

the minerals were reserved. My company, Carlton, leased eight 

separate tracts totaling about 800 acres. Probably the biggest mistake of my life. 

My experience with Carlton's Littleton Lease has been grueling 

to say the least. For the past nine years, Carlton has been through 

meeting after meeting with the U.S. Forest Service and Bureau of 

Land Management; compensatory royalty agreements, Federal legislation, Federal appeal process, and, finally, giving in to the Bureau of Land Management because as the saying goes, you can't 

fight the Federal Government. 
36 

Following my giving in to the Bureau of Land Management, I encountered delay after delay from the U.S. Forest Service. Finally, 

today, this morning, Congressman Cremeans, you probably would 

like to know, I went to the Bureau of Land Management lease sale 

in Springfield, Virginia. I bid a total of $426, gentleman, for nine 

years of total bureaucratic delay and bought my lease back-$426. 

I purchased the lease. What lays ahead, I am not really sure 

now. I will probably find out when I get home and call the Bureau 

of Land Management. But I would add here that for the four years 

the Littleton well has been shut in at a loss of probably $2,000 to 

$5,000 based on what the well was producing prior to being shm 

in in 1992, I would give an estimate that it would probably be 

$2,000 to $5,000 royalty that the Federal Government has lost to 

gain $426 today. Had that well been recompleted, then most likely 

the royalty would have been higher. 

I would add there though, Mr. Chairman, that the Federal Government did receive $75 filing fee for their administrative-for all 

the problems over the nine years so maybe there is a little bit of 

balance there. 

In summary, my full presentation gives more in-depth detail of 

my Littleton lease experience, as well as other thoughts I have. I 

assume everyone has received a copy of that presentation. I would 

end my oral comments and be most happy to answer any questions 

that I could. Thank you. 

[Statement of Mr. Thompson may be found at end of hearing.] 

Mr. CALVERT. Thank you very much, Mr. Thompson. Next, Dan 

Kramer, Executive Director, California Independent Petroleum Association. 

STATEMENT OF DAN KRAMER. EXECUTIVE DIRECTOR, 

CALIFORNIA INDEPENDENT PETROLEUM ASSOCIATION 

Mr. KRAMER. Mr. Chairman, committee members, thank you fo:r 

the opportunity to testify before you today. I will keep my comments short. CIPA represents approximately 500 independent oil 

and natural gas producers, service and supply companies operatin!~ 

in California. 

I am here today because California producers have a unique perspective to share with you on the subject of transferring oil field 

inspection and enforcement operations on Federal lands from the 

BLM to the States. 

As late as 1992, the relationship between the industry and the 

Bureau of Land Management in California was fraught with stories 

of producers unable to obtain timely permits, a reluctance on thei:r 

part to cede any turf to the State's oil and gas regulatory agency, 

even when it was clear that the State could do something faste:r 

and less expensively. 

Over the past several years, California's oil and gas industry, 

working with the BLM and the California Division of Oil and Gas 

and the California Oil and Gas Work Group, sought and reached 

agreement on the development of a plan to eliminate regulatory 

overlap in several areas, as Elin Miller talked about earlier. 

The most significant change is that with few exceptions, permit 

applications are now filed with only one agency, and that is a big 

improvement, let me tell you. Our producers are very happy with 
37 

that arrangement. They had a very hard time getting through to 

the BLM in the past. 

On March 15, 1996, as Ms. Miller said, a memorandum of understanding or MOU became effective which formalized the newly constituted working agreement between all of the parties. That would 

be the industry, the DIG, and the BLM. 

The purpose of the MOU is and was to clarify and simplify the 

permitting and regulatory processes for operators and to avoid duplication wherever possible. Producers hopefully have gotten what 

they have asked for, and that is an element of regulatory certainty. The timeframe has been short. The implementation has only been 

since March so we are taking a wait-and-see attitude there, but 

things look pretty good. 

In the interim, costs of operation have been reduced while red 

tape and excessive paperwork have been eliminated without any 

detrimental effect on the environment. We have developed a general statement of purpose and intent along with six operating 

agreements. I have a copy of that to enter into the record. These 

flexible operating agreements can be changed as further streamlining opportunities are identified or as the need arises. 

While we are pleased at the progress made through the cooperation of each of the interested parties in California, there may be remaining inefficiencies particularly in other States. It sounds like it. It sounds like that is what we have heard here today. 

As a result, CIPA members support the continued examination 

and oversight of Federal oil and gas programs to streamline the 

process as well as relinquishing control of duplicative and overlapping regulatory functions to the States wherever possible and practical. 

The MOU concept is one model that might be used successfully 

in other States as the devolution process continues. I would be, 

again, pleased to work with members of the committee and staff to 

provide further information on the California perspective. Thank 

you. 

Mr. CALVERT. Thank you. Next, Randy Maebon, Regulatory Coordinator, Rocky Mountain Region, Marathon Oil Company. 

STATEMENT OF RANDY MAEBON, REGULATORY COORDINATOR, ROCKY MOUNTAIN REGION, MARATHON OIL COMPANY 

Mr. MAEBON. Good afternoon, Mr. Chairman, and Subcommittee 

members. My name is Randy Maebon, Regulatory Coordinator for 

Marathon Oil Company in Cody, Wyoming. I am testifying today 

on behalf of the Rocky Mountain Oil and Gas Association otherwise 

known as RMOGA. We appreciate this opportunity to provide the 

Subcommittee on Energy and Mineral Resources with our views on 

the Bureau of Land Management's Inspection and Enforcement 

Transfer proposal. 

RMOGA is a trade association with hundreds of members, both 

independents and majors, who are responsible for over 90 percent 

of oil and gas exploration, development, transportation, refining, 

and marketing activities in the eight-State region it serves. RMOGA members maintain a substantial presence on Federal 

acreage. 
38 

RMOGA can support the BLM's I & E transfer proposal only if 

it results in clear and demonstrable benefits to industry and af~ 

fected government agencies. RMOGA's major concern with the 

transfer proposal is its failure to provide definitive information 

about innovative alternatives for cutting costs and streamlining the 

onshore oil and gas program 

We have been involved with the transfer proposal since it was 

initiated. Recognizing considerable time and financial resources 

were expended in the I & E transfer effort, industry assumed the 

BLM's proposal would represent a significant departure from the 

existing I & E responsibilities procedures and authorities. Unfortunately, while providing an overview of the Bureau's 

I & E and environmental compliance programs, the draft and final 

I & E transfer reports have not offered specific details on how the 

proposal differs from existing regulations regarding transfer authorities. 

Throughout the process, industry has raised many questionB 

which have yet to be adequately addressed. Until our questions are 

thoroughly answered or addressed, industry will continue to have 

serious concerns with the transfer proposal. 

RMOGA feels that the BLM should provide a clear explanation 

of how the transfer proposal differs from existing regulations, allowing States and tribes to assume responsibility for assuring oil 

and gas compliance on Federal lands, explicitly define the scope of 

authorities being considered for transfer, identify the legal limitations associated with authorities available for transfer, identify 

possible options to overcome the legal obstacles should expanded 

State and tribal authorities be considered, outline the procedural 

and operational changes which would be required of the govern · ment and industry to accomplish the transfer of Federal respon - sibilities to the States and tribes, offer an analysis of cost savings 

and benefits to be gained by the envisioned transfer. 

If the proposed transfer of I & E function goes forward, industry 

must be involved in the dialog between States, tribes, and the BLM 

on the manner in which transfers will be structured. Inspection 

and enforcement programs must be consistent from State to State. 

The major goal of the government reinvention will be negated if 

States negotiate individual and diverse I & E programs. The transfer should provide a common I & E work frame for all States wish--

ing to assume responsibility over Federal leases. I & E responsibil--

ities should be delegated to tribes only if they have the necessary 

expertise and have demonstrated their ability to manage the complex issues involved in oil and gas operations. 

Should States or tribes assume I & E responsibilities, the Fed-- eral Government must relinquish its oversight role and its respon-- sibility of the inherently Federal functions. We appreciate your in·· 

terest in this important issue and your careful consideration of our 

comments. I will be happy to answer any questions you may have. 

[Statement of Mr. Maebon may be found at end of hearing.] 

Mr. CALVERT. Thank you very much. You probably heard all of 

those bells and whistles going off. That happens here often, and 

that means we are having a series of votes so we are going to ask 

our questions now because we have got to go to the Floor. The first 

vote is starting now. They are checking. But why don't we go aheadl 
39 

and ask some questions, and then we will be able to send you on 

your way. First, I would like to go ahead and recognize Mr. 

Cremeans since he needs to leave early. 

Mr. CREMEANS. OK. Thank you, Mr. Chairman. I would like to 

address a question to Mr. Thompson, who I know has labored long 

and hard in getting here, and for that I appreciate your effort. Just 

a couple quick questions. You mentioned the fact that the Federal 

Government lost between $2,000 and $5,000 on royalty. Was that 

since '92 of May when this well was shut in? 

Mr. THOMPSON. Since May of '92. 

Mr. CREMEANS. OK. All right. Now, as an experienced operator, 

do you feel that both the Forest Service and the Bureau of Land 

Management have had overlapping authority with respect to say 

the Wayne National Forest? Have you experienced that in your 

years of--

Mr. THOMPSON. Absolutely. There is no doubt about it, that between the Wayne National Forest and the Bureau of Land Management and the overlapping of each regulatory body in trying to decide who is going to address which particular issue or which part 

of the issue when it comes to developing and producing the mineral 

resources has really become a bureaucratic comic strip. 

Mr. CREMEANS. Would you say that that is a part of your problem? 

Mr. THOMPSON. Absolutely. 

Mr. CREMEANS. And also you, in your testimony, discussed the 

onerous paperwork requirements from the Minerals Management 

Service. Would you take just a minute and elaborate on that comment? Because I know all of us, and I think you especially, face difficulties in complying with those requirements. 

Mr. THOMPSON. Well, Mr. Chairman, Mr. Congressman, I would, 

you know, just first start off as saying that even the IRS has a 

form, 1040-EC form, and the Minerals Management Service could 

take some lessons from the IRS. 

The double, triplicate forms to fill out for these marginal wellsright now, I have volume one, two, and three from the Minerals 

Management Service, and they just sent up a revised volume for 

volume one. 

And to report the sales of oil and gas-and I guess one of the biggest problems I have with them is that when I produce and sell 

natural gas, in my part of the country, I sell it direct to a public 

utility in most cases. We don't have the lines, nor the resources, 

as my friends from out West do, to move this stuff over the country. 

We have one statement, one check, and it is very simple-is 

whatever you get paid for, they tell you what you sold and send 

them a check. The State of Ohio has a card. It is a three-by-five 

card that you pay on their royalty for the State leases, and you 

show what you received and what their royalty percentage is and 

how much you owe them and be sure to send a check with it. 

I would think the State of Ohio could manage the Minerals Management Service the same way, and it would be just as efficient 

and just as cheap. And if they were in question as to where they 

were getting their money, an auditor might be in order, but it 

wouldn't be hard to audit. 
40 

Mr. CREMEANS. I know the background on your attempt and apparently you have now purchased the lease at the auction. Is tha'; 

what you said earlier? 

Mr. THOMPSON. Yes. 

Mr. CREMEANS. Do you feel that in retrospect that there was 

some confusion or perhaps even you were misled by either the Bureau of Land Management or the Forest Service in the acquisition 

of that lease? 

Mr. THOMPSON. I feel that there was nothing but complete denial 

by delay by the U.S. Forest Service. Had yourself, Congressman 

Ney, and Senator DeWine not written some letters, had some meetings, I doubt if it would have even been up on the lease sale today. 

It has been bypassed on by lease sales over the past year or two. 

The Bureau of Land Management I don't think delayed this in retrospect. However, they did and have continued to delay the reverting mineral issue and the leases of those. So, yes, to answer your 

question, there has been considerable delay by both agencies, in my 

opinion. 

Mr. CREMEANS. Quickly, how long have you been involved in trying to bring this to a closure? 

Mr. THOMPSON. On this particular Littleton lease? 

Mr. CREMEANS. Yes. I know you have labored hard. 

Mr. THOMPSON. Nine years. 

Mr. CREMEANS. Thank you, Mr. Thompson. Thank you, Mr. 

Chairman. 

Mr. CALVERT. Thank you, Mr. Cremeans. I apologize to the 

panel. I have some questions I would like to submit to some of you 

for answers in writing if I may. I am certainly very interested in 

what is going on in California and with the new spirit of cooperation and how efficient that might be and how maybe that can affect 

other States and where we are trying to create a more positive attitude from the Federal perspective and trying to increase productivity in this country and certainly to help the industry out. So I 

apologize for having to leave early, and I thank you all for coming 

out and testifying today. This Subcommittee is adjourned. 

[Whereupon, at 4:20 p.m., the Subcommittee was adjourned; and 

the following was submitted for the record:] 
41 

TESTIMONY OF W. HORD TIPTON 

Assistant Director, Resource Use and Protection 

BUREAU OF LAND MANAGEMENT 

Before the House of Representatives Subcommittee on Energy and Mineral Resources 

Oversight Hearing on the Proposal to Transfer 

Inspection and Enforcement Activities to the States 

June 20, 1996 

Mr. Chairman, members of the subcommittee, I appreciate the opportunity to discuss the Bureau 

of Land Management's Reinventing Government (REGO II) initiative to transfer certain Federal 

oil and gas program responsibilities to oil and gas producing states. The purpose of this proposal 

is to reduce or eliminate duplication of downhole regulations of oil and gas operations. As 

evidenced by our efforts under this initiative, we agree that certain inspection and enforcement 

(!&E) functions could be transferred to the states. However, we are focused on ensuring that this 

streamlining and consolidation project results in a reduction of costs to the taxpayers, 

simplification of compliance forthe operators and improvement in the effectiveness of the 

regulation of oil and gas exploration and production (E&P) activities in the United States. Our 

goal is to ensure prudent oversight of mineral assets and protection of American taxpayer 

interests. 

Introduction 

The onshore oil and gas program, administered by the Bureau of Land Management (BLM), is 

one of the major programs in the Department of the Interior (001). At the end of 1995, more 

than 51,000 onshore oil and gas leases existed on 37 million acres of Federal lands. About 19,000 

leases were in producing status and contained more than 63,000 producing wells on public lands. 

The BLM is also responsible for operational management oversight of about 4,200 producing 
42 

leases on Indian lands, supervision of drilling on non-producing leases, and advising the Bureau of 

Indian Affairs and Indian tribes and allottees on leasing matters. Royalty income from onshore oil 

and gas production on Federal and Indian lands is over $500 million dollars per year. All receipts, 

except for filing fees are shared with the state in which the leasing occurs. These revenues play an 

important role in the economies of several western states and communities. 

Leasing is a discretionary action, but post-lease actions are mostly mandatory workloads to 

ensure compliance with the governing lease terms, regulations, onshore orders, notice to lessee, 

and conditions of approval; and to protect other resources present as the lessee uses the rights 

contained in the lease. To fulfill the Secretary of the Interior's statutory and Indian trust 

responsibilities, the BLM is responsible for the oversight of oil and gas operations on Federal and 

Indian lands, with the exception of Osage tribal lands and surface resource disturbing operations 

on National Forest System Lands. The objectives of the oil and gas Inspection and Enforcement 

(!&E) and Environmental Compliance Programs are to ensure that public and Indian oil and gas 

resources are properly developed in a manner that maximizes recovery while minimizing waste; 

ensure the proper accounting of all production from Federal and Indian lands; and protect the 

environment, public health, and public safety. The BLM also conducts inspections regarding 

drilling, abandonment, and certain other operations pursuant to regulations. 

Reinventing Government II Prooosal 

Under Vice President Gore's REGO II the BLM proposed to transfer oil and gas inspection and 

enforcement responsibilities concerning production verification to the individual states and Indian 

2 
43 

tribes. To implement the REGO II proposal, the BLM formed a task force comprised of state, 

tribal, and Federal representatives to prepare a report on the transfer proposal and initial 

consultation with state and tribal representatives. The purpose of the task force was to I) review 

statutory, regulatory and field operational requirements; 2) perform an initial evaluation of the 

feasibility of transfers, types of agreements with states and tribes, timing, funding, and the need 

for regulatory or legislative revisions; 3) assist in the preparation of the task force report; and 4) 

provide a consultation framework for BLM State Directors and state and tribal officials to 

independently negotiate program transfers. 

The BLM REGO II proposal recommends that the BLM transfer oil and gas I&E responsibilities 

concerning production verification and environmental compliance to the individual states and 

Indian tribes. On May 7, 1996, the IOGCC along with the DOl and the BLM resolved to support 

discussions between the BLM, individual states and the IOGCC to identify opportunities and 

propose implementation plans to delegate to the states as much of the I&E functions as permitted 

by the Federal Oil & Gas Royalty Management Act (FOGRMA) as they are willing to assume. 

Interstate Oil and Gas Compact Commission IIOGCC) Proposal 

Earlier this year, the IOGCC shared with the BLM a proposal that most of the BLM' s oil and gas 

regulatory activities be "devolved" to the states. Subsequent discussions with IOGCC 

representatives resulted in the adoption of a resolution at its May meeting seeking support for: 

.. discussions between BLM, individual states, and the IOGCC to identify opportunities 

and to propose implementation plans to eliminate duplicate state/federal regulation of oil 

and gas E&P activities, and to streamline, simplify and consolidate federal and state oil 

3 
44 

and gas regulatory programs on terms which will result in the reduction of costs to the 

taxpayers, simplification of compliance for the operators and improvement in the 

effectiveness of the regulation of oil and gas E&P activities. 

It is our view that this resolution provides a constructive basis upon which to proceed with the 

states to implement our REGO II inspection and enforcement proposal. 

Any transfer must be tailored to fit the regional circumstances of the individual states willing to 

take on this responsibility. We also agree that the transfer of the responsibilities must be of such 

scope as to be attractive for the states to assume this additional burden. However, cenain 

principles must be followed in order for an effective transfer of regulatory responsibilities to 

occur. First, all agreements to perform inspections on Federal leases that the BLM would 

otherwise perform will require that the states conduct inspections consistent with uniformly 

interpreted Federal standards. Second, agreements will not be signed if the action will not 

produce a cost savings or eliminate duplication of effon. Third, states will not inspect Indian 

leases (FOGRMA prohibits this without consent of the Indian mineral owner); and founh, the 

BLM will retain authority to evaluate state inspection activities and intercede if inappropriate 

action should occur. The Depanment and IOGCC agreed at IOGCC's May 1996 meeting that 

the transfer ofl&E functions to states would be an excellent first step on which to base funher 

discussions that could identify and consider additional opponunities to streamline oil and gas 

regulatory activities within individual states. 

4 
45 

Summary ofi&E Transfer 

The three primary objectives ofBLM's fluid minerals management program are (I) to foster a fair 

return to the public for its resources, (2) to ensure environmentally acceptable activities, and (3) 

to provide for conservation of the fluid mineral resource in the context of multiple-use 

management. Areas of operation include review and action on "Industry Applications," and 

industry inspections to ensure compliance with all imposed requirements. 

The proposed transfer of BLM' s oil and gas I&E and environmental compliance responsibilities is 

most appealing to western states with the most oil and gas production. The BLM recognizes 

state concerns for issues of funding and degrees of authority and responsibility in accepting these 

functions. We anticipate funding being commensurate with the additional workload assumed by 

the states, but dependent upon BLM budget appropriations. The BLM also acknowledges that 

although the avowed goal is to speed government processes, a number of operators are concerned 

that devolvement might subject them to a greater variety of rules and reporting where each state 

requires adherence to different policies, thereby reducing any efficiencies expected from the 

transfer. The BLM will play a crucial role in ensuring such situations are minimized through its 

proposed oversight policies and application review process. 

Recently, the BLM issued its Final I&E Transfer Report for REGO II. This report was based 

upon the draft proposal which was issued in September 1995. As acknowledged by one of the 

IOGCC officials from Oklahoma City, "[it] is an excellent document. It will serve as a 

constructive road map for states as they begin their individual, in-depth analysis of accepting 

5 
46 

transfer of these programs." The BLM wholly agrees and realizes that by pannering with the 

states and the IOGCC, the BLM can move forward with the I&E transfer to benefit all parties 

involved. 

Net Receipts Sharing 

The FY1991 DOl Appropriations Act included a provision to recover approximately half of the 

Federal Government 's cost of conducting mineral leasing activities on Federal lands within state 

boundaries. This was the first "Net Receipts Sharing" (NRS) requirement established by the 

Congress. The costs currently being deducted from royalty payments to the states are derived 

from three sources: I) the MMS, 2) the BLM, and 3) the Forest Service. 

The BLM provides MMS with data it needs in order to make the determination of the amount to 

deduct to calculate the net mineral leasing receipts to be shared with the states. In order to 

determine its program costs, the BLM uses the following methodology: 

(I) The BLM determines the cost of conducting minerals programs in each state. 

(2) From the cost of each program, BLM deducts the amount of money its spends on 

management oflndian owned minerals. The BLM also deducts the amount of money it 

spends on management of mineral materials because receipts from minerals materials sales 

are not shared with states. Finally, program costs relating to mining law administration 

are excluded from all calculations. 

6 
47 

(3) A factor of 19 percent is added to the above total to account for the direct program's 

share of administrative costs which are applicable to all programs. 

(4) A separate figure for filing fees which are collected is also provided to MMS. These 

fees are not shared with the states. 

This methodology is applied on a state-by-state basis. When a BLM state office has jurisdiction 

over more than one state, costs are prorated on the basis of the number of producing leases in 

each state. Although this may tend to overestimate costs if the ratio of non-producing to 

producing leases is large, the methodology is sound because both the majority of expenditures and 

the majority of revenues tend to be associated with producing leases. Once BLM completes these 

calculations, they are forwarded to the MMS for processing into a final NRS number for the 

Department 

Mr. Chairman, I appreciate the opportunity to testifY before the Conunittee and will answer any 

questions the members might have at this time. 

7 
48 

ATTA H)'IE~T 

RESOLUTION 96.503 

Rega rding IOGCC/ IJLM Dlnloguc on Regulatory Issues 

. the Interstate Oil and Gas Compact Commission Public Lands Project 

Core Working Group has recommended reforms to the Bureau of Land Management 

onshore oil and gas regulatory prot;ram to achieve grea ter effectiveness, efficiency and 

cost savings, .a!!li 

~ the Bureau of Land Management has proposed the t.ra nsfer of certain 

oil and gas inspection and enforcement functions to the states for the same purpose, .and 

~ the IOGCC unanimously passed a resolution in September of 1995 

recommend ing that the BLM through th eir performance review process, accept certain 

downhole regulatory conclusions and approvuls rendered by qualified state oil and gas 

regulatory agencies, .an~ 

~.the IOGCC has prepared a compreh ensive response to the BLM oil and 

gas iru;pection and en.forccmcnt transfe r proposal which recognizes both the variations 

and similarities of existing state regulatory programs; 

Now. Therefore fie I!~ by th e IOGCC on th is 7th day of May, 1996, that 

Department of the Interior and Bureau of L>md Management support discussi ons 

between BLM, individual states, nnd the IOGCC to identify opportunities and to propose 

implementation plaJL< to eliminate duplicate state/federal regu lati on of oil and gas E & 

P activities. and lo streamline, simplify and consolidate federal and slate oil and gas 

regulatory programs on terms which will resull in the redu ction of costs to the taxpayers, 

simplification of comp\iance for the operators and improvement in the effectiveness of 

the regulation of oil and gas E & I' activities in the United St ates. 

May 1996 

N 

T 

E 

A 

s 

T 

A 

T 

E 

0 

I 

L 

A 

N 

0 

G 

A 

s 

c 

0 

M 

p 

A 

c 

T 

c 

0 

M 

M 

I 

s 

s 

I 

0 

N 
49 

The Transfer of Oil and Gas 

Inspection and Enforcement Responsibilities 

on Federal Lands 

from the Bureau of Land Management to the States 

A Project of the Regulatory Transfer Work Group 

of the IOGCC Public Lands Committee 

Work Group Chainnan 

James W. Carter, Director 

Utah Division of Oil, Gas and Mining 

June 1996 
50 

INTRODUCTION 

The Interstate Oil and Gas Compact Commission (IOGCC) is an association of 29 

member states and seven associate states originally formed by the 74th U. S. Congress in 

1935 to conserve the country's oil and gas resources and enable the oil and gas producing 

states to effectively regulate petroleum exploration and development activities. Since its 

creation, the Compact Commission has expanded its compass to address and resolve 

emerging issues relating to oil and gas production, conservation and environmental 

protection. Member states have been effectively regulating well spacing, exploration and 

drilling activities, production, transportation, and surface environmental compliance on 

private, state and federal lands for decades. Many states also regulate the underground 

injection of fluids for waste disposal and enhanced recovery purposes under delegations of 

primacy from the Environmental Protection Agency. 

In 1982, Congress passed the Federal Oil and Gas Royalty Management Act 

(FOGRMA) which provided, in part, an opporruniry for states to take over certain, limited 

federal oil and gas field inspection and enforcement responsibilities. Although states took 

advantage of similar opporrunities for state implementation of federal regulatory programs 

under other laws, to date no state has requested either delegation or a cooperative 

agreement under the provisions of FOGRMA. In March, 1995, as part of Vice President 

Gore's Reinventing Government II (REGO II) initiative, the Bureau of Land Management 

proposed to transfer federal oil and gas inspection and enforcement functions to the states 

and tribes. That proposal was not specifically limited to the transfer of responsibilities 

authorized by FOGRMA, but subsequent discussions and evaluation of the proposal have 

relied, in large part, on FOGRMA · s existing authorities. 

In 1994, the IOGCC initiated a cooperative effort between petroleum producing 

states, the Department of the Interior, the Department of Energy, the Environmental 

Protection Agency, the U.S. Forest Service, and petroleum industry and environmental 

interest representatives, to identify and recommend reforms to streamline state and Bureau 

of Land Management oil and gas regulatory programs. The project, known as the IOGCC 

Public Lands Project, convened a core working group of key state, industry and 

environmental representatives, which met during 1994 and 1995. The Core Working Group 

summarized its work to date in a letter to Secretary Babbitt dated September 15 , 1995, 

which recommended adoption of BLM policy direction to eliminate duplication of downhole 

regulation of oil and gas operations. 

After review of the BLM proposal, analysis of the Core Working Group discussions 

and recommendations, and evaluation of the federal and state oil and gas regulatory 

programs, the IOGCC recommends that the Bureau of Land Management and IOGCC 

member states agree upon a comprehensive method for the transfer to the states of all of 

the BLM's oil and gas regulatory activities, not limited to the inspection and enforcement 

activities now under discussion in REGO II. The IOGCC believes that there exists 
51 

extensive duplication of effon by the BLM and state oil and gas regulatory authorities, and 

that a transfer of all of BLM's regulatory activities will result in signiticant cost saving s 

through a single coordinated and comprehensive regulatory program, while ensuring that the 

objectives of both the state and federal regulatory programs are achieved. 

IOGCC's proposal is not unprecedented. There exist a number of examples of 

"cooperative federalism" in which states are the primary implementors of federal regulatory 

programs. State implementation oi the Environmental Protection Agency's NPDES and 

underground injection control programs, the Occupational Safety and Health 

Administration 's industrial health and safety program and the Office of Surface Mining's 

coal regulatory program are excellent examples. The facts that states have been successfully 

regulating oil and gas activities for decades, and that the states and BLM implement very 

similar regulatory performance standards, will make the assumption by the states of federal 

oil and gas regulatory responsibilities an incremental addition of workload, rather than 

creation and delegation of a new state or federal program, and therefore highly cost efficient 

and relatively simple. 

The IOGCC funher recommends that the transfer be available by delegation, 

cooperative agreement or by contract, and that the mechanics and details of each transfer 

be worked out between the affected state and its counterpan BLM state office. We are 

cognizant that a one-size-tits-all approach to transferring regulatory responsibilities will not 

work, and that the states and their BLM counterpans must be free to design a transfer 

arrangement that is suited to the existing state and federal programs and to local and 

regional circumstances. Although each successful transfer will be unique, there are key 

principles which are common to all successful transfers of regulatory responsibility. 

Likewise, there are substantive elements which will be common to all transfers, and which 

should be worked out in advance of any transfer or delegation. Following are the principles 

IOGCC believes underpin a successful transfer model, and a discussion of the substantive 

elements which will need to be addressed in each transfer. 

PRINCIPLES OF EFFECTIVE TRANSFER OF REGULATORYRESPONSffiiLITIES 

I. The regulatory program must be comprehensive 

The lack of state response to the original transfer proposal of FOGRMA 

demonstrates that state assumption of only the field inspection ponion of the regulatory 

program is not attractive. The thiust of modem regulatory programs is to offer one-stop 

shopping, even for the most complex projects. Providing for a single responsible agency, or 

for a lead agency in the case of multiple jurisdictional responsibilities enhances coordination 

and timeliness, saves considerable administrative expense and reduces the administrative 

burden on regulated entities. The current system requires separate, and frequently 

duplicate, federal and state approvals for oil and gas activities on federal lands. State and 

federal inspectors frequently scrutinize site preparation, drilling, production and reclamation 

activities at the same wells, often witnessing the same events. 

2 
52 

While centralizing the field activities of state and federal programs would eliminate 

some of the redundancy, operators would still need separate approvals for tield activities 

and pooling and unitization, and would find themselves appealing state-written violations 

with BLM levied assessments to federal appeals officers. Both BLM and the states would 

be required to maintain full permitting and compliance staffs, and much of the potential for 

consolidation and cost savings would be lost. As well, the segmentation of permitting, field 

compliance and enforcement activities would reduce coordination of regulatory functions 

and would likely increase the regulatory burden on oil and gas operators. For financial, 

administrative and customer service reasons, a single-office, comprehensive oil and gas 

regulatory program should be an imponant objective of the transfer. 

II. The allocation of responsibilities must be logical and coordinated 

The Bureau of Land Management occupies several significant, but distinct, roles in 

managing federal resources, including oil and gas. The BLM acts as agent for the owners 

of the public domain, and is called upon to make land-use decisions balancing a variety of 

public and private interests. In that capacity, the BLM is analogous to the state or private 

"surface owner" whose interests are in minimizing the adverse impacts of mineral activities 

and in ensuring that after production has ceased, the land is returned to a productive 

condition. The BLM is also agent for the mineral interest owners of the public domain. 

In that capacity, the BLM is acting as the "mineral owner", interested in securing the public's 

just and equitable share of oil and gas produced and in ensuring that valuable resources are 

not wasted. The BLM also acts as the "regulator", charged with implementing a number of 

police-power regulations governing the use of the land and the mineral resources. 

The IOGCC believes that the states, which are already implementing their own police 

power oil and gas regulatory programs, can easily assume responsibility for implementing 

ELM's entire regulatory program. There exists a clear delineation between ELM's land and 

resource management responsibilities, which would remain unaffected by IOGCC's proposal, 

and BLM's oil and gas regulatory responsibilities, all of which should be available for 

transfer to interested states. In fact, the BLM and the U.S. Forest Service have recently 

acknowledged that same distinction between the Forest Service's land management 

responsibilities and the BLM's regulatory responsibilities for oil and gas development on 

lands administered by the Forest Service. (Proposed Rules at 43 CFR Pan 3160, 60 FR 228, 

page 58590-58593, November 28, 1995). Like the BLM/Forest Service division of 

responsibilities, the states and BLM should distinguish between BLM's non-delegated 

surface management responsibilities and its transferrable oil and gas regulatory 

responsibilities. 

Ill. Oversight must be flexible and focus on results 

The BLM will need to be able to verify that the objectives of the laws and regulations 

it is responsible for implementing are being met. At the same time, the states will need 

flexibility in adapting federal requirements into existing state programs to maximize 

3 
53 

administrative savings and minimize disruptions in program operation. Both objectives can 

be met with a carefully developed oversight program which focuses on the results of 

program implementation rather than on methodology. 

The historical, and now disfavored, model of oversight was for a federal agency to 

require a state to adopt a verbatim replica of the federal program. The federal agency 

would then measure the activities of the state program for conformance with the activities 

of an idealized federal program. Although the actual results of implementation were never 

measured, it was assumed that performance of the activities by the state in the manner 

dictated by the federal agency would deliver the program objectives. Unfonunately, more 

time was spent in arguing about process and procedure than in measuring program 

performance. 

A successful transfer must begin with a clear identification of the objectives of both 

the transfer itself and of the transferred responsibilities. The BLM and the state involved 

must then agree on what will constitute successful accomplishment of those objectives and 

how success will be measured. Only then should the BLM and the state begin examination 

of the federal and state procedures or "tools" for implementation and decide which 

procedures should be adopted, used or modified by the state in order to accomplish the 

agreed-upon objectives. The transfer document should establish performance objectives and 

measures of the success of the transfer. A wholesale transfer of BLM procedures to the 

states will neither ensure that the objectives of the federal regulations will be met, nor will 

it result in the increased efficiency and cost savings the transfer seeks. 

IV. Efficiencies must be realized and funding must be equitable and adequate 

If not the primary purpose, one of the most important purposes of the transfer 

proposal is to reduce duplication of effort and expense by the states and federal government 

in implementing oil and gas regulatory programs. IOGCC believes there are duplications 

in federal and state activities which can be eliminated with a comprehensive regulatory 

program transfer. The extent of that duplication varies from state to state, but it appears 

that certain BLM regulatory activities can simply cease in many states because state 

regulation of the activity is already delivering the desired result. In other cases, states will 

assume increased workload in existing regulatory activities. In yet others, the objectives of 

existing BLM programs will be met by different, p~xisting means. In some cases, states 

will begin performing new activities, not already a part of their regulatory programs. Each 

transfer, in order to be successful, must identify areas of duplication and accurately identify 

what BLM should cease doing and what it should transfer. 

Cessation of the performance of a regulatory function by the BUd in deference to 

an existing state program may or may not result in an increased state workload or program 

expense. The transfer of existing BLM workload and the assumption of new functions by 

the states, however, will almost certainly place new fiscal and workload burdens on existing 

state regulatory programs. The reduction in BLM workload and the increase in states' 

4 
54 

workloads will require the transfer of funding to follow the workload. The quantity and 

sources of those funds will vary from state to state, but both the BLM and the states must 

acknowledge that, in each successful transfer, the responsibility to perform federal regulatory 

activities will be fully supported by funds now utilized by federal agencies to perform those 

functions. 

ELE."IL'ITS OF SUCCESSFUL TRA..'ISFEROF REGULATORYRESPONSffiiLITIES 

The BLM describes its Fluid Minerals Management program to have three primary 

objectives: 1) to foster a fair return to the public for its resources; 2) to ensure 

environmentally acceptable activities; and 3) to provide for conservation of the fluid mineral 

resources in the context of multiple use management. (Copy of description attached). BLM 

characterizes its regulatory activities as "basically concerned with the approval and 

supervision of industry operations." The BLM has grouped its responsibilities in a way that 

renders them easily administered, but also in a way which obscures the distinction between 

their several roles with regard to fluid minerals; landowner, mineral interest owner, and 

regulator. Nevertheless, the IOGCC believes the BLM's trust and core land management 

responsibilities are severable from its delegable regulatory responsibilities. 

The first broad area of operation is review and action on "Industry Applications", 

which includes NEPA review, approval of APD's and Sundry Notices ("Lease Operations") 

and approval of communitization and unitization agreements, gas storage agreements, 

compensatory royalty agreements and development agreements ("Agreements and 

Contracts"). The NEPA review is a land managing responsibility of the BLM rather than 

a regulatory responsibility. Information generated by NEPA compliance studies may be 

relied upon during permit review, but NEPA implementation cuts across all federal 

programs. In approving contracts and agreements, BLM is not acting in a regulatory 

capacity, but is instead discharging its trust responsibilities as owner and manager of the 

nation's mineral resources. Only the review and approval of APD's and Sundry Notices 

(hereafter "Permitting") is truly regulatory activity. 

The second area of operation is inspection of industry operations to ensure 

compliance with all imposed requirements (hereafter "Compliance" ). All of the BLM's 

duties described, including both FOGRMA and non-FOGRMA inspections, are regulatory 

compliance activities. 

The BLM also performs Reservoir Management activities, including protecting U.S. 

and Indian lessors from drainage, approval and administration of federal units, and ensuring 

the diligent development of Indian leases. Here, the BLM has mixed its interest as "mineral 

owner" in protecting federal and Indian correlative rights with a regulatory role which all 

the petroleum producing states are already performing. The actual reservoir management 

activity (hereafter "conservation") is distinct from the BLM's role as mineral interest owner, 

and can be successfully "transferred" to the states without compromising the BLM's ability 

to protect federal and Indian mineral interests. 

5 
55 

Successful transfers of regulatory functions will acknowledge and clearly distinguish 

between the truly regulatory responsibilities now performed by the BLM, which are readily 

susceptible to transfer, and the truly "inherently federal" land management and mineral 

ownership responsibilities which should remain the purview of the BLM. Each successful 

transfer will be documented with a cooperative agreement, delegation document, or contract 

which represents a mutual agreement between the BL\-1: and the state involved and will 

address the following critical elements: 

I. Permitting 

The decision whether and under what conditions federal oil and gas should be made 

available by lease are elements of the BL"''s mineral interest ownership and land 

management responsibilities, respectively. BLM acknowledges that leasing is a 

"discretionary" action, but that post-leasing actions are essentially regulatory, and therefore 

susceptible of delegation. The states are already familiar with APD and Sundry Notice 

approval processes. Many states already consult extensively with the land managing agency 

before permit approval. Through state consultation with BLM and incorporation of 

appropriate conditions in the state permit approval process, there is no real need for a 

separate BLM review or approval of an APD or Sundry Notice. If the state takes the 

permitting lead, BLM will need only an abbreviated review of state permitting 

determinations, or no review at all in repetitive, non-sensitive permitting circumstances. 

Each transfer agreement should describe the mechanisms by which applications filed 

with the states are circulated for review and the level of scrutiny and time frames for review 

by the BLM and other jurisdictional agencies. The cooperative agreement should also 

describe the public review and comment process to be applied to each application. To the 

extent possible, the cooperative agreement should also describe BLM's NEPA review 

process and its relationship to each type of application reviewed. 

II. Conservation 

The member states of the IOGCC invented conservation. Well spacing, 

communitization, forced pooling and proratable production are all tools created by the 

producing states to protect the correlative rights of all owners of petroleum in a common 

pool or common source of supply to ensure that all recoverable reserves are realized and 

equitably distributed among the ownl!rs of the pool. Under the conservation statutes of all 

producing states, all mineral interest owners, including fee, state and federal owners, are 

entitled to protection of their correlative rights and have remedies and recourse if those 

rights are impinged upon. In some states, tribes and allottees also acquiesce in state 

regulation of pooling, spacing and production. The performance by the BLM of its pooling 

an unitization duties on non-Indian lands has long been seen as a duplication of state 

conservation regulation. 

6 
56 

Although the BLM and other federal agencies own extensive reserved and other 

water rights, the federal government has historically deferred to the water rights regulatory 

authorities of prior appropriation states to protect their interests. Likewise, in many states 

the BLM has acquiesced in the state regulation oi spacing and pooling of federal and nonfederal interests. As a mineral interest owner, the BLM is entitled to the same protection 

of its correlative rights under state law as are all other mineral interest owners. The BLM 

is also able to protect its mineral interests as matters of contract and propeny law. The 

BLM can adequately discharge its responsibility to protect the correlative rights of the 

federal government by actively participating in ex.isting state conservation adjudications. The 

BLM will, of course, retain its responsibility for the review and approval oi communitization 

and unit agreements as contractual matters, but can relinquish the burdens of federal 

regulatory unit approval and administration in iavor of state conservation regulation. 

Transfer agreements should describe the state conservation program and how the 

BLM and other interested persons and entities will participate in state processes, including 

special notices, consultations or other provisions unique to the participation of federal 

agencies in the state regulatory processes. 

Ill. Compliance 

The transfer of responsibilities suggested by FOGRJv!A would have state inspectors 

issuing federal notices of Incidents of Non-Compliance ("INCs"). The BLM, however, would 

levy assessments or civil penalties, order shut-downs, and hear appeals of lNCs. The 

problems created by segregating the permitting and compliance functions would be 

compounded by a funher subdivision of the compliance program itself. It has been 

suggested that the assessment of penalties is an "inherently federal" function, but current 

practice in many other regulatory programs demonstrates otherwise. 

There exist numerous examples and several models of state implementation of 

federal enforcement authority. INC's should be written as violations of state, rather than 

federal , law. Likewise, the assessment of penalties and the entire appeals process are state 

functions. Upon a federal determination that state laws and regulations are no less effective 

than the federal counterpans in achieving the purposes of the regulations, there is no 

legitimate reason to artificially segregate any regulatory compliance program into federal 

and state pieces. 

Transfer agreements should. describe the authorities and processes to be utilized by 

states in ensuring compliance with state and federal requirements of the regulatory program. 

Those agreements should also spell out the means by which the BLM and other federal 

agencies may participate, if at all, in state compliance and appeals activities. 

IV. QymighL 

Successful transfers of implementation authority carry with them accountability for 

7 
57 

successful program implementation, and reasonable methods for insuring that accountability. 

Fortunately, or unfortunately, much has been learned from years of overly intrusive, micromanaging oversight in other state-implemented, federal regulatory programs. Oversight 

must evaluate the tangible results of program implementation, not the activities of the 

program. While it is much easier to measure number of inspections or degree of adherence 

to procedures, such bean-counting not only stifles innovation and efficiency, it produces 

strongly counter-productive stresses between the implementing and oversight agencies. 

Successful oversight begins with a mutual agreement between the BLM and the state 

on the ultimate objectives of the regulatory program. Meaningful measures, or indicators, 

of the level of achievement of those objectives must then be agreed upon. Only then should 

the processes or "tools" available for ach;evement of the objective be discussed and agreed 

upon. Much of the opportunity for savings and increased efficiency lies in devising better 

mousetraps, tailored to each state's unique circumstances, for reaching the objectives. Each 

transfer agreement should describe the objectives, scope and method of oversight which will 

allow each state the maximum flexibility in implementation of the program while allowing 

the BLM to verify that the objectives of the regulatory program are being met. 

V. Funding 

Transfer agreements must provide for adequate federal funding of costs attributable 

to state implementation of federal regulatory requirements. Each transfer agreement must 

both identify cost savings and provide federal funding commensurate with the additional 

workload assumed by the state. Because of existing duplications in the state and BLM 

regulatory programs, it is anticipated that cost savings will be both identified and quantified 

in the process of negotiation of transfer agreements. 

Public land states are paying the BLM to administer the federal oil and gas 

regulatory program through federal withholding of royalties payable to the states. Because 

of differing physical, administrative and financial circumstances form state to state, the 

funding provisions of each transfer agreement should be agreed upon by the BLM and the 

affected state. In all cases, transfer agreements should address funding method, formulas 

for calculation, audit requirements (if any) and should provide contingencies for reduced or 

terminated federal funding_ 

CONCLUSION 

The current proposal to transfer BLM oil and gas inspection and enforcement 

activities to the states is a good one, but it should not be constrained by the existing 

delegation authorities of FOGRMA, or by overly expansive definitions of "inherenUy 

federal" functions. The BLM and the oil and gas producing states should seize this 

opportunity to truly "reinvent" the entire oil and gas regulatory program and realize the 

tremendous savings and efficiencies which are obviously available. The fmal report of the 

REGO II Inspection and Enforcement task force and the work of the IOGCC Public Lands 

8 
58 

Project should serve as the catalysts for the creation of a framework for the comprehensive 

realignment of responsibilities for regulation of the oil and gas production industry to 

eliminate regulatory duplication, maintain high pen'ormance standards, and reduce overall 

program costs. 

It is likely that implementation of the IOGCC proposal will require legislative and 

regulatory change. We solicit the support of the Bureau of Land Management and the 

Department of the Interior in establishing the framework necessary for the realization of 

this opportunity. There is, as well, an opportunity to forge true partnerships between the 

states and the BLM in the pursuit of a common objective, the effective, efficient regulation 

of a healthy, productive United States oil and gas industry. We look forward to working 

with you in the pursuit of these objectives. 

James W. Carter 

Salt Lake City , UT 

Donald B. Basko 

Casper, WY 

Rick Bender 

Lexington, KY 

Russell A. Fields 

Carson City, NV 

IOGCC I BL\1 Regulatory Transfer Work Group 

Richard T. Griebling 

Denver, CO 

William F. Guerard, Jr. 

Sacramento, CA 

William J. LeMay 

Santa Fe, NM 

Wesley D. Norton 

Bismark, ND 

9 

Pary G. Shofner 

Oklahoma City, OK 

Fred Y. Steece 

Rapid City, SD 

William H. Sydow 

Sidney , NE 
59 

Bureau of Land Management 

Fluid Minerals Management 

I. Description of the Program 

The three primary objectives of the Bureau of Land Management's (BLM) Fluid Mineral 

Lease and Reservoir Management Programs are to foster a fair return to the public for 

its resources, to ensure environmentally acceptable activities, and to provide for 

conservation of the fluid mineral resource, as well as other resources, in the context of 

multiple use management. The BLM also has been delegated the Secretary's Trust 

responsibility for Indian lands once a lease is issued by BIA. 

All industry applications to conduct operation and other related proposals are reviewed 

to ensure technical competence and to ensure that due consideration is given to resource 

conservation and environmental protection. 

Field inspections are performed prior to the approval of drilling proposals and during 

drilling, producing, and other related operations to ensure compliance with the 

applicable laws, regulations, lease terms , and the provisions of the approved operating 

plan to insure that the program objectives are being met. In the event of 

noncompliance, the BLM is authorized to take appropriate enforcement actions. 

In addition, the Bureau manages an active Reservoir Management program designed to 

assure that Federal and Indian mineral interests are properly protected. This involves 

protection against drainage, diligent development of Indian leases, and appropriate 

distribution of proceeds when Federal/Indian interests are pooled with other mineral 

owners. 

II. Major Issues 

A. NEPA COMPLIANCE 

In view of conflicting appellate court decisions and the language of the 1987 Reform act, 

we must continue to assure that the environmental consequences of industry proposed 

actions are timely and appropriately considered. 

B. RESERVOIR MANAGEMENT 

Emphasis needs to be maintained in the drainage program to ensure continued 

monitoring and protection of the Federal/Indian mineral resources. 

C. AUTOMATION 

Automating program processes in order to streamline and effect efficiencies, as well as 

merging with the Bureau's target automated system, will be a demanding and resource 

draining effort. 
60 

D. LIABILITY 

There are currently 60,000 wells located on public lands that either are marginal 

producers (produce less than 10 barrels of oil per day or less than 50 MCFG per day), or 

are injection/disposal wells, shut-in or temporarily abandoned. Approximately 60 

percent of these wells are operated by "small" companies (companies that operate three 

or fewer wells). Although it is impossible to predict whether these small operators will 

plug their wells and restore the surface when the well is depleted, there is a risk that 

some of them will not. According to Office of Inspector General (OIG) estimates, the 

Government will face some liability for plugging between 150-600 of these wells. The 

costs to plug and abandon these wells will vary widely, however, the OIG estimates the 

costs to the taXpayer could be between $1.2-$4.8million (estimate $8,000/well). 
61 

Comprehensive Description 

Bureau of Land Management 

Fluid Mineral Lease and Reservoir Management 

I. Description of Program 

The three primary objectives of the Bureau of Land Management's (BLM) fluid mineral 

lease and reservoir management program are to foster a fair return to the public for its 

resources, to ensure environmentally acceptable activities within the program, and to 

provide fo r conservation of the fluid mineral resource, as well as other resources, in the 

context of multiple-use management. 

The Bureau has a Trust responsibility for all Indian tribal lands and all Indian allotted 

lands and individual allottees whose restrictions have been lifted. This Trust 

responsibility authorizes the Bureau to supervise and direct operations under oil and gas 

leases, to furnish scientific and technical information and advice, and to ascertain and 

record the amount of production. Portions of this responsibility were originally 

transferred from the Secretary to the Geological Survey by Secretarial Order Nos. 731 

and 1112, dated January 2, 1934, and September 4, 1936, respectively. This responsibility 

was subsequently transferred to the Mineral Management Service (MMS) on January 19, 

1982, by Secretarial Order No. 3071, and then to the Bureau on February 7, 1983, by 

amended Secretarial Order No. 3087 . 

The Bureau's fluid minerals management program with respect to Federal and Indian 

lands leased for oil , gas and geothermal resources is basically concerned with the 

approval and supervision of industry operations. The general requirements imposed on 

the lessees and operators are set forth in the individual lease instruments and any 

stipulations thereto; the operating regulations (43 CFR 3160 for oil and gas and 43 CFR 

3260 for geotherrnal); and the leasing regulations (43 CFR 3100 for Federal, and 25 

CFR 211 and 212 et seq. for Indian oil and gas, and 43 CFR 3200 for geothermal). 

Greater specificity as to our requirements in particular instances is provided by the 

Onshore Oil and Gas Orders or the nationwide Notices to Lessees and Operators 

(NTL's) for oil and gas operations and Geothermal Resources Operational Orders 

(GRO Orders) for geothermal operations. Related supplementary regulations are 

contained in 43 CFR 3180 and 3280, which govern the unitization of Federal lands for 

oil and gas and geotherrnal resources, respectively. The regulatory functions performed 

may be broadly categorized as: 

Consideration of industry applications to conduct operations an other related 

proposals and the approval, approval with modification, or denial thereof. 

The inspection of industry operations to ensure compliance with all imposed 

requirements. with particular emphasis on site security and production 

verification. 
62 

A. Industry Applications 

The Bureau reviews all applications to conduct operations and other related proposals to 

ensure technical competence and that due consideration is given to resource conservation 

and environmental protection. Coordination within the Bureau and with the involved 

surface management agency is necessary to ensure compliance with the National 

Environmental Policy Act (NEPA) and other pertinent laws. Preparation of the 

appropriate environmental documentation is the basi~ for the approving official's 

determination of whether approval would be a "major" Federal action necessitating the 

preparation of an environmental impact statement (EIS). 

l. Lease Operations 

After a lease is issued, the BLM is responsible for supervising and managing all 

exploration, development, and production operations that occur on Federal and Indian 

lands. The BLM issues leases on Federal lands, and the Bureau of Indian Affairs (BIA) 

issues leases on Indian lands. In order for the operator to perform work on a lease, an 

application or proposal is submitted for approval. To drill a well, an Application for 

Permit to Drill (APD) must be reviewed and approved. Subsequent well operations, 

such as redrilling, deepening, repairing casing, converting to injection, recompletion to a 

new zone, or permanently plugging and abandoning an existing well are handled through 

filing Sundry Notices for approval. Other lease operations, including disposal of 

produced water and natural gas venting or flaring , also require prior approval, except in 

emergency situations. 

2. Agreements and Contracts 

When a lease or a portion of a lease cannot be independently developed and operated in 

conformity with an established well spacing program, the BLM may approve a 

communitization agreement (CA) for such lands with other Federal or non-Federal land, 

if determined to be in the public interest. A CA normally covers only one well and one 

geologic formation. The agreement provides for the allocation of production or royalties 

to the parties in interest, and these allocations are normally determined by the parties' 

amount of mineral ownership on a surface acreage basis. Unit agreements (UA) have 

some similarities to CAs in that they are established to pool the interests of several 

parties and allocate the production and royalties from the committed Federal and nonFederal lands. However, UAs normally cover all geologic formations of an entire 

structure or area and involve numerous wells with the ultimate goal of orderly and timely 

development of Federal and non-Federal oil and gas resources within the unit area. 

Other oil and gas agreements and contracts approved by the BLM include gas storage 

and compensatory royalty agreements and development contracts. The purpose of a gas 

storage agreement is to authorize the subsurface storage of natural gas on Federal lands 

during periods of excess production so that supplies will be available to meet peak 

demands. A compensatory royalty agreement is a means by which the United States is 

compensated by an operator who is producing a well adjacent to and draining unleased 

Federal lands, in cases where it is legally or admirlistratively difficult to lease the lands. 
63 

A compensatory royalty assessment, however, is an assessment made on the lease with 

the Federal lands being drained are under lease and the lessee fails to drill a protective 

well. A development contract is an agreement between BLM and an operator which 

requires the operator to perfonn a certain amount of exploratory work in a relati vely 

unexplored area, with the benefit to the operator being that the acreage under his 

control in the contract area is exempt form the state acreage limitation. 

B. Inspection and Enforcement 

Inspections are performed prior to the commencement of operations and during drilling, 

producing, and other related operations to ensure compliance with the applicable laws. 

regulations, lease terms, and/or provisions of the approved operating plan. In the event 

of noncompliance, notices of incident of noncompliance are issued and assessments. 

penalties, shut-ins, and/or recommendations fo r lease cancellation may result. 

Inspections can be grouped into those related to production accountability, as required 

by the Federal Oil and Gas Royalty Management Act (FOGRMA), and those not 

related to production (non-FOGRMA). 

I. FOGRMA-related Inspections 

These inspections are divided into three levels as follows: 

Level One Inspection: This basic production accountability inspection is an onthe-ground screening process and is intended to identify whether production is 

properly handled, measured, and reported and whether company records verify 

our independent observations. 

Level Two Inspection: Level Two Inspections are exception resolution 

inspections. They are performed in response to problems identified in Level One 

inspections or in response to problems identified by some other source, such as 

the MMS or the BIA. 

Level Three Inspection: The Level Three inspection is a production verification 

inspection. This type of inspection is designed for cases where there is reason to 

suspect significant loss due to mishandling of oil and gas production . The 

inspection must be done for an entire specified production period. The functions 

of this inspection are to verify on-hand inventories; ensure proper measurement 

techniques are used by the operator and purchaser, witness every transfer of 

production; ensure measurement equipment used for sales meets standard 

specifications; compare statistical inventory, production, and sales reports; and 

compare results with a past comparable production period. 

2. Non-FOGRMA-related Inspections 

These inspections are to ensure that operations in and around the well and lease do not 
64 

cause serious impacts to the environment, public health and safety , or subsurface 

resources (fresh water aquifers, coal seams, or other minerals). The three types of 

inspections that are in this category are surface, drilling, and abandonment inspections. 

The surface inspection includes both the predrilling inspection and the reclamation 

inspection. The redrilling inspection checks the location of the proposed access road, 

drilling pad, and mud and reserve pits for proximity to environmental concerns. The 

reclamation inspection ensures the abandoned dry hole or producing well site is left 

environmentally sound and reclaimed. The drilling inspection checks such items as well 

location, blowout preventor rating , mud weight, drilling log, and hydrogen sulfide 

evacuation plan, if applicable, to ensure operations are being performed as approved. 

Abandonment inspections may involve witnessing plugging operations, requiring the plug 

to be tagged, or pressure testing the plug to ensure fresh water zones or other mineral 

resources are protected form any further contamination. 

C. Reservoir Management 

ln addition to responding to industry applications and performing inspections of industry 

operations, three other imponant BLM responsibilities are described as follows: 

1. Drainage Protection Program 

Protecting the United States Government and Indian lessors from loss of royalty as a 

result of drainage is a major function of the Bureau. When drainage cannot be 

prevented, it is the responsibility of the Bureau to ensure that compensation is obtained. 

A potential drainage situation exists when a producing well , located on State, private, 

and sometimes Federal land , is withdrawing (draining) oil and/or gas from beneath 

adjacent Federal or Indian lands. Therefore, the Bureau must monitor all drilling and 

recompletion activity on non-Federal lands, in addition to Federal lands. 

2. Diligent Development of Producing Indian Oil and Gas Leases 

The Bureau of Land Management has a trust responsibility to oversee operations on 

Indian leases and to ensure that lessees comply fully and timely with the terms thereof. 

Indian oil and gas lease provisions req uire that the lessee shall drill oil/gas wells as the 

Authorized Officer may reasonably require for the orderly and timely development of 

the lease. The Bureau is required to annually determine whether all producing Indian 

leases are fully developed or being diligently developed for the current review cycle. 

3. Unit Agreement (UA) Determinations 

Before a UA application can be reviewed for fmal approval , the Bureau must determine 

whether the operator has proposed a logical unit area. That is, the proposed area must 

include just those lands which are reasonably likely to be within a subsurface structure 

potentially containing oil or gas. The Bureau makes this determination based on seismic 

data, well logs and/or production data from neighboring wells, and data interpretation 

submitted by the operator. After the UA is approved, drilling occurs, and if production 
65 

is achieved, the Bureau will make a determination of whether or not the well is a paying 

well on a unit basis. If the well is paying, a determination is made as to which lands will 

share in the production, that is, the approval of a participating area (PA). A well is 

determined paying on a unit basis if the production value exceeds both the drilling costs 

and the operating costs of production. Determination of the PA is based on reservoir 

analysis of life, amount, and extent of production. As further producing wells are drilled 

within a unit, each well is reviewed to determine whether it is paying. If the well is 

determined to be paying, a new PA may be established or an old one revised. 

II. Major Issues 

A. NEPA Compliance 

As a result of recent court decisions, existing Resources Management 

Plans/Environmental Impact Statements (RMP/EIS) and Management Framework Plans 

(MFP) need to be amended in order to be brought into compliance with NEPA and 

other related laws. Over the next few years, guidelines for development scenarios and 

cumulative impact assessments need to be prepared and the planning documents 

amended. To provide guidance to the field, a handbook for energy and minerals 

assessment will be prepared. It will contain guidance on preparing development 

scenarios and reliable cumulative impact assessments. Many actions previously 

categorically excluded from further NEPA analysis are slated to be eliminated from this 

category. The Bureau will develop criteria for including these action in the RMP/EISs 

to assure their adequate discussion. Future RMP/EISs will be reviewed more closely to 

ensure their adequacy for NEPA compliance. 

B. Reservoir Management 

The identification of cases where Federal and/or Indian minerals are potentially being 

drained and the resolution of these cases has received high priority over the last 4 years. 

Efforts to facilitate the program have included providing additional staff, specialized 

training for existing and new staff, the establishment of the Technical Assistance 

Committee (T AC) to provide expert assistance to field offices in the reservoir 

management program, preparation of the Manual Section on drainage standards and 

procedures, the preparation of an oil and gas data base manual and handbook for 

reservoir management, the acquisition of well date (including Petroleum Information 

Corporation and Dwight's Energydata Incorporated data), and the development and 

implementation of stand-alone computer systems. 

C. Automation 

The Automated Fluid Minerals Support System (AFMSS) is scheduled for completion by 

1995. The Washington Office, the Denver Service Center and personnel located at field 

test sites will all take an active role in the development, testing, and implementation of 

the System. Prior to the implementation of AFMSS our existing information systems 

must be maintained and enhanced to meet our ongoing responsibilities. Existing 
66 

information systems include the Monthly Report of Operations (MRO), the Automated 

Inspection Record System (AIRS), the Quarterly Fluid Mineral Report (QFMR), and the 

Case Recordation System (CRS). The MRO is a summary of all production activi ties 

conducted on a lease or on an agreement during a specific reporting period. This report 

includes well identification and status and production and disposition information. The 

responsibility to receive the MRO has been transferred to the MMS . MRO software will 

be implemented to extract and manipulate the data from MMS. AIRS contains data 

related to inspection sites designed to aid inspectors. Data includes inspection items, 

inspection history and inspection follow-up. AIRS will continue to experience an 

ongoing expansion of the database and software enhancement to provide easier 

manipulation of the data. The QFMR maintains historical operational data/statistics 

including numbers of APDs, UAs, CAs approved, number of producing leases, number of 

producing wells, agreement, drainage and Indian diligence statistics, etc. CRS contains 

basis data and information related to all oil and gas agreements and contracts and 

producing leases, as well as data on all other Bureau case ftles. Over the next year and 

a half, a significant volume of fluid mineral operations data will be entered by the field 

on the CRS. Systems to automate panel maps, showing wells, location and status of 

leases and agreements, and ownership, are in progress in some states, and the WO will 

continue to evaluate their usefulness nationwide. As an ongoing and continuing effort, 

fluid minerals operations staff at all levels are reviewing data elements used and 

recorded within and outside the program to take actions to standardize the data. 

Automation efforts wilt continue to receive high priority to ensure AFMSS is 

implemented timely, is effective, and provides fo r all fluid mineral applications and to 

ensure the interim systems are maintained to adequately meet our responsibilities prior 

to implementation of AFMSS. 

D. Liability 

In November 1989, the Office of the Inspector General (OlG) found that man y BLM 

offices did not adequately track the status of all of their shut-in and temporarily 

abandoned (TA) wells. As a result, the OIG assumed that many of these wells presently 

shut-in or TA are not capable of producing oil or gas in paying quantities or have no 

future use as either a service well or to enhance recovery . The OIG determined the 

BLM was not requiring the operator to promptly plug and abandon these wells. 

As a result of the OIG's findings, In November 1990, the BLM's Division of Program 

Evaluation conducted an in-depth study entitled "Potential Government Liability for 

Plugging Oil and Gas Wells". The study attempted to address the problems identified by 

the OIG (and other related problems) and proposed several recommendations. The 

study concluded that the Federal Government could become partially liable for the cost 

to plugging many of these wells, and estimated the total cost could exceed 

$300,000,000.00nation-wide (worst case scenario). 

The Division of Fluid Minerals has developed an action plan in response to the OIG and 

Program Evaluation findings and recommendations. The plan indicates the BLM will set 

a high priority on ensuring that wells be plugged and abandoned as soon as it is 
67 

determined that they have no further economic use by the current well operator. The 

BLM will also evaluate current oil and gas bonds ($10,000/lease bond, $25,000/statewide bond and $150,000/nation-wide bond) in order to determine if coverage is adequate 

when weighed against the magnitude of and level of risk for potential government 

liability for plugging and reclamation of all wells. The BLM has established guidelines 

when it is appropriate to raise the bond amount and by how much. 
68 

Written Statement by 

Gene Kozlowski 

President- Makoil, Inc 

representing 

Independent Petroleum Association of America (IP AA) 

and 

Independent Petroleum Association of Mountain States (IPAMS) 

before the 

Committee on Resources 

Subcommittee on Energy and Mineral Resources 

U.S. House of Representatives 

June 20, 1996 

Mr. Chairman and Members of the Committee: 

I am Gene Kozlowski, an independent oil and gas producer. My company, 

Makoil, is the largest producer from federal lands in the state of Nevada I am here today 

on behalfofthe Independent Petroleum Association of America (IPAA), a national trade 

association representing more than 5,500 independent oil and natural gas producers. I also 

appear on behalf of the Independ ent Petroleum Association of Mountain States (IPAiv!S) 

which represents independent producers in the Rocky Mour.tain region. My comments 

reflect the views of independents producing from federal leases throughout the west 

Independents are the major force in developing America 's oil and natural gas 

resource base. We drill 85 percent of the nation's wells, produce 65 percent of the natural 

gas and 40 percent of the domestic oil. Despite this record nationwide, independents 

generally have not looked to federal lands as a promising place to do business. We believe 

that federal lands hold enormous potential oil and natural gas resources. However, we 

know that operating on federal lands can be expensive and subject to frequent and costly 

delays in acquiring needed permits. As a result, independents are not expanding their 

exploration and production on fed eral lands. With your help, we hope to change that. 

Public Lands Hold Key To U.S. Energy Security 

Of the almost 2.3 billion acres of land in our nation, nearly 650 million acres, or 29 

percent, is owned by the federal government. More than one-fifth of the total oil 

production and one-third of the natural gas production in the United States comes from 

public lands. Recent US. Geological Survey's report concludes that the greatest potential 

for oil and gas development in America is on lands under "federal st ewardship." 

The orderly development of domestic oil and natural gas resources makes more 

than just economic sense. Less than 18 months ago, President Clinton reported to 

Congress that his investigation under the Trade Expansion Act found that America 's 

increasing dependence on imported oil threatened to impair US. national security. 
69 

Obviously, maintaining access to public lands for oil and gas development is essential to 

America's energy security. However, the people who decide where to invest in oil and 

gas development are shying away from public lands. 

A recent IPAA survey of more than 5,000 independents revealed that their 

production and investment on public lands over the past few years remains unchanged. 

Behind those survey results is very disturbing news, indeed. While independents' overall 

investment in public lands remains relatively flat, independents have greatly expanded their 

participation in the federal offshore region, drilling more than 59 percent of offshore wells 

in the Gulf of Mexico last year. That tells me that investments in onshore fed eral lands 

probably arc falling. Given these circumstances, it should be clear why the IP AA and 

IP AMS have stepped up their efforts to make oil and gas devel opment on publi c land s, 

especially onshore federal lands, more attractive to cost-conscientious independents. 

The first step should be a cooperative effort to identify and eliminate any and all 

unnecessary costs associated with onshore development. In part, that task will require 

bringing clarity and predictability to rules and regulations that now add uncertainty to the 

already risky business of oil and gas development. There are unnecessary costs and 

complexities at every step of the process of obtaining a federal lease, getting permits to 

drill and produce a well, to payment of royalties and even being audited The cost and 

uncertainty associated with each of these steps drives independent oil and gas producers 

away from federa l onshore lands. One resu lt is that America is more dependent o n foreign 

oil than it needs to be. We must step up the efforts to get the federal government, state 

government, the industry, and the public to work together on federa l lands for the good of 

all invol ved. 

In the federal royalty arena, your bi ll Mr Chairman, the Royalty Fairness bill, 

demonstrates the type of reform that can occur when all parties work together. Your bill 

reforms costly royalty practices and increases the involvement of states in royalty 

collections. Your bill serves as a model for future public lands legislation bringing 

together various states while receiving bipartisan support on Capitol Hill, unanimous 

support from a diverse oil industry, and support from the Clinton administration. We hope 

we can get this important bill signed into Jaw in the very near future. 

I am pleased to see that Washington policymakers are re-thinking the relationship 

between the federal government and the states, and, where justified, are giving the stat es 

greater responsibility for managing a single program for both state and federal leases 

Clearly, where oil and gas development are concerned, the states have the most basic 

motivation for managing some of the oil and gas programs traditionally handled by the 

federal go,kmment --the success of those programs hits home. It is their neighbors who 

find employment in the industry. It is their communities that reap the direct economic 

benefits that multiply on Main Street when new wealth is created. The states also receive 

a fifty-percent share of royalties from oil and gas production on federal lands, which is 

often invested in education programs that benefit all th eir citizens 
70 

I agree with those who believe that the states can responsibly administer oil and 

gas production on federal lands within their borders. The states have their own oil and gas 

programs and have as much, if not more, experience in managing them than does the 

federal government. The states, too, are undergoing a re-evaluation of their energy 

development programs. It is time to combine state and federal efforts to streamline these 

programs. 

Through the Interstate Oil and Gas Compact Commission (IOGCC), IP AA is 

participating in a framework that will attempt to reduce administrative burdens facing 

producers on federal and state lands. If done correctly, the end result will be saving 

taxpayers dollars, eliminating duplication in state and federal oil and gas administration, 

reducing the size of government and transferring decision-making to the communities and 

states most directly affected . This type of reform will shift revenue for independents from 

regulatory administration to exploration and production of public resources, thereby 

strengthening our domestic energy supply. 

Making cost reductions and eliminating duplication can be achieved without 

compromising essential government programs. To this end, the IOGCC proposal before 

you deserves a chance. We understand that this proposal was prepared in response to a 

BLM proposition to transfer partial responsibility for the oil and gas inspection and 

enforcement programs to the states. The IOGCC believes, as we do, that there is 

extensive duplication by the BLM and state oil and gas regulatory authorities, and that a 

consolidation ofBLM and state regulatory activities will result in significant cost savings 

through a single, coordinated regulatory regime. 

There is ample precedent for the IOGCC's recommendations. Examples of states 

as the primary implementors of federal regulatory programs are numerous. The 

Environmental Protection Agency's NPDES and underground injection control program, 

the Occupational Safety and Health Administration's industrial health and safety program, 

and the Office of Surface Mining's coal regulatory program are just a few examples of 

successful state implementation of federal programs. The states have been regulating oil 

and gas activities for decades. Their performance standards and review processes are 

remarkably similar to the BLM's. The states can assume the federal oil and gas regulatory 

responsibilities without disruption to ongoing or future development projects and without 

the need to create new administrative programs. 

We would like to make the Committee aware of factors that must be considered to 

make such a transfer successful for federal and state governments and industry. We must, 

under any downsizing proposal, prevent a reduction of federal costs being brought about 

by shifting additional costs and burdens to an already troubled and heavily regulated 

industry. To secure cost savings for all those involved, we must strive to, when possible, 

eliminate duplication and multiple sets of laws and regulations. 

Little is gained if resources currently allocated to oil and gas activities are simply 

"reshuffled" to "oversight and enforcement" activities. A comprehensive and cost-
71 

effective transfer of responsibility must also include adequate funding and authority for 

the states to enforce the activities they are performing. These lessons have already been 

learned under the Office of Surface Mining's coal regulatory program. Uncertainty and 

litigation costs increase if an action taken by the state is second guessed by the federal 

government 

The "inherently federal" concept seems to be serving as justificatiOn for ELM to 

maintain an extensive oversight role subsequent to activities being transferred to the states 

Given the limitations of the !OGCC's proposal to post-lease activities, it is doubtful if 

these activities will be deemed "inherently federal" Posr-lease activities are mostly 

mandatory workloads to ensure compliance with the governing lease terms and regulations 

and do not infringe upon the Secretary's discretionary responsibilities related to leasing 

and environmental documentation. If there is a legislative barrier preventing the transfer 

of so called "inherently federal" activities to states, then we should seek a legislative fix 

that provides for an expedient transfer of responsibility 

Another area of concern for driving up costs is the delegation of responsibility to 

the states with the requirement that the states enforce both federal regulations for federal 

leases and state regulations for all types of leases within the state If federal regulations 

and standards are not folded into a clear state legal authority, then the state employee is 

required to enforce two different sets of regulations, causing inconsistency and resulting in 

no cost savings to the government or producers_ The only benefit then becomes the 

elimination of personnel at the federal leveL If the state has laws and rules consistent with 

the requirements of the federal government, then the state should be able to complete the 

action and provide a right of appeal to the producer 

Conclusion 

The IOGCC proposal allows for the transfer of ELM oil and gas post-lease 

activities to the states It is the consensus of!P AA and IPAMS members that the states 

are well equipped to carry out this responsibility. The states have been performing these 

duties for some time, and they have a vested interest in seeing that it is done expeditiously 

and accurately. Significant additional work will be necessary to identify an oil and gas 

program acceptable to states, harmonize state and ELM requirements to avoid duplication 

in enforcement and compliance, and provide adequate funding for states As this work 

progresses, we suggest that producers be consulted each step of the way to prevent 

unintended consequences and to ensure that cost savings will be realized for both the 

government and producers on federal land. 
72 

Writtal Statement by 

FI"Bilk Yates, Jr. before the Committee on ROIO\ll'cell 

Subrommittoe on Energy and Mineral Ruourcea 

U. S. House of Representatives 

1une 20, 1996 

Mr. Chairman and Membcr6 of the Committee: 

I am Frank Yate6, Jr., part owner and a Vice Preaident of the largest oil and gu 

production company native to the State of New Mexico. Yates Petrole.un Corpor&tion ia 

actively exploring for oil and gas throughout the Rocky Mountain Statca. I am here today 

to promote the trlll8ftr of responaibility for oil and giUI operation& to the individual St&!es. 

The individual States have the ability and required knowledge to adminilta- thcir own oil 

and gaa progranu often prcfem:d over the Bure&l.l of Land Manaaemem'a. 

One: buic rcuon for our auppon fur tramferring B~UUU of Land Mane.gement 

(BLM) functions to the States cornea from thia excerpt of an email from our production 

man&g~~r Brian Collim: 

I un dilturbed that the BLM ia chcclUng our cuina deaiiJII and in aome 

cuet requei!ing modification to our deliana. Thia ia molt diaturbinll 

becalae I believe that the BLM enginecn checking the duigns are 

unfamiliar with many critical deaign concept&, are inexperienced or have no 

prillr cxpaience doing cuing dcaigJU~, l&ck dcUilcd woU-apeciflc 

knowledge, and are uling computer progranu to check doaigna without 

lcnowing what deJign criteria need to be checked (proagc in • garbage 

out). In llhon, I think they aro unqualified and pouibly incompetent to be 

checldnt! our cuing deligns. Amateurs IU1l checking the cxpc:rta. 

In yoar~ p<, the government was where anyone looked for exponitc on a 

particular JUbjoct, howovcr, more often in today'a market tho e>q>crta are found employed 

by the State~ and in the private aector. These ane the people who undcntand what ia 

acini on in induatry and are currently managing the oil and gu programa, not the tiLM. 

BLM't pownnel arc: (Qrcc:o;l to make dcciaiona bQC:d from handbookt and checldim, and 

laclc required knowledge to understand what it takc1 to drill, produce and mari<et the 

natural r.sourcea. 

Properly tre.naferring lll4Mgemont responaibility to tho Statet It important bccau&o 

the £u..;tion the BLM pcorfu<mo io dupliCIIting fui>Ctiono pc>rformed by the individual Statco. 
73 

Subcommittee 011EnerJy Rcaoui'QCa 

TI"Ullfer of Oil and 0.. Manapmoat to Sow 

JUIIII20, (996 

Pap2 

What I mean by proper tranlfer it the transfer of oil and gu managomcnt rNponsibility to 

the StltCI without tbe tranlfcr of federal regulationa and the auociated burdona created 

thereby. Oil and PI States where we operate have well developed management progranu 

in pi~ for the 11Wla8=t of exploration and production activities. Specifically in New 

Mexico, u evidcmc:ed by the recent I.ntcntatc: Oil and Gu Compact CommiJaion (lOGCC) 

reYiew of N.w Mexico, of which I wu one of the review team membcn, it wu 

d«c:nnincd that State resulatory m1111agc:ment over oil 111d PI it aocompli1hing the 

desired enviroruncntal protection while allowing oper&IOI'J to conduct buaine~~~ with little 

interference from regulators. 

R.efinement of State cmbli&hcd progranu, in contrut to crcllling new State 

prograrm dc:aigncd to meet federal requirement!, mak~ good manasemcnt 1Cn5C. Every 

opc:ntor who operates in an individual State must become familiar only with the Stat&' 1 

program. Furthermore, claims that the transfer of BLM's management reapon&ibibty to 

tbe Swe& wiU imp&ct opcntora thaJ conduct bwincu in more than one Stille can bo 

diacounted by tile &.ct that IIUUlY opc:rllora with established opei11tion8 already operate on 

Iande regulated by IIUCh State agencies. Each of t~ operaton mutt know and 

under1t&nd the State's rules to be in compliance. Existing operationa cause the operator 

to deal with multiple agencie5 and this tranafer we are di;cuuing today would eliminate 

one layer of reiUiatory compli&IICC that is redundant. 

Trantkrring responsibility to the States &U.o provides more ~ountability for tile 

manaaement deciJiont. Local people interact with the regulatory asencies. Problema &re 

addroued awiftly becawe of the communiclllion este.bliahcd between the regula.ton and 

the operator1 Opentora are not placed in a defenaive posture every time they meet and 

diiCIW IICtUaJ or perceived problems becauiiC they know that rectifYing problem ia the 

main oonc«n, not i811Uing fines or notices of non-compl~. Additionally, at the State 

level quick roaponsc from the Director of the regulatory lf!ency ia J>OUible . For exampk 

in New Mexico, the Director of the Oil Conservation Divition can quiclcly 1Upport or not 

oupporta dcci&ion made by the State'• people in the field . Those decision• can rllJ1ie from 

over .zcalout revulatory enforcement to the lack of n:gulatory compliance. Regardlcu of 

the type of decision, quick reaporue from the State ie poaoiblc, avoiding expenaivc delay• 

and lcpl cxpcruc!. 

Any trl.nBfi:J' of management reapon1ibility should be a complete transfer. A St&te 

proifm! ahould not be tied to the bureaucratic management style of the Buneau of Land 

Management, nor any of the polici~SS or pr&ctice1. I will ougg~ that a model program 

include .uapeNion of all federal regulatio!IJ in favor of operating under a State' 1 

regula1oty umbrella. Ststet have proven regulatory, environmental and conservation 

control rqulatiofUI. The IOGCC report on New Mexico even 1Upporn the concept that 

within New Mexico the reiUiatory manner. while: not perfect.. is working to cffco;tively 

pwtoct the environment while managing the oil and gu activiti"" Tranlfer of 
74 

SubcarNnittco as EDeriY R.e.ourccl 

Trauafer of Oil aDd Ga. Manapnent tc Sta:~c~ 

J~~ae 20. 1996 

f18c3 

IJ1&M&emcnt reaponaibility avoiiU redundancy in the regulatory functions under which an 

operator mua1 c:ondue1 buaine~:a . 

Additionally, this opportunity to tranaflll" reaponaibility to the Statea should not be 

compromiled by allowing the existing BLM l)'ltcm to ltay inl&ct for the Stull. This 

prceonu a gre.t opportunity to reduce the liu of the fedcal government. States have an 

equal intcRit in ~~~eing that oil and ga.s i1 developed in etfective and environmerrtally 

IOU1Id manner. State llCf"'nnel can do the job of the required BLM employee&. 
Statement of Mr Danny Thompson 

June 20, 1996 

Oversight hearing on the transfer of oil and 

gas operation regulations from federal to state 

enforcement 

Committee on Resources 

Subcommittee on Energy and Minerals 

75 

Mr. Chairman, Congressman Cremeans, Members of the Subcommitlee on Energy and 

Minerals, 1 appreciate the opportunity to appear before you today to discuss my views on 

transferring oil and gas regulation from the federal government to the states. The views I am 

expressing represent those of the vast majority of oil and gas producers in Southeastern Ohio. 

Wb;le the decision to transfer enforcement would affect producers across America, my comments 

are directed solely toward oil and gas operations in Ohio. 

first, a lillie background on oil and gas production in Ohio. I surely do not want to take 

any glory from my friends in Pennsylvania who claim the first oil welL However, that is not quite 

accurate. It is fact that the first commercial oil well was drilled by Colonel Drake just outside Oil 

City, Pennsylvania. However, the first well to produce crude oil was discovered just outside 

Caldwell, Ohio in 1814, 45 years before Colonel Drake's well in Pennsylvania. Since that first 

discovery in Caldwell, Ohioans have been supporting their families from proceeds derived in the 

oil and gas business. Major oil companies such as Pure Oil and Marathon Oil started their 

operations in Ohio. 

In Ohio, most wells drilled fall into the category of stripper wells. Ninety-five percent of 

those wells drilled in Southeastern Ohio are stripper wells producing an average of 200 BBL of 

crude oil per year and 500, MCf of natural gas. My company, Carlton Oil Corporation, 

produced 12, 118 BBL of crude oil and 147,912 MCF of gas in 1995 for an average of 3J.20 BBL 

and 405.23 MCf per day. Carlton Oil Corporation, like most other oil companies in Ohio is, for 

lack a beller term, a mom and pop operation. My company includes myself as general manager, 

my wife who does the bookkeeping and accounting, and four field personneL 

As you can probably guess from the production numbers I mentioned earlier, the wells 

which I run operate on a very slim revenue margin. If these wells are burdened with unnecessary 

and overburdensome federal regulations, they quickly become uneconomical to operate. The 

issue entailed here is not one of safety or protecting the environment. Ohio bas some of the most 

stringent environmental and safety laws of any state in the nation as evidenced by the Interstate 

Oil and Gas Compact Commission ~nd Environmental Protection Agency joint review completed 

in May 1995, and I must live under those rules as an operator. The real issue here and the debate 

within this subcommittee should be on how to reduce the overburdensome double and sometimes 

triple regulations. It would seem to me that if one set of regulations, whether federal or state, 

reach the desired level of acceptable standards that should be suffi cient. 

In today 's wor!d, a producer in Southeastern Ohio must meet regulations of Ohio Chapter 

1509, federal CFR 43, BLM standards, the U.S. Forest Service Management Plan, federal DOT, 
76 

and the Feoeral Regulatory Commission to name just a few of the regulatory bodies I must deal 

with when operating a well. Let me give you an example of one issue which is a clear example of 

the overburdensome regulations which operators must endure -- operational bonding. Ohio has a 

$15,000 plugging bond, the U.S. Forest Service has a $20,000 bond and the BLM requires a 

$25,000 bond. I would ask a member of either agency to advise me why one bond would not be 

sufficient Bonding is just one of many issues. There are different tank standards for each 

agency, different meter measurement, different site plans, and different valving systems. 

I could go on for a while comparing Ohio's 1509 regulations with the Federal CFR 43 . 

However, let me go to another area of great concern, paperwork. The Mineral Management 

Service must have been in recess when Congress passed the Paperwork Reduction Act. To report 

a ten dollar royalty check, a producer probably spends another ten dollars. The forms and 

requirements are ridiculous and the sad part is that the MMS does not know what to do with or 

how to use the information which you provide. The requirement that you estimate production 

and then complete additional paperwork for adjustment is absurd. What is wrong with simply 

showing what amount of production was sold, the dollar received, and send in a check for the 

federal share. If you do not trust me, have it reviewed by an auditor. With today's reporting 

requirements on the seller, hauler, and purchaser, it would be hard not to catch a thief pretty 

quickly. All of my crude oil is sold to Quaker State. Quaker State pays the royalty directly to the 

royalty owner. There should be no questions as to the royalty amount However, Quaker State 

would most likely not buy my crude oil if they were forced to take time to complete the MMS 

paperwork. This in turn is more paperwork on the producer. 

For natural gas sales, I get a statement from the gas purchaser for natural gas. This should 

be simple: whatever I get paid for, you get your royalty share. The purchaser or measurement 

representatives of my gas sales are Columbia Gas Transmission and East Ohio Gas Company. 

Both companies set their choice of meters at tie in point between their line and my line. Both of 

these companies use rotary measurement as standard policy. The BLM requires an orifice meter 

and it must be set on the lease. This requirement causes the producer to get and maintain an 

additional meter. What is the difference between a Ford and a Chevrolet? The issue should be 

accurate measurement. 

Members of the committee, I would suggest to you that while transferring enforcement of 

regulations is a good move and has been needed for a long time, there needs to be more done. 

The double and triple bureaucratic regulations need to be removed. Transferring enforcement 

simply is not enough. Likewise, these inter government turf battles to gain ground and agency 

security need to stop. Producers need to have more common sense interjected into BLM's oil and 

gas operating regulations. There is virtually no distinction made in measurement and production 

accountability standards for a I BOFD/MCFGD well versus a 100 BOFD/MCFGD well. If 

nothing else happens with transferring responsibilities to the states, BLM needs to modifY 

operating requirements for low volume wells. 

In fiscal year 1994, the BLM, Forest Service, and MMS spent a combined total of 

$604,000 to administer 182 Federal oil and gas leases in the State of Ohio .$3,319 per lease. 
77 

In calendar year 1994, the MMS reports that $389,807 was collected from these 182 

leases in the form of rents, royalties, and bonuses ... $2, 142 per lease. 

It doesn' t take a mathematical whiz to see that the Federal government needs to cut its 

costs to administer the oil and gas program in the State of Ohio. 

Let me see ifl can create a scenario for your thoughts. 

Southeastern Ohio, Grandview Township, Washington County. There are five oil wells 

within one mile of each other. These wells are on 20 acre tracts. Each tract is owned by the 

Federal Government. Because these wells are in Ohio, they are subject to Ohio oil and gas 

regulations. The tracts are a part of the Wayne National Forest, subject to the Wayne 

Management Plan. Because the Bureau of land Management oversees minerals for this area, the 

wells are also subject to Federal Code CFR 43 . 

At 2 p.m. on June 20, 1996, onto site #I pulls a 1994 Ford 4x4 pickup carrying the State 

of Ohio oil and gas inspector. Next arrives a 1995 Dodge 4x4 carrying a Wayne National Forest 

field inspector. Finally, parking just off the location is a 1996 Jeep Wagon carrying a Bureau of 

Land Management inspector. He has to park off the location because it was becoming too 

crowded. 

My question : What is one of these inspectors going to do that the other cannot? 

How much are these vehicles costing the taxpayers? How mush are the wages and 

benefits costing the taxpayers? What are the reporting requirements and paperwork costing the 

producer? 

Each inspector pulls out his code book. Each book is different Who is top dog? Which 

book has authority over the others? 

After discussing policy for a few minutes, baseball for a few more minutes, and maybe 

how rough we have it because the cost ofliving went up another percent or two, they move from 

one well to the next well and so on. 

Let us now move onto leases and the tangled mess in Southeastern Ohio. The Wayne 

National Forest extends to parts often counties in Southeastern Ohio with three district units: the 

Ironton unit, the Marie tta unit, and the Athens unit. 1 Jive and work in the Mari etta unit so I will 

reference that general area. The Wayne National Forest is made up of fragment ed land ownership 

by the federal government. Much of the acreage was purchased in smaller 20- 100 acre tracts 

which make up what is now about 30 percent ownership of land in the Marietta unit. l would 

estimate that probably 75 percent of the federal land in the Marietta unit is under oil and gas 

leases. 

There are basically three types of leases or mineral holdings within the Marietta unit 
78 

I. Private ;ninerals. These are minerals for oil and gas that were reserved at the time of property 

transfer. This could have happened many years ago by warranty deed or at the time the 

government purchased the land. Either way the oil and gas leasing rights are owned by someone 

other than the Federal Government. 

2. Outstanding minerals. This could include a mineral reservation or an existing lease in 

compliance at the time the Federal Government purchased the property. I have several leases 

where I lease and drill wells only later to have the landowr.er sell to the Federal Government. Tho 

Federal Government purchased this property knowing full well that there was a lease in place. 

For example, I drilled six wells on a 160 acre tract from 1983 through 1985. Later, the Federal 

Government bought the property with the lease in place. Under terms of the lease. I can drill 

more wells and I will hold this lease so long as I produce oil and gas. The wells are subject to 

Ohio regulations, but not Federal, as the lease was in place at the time of purchase. 

3. Reverting minerals. During the 1940's and the 1950's, the government was having trouble 

purchasing land in Southeastern Ohio because of the oil and gas potential. The Forest Service 

started a practice where it would buy the property but allow the seller to reserve the right to leas< 

the minerals for oil and gas development and receive all royalty from same for a number of years. 

These reservations were for anywhere from five years to SO years. Carlton owns a lease that had 

a I 00 year reservation. 

Because of the bureaucratic overrule of the Federal Government, most producers would 

not touch these leases, thus the mineral was not produced and the reservor did not benefit. Along 

about 1973 and throughout the 1970's, our country suffered an energy crunch. Congress created 

a very favorable tax write-off for investors in oil and gas development. Money men started 

flocking to Southeastern Ohio from all parts of the country. There was an oil boom on and we 

good ole boys were thrown money to drill like there would be no end. Leases were in dire need 

for drilling of new wells. Producers started looking at Federal lands and the reverting leases. 

I first became involved with reverting leases around 1979. Being a little cautious. several 

producers including myself questioned the Forest Service about what happens when the mineral 

reservation runs out and reverts to the Federal Government. The response was the same as what 

happens in the private sector. You continue to operate your lease and wells while switching 

royalty payments to the government. After being in several informal discussions and being 

somewhat reassured, I jumped in and leased some of these reverting minerals. All negotiations 

took place between the mineral holder and the producer, in this case myself. The Forest Service 

took no part as the minerals were reserved. My company, Carlton, leased eight separate tracts 

totaling about eight hundred acres. Probably the biggest mistake of my life. 

Let me guide you through my grueling experience of Carlton's Littleton lease. 

January 28, 1984 --Carlton leased 213 acres from James and Dorothy Littleton. The Littleton's 

had sold the 213 acres to the Forest Service on November 8, 1971 , reserving the right to lease 

and receive royalty from oil and gas through November 1, 1991 (20 years). 
79 

April 1984 -- Carlton drilled a well with approximately $175,000 of investor raised money. The 

well, while not a boomer, was commercially productive. 

Mid-1987 -- the Bureau of Land Management suddenly appear in Southeastern Ohio. I do not 

know how they found their way down here from Milwaukee as I do not remember seeing their 

representative in the area before that time. The BLM took the position that as the minerals 

reverted, all rights, including producing wells, were lost and if the owner wants to keep his well 

he must now go to an auction and bid for the well and lease. 

For the next two years, debate over the issue was ongoing between producers, the Forest 

Service, Bureau of Land Management, and Congressional Representatives with no end in sight 

1989 --Congressman Bob McEwen drafted legislation to correct the problem. During this time 

the BLM revealed that a compensatory royalty agreement could be issued and legislation would 

not be needed . As this was believed satisfactory, legislation was dropped Several compensatory 

royalty agreements were put in place. 

Spring of 1990 --legal staff of the BLM indicated that compensatory royalty agreements were 

inappropriate and that no more would be issued. 

September 26, 1991 -- Representatives Applegate, McEwen, and Miller introduced House 

Resolution 342 1. Southeastern Ohio Oil and Gas Association members made many trips to 

Washington to testifY in support of the bill. 

May 1992 -- Carlton Oil shut in Carlton 's Littleton well under threat of prosecution for mineral 

thief by the Bureau of Land Management. 

October 1992-- President Bush signed into law HR 3421 as part of the Comprehensive National 

Energy Policy Act. 

Over the next year, several meetings were held between Southeastern Ohio Oil and Gas 

Association, the BLM, and the Forest Service to discuss procedures for transferring oflease 

rights under H. R. 3421 . 

January 1994 -- the BLM indicated that Carlton had failed to submit the required application for 

the Littleton lease and rights to the Littleton lease were denied. 

February 1994-- Carlton filed notice of appeal to the Bureau of Land Appeals. 

March 22, 1994-- Carlton filed Statement of Reasons to the appeal. 

April I 8, 1994 --the Office of Hearings and Appeals denied Carlton's appeal. 

July 16, I 994 -- Carlton filed petition to reconsider the appeal. 
80 

August 17, 1994 -- ihe Office of Hearings and Appeals denied Carlton's petition to reconsider. 

Through numerous discussions between Carlton and the BLM, Carlton attempted to settk 

the issue. Carlton's attempts were to no avaiL Finally, Carlton gave up and informed the BLM 

that if the BLM would put the Littleton lease up for sale, Carlton would travel anywhere in the 

United States to bid and buy the Littleton lease at lease sale 

January 5, 1995 -- Chris Hanson of the BLM in Milwaukee wrote a letter to the U S. Forest 

Service requesting that the Littleton lease be put up for lease sale. A copy of the letter was sent 

to D. Greatorex of the Marietta office of the Wayne National Forest. 

Throughout 1995, word from Forest Service personnel was that the Littleton lease would 

be put up for auction. As there was a lease sale scheduled for September 1995. I assumed that 

the Littleton lease would be on that sale. 

September 1995 -- a lease sale was held in Marietta, Ohio but the Littleton lease was not 

included The BLM excuse was that the Forest Service had not given consent. The Forest 

Service excuse was; "sorry, we just overlooked the lease. Don' t worry, it will be on the next 

lease sale" 

Early November 1995 -- Carlton received notice of a lease sale scheduled for December 7, 1995 

The Littleton lease was not on the list. The Forest Service said they did not have the time to do 

the necessary paperwork and give consent I noticed that they did have time to put other Ohio 

acreage on the list. 

Typi cal Forest Service procedure -- "Delay, the deadliest form of deniaL " 

November 2, 1995 --I met with Eurial Turner, Supervisor of the Wayne National Forest, at the 

Athens office of the Wayne National Forest. He gave me his word that consent of the Littleton 

lease would leave his office on November 6, 1995 for the Milwaukee office for approvaL I 

contacted personnel from the Forest Service in Milwaukee. The BLM said that if the Wayne 

National Forest would give consent that they would do whatever necessary to get the Littleton 

lease on the December lease sale. 

November 7, 1995 --I received a call from D. Greatorex that the procedures could not be 

completed in time because the Forest Service must give public notice, etc However, he said they 

would complete everything so that it could be on the next sale. 

November 29, 1995 -- D Greatorex informed me that only one comment was received and that 

was in favor of allowing the lease. 

January 1996-- article in the January 1996 Wayne Quarterly newsletter produced by the Wayne 

National Forest states that the scoping was completed in December 1995 for consent to lease the 

Littleton 21 2.44 acre tract. Also note that the tract would be on the March 1996 lease sale. 
81 

February 15, 1996 -- Carlton receives notice of March 28, 1996 lease sale in Springfield, Virginia. 

You guessed it, the Littleton lease was not on the sale notice. 

February 21, 1996-- After several days of trying to call Eurial Turner I finally reached him by 

telephone. Asked why BLM was not given consent for the Littleton lease to sell, he said, 

"because of the federal budget shutdown he did not have time to complete the necessary 

paperwork." 

Frustrated to the highest level, I called Congressman Frank Cremeans, Congressman Bob 

Ney, and Senator Mike De Wine. Somehow, progress was made. 

Early May 1996 -- I received notice of a June 20, 1996 lease sale to be held in Springfield, VA 

The Littleton lease was finally on the lease sale. The lease is burdened with heavy stipulations 

such as no surface occupancy over three-fourths of the acreage which includes areas already 

developed. 

Congressman Cremeans presently has H.R. 2354 in committee. This bill would go a long 

way toward rectifYing this issue. 

I would like to make one more point in reference to reverting minerals. The Littleton well 

was drilled in April 1984. The well was permitted under Ohio 1509 oil and gas laws. The well 

operated and produced in compliance with these Jaws until shut in during May 1992. The well 

remains shut in today. I would ask anyone present to explain the difference in the physical 

operations of this well between June 19, 1996 and June 21, 1996. What caused the major 

problem that all of a sudden the well needed ccnsiderable more bureaucratic regulations? 

As mentioned throughout this testimony, and as the Littleton case shows, the real problem 

that small oil and gas operators like myself face is overregulation. It is hard enough trying to 

make the operation work when you must comply with one set of regulations. But when you 

double and triple the regulations, there is little if any incentive to produce oil or gas when it is 

economically unfeasible. I certainly support transferring the responsibility of regulating oil and 

gas operators back to the states. 

In summary, I would recommend several courses of action for this committee: 

I. Transfer of enforcement for oil and gas regulations should be given to individual states. 

2. Individual state regulations and federal regulations should be combined. Have one set of 

standards meeting the needs of operations as affected by the individual state. 

3. The Forest Service should be required to complete an impact study on each individual tract of 

ground prior to purchasing. This study would reveal if the particular tract met Federal standards 

along with compatible use prior to spending taxpayer monies. 

4. The Federal lands should be under one management agency. Why are the Forest Service and 
82 

the BLM m&naging the same tracts of land? The Forest Service as well as the BLM should show 

cost efficiency of double personnel on one area of federal lands. 

5. Mineral Management Service should be abolished. The monies should be collected by the 

stales for proper disbursement. 

6. Safety and sound environmental practices should be of priority. The management agency 

should be required to provide Congress with a plan to more efficiently produce our natural 

resources. This would increase tax dollars to our states and schools, create jobs, and provide 

some monies toward reducing our national debt. 

Thank you for the opportunity to testify and I will answer your questions to the best of my 

ability. 

/Janny 'lhompsun is a resident of Newport, Vhiu. He has spent aver twa decades in oil and gas 

production in the Appalachian Basin He is past president of the Southeastern Ohio Oil and Ga.1 

Association and remains 0 11 the Board of Directors. He is a Board member of the Ohio Oil and 

(ius Association as well as a member of the Independent Petroleum Association of America. 

Danny is also in his second term aJ· a Gubematorial appointee to the Ohio Oil and Cia.< 

Technical Advis01y Council. lie is owner, president, and genera/manager of Carlton Oil 

Corporation located in Newport, Ohio. 
83 

WRITTEN STATEMENT 

OF 

ROCKY MOUNTAIN OIL AND GAS ASSOCIATION 

SUBMITTED TO THE 

HOUSE COMMITTEE ON RESOURCES 

SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES 

HEARING ON 

BLM PROPOSAL TO 

TRANSFER INSPECTION AND ENFORCEMENT RESPONSIBILITIES 

TO STATES AND TRIBES 

JUNE 20, 1996 
84 

INTRODUCTION 

The Rocky Mountain Oil and Gas Association IRMOGA) appreciates this opportunity to provide 

the House Resources Committee's Subcommittee on Energy and Mineral Resources with our 

views on the Bureau of Land Management's Final Inspection and Enforcement Transfer Report. 

RMOGA is a trade association with hundreds of members, both large and small, who account 

for over 90 percent of the oil and gas exploration, development, transportation, refining ar·d 

marketing activities in the eight-state region it serves. RMOGA members maintain a 

substantial presence on Federal acreage. 

RMOGA'S POSITION 

RMOGA's major concern with the BLM's REGO II Inspection and Enforcement Transfer Report 

is its failure to provide definitive. innovative information about alternatives for cutting costs 

and streamlining the onshore oil and gas program. We have been involved with the transf11r 

proposal since it was initiated. Throughout the process, industry has raised many questions 

which have yet to be adequately addressed. Until our questions, the most significant Clf 

which are enumerated below, are thoroughly addressed, industry will continue to have serious 

concerns with the transfer proposaL RMOGA can support the REGO II I&E transfer propos<~l 

only if it results in clear and demonstrable benefits to industry and the affected government 

agencies. 

If the proposed transfer goes forward, industry must be involved in the dialogue between 

States, Tribes and the BLM on the manner in which transfers will be structured. Inspection 

and enforcement programs must also be consistent from state-to-state. The major goal of th ~ 

government reinvention will be negated if States negotiate individual and diverse 1&1: 

programs. The transfer should provide a common I&E framework for all States wishing tll 

assume responsibility over Federal leases. Finally, should States assume I&E responsibilities, 

the Federal government must relinquish its oversight role and its responsibility for "inherentl'l 

federal" functions. 

BACKGROUND 

The BLM proposed transferring its oil and gas inspection and enforcement responsibilities to 

States and Tribes approximately one year ago as part of Vice President Gore's Reinventin~l 

Government II IREGO II) initiative. In June of 1995 RMOGA testified before this body on tho 

REGO II initiatives. including the proposed transfer of I&E. At that time we questioneo 

whether it was appropriate to mandate the transfer of these authorities since a mechanism 

is already in place allowing States and Tribes to enter cooperative agreements with BLM or 

to assume delegation for I&E functions should they so desire. 

In September of last year, the BLM released a draft report on the transfer proposal. RMOG.t>. 

again questioned its necessity and criticized the report for its lack of specificity. Recognizing 

considerable time and financial resources were expended in the I&E transfer effort, industry 

assumed the draft report would represent a significant departure from existing I&E 

responsibilities, procedures and authorities. Unfortunately, while providing an overview of the 

Bureau's I&E and environmental compliance programs, the report did not offer specific details. 

on how the proposal differed from existing regulations at 43 CFR 31 90 regarding transfer 

authorities. Nor were state and tribal issues/recommendations which arose during a July, 

1995 meeting addressed with any specificity. RMOGA commented on the draft report raising 
RMOGA I&E Transfer Testimony 

Page 2 

85 

numerous questions in the belief that more details would be provided in the final transfer 

report. 

FINAL REPORT ON TRANSFERRING INSPECTION & ENFORCEMENT FUNCTIONS 

TO STATES & TRIBES 

The BLM's final Inspection and Enforcement Transfer Report was issued in April of this year. 

The majority of changes from the draft report were grammatical in nature. The Bureau 

generally responded to industry's questions and concerns by stating that the issues would be 

addressed as each State and/or Tribe negotiated the details of their individual program with 

the BLM. As we previously testified , lacking specifics, it is impossible to discern the full 

ramifications of the transfer proposal. RMOGA. therefore, continues to have questions and 

concerns with the transfer proposal. Industry's major concerns lie in two areas - the scope 

of Federal responsibilities being transferred and whether the transfer would truly benefit the 

industry and the regulatory agencies. 

Scope of Federal Authorities Being Transferred 

The final report continues to be very confusing with regard to the Federal authorities available 

and under consideration for transfer to States and Tribes. The discussion of "inherently 

federal" functions adds to the confusion with the use of terminology such as "certain BLM 

functions • in evaluating the extent of Federal authorities available for transfer. The BLM 

needs to clearly define the scope of Federal authorities being considered for transfer to States 

and Tribes. 

Is the BLM suggesting States and Tribes may be able to assume responsibilities 

beyond I&E responsibilities? 

Is the intent of the REGO II proposal strictly limited to I&E responsibilities ? If 

not, the expanded authorities envisioned for States and Tribes should be 

enumerated. 

The report also appears to identify environmental compliance as a function which is distinct 

and separate from the I&E function. The discussion regarding the extent to which States and 

Tribes can "customize" the Federal I&E program also adds to the confusion. 

Does this imply States and Tribes may be allowed to shift their individual 

regulatory programs to Federal lands and conduct inspections in accordance 

with their respective rules 7 

Will States and Tribes be involved with permitting decisions as delegated 

enforcement agencies 7 

The Bureau should clearly state whether inspections will be in accordance with 

BLM standards, State and Tribal standards or a "hybrid" of the various 

agencies' standards. 

Even if one limits their focus in reviewing the proposal exclusively to BLM' s I&E authorities, 

it is unclear whether all or only portions of those authorities can be transferred to States and 

Tribes. Again, because of unresolved questions regarding "inherently federal" functions, the 
RMOGA I&E Testimony 

Page 3 

86 

Bureau has not offered additional clarification regarding whether I&E delegations under the 

REGO II proposal will be managed as they currently are under 3190. 

As is now the case. will States and Tribes be limited to issuing only the first 

notice of noncompliance and shut-in orders with BLM retaining responsibility for 

imposing and collecting monetary assessments/penalties 7 

How will the appeals process work? Will industry continue to challenge IBtE 

decisions using FOGRMA's appeal procedures? 

Will BLM retain responsibility for pursuing criminal enforcement actions 7 

If the I&E transfer proposal is to be of value, these questions must be researched and a 

determination rendered with regard to the extent of Federal authorities available and und•!r 

consideration for transfer. 

Benefits of Transferring Only I&E 

Should only I&E authority be transferred to States and Tribes with BLM retaining responsibility 

for permitting. bonding, penalty assessment, etc., a single Federal lease will be subject to 

multiple agency authorities. If I&E responsibility for surface operations is assigned to one 

agency and responsibility for downhole operations to another, the result is the samEI. 

Regardless of how BLM's existing authorities are partitioned, multiple agency jurisdiction over 

operations conducted on Federal lands will result in a more burdensome, complicated an-j 

expensive compliance scheme negating the purpose of reinvention. The same applies to BLM 

maintaining an oversight role on State and Tribal I&E programs and its responsibility for 

"inherently federal" functions. 

The questions and concerns raised by industry as well as the States and Tribes must btl 

adequately addressed before RMOGA can wholeheartedly support the I&E transfer. The BLM 

should: 

Provide a clear explanation of how the REGO II transfer proposal differs from existin~l 

regulations allowing States and Tribes to assume responsibility for assuring oil and ga,; 

compliance on Federal lands: 

Explicitly define the scope of authorities being considered for transfer; 

Identify the legal limitations associated with authorities available for transfer; 

Identify possible options to overcome the legal obstacles should expanded State and 

Tribal authorities be considered; 

Outline the procedural and operational changes which would be required of government 

and industry to accomplish the REGO II transfer of Federal responsibilities to States 

and Tribes: 

Offer an analysis of the costs savings and benefits to be gained by the envisioned 

transfer. 

We appreciate your interest in this important issue and your careful consideration of our 

comments. 

0 





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