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71-289 PS 2001

ESTIMATED OIL AND GAS RESOURCE BASE ON FEDERAL

LAND AND SUBMERGED LAND

OVERSIGHT HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY AND

MINERAL RESOURCES

OF THE

COMMITTEE ON RESOURCES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

March 22, 2001

Serial No. 107-7

Printed for the use of the Committee on Resources

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

or

Committee address: http://resourcescommittee.house.gov

(II)

COMMITTEE ON RESOURCES

JAMES V. HANSEN, Utah, Chairman

NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska,

Vice Chairman

W.J. ‘‘Billy’’ Tauzin, Louisiana

Jim Saxton, New Jersey

Elton Gallegly, California

John J. Duncan, Jr., Tennessee

Joel Hefley, Colorado

Wayne T. Gilchrest, Maryland

Ken Calvert, California

Scott McInnis, Colorado

Richard W. Pombo, California

Barbara Cubin, Wyoming

George Radanovich, California

Walter B. Jones, Jr., North Carolina

Mac Thornberry, Texas

Chris Cannon, Utah

John E. Peterson, Pennsylvania

Bob Schaffer, Colorado

Jim Gibbons, Nevada

Mark E. Souder, Indiana

Greg Walden, Oregon

Michael K. Simpson, Idaho

Thomas G. Tancredo, Colorado

J.D. Hayworth, Arizona

C.L. ‘‘Butch’’ Otter, Idaho

Tom Osborne, Nebraska

Jeff Flake, Arizona

Dennis R. Rehberg, Montana

George Miller, California

Edward J. Markey, Massachusetts

Dale E. Kildee, Michigan

Peter A. DeFazio, Oregon

Eni F.H. Faleomavaega, American Samoa

Neil Abercrombie, Hawaii

Solomon P. Ortiz, Texas

Frank Pallone, Jr., New Jersey

Calvin M. Dooley, California

Robert A. Underwood, Guam

Adam Smith, Washington

Donna M. Christensen, Virgin Islands

Ron Kind, Wisconsin

Jay Inslee, Washington

Grace F. Napolitano, California

Tom Udall, New Mexico

Mark Udall, Colorado

Rush D. Holt, New Jersey

James P. McGovern, Massachusetts

Anibal Acevedo-Vila, Puerto Rico

Hilda L. Solis, California

Brad Carson, Oklahoma

Betty McCollum, Minnesota

Allen D. Freemyer, Chief of Staff

Lisa Pittman, Chief Counsel

Michael S. Twinchek, Chief Clerk

James H. Zoia, Democrat Staff Director

Jeff Petrich, Democrat Chief Counsel

SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

BARBARA CUBIN, Wyoming, Chairman

RON KIND, Wisconsin, Ranking Democrat Member

W.J. ‘‘Billy’’ Tauzin, Louisiana

Mac Thornberry, Texas

Chris Cannon, Utah

Jim Gibbons, Nevada,

Vice Chairman

Thomas G. Tancredo, Colorado

C.L. ‘‘Butch’’ Otter, Idaho

Jeff Flake, Arizona

Dennis R. Rehberg, Montana

Nick J. Rahall II, West Virginia

Edward J. Markey, Massachusetts

Solomon P. Ortiz, Texas

Calvin M. Dooley, California

Jay Inslee, Washington

Grace F. Napolitano, California

Brad Carson, Oklahoma

(III)

C O N T E N T S

Page

Hearing held on March 22, 2001 ............................................................................ 1

Statement of Members:

Cubin, Hon. Barbara, a Representative in Congress from the State of

Wyoming ........................................................................................................ 1

Prepared statement of ............................................................................... 2

Article ‘‘Oil rig sinks in Atlantic’’ submitted for the record ................... 46

Inslee, Hon. Jay, a Representative in Congress from the State of

Washington, Articles submitted for the record ........................................... 84

Kind, Hon. Ron, a Representative in Congress from the State of

Wisconsin ....................................................................................................... 2

Prepared statement of ............................................................................... 3

Report ‘‘Bush Energy Budget’’ submitted for the record ........................ 5

Thornberry, Hon. Mac, a Representative in Congress from the State

of Texas, Letter from Dwayne Cochran submitted for the record ............ 49

Statement of Witnesses:

Kallaur, Carolita, Associate Director, Offshore Minerals Management,

Minerals Management Service, U.S. Department of the Interior ............. 22

Prepared statement of ............................................................................... 23

Kumar, Dr. Naresh, Growth Oil and Gas, on behalf of the American

Association of Petroleum Geologists ............................................................ 30

Prepared statement of ............................................................................... 31

Leahy, Dr. P. Patrick, Associate Director for Geology, U.S. Geological

Survey, Department of the Interior ............................................................. 12

Prepared statement of ............................................................................... 13

Response to questions from Congressman Kind submitted for the

record ...................................................................................................... 44

(1)

ESTIMATED OIL AND GAS RESOURCE BASE

ON FEDERAL LAND AND SUBMERGED LAND:

HOW MUCH OIL AND GAS CAN THESE

LANDS PRODUCE?

Thursday, March 22, 2001

House of Representatives

Subcommittee on Energy and Mineral Resources

Committee on Resources

Washington, DC

The Subcommittee met, pursuant to call, at 2:20 p.m., in Room

1334, Longworth House Office Building, Hon. Barbara Cubin

[Chairman of the Subcommittee] presiding.

STATEMENT OF THE HONORABLE BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WYOMING

Mrs. CUBIN. The oversight hearing by the Subcommittee on

Energy and Mineral Resources will please come to order. The Subcommittee is meeting today to hear testimony on the estimated oil

and gas resource base on Federal land. How much oil and gas can

these lands produce?

Under Committee rule 4(g), the Chairman and Ranking Minority

Member can make opening statements. If any other Members have

statements, they can be included in the hearing record under unanimous consent.

The Subcommittee meets today in our second oversight hearing

on issues concerning public lands, energy and mineral resources.

Last week we heard testimony on the extent to which public lands

and the outer continental shelf may be accessed to explore for and

produce oil and natural gas supplies. Today we hear from the two

Federal agencies who are charged with making objective estimates

of the U.S. oil and gas resource base both onshore and offshore.

These are the U.S. Geological Survey and the Minerals Management Service respectively. An expert representing a professional

society of oil and gas geologists, which has examined the methodology of these agency assessments, will testify as well.

As Congress and the Executive Branch deliberate and develop a

national energy strategy, it is fundamental that we understand the

potential of our Nation’s own energy resources to meet forecasted

demand. And for the Resources Committee, with jurisdiction over

public lands and minerals, we must understand the potential of

BLM and Forest Service-administered lands to host oil and gas

2

deposits. If prospectively valuable lands are made available for

seismic work to be followed by exploration drilling, what is the potential to discover reserves and actually supply domestic demands

from these public lands?

Last week we spent a lot of time on the dais arguing with each

other about the availability of BLM lands for oil and gas leasing.

You will recall the infamous 95 percent discussion. I truly believe

that that figure is wrong, but that is beside the point. I think that

what we did last week was a fool’s errand, because no one can deny

the simple truth we face today: our constituents’ natural gas bills

are too expensive because the demand for the commodity is outstripping the long-term supply. That fact is not in dispute.

These available public lands, including the outer continental

shelf, are not producing sufficient gas supply to meet demand. But

what is the likelihood these public lands could meet our increasing

demands if barriers to exploration and development were minimized or eliminated, resulting in cheaper energy for all our constituents? That is what we hope to find out today.

[The prepared statement of Mrs. Cubin follows:]

Statement of The Honorable Barbara Cubin, Chairman,

Subcommittee on Energy and Mineral Resources

The Subcommittee meets today, in our second oversight hearing, on issues concerning public lands energy and mineral resources. Last week, we heard testimony

on the extent to which public lands and the outer continental shelf may be accessed

to explore for and produce oil and natural gas supplies.

Today, we shall hear from the two Federal agencies who are charged with making

objective estimates of the U.S. oil and gas resource base both onshore and offshore.

These are the U.S. Geological Survey and the Minerals Management Service, respectively. An expert representing a professional society of oil and gas geologists,

which has examined the methodology of these agencies’ assessments will testify as

well.

As Congress and the Executive Branch deliberate and develop a national energy

strategy, it is fundamental that we understand the potential of our nation’s own energy resources to meet forecasted demand. And for the Resources Committee,

with jurisdiction over public lands and minerals, we must understand the potential

of BLM and Forest Service-administered lands to host oil and gas deposits. If prospectively valuable lands are made available for seismic work to be followed by exploration drilling, what is the potential to discover reserves and actually supply domestic demand from these public lands?

Last week, we spent a lot of time on the dais arguing with each other about ‘‘availability’’ of BLM lands for oil and gas leasing. You will recall the infamous 95

percent discussion. I truly believe it was a fool’s errand to do so because no one can

deny the simple truth we face today: our constituents’ natural gas bills are too expensive because the demand for the commodity is outstripping the long-term supply.

That is a fact not in dispute.

These ‘‘available’’ public lands, including the Outer Continental Shelf, are not producing sufficient gas supply to meet demand. But what is the likelihood these public

lands could meet our increasing demand if barriers to exploration and development

were minimized or eliminated, resulting in cheaper energy for all our constituents?

That is what we hope to find out today.

Mrs. CUBIN. The Chair now recognizes Mr. Kind, the Ranking

Member, for any statement he might have.

STATEMENT OF THE HONORABLE RON KIND, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN

Mr. KIND. Thank you, Madam Chair. And I want to welcome the

witnesses for your testimony here today. We are looking forward to

it.

3

This afternoon we do plan on taking testimony on the estimated

oil and gas resource base on Federal lands and submerged lands.

During the Subcommittee hearing last week, it became clear that

there is a great need in our debate on national energy policy for,

as one witness put it last week during the testimony, for an intellectual honesty in determining what those reserves are, the potential for oil and gas energy on Federal lands.

In this regard I do welcome your testimony here today, both

USGS and the Minerals Management Service, on your estimates of

the oil and gas potential. But having said that, I remind my colleagues that oil and gas and our increased reliance on fossil fuels

generally will not solve our long-term energy needs in this country.

For instance, solar power, wind turbines, geothermal sources can

and should contribute to meeting our energy needs. We need to get

serious about developing these alternative and renewable energy

sources for our long-term energy needs in this county.

Harnessing more of the Earth’s own heat could offer one solution

to our energy crunch. Geothermal energy is abundant, clean and

virtually inexhaustible. According to a recent article in the Christian Science Monitor, geothermal energy development in the U.S.

is at a virtual standstill today. However, in other less developed

parts of the world where geothermal resources are more competitive with other energy alternatives, its use is on the rise. Developing our geothermal resources could lessen damage to forests and

thereby reduce air pollution and the greenhouse gas effect.

And most geothermal scientists believe that the annual heat

emitted or otherwise lost from the Earth is enormous, equivalent

to 10 times the annual energy consumption of the United States,

and more than enough power, more than enough, to power all the

nations of the world combined, if it can be harnessed and harnessed cost-effectively.

And so I again welcome the witnesses here today. I would,

Madam Chair, take this opportunity to introduce for the record

with unanimous consent a report that Minority Leader Dick Gephardt released today offering an alternative long-term energy proposal in the country. That report is titled The Bush Energy Budget:

The Edsel Plan for the 21st Century. So without objection, I would

like to include that in the record today.

Mrs. CUBIN. Without objection, so ordered.

[The prepared statement of Mr. Kind follows:]

Statement of The Honorable Ron Kind, Ranking Democrat,

Subcommittee on Energy and Mineral Resources

This afternoon we meet to take testimony on the estimated oil and gas resource

base on Federal Land and submerged lands. During the Subcommittee hearing last

week, it became clear that there is a great need in our debate on a national energy

policy for, as one witness put it, ‘‘intellectual honesty’’ in determining the potential

oil and gas energy resources of the Federal lands.

In this regard, I welcome the testimony of and opportunity to question the US

Geological Survey and Minerals Management Service on their estimates of oil and

gas potential.

That said, I remind my colleagues that oil and gas and our increased reliance on

fossil fuels will not solve our energy crisis. For instance, solar power, wind turbines,

and geothermal resources can and should contribute to meeting our energy needs.

We need to get serious about developing alternative and renewable energy sources

for our long-term needs.

4

Harnessing more of the earth’s own heat could offer one solution to our energy

crunch. Geothermal energy is abundant, clean, and virtually inexhaustible. According to a recent article in the Christian Science Monitor, geothermal energy development in the US is at a virtual standstill. However, in other, less developed, parts

of the world, where geothermal resources are more competitive with other energy

alternatives, its use is on the rise. Developing our geothermal resources could lessen

damage to forests and thereby reduce air pollution and the greenhouse-gas effect.

Most geothermal scientists believe that the annual heat emitted or otherwise lost

from the earth is enormous, equivalent to ten times the annual energy consumption

of the United States and more than enough to power all of the nations of the world

if it can be harnessed.

So I would hope that the Chair schedule as soon as possible an oversight hearing

on alternative energy resources that can be obtained from our Federal lands.

[The ‘‘Bush Energy Budget’’ follows:]

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7

8

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10

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Mrs. CUBIN. Now I would like to recognize the panel of witnesses. Our first witness will be Dr. P. Patrick Leahy, an Associate

Director for Geology with the United States Geological Survey; second, Ms. Carolita Kallaur, who is the Associate Director of Offshore

Minerals Management with the Minerals Management Service. It

is nice to see you again. And our third witness, Dr. Naresh

Kumar—I want to say it right, okay—from Growth Oil and Gas, on

behalf of the American Association of Petroleum Geologists.

As I explained in our first hearing, it is the intention of the

Chairman to place—no, I am not going to do that.

So now I am happy to recognize Dr. Patrick Leahy to testify for

5 minutes. The timing lights are on the table, and they will indicate when your time has concluded. Your entire written statement

will be included in the record.

Dr. Leahy.

STATEMENT OF P. PATRICK LEAHY, ASSOCIATE DIRECTOR

FOR GEOLOGY, U.S. GEOLOGICAL SURVEY, DEPARTMENT OF

THE INTERIOR

Mr. LEAHY. Thank you, Madam Chairman and distinguished

members of the Subcommittee. Thank you very much for this opportunity to present, on behalf of the U.S. Geological Survey, testimony regarding our assessment of oil and gas resources nationally,

our assessment of the 1002 area of the Arctic National Wildlife

Refuge, and our assessment strategy of Federal lands as called for

in the recently enacted Energy Act of 2000. I will summarize my

written statement in the interest of time.

Within the Federal Government, the USGS is responsible for assessing undiscovered oil and gas resources of all onshore and State

offshore areas of the Nation. In February 1995, the USGS released

the National Assessment of the United States Oil and Gas Resources. We are updating that assessment in selected regions

thought to have high potential for undiscovered natural gas, including coal-bed methane and gas hydrate. This update will be completed in 2004, with interim products available in early 2002. The

updated assessment will include allocations of undiscovered oil and

gas resources to Federal lands.

Additionally the USGS is completing a National Coal Resource

Assessment during 2001. And, in fact, some of these assessments

of selected areas have already been released. The 1995 USGS assessment of the Nation’s undiscovered oil and gas was conducted

in collaboration with the State geological surveys, the Minerals

Management Service, and other Federal agencies and industry geologists under auspices of the American Association of Petroleum

Geologists. Assuming existing technology, there are approximately

112 billion barrels of technically recoverable oil onshore and in

State waters.

The technically recoverable conventional natural gas equals 716

trillion cubic feet. When one includes the unconventional gas in the

estimate, the total increases to 1,074 trillion cubic feet. The total

technically recoverable oil and gas resource base onshore and in

State waters of the United States is displayed in the table on

page 2 of my written statement.

13

In 1998, the USGS published a report that provided estimates of

volumes of undiscovered oil and gas on Federal lands based on the

1995 USGS Assessment. Estimates of oil in undiscovered conventional fields range from 4.4 to 12.8 billion barrels, with a mean

value of 7.5 billion barrels.

Estimates of technically recoverable gas in undiscovered conventional fields range from 34 to 97 trillion cubic feet, with a mean

value of 58 trillion cubic feet. As before, when unconventional gas

resources are included, the volume increases.

These estimated volumes are also listed in my written testimony

on page 3.

To my left is a poster that shows the 112 billion barrels of oil

and the 1,074 trillion cubic feet of gas. This is a pie chart demonstrating the percentage that is provided from the four sources,

the proved resources shown in green, the reserve growth in known

fields shown in the darker green, the undiscovered oil on Federal

lands shown in red, and the undiscovered oil in non-Federal lands

shown in the blue.

The Alaskan National Interest Lands Conservation Act,

ANILCA, established the Arctic National Wildlife Refuge in 1980.

In section 1002 of this Act, Congress deferred a decision regarding

future management of the 1.5-million-acre coastal plain, the socalled 1002 area, in recognition of the area’s potential for oil and

gas resources and its importance as a wildlife habitat.

USGS released a petroleum resource assessment of the 1002 area

in 1998. Based on this assessment the total quantity of technically

recoverable oil within the 1002 area is estimated to be between 4.3

and 11.8 billion barrels, with a mean value of 7.7 billion barrels.

In the Energy Act of 2000, section 604 requires the Secretary of the

Interior to conduct an inventory of energy resources and restriction

or impediments to their development on Federal lands.

It is our understanding that the role of the USGS will be to assess the oil and gas resources of basins with Federal land ownership using USGS assessment methodology. Then USGS geologists

will allocate the resource estimates to those specific land parcels

owned by the Federal Government. The USGS resource estimates

will be combined with reserve volumes from the Department of Energy and will be incorporated into a geographic information system.

This in turn will be integrated into a GIS of restrictions and impediments constructed by BLM and the Forest Service. The inventory shall be provided to this Committee within two years of enactment of the legislation, which was last November.

Madam Chairman, thank you for the opportunity to testify. I

would be happy to respond to any questions you and the Subcommittee members have.

Mrs. CUBIN. Thank you, Dr. Leahy.

[The prepared statement of Dr. Leahy follows:]

Statement of Dr. P. Patrick Leahy, Associate Director for Geology, U.S

Geological Survey, Department of the Interior

Madame Chairman and members of the Subcommittee, thank you for this opportunity to present, on behalf of the U.S. Geological Survey (USGS), testimony regarding our assessment of oil and gas resources nationally, in the 1002 Area of the

Arctic National Wildlife Refuge, and of Federal lands as called for in the recently

enacted Energy Act of 2000. My testimony will address these subjects in this order.

14

Within the Federal Government, the USGS is responsible for assessing undiscovered oil and gas resources of all onshore and State offshore areas of the Nation.

The Minerals Management Service (MMS) provides estimates for Federal offshore

crude oil and natural gas resources. In February 1995, the USGS released the

National Assessment of United States Oil and Gas Resources. Currently, we are updating that assessment in selected regions thought to have high potential for undiscovered natural gas, including coal-bed methane and gas hydrate. This update will

be completed in 2004, with interim products available in early 2002. The updated

assessment will include allocations of undiscovered oil and gas resources to Federal

lands. Additionally, the USGS is completing a National Coal Resource Assessment

during 2001. To date, coal resource assessments of the Colorado Plateau and of the

Northern Rocky Mountains and Great Plains have been released, and coal resource

assessments of the Appalachian and Illinois Basins, and Gulf Coast Region will be

available later in 2001. USGS coal assessments also identify volumes of coal under

federally owned lands, and of federally owned coal under privately owned lands,

where present.

1995 National Assessment of United States Oil and Gas Resources

The 1995 USGS assessment of the Nation’s undiscovered oil and gas was published in digital format on a CD-ROM (USGS Digital Data Series–30) and in a nontechnical summary, as USGS Circular 1118. The Assessment was conducted in collaboration with State Geological Surveys, with MMS, and with industry geologists

under the auspices of the American Association of Petroleum Geologists. Additional

cooperation with the Bureau of Land Management, National Park Service, U.S. Forest Service, and Bureau of Indian Affairs was essential for the USGS to generate

information regarding oil and gas resources on Federal lands. The current update

of the 1995 assessment is being conducted with many of the same partners.

Assuming existing technology, there are approximately 112 billion barrels of technically recoverable oil onshore and in State waters, according to the USGS’s most

recent assessment.

Technically recoverable resources are those that may be recoverable using current

technology without regard to cost. Economically recoverable resources are that part

of the technically recoverable resource for which economic factors are included and

which can be recovered at a given market price. This includes measured (proved)

reserves, future additions to reserves in existing fields (reserve growth), and undiscovered resources. The technically recoverable conventional resources of natural gas

in measured reserves, future additions to reserves in existing fields, and undiscovered accumulations equal approximately 716 trillion cubic feet of gas.

In addition to conventional gas resources, the USGS has made an assessment of

technically recoverable resources in continuous-type (largely unconventional) accumulations. We estimate about 308 TCFG (trillion cubic feet of gas) of technically recoverable natural gas in continuous-type deposits in sandstones, shales, and chalks,

and almost 50 TCFG of technically recoverable gas in coal beds. The total technically recoverable oil and gas resource base onshore and in State waters of the

United States is displayed in the table below.

The estimates presented in this testimony reflect USGS understanding as of

January 1, 1994, and are shown on a map of the United States in Figure 1. They

15

are intended to capture the range of uncertainty, to provide indicators of the relative potential of various petroleum provinces, and to provide a useful guide in considering possible effects of future oil- and gas-related activities within the United

States.

The geographic information system (GIS) coverages contained in this assessment

and related data bases provide the capability to estimate oil and gas resource potential on specific tracts of land, including those owned and/or managed by the Federal

Government. This process is called allocation, based on expert opinion, and is accomplished using a methodology that takes into consideration all geologic information available about the basin.

1995 National Oil and Gas Assessment and Onshore Federal Lands (1998)

In January 1998, the USGS published an Open-File Report (OFR 95–0075-N) that

reported estimates of volumes of undiscovered oil and gas on Federal lands. Estimates of oil in undiscovered conventional fields range from 4.4 to 12.8 billion barrels

(BBO), with a mean value of 7.5 BBO. Estimates of technically recoverable gas in

undiscovered conventional fields range from 34.0 to 96.8 trillion cubic feet (TCF),

with a mean value of 57.9 TCF. Almost 85 percent of the assessed natural gas in

undiscovered conventional accumulations was non-associated gas, that is, gas in gas

fields rather than gas in oil fields. Estimates of technically recoverable resources in

conventional (continuous type) accumulations for oil are from 0.2 to 0.6 BBO, with

a mean value of 0.3 BBO, and for gas, from 72.3 to 202.4 TCF, with a mean value

of 127.1 TCF. These ranges of estimates correspond to 95 percent probability (19

in 20 chance) and 5 percent probability (1 in 20 chance) respectively, of a least those

amounts occurring.

An economic evaluation was applied to these technically recoverable estimates.

Our study concluded that at $30 per barrel for oil and $3.34 per thousand cubic feet

of gas, 3.3 BBO oil and 13.6 TCF in undiscovered conventional fields can be found,

developed, and produced. In addition, at these estimated prices, 0.2 BBO oil and

11.4 TCF in continuous-type accumulations and 11.8 TCF of coalbed gas can be developed.

Applications of the USGS 1995 National Oil and Gas Resource Assessment

The results of the USGS National Oil and Gas Resource Assessment have been

used by the Energy Information Administration for its Annual Energy Outlook, by

the California Energy Commission and Canadian Energy Board to model inter-regional natural gas supply and demand and the resulting economic impacts, and by

numerous petroleum companies as a basis for evaluating risk associated with exploration and development of domestic oil and gas resources.

Many Federal agencies use the information in the USGS National Oil and Gas

Assessment for land-use planning, energy policy formulation, and economic forecasting. Customers include the Department of the Interior, Bureau of Land ManageVerDate 11-MAY-2000 16:16 Dec 04, 2001 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 71289.TXT HRESOUR1 PsN: HRESOUR1
16

ment, National Park Service, U.S. Forest Service, Bureau of Indian Affairs, Energy

Information Administration, and the Department of Energy, among others. In addition, most State Geological Surveys and/or State Divisions of Oil and Gas use the

USGS assessment for regional and local resource evaluation and lease planning purposes. Many private sector organizations also use the digital oil and gas assessment

results, including environmental protection advocacy groups, petroleum exploration

companies, and utility companies (including natural gas and electricity utilities).

USGS Resource Assessment of the 1002 Area of the Arctic National Wildlife Refuge

The Alaska National Interest Lands Conservation Act established the Arctic

National Wildlife Refuge (ANWR) as a wildlife refuge in 1980. In section 1002 of

that Act, Congress deferred a decision regarding future management of the 1.5-million-acre coastal plain ( 1002 Area ) in recognition of the area’s potential for oil and

gas resources and its importance as wildlife habitat. A report on the resources (including petroleum) of the 1002 Area was submitted in 1987 to Congress by the Department of the Interior (DOI). Since completion of that report, numerous wells

have been drilled and oil fields discovered near ANWR on State lands, new geologic

and geophysical data have become available, seismic processing and interpretation

capabilities have improved, and the economics of North Slope oil development have

evolved.

Anticipating the need for scientific information and considering the decade-old

perspective of the petroleum resource estimates included in the 1987 Report to Congress, the USGS reexamined the geology of the ANWR 1002 Area and prepared a

new petroleum resource assessment that was released in 1998.

Based on this 1998 USGS assessment, the total quantity of technically recoverable oil within the entire assessment area is estimated to be between 5.7 and 16.0

billion barrels (95-percent and 5- percent probability range), with a mean value of

10.4 billion barrels. The entire assessment area includes Federal, State, and Native

areas. Technically recoverable oil within the ANWR 1002 Area (excluding State and

Native areas) is estimated to be between 4.3 and 11.8 billion barrels (95- and 5-percent probability range), with a mean value of 7.7 billion barrels. These estimates

reflect new data and techniques and thus should not be directly compared to results

of the 1995 National Oil and Gas Resource Assessment.

According to the 1998 USGS assessment, volumes of oil are expected to occur in

a number of accumulations rather than a single large accumulation, such as the

giant Prudhoe Bay field. However, most of that oil is estimated to occur in accumulations that are sufficiently large to be of potential economic interest. At the mean,

nearly 80 percent of the oil is thought to occur in the western part of the 1002 Area,

which is closest to existing infrastructure developed on State lands. We estimate

that the western portion of the 1002 Area contains between 3.4 and 10.2 billion barrels of oil (BBO) (95- and 5-percent probability), with a mean of 6.4 BBO. We estimate that the eastern area contains between 0 and 3.2 BBO (95- and 5-percent

probability), with a mean of 1.2 BBO.

As part of our 1998 assessment, the USGS conducted an economic analysis that

considers the cost of producing estimated technically recoverable volumes of oil from

the 1002 Area. Our study estimates the market price that would have to be paid

to find, develop, produce, and transport a specific volume of oil to the West Coast

of the United States. Figure 2 summarizes estimated volumes of economically recoverable oil as a function of the market price of that oil. This graph assumes constant

1996 dollars and the expectation that production will repay all operating costs, including taxes and transport to market, all investment expenditures, and provide an

after-tax rate of return of at least 12 percent on the investment.

Comparison with Previous Assessments

Among previous assessments of ANWR 1002 Area petroleum resources, only the

1987 USGS assessment of in-place resources is directly comparable to our 1998 assessment. The technically and economically recoverable petroleum resource estimates cannot be compared directly because different methods were used in preparing those parts of the 1987 Report to Congress. The current assessment shows

an overall increase in estimated in-place oil resource when compared to the 1987

assessment. Ranges are 11.6 to 31.5 BBO versus 4.8 to 29.4 BBO, (95- and 5-percent

probabilities) and mean values are 20.7 BBO versus 13.8 BBO (current assessment

compared to 1987 assessment). The increase is a consequence of improved resolution

of reprocessed seismic data, which allowed the identification of many more potential

petroleum accumulations in parts of the area, as well as information available regarding recent nearby oil discoveries.

Another significant change is in the geographic distribution of resources. In the

1987 assessment, about 75 percent of the mean estimated in-place oil was thought

17

to occur in the southeastern section of the 1002 Area and only 25 percent was

thought to occur in the northwestern area. In the current assessment, nearly 85 percent of the in-place oil is thought to occur in the northwestern area and only about

15 percent is within the deformed area. The reason for this change in interpretation

is largely related to improved resolution of the seismic data, especially in the northwestern area where, in various plays, it allowed the identification of many more potential petroleum accumulations than were previously thought to exist. The southeastern area with only a single well offshore and complex geology onshore carries

great uncertainty. Further, part of that area considered oil prospective in 1987 is

now considered prospective only for gas because of new understanding of the thermal history of the rocks.

Sec. 604 Energy Act of 2000

The Secretary of the Interior is charged with conducting an inventory of energy

resources and the restrictions and impediments to their development on Federal

Lands in Section 604 of the Energy Act of 2000, signed into law on November 9,

2000. The exact text is given below:

SEC. 604. SCIENTIFIC INVENTORY OF OIL AND GAS RESERVES.

(a) IN GENERAL. The Secretary of the Interior, in consultation with the Secretaries of Agriculture and Energy, shall conduct an inventory of all onshore Federal

lands. The inventory shall identify:

(1) the United States Geological Survey reserve estimates of the oil and gas

resources underlying these lands; and

(2) the extent and nature of any restrictions or impediments to the development of such resources.

(b) REGULAR UPDATE. Once completed the USGS reserve estimates and the

surface availability data as provided in subsection (a)(2) shall be regularly updated

and made publicly available.

(c) INVENTORY. The inventory shall be provided to the Committee on Resources

of the House of Representatives and to the Committee on Energy and Natural Resources of the Senate within two years after the date of the enactment of this section.

(d) AUTHORIZATION OF APPROPRIATIONS. There are authorized to be appropriated such sums as may be necessary to implement this section.

It is our understanding that the role of the USGS will be to assess the oil and

gas resources of oil and gas-bearing basins with Federal land ownership, consistent

with the USGS assessment and allocation methodology. Then, USGS geologists will

allocate resource estimates to those specific land parcels owned by the Federal Government. The USGS resource estimates will be combined with reserve volumes from

the DOE/EIA, and will be incorporated into a geographic information system (GIS)

that shows the spatial distribution of those potential resources and known reserves.

The resource and reserve GIS will be integrated with a GIS of restrictions and impediments constructed by BLM and USFS. The USGS has met several times with

representatives of the Bureau of Land Management (BLM), the US Forest Service,

the US Department of Energy and their Energy Information Administration and the

staff of this committee to discuss plans to produce this inventory.

The USGS intends to use some of the resource estimates from the 1995 National

Oil and Gas Assessment, for which there are not significant new data, and will update resource estimates for the gas-prone areas of the country for which we have

new data and are developing improved assessment methods.

Madame Chairman, this concludes my remarks. I would be happy to respond to

any questions.

[Maps and charts accompanying Dr. Leahy’s testimony follow:]

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Mrs. CUBIN. The Chair now recognizes Carolita Kallaur to

testify.

STATEMENT OF CAROLITA KALLAUR, ASSOCIATE DIRECTOR,

OFFSHORE MINERALS MANAGEMENT, MINERALS MANAGEMENT SERVICE, U.S. DEPARTMENT OF THE INTERIOR

Ms. KALLAUR. Thank you, Madam Chair and distinguished members of the Subcommittee. Thank you for allowing me to present information on our nation’s OCS oil and gas resource potential.

I will start again. Madam Chairman and distinguished members

of the Subcommittee, thank you for allowing me to present information on the oil and gas resource potential of the outer continental shelf. With your permission, I will submit my formal testimony, the MMS 2000 resource assessment, and maps which display our current estimates for the record.

I will use the time this afternoon to touch upon the major points

in my testimony. While the focus of today’s hearing is the future,

I think it is informative to first review where we are today in terms

of providing energy for our Nation. The outer continental shelf is

an important contributor to domestic energy production. It

currently accounts for 25 percent of oil production and 26 percent

of natural gas production. It is the major source of oil and gas from

Federal lands. The majority of the production comes from the central and western Gulf of Mexico. The success of the Gulf’s deepwater regime has allowed the OCS to maintain this level of contribution over the past few years.

We are, however, beginning to be concerned about the ability of

the OCS to maintain its current level of gas production. Historically the OCS has been much more of a gas province than an oil

province, and clearly today natural gas is viewed as the fossil fuel

of choice.

What we are beginning to witness is a steady decline in shallow

water natural gas production. While deepwater activity has been

very successful to date, it is primarily an oil province with significant amounts of associated gas, a different mix than what has been

the case historically in the Gulf.

I raise this issue because the National Petroleum Council study

on natural gas looks to the OCS to increase gas production to between 7 and 8 TCF a year by 2012 from its current level of 5 TCF.

We are not confident at this point that we can achieve that goal.

At the same time I recognize on an historical basis government estimates tend to be more conservative than those of the private sector.

Now, let me talk about our recent estimates of undiscovered conventionally recoverable resources. I have provided each of you with

a map of the United States with our current estimates for each

OCS planning area. Of the remaining U.S. conventional resources

on a barrel-of-oil-equivalent basis, the offshore contains 63 percent.

So, the OCS clearly will continue to play an important role in our

energy future.

The 2000 resource update resulted in an increase of 29.4 billion

barrels of oil and 94.2 trillion cubic feet of gas from our 1995 assessment. The increase occurs almost entirely in the Gulf of Mexico

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based on deepwater exploration results and additional areas being

assessed.

The mean numbers for these estimates for the OCS are 75 billion

barrels of oil and 362.2 trillion cubic feet of gas. We also provide

information on what percentage of the resources are under moratoria and which ones are available for leasing. The estimated oil

under moratoria are 16 million barrels of oil, or about 21 percent,

and 56 trillion cubic feet of gas, or about 17 percent.

In reviewing these moratoria estimates, one needs to recognize

there is a higher degree of uncertainty because of the limited level

of activity in these areas. These numbers might go up or down if

drilling were to occur.

The experience of our neighbors to the north in Canada is interesting in this regard. For many years drilling occurred in the

Scotian Basin offshore Eastern Canada. Companies had found a

small oil field that they were about to abandon. A rig became available, and they decided to use it and drill deeper, resulting in a

major natural gas discovery called the ‘‘Deep Panuke.’’ The

‘‘Panuke’’ discovery will have a significant impact on Canada’s ability to produce natural gas for their own use as well as export gas

to the United States.

It is interesting to note that the same geologic trends continue

along the U.S. Atlantic shelf. But whether ours is as prospective

as the Canadians can only be confirmed through drilling.

In conclusion, while there may be uncertainty about some of our

resource estimates, clearly the bottom line is that the outer continental shelf of the United States will continue to play an important

role in providing energy for our Nation. For those areas that are

available for development, our primary focus is to ensure that any

activities conducted offshore are done without harm to the environment and to offshore personnel. We believe that through this approach there will be a greater chance that the contribution of the

OCS can increase in the years ahead.

Thank you, and I would be pleased to answer any questions.

Mrs. CUBIN. Thank you, Ms. Kallaur.

[The prepared statement of Ms. Kallaur follows:]

Statement of Carolita Kallaur, Associate Director, Offshore Minerals Management, Minerals Management Service, U.S. Department of the Interior

Madam Chairman and Members of the Subcommittee, I appreciate the opportunity to appear before you today to present testimony on the Minerals Management

Service (MMS) estimates for the United States Outer Continental Shelf (OCS) crude

oil and natural gas resource base and the underlying methodology used by the MMS

in creating these estimates.

Background

As you are aware, MMS’s mission consists of two major programs: Offshore Minerals Management and Minerals Revenue management. The leasing and oversight

of mineral operations on the OCS and all mineral revenue management functions

for Federal (onshore and offshore) and American Indian lands are centralized within

the bureau. In 2000, OCS oil and natural gas production accounted for roughly 25

and 26 percent, respectively, of our nation’s domestic energy production oil production was over 500 million barrels and natural gas production was over 5 trillion

cubit feet. The amount of oil and natural gas production in 2000 was the most ever

produced on the OCS. In addition, in fiscal year 2000, MMS collected and distributed about $7.8 billion in mineral leasing revenues from Federal and American Indian lands.

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In its role as manager of the Nation’s OCS energy and nonenergy mineral

resources, the bureau’s long-term strategy is to assess those resources; determine,

in consultation with affected parties, if they can be developed in an environmentally

sound manner; and, if leased, to regulate activities to ensure safety and environmental protection. This long-term strategy affects the way MMS manages OCS

resources and the way MMS faces the challenge of maintaining a balance between

providing energy and protecting the Nation’s unique and sensitive environments

and other natural resources.

An integral element in this long-term strategy is the ability to identify the most

promising areas of the OCS for the occurrence of crude oil and natural gas accumulations and to quantify the amounts of oil and natural gas that may exist in these

areas. However, since much of the OCS has not been thoroughly explored, we must

deal with the uncertainty that these resources may or may not exist in these most

promising areas.

We must also develop indicators of the economic viability of these resources under

a variety of economic and price scenarios and costs associated with exploration, development, and production activities for the specific areas where the resources may

occur. Within MMS, these functions are performed through the Resource Evaluation

(RE) Program component of the Offshore Minerals Management Program.

MMS Resource Evaluation (RE) Program

The RE Program is focused upon the acquisition and analysis of geologic, geophysical, petroleum engineering, and economic data and information related to the

mineral potential (predominately crude oil and natural gas) of OCS lands. The primary source of these data and information is the oil and natural gas industry, which

conducts exploration, development, and production activities on OCS lands. The

MMS acquires these data under terms of lease agreements or permits. Hence, the

data and information are considered proprietary by MMS regulations and generally

not available for public release.

The RE Program functions encompass all cycles of OCS program activities and

provide technical data and information supporting a wide array of program and regulatory decisions affecting Offshore Minerals Management including OCS leasing

decisions, bid adequacy determinations, environmental analyses, royalty-relief considerations and a myriad of related issues and decisions that must incorporate specific knowledge about the amounts of oil and natural gas resources and reserves.

In performing these functions, MMS personnel must constantly update the information data bases to reflect new data produced by current drilling and seismic activities performed by industry as well as update production data from known fields

as crude oil and natural gas are produced from these fields. There are several byproducts that result from our ongoing geologic, economic, and engineering analyses.

For example, MMS publishes annual reports that update the estimates of proved

reserves for Gulf of Mexico and Pacific OCS fields, and the Gulf of Mexico are all

valuable information sources to the industry, the States, and the public. These annual reports are located on the MMS Internet website under the Gulf of Mexico and

Pacific Region webpages. In April 2000, the MMS held a Natural Gas Symposium

in Houston, Texas, where the participants discussed and identified the role of the

Federal OCS in supplying the future natural gas demand of the U.S. The information presented at the Symposium is available on our MMS homepage.

OCS Resource Assessments

As background to discussing any resource estimates of crude oil and natural gas

accumulations on the OCS, it is important to understand the differences between

the terms undiscovered resources and known reserves proved and unproved.

Undiscovered resources are quantities of crude oil and natural gas that geologic

data and information suggest may exist in areas outside of known oil and natural

gas fields. However, verification of the existence of crude oil and/or natural gas can

only be determined from exploratory drilling activities and verification of the ultimate number and sizes of fields is only truly known after an area has been thoroughly explored, developed, and all discoveries produced a timeframe generally covering decades.

Known reserves are those crude oil and natural gas accumulations that have been

discovered and determined to be economically viable to develop and produce. Estimates of known reserves are reported in two categories by MMS: Proved reserves

are those accumulations that have existing production and transportation facilities

or regulatory commitments for installation of such facilities. Unproved reserves are

those accumulations that have been discovered, but lack sufficient geologic and economic studies by MMS and OCS lessees to determine whether such discoveries can

be commercially developed.

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Of note, MMS reserve and resource estimates address conventionally recoverable

crude oil and natural gas quantities that is, estimates do not include accumulations

of heavy oil, oil shales, gas hydrates, coalbed methane, or similar continuous-type

hydrocarbon occurrences.

OCS Known Reserve Estimates

Based on the most recently published report as of December 31, 1998, MMS estimates of proved reserves for the OCS are 3.8 billion barrels of oil (Bbbl) and 31.3

trillion cubic feet (TCF) of natural gas. Additionally, MMS estimates of unproved

reserves for the OCS are 2.3 Bbbl of oil and 6.0 TCF of natural gas.

OCS Undiscovered Resources

Previous OCS Resource Assessments

Since its creation in 1982, MMS has completed four systematic assessments of

Federal OCS undiscovered oil and natural gas resources, including the 2000 update.

The results of the first resource assessment and the methodologies used to develop

these estimates were published in a 1985 MMS report entitled Estimates of Undiscovered, Economically Recoverable Oil and Natural Gas Resources for the Outer

Continental Shelf as of July 1984. Following release of the MMS report in 1985,

MMS agreed to join the U.S. Geological Survey (USGS) in conducting a joint, concurrent resource assessment of the United States (both onshore and offshore) to provide the Department of the Interior, Congress, and other public and private organizations with estimates reflecting consistent timeframes. A National Academy of

Sciences (NAS) panel reviewed the 1985 resource assessment and its resource estimate methodologies and recommended certain changes for future assessments.

The second MMS assessment was conducted using improved methodology. The results of this National Assessment were published in 1989 in a joint MMS/USGS

publication entitled Estimates of Undiscovered, Conventional Oil and Gas Resources

in the United States A Part of the Nation’s Endowment. Subsequently, MMS reported a more detailed set of results from this joint assessment in 1990 in an MMS

report entitled Estimates of Undiscovered Oil and Gas Resources for the Outer Continental Shelf as of January 1987.

Similarly, an NAS panel also reviewed MMS procedures employed in its second

resource assessment and additional recommendations were published.

In view of the importance of such estimates to outside private and public interest

groups, additional reviews of the MMS (and USGS) methodologies and report procedures were conducted by the Association of American State Geologists (AASG), the

Energy Information Administration (EIA, U.S. Department of Energy), and the

American Petroleum Institute (API). The AASG and EIA reviews resulted in published reports with technical recommendations for enhancing the methodologies employed by both MMS and USGS, while the API review resulted in private recommendations to the Department.

In preparation for conducting its third systematic OCS resource assessment

(1995), MMS not only took into account the technical recommendations of NAS and

others but also looked internally at other ways to improve on its past efforts. Because the results of the resource assessment would be used by different customers,

each with different information needs and levels of technical sophistication, the bureau devoted considerable time and attention to improving on the way the estimates

are made and how they are reported. Customers (user groups) surveyed include:

• MMS/DOI decisionmakers;

• Federal and State Agencies and Congress;

• Oil/Gas and related industries;

• Geologic and scientific communities and academia; and

• The general public.

Methodology

Armed with the technical recommendations and the realistic conclusion that the

needs of our customers (including ourselves) could be better met, MMS embarked

on an effort in 1991 to revise our resource estimation and reporting procedures. Our

specific goals were to establish a method for estimation that:

• Maintained the strong points of earlier methodologies;

• Utilized the extensive amount of proprietary geological and geophysical data

within MMS data bases to the fullest extent; and

• Provided MMS geologists flexibility to use their judgment to capture a broad

range of possible geologic interpretations to address specific areas.

In addition, we wanted to:

• Produce functional/understandable results;

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• Reflect the high quality science inherent in the MMS activities addressing

resource assessment and estimation;

• Ensure that estimates reflect geologic potential (known and unknown) as well

as reflect risks and uncertainties;

• Separate determinations of economic viability from the process of estimating

geologic potential; and

• Report estimates and related information to a broader audience.

The Petroleum Exploration and Resource Evaluation System (PETRIMES), a

probabilistic play analysis model which was used by the Geological Survey of Canada, was chosen as the basic platform for the present assessment of geologic

resources. Most of the resource assessment models currently in use, by either industry or other government agencies, provide estimated resources in aggregated numbers representing total resources as a distribution. However, PETRIMES can also

provide an estimate of the number and size of oil and natural gas pools that remain

to be discovered. That information is very useful for planning and decisionmaking

processes related to exploration and development of OCS resources.

One drawback to PETRIMES, however, is that it was designed to assess a single

commodity play, such as an oil play or a gas play. In reality, OCS plays are (in most

cases) mixed plays containing both oil and gas pools. To utilize PETRIMES for the

assessment of OCS resources, MMS implemented a number of changes to the original PETRIMES program. The most important change made to the program was to

provide the ability to separate estimation of both liquid (condensates and oil) and

gas (associated gas and nonassociated gas) phases required for an accurate economic

evaluation of the OCS. The modified version of PETRIMES developed by MMS is

called the Geologic Resource Assessment Program (GRASP).

The Probabilistic Resource Estimation Offshore (PRESTO) model, developed by

MMS and used in its 1987 assessment, was modified to accept the assessed output

of GRASP at the pool level to determine the economically recoverable resources at

the geologic basin level and higher. Unlike the 1987 resource assessment, where

economic resources were estimated for only two sets of distinct oil and gas prices

inflated over time, the present assessment depicts the uncertainty of assessed results by providing a continuous series of resource values over a range of prices (price

supply curves) for each geologic basin, province, and area.

In addition to adopting revised geologic modeling approaches and computer models in its 1995 resource assessment, the MMS also opened up the process of developing estimates for the OCS by holding public workshops for industry, academia,

and other interested parties to discuss MMS geologic interpretations and assumptions to be used in the estimation process. We also retained the services of two outside experts in the petroleum assessment community both of which had served on

NAS panels reviewing previous MMS assessments to provide technical advice to

MMS scientists.

Finally, the results of the 1995 OCS resource assessment were published in a format that allow for more openness in OCS resource management decisions reporting

maps of the most promising plays, estimates of the number and sizes of accumulations that may exist within these areas, price-supply curves for examining the impacts of uncertain future oil and natural gas prices on the economic viability of the

resources, and a substantial amount of supporting assumptions and underlying geologic information. Industry can use this information for prioritizing plays to be explored; plays that will benefit from further development and plays that need cost

improvements.

The 1995 OCS resource assessment also contained both a geologic assessment section and an economic viability section. In view of the extensive amount of data and

information available, MMS issued an Executive Summary of its OCS resource estimates as well as technical, in- depth results through three regional reports (Gulf

of Mexico/Atlantic Region, Pacific Region, and Alaska Region).

2000 OCS Resource Assessment

This assessment represents an estimation of the undiscovered hydrocarbon potential of the OCS was done to support staff work and analysis needed in formulating

the next 5-Year Oil and Gas Leasing Program covering the timeframe 2002–2007.

It should be noted that the methodology for the 2000 assessment has not changed

significantly from that used in the previous 1995 assessment.

The assessment also is used by MMS in the decisionmaking process on many programmatic issues. Further, it provides important information when conducting environmental studies and the analysis of options on numerous offshore issues. Industry

uses the assessment as another piece of scientific information in formulating its

business strategies, and the States and interest groups do the same.

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While previous assessments were performed concurrently with an effort by the

USGS, the current assessment was not a joint effort. This is due to the fact that

the USGS does continuous assessments and updates specific areas all the time. In

contrast, the MMS 2000 OCS assessment covers a specific time period, often targeted to meet specified regulatory requirements, such as preparation of a 5-Year

Leasing Program. Therefore, it was not practical to conduct a joint assessment.

The 2000 assessment presents the updated assessment results since the 1995 assessment for the Alaska, Atlantic, and Gulf of Mexico OCS Regions. In the Alaska

Region only the Beaufort and Chukchi Seas, Hope Basin and Cook Inlet areas were

updated, as other planning areas lacked new data and changes since the last assessment. The Pacific OCS Region was not updated for the same reasons. The Atlantic

OCS Region was re-evaluated to reflect recent exploration results offshore Nova Scotia, current exploration and production technologies, and to make the water depth

divisions compatible with the ones now being used in the Gulf of Mexico.

The MMS has recently made public the 2000 assessment, and I have included a

copy of the assessment with my written testimony for the hearing record. The total

mean undiscovered, conventionally recoverable resources for the United States OCS

are 75.0 billion barrels of oil and 362.2 trillion cubic feet of natural gas. Within that

total, MMS determined that the undiscovered conventionally recoverable resources

foregone by the 1998 moratoria (i.e., the President’s June 1998 OCS decision) would

be approximately 16 billion barrels of oil and 62 trillion cubic feet of gas.

The total mean undiscovered economically recoverable resources for the United

States OCS are 26.6 billion barrels of oil and 116.8 trillion cubic feet of gas at prices

of $18 per barrel and $2.11 per thousand cubic feet, respectively, and 46.7 billion

barrels of oil and 168.1 trillion cubic feet of gas at prices of $30 per barrel and $3.52

per thousand cubic feet, respectively.

A Comparison of the 1995 and 2000 Assessments

The current assessment resulted in an increase from the 1995 estimates of 29.4

billion barrels of oil and 94.2 TCF of gas in OCS undiscovered conventionally recoverable resources. The increase occurs almost entirely in the Gulf of Mexico based

on deepwater exploration results and additional areas assessed. These new areas include the deep, older section of the Central and Western Gulf shelf below 20,000

feet, the Cenozoic section beyond the Sigsbee Escarpment, and the deepwater Mesozoic section not on the Florida Platform. Of the three areas, the last is the most

significant. Regional reports are also being prepared that highlight the findings of

the 2000 assessment.

Conclusion

By building on our past efforts and methodologies, we believe our current resource

assessment, and thus the resulting information, is superior to previous MMS assessments. We also believe that the extensive amount of materials to be released

through our regional reports and the format of such reports will more readily meet

the needs of the extensive public and private audiences for such information thereby

contributing to efforts to develop balanced resource management policies with regard to OCS resources. While reliable resources estimates are only one of many factors to be considered when making OCS resource management decisions, they are

an important component and should be based on high quality science. We are confident that our new assessment produced results that met that high standard.

Madam Chairman, this concludes my prepared remarks. However, I will be

pleased to answer any questions Members of the Subcommittee may have.

[Maps accompanying Ms. Kallaur’s testimony follow:]

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Mrs. CUBIN. The Chair now recognizes Dr. Naresh Kumar to testify.

STATEMENT OF NARESH KUMAR, GROWTH OIL AND GAS, ON

BEHALF OF THE AMERICAN ASSOCIATION OF PETROLEUM

GEOLOGISTS

Mr. KUMAR. Thank you. Madam Chairman and members of the

Subcommittee, I am honored to be here as a representative of the

30,000-member American Association of Petroleum Geologists. Let

me state I also feel it is a personal honor to be here. Our association is the largest professional geological society in the United

States and has membership worldwide.

Our members study the Earth and deeply care for the environment. Our membership is engaged directly and indirectly in searching and looking for the hydrocarbons and the economic development of hydrocarbon deposits. And so our membership is keenly interested in understanding the amount and distribution of those

resources.

I have been invited here to make an independent comment on

the estimate that is provided by the U.S. Geological Survey and the

Mineral Management Service. Let me state right in the beginning

that these agencies have done a good, if conservative, job in assessing the undiscovered sources of the United States.

Our committee was formed by the executive committee of the

AAPG in 1993. It was a committee that I am vice chairman of.

Since inception, we have followed the methodologies of both of

these agencies since our committee was formed.

We have consulted with the U.S. Geological Survey on the 1995

national assessment, 1998 Arctic National Wildlife Refuge assessment, and also the 2000 world petroleum assessment. All of these,

our committee reviewed their methods, and we made recommendations to the AAPG executive committee to endorse the scientific

methodologies and techniques used by USGS, and we publicly stated so. However, we have not endorsed the specific numbers, but

have endorsed only the sound scientific process through which

these numbers were acquired.

I would like to take a minute here just to point out the difference

between reserves and resources. The figure that you see was developed jointly by the American Association of Petroleum Geologists,

Society of Petroleum Engineers, and World Petroleum Congress.

On the top part of the figure, which is the reserves which have

been discovered, volumes that are commercial in nature, are

planned, undergoing development, or currently producing. The bottom part of this figure is the undiscovered assessed resources. And

we see that the public confuses sometimes between these two.

One example is that we have heard statements such as the

Arctic National Wildlife Refuge is the biggest oil field left in North

America on the one side, but ANWR only has six months of oil on

the other side. Actually ANWR is only a large estimated resource

that will not become an oil field with quantifiable reserves unless

exploration takes place. The truth is ANWR will not supply anything unless something is done there. Depending on the size of discovery, ANWR could account for 15 to 20 percent of our Nation’s

supply for 15 to 20 years.

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I would like to mention a couple other terms here, which are supply and demand. Again, I want to emphasize that supply is limited

only to existing wells, whereas demand is the amount that can be

drawn from their supply to meet the energy needs.

On the far left of this figure, we start with these prospective

resources. If the size is sufficient, the economy prices, technology

favorable, then they become—resources become reserves, and then

from reserves, if we have some of those—some other factors favorable, only then they can become supply and provide the Nation’s

energy needs. Over the last few years our industry has been

wrenched when supply exceeded demand, and the Nation has suffered when supply failed to meet demand.

One of the characteristics that I want to point out on our next

chart, that these assessments, the sizes, tend to grow in size

through time. This is only for gas, but to some extent that would

apply to oil as well. We see a trend as additional drilling takes

place, as additional technology develops, in most of the producing

areas we see the estimates continue to increase.

The resource assessment of USGS and the Mineral Management

Service, National Petroleum Council, they all confirm the United

States has large remaining oil and gas resources. The agencies

have done a good job in using the geological data, scientific knowledge available, and also they have scrutinized the techniques and

methods soundly. However, these agencies do not have access to all

the necessary data. Exploration thrives and succeeds on the philosophy of multiple hypotheses. We keep finding surprises that were

considered played out. Only an active and vigorous exploration and

production industry can truly assess the remaining resources

through the drilling and discovery, and deliver those surprises to

the Nation.

The most prospective resources for natural gas are in the public

lands in the Rocky Mountain sedimentary basins, offshore Gulf of

Mexico, eastern Gulf of Mexico, and on the Atlantic and Pacific

outer continental shelf.

In summary, let me state that our country has abundant energy

resources. In order to assure that our way of life is not dramatically impacted, AAPG suggests that the United States must develop a national energy policy that provides dependable, affordable

and uninterruptible energy for the public. The resources estimate

is a wide planning tool. The agencies that perform the assessments

and track oil and gas resources, they have done a good job today,

and they deserve our support.

We would also like to state that energy resource development can

be accomplished in an environmentally responsible manner. The

technology is available to do this.

I thank you for your time, and I will be delighted to answer any

questions.

Mrs. CUBIN. Thank you.

[The prepared statement of Dr. Kumar follows:]

Statement of Naresh Kumar, Ph.D., Vice Chairman, Committee on Resource

Evaluation, American Association of Petroleum Geologists

A fundamental aspect of any energy policy is a credible assessment of the Nation’s

energy natural resources. As a representative of the 30,000 member American Association of Petroleum Geologists (AAPG), I have been invited here today to testify as

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to the credibility of the oil and gas resource estimates of the United States Geological Survey (USGS) and Minerals Management Service (MMS).

Based on events this winter, there is clearly a critical need to address energy policy if our nation hopes to preserve its economic might, and continue to create jobs

and wealth across our great land. A reliable supply of affordable energy is vital to

our continued prosperity. The ability to access estimates of oil and gas supplies, reserves, and resources is essential for development of a sound energy policy and

strategy by the Federal Government.

Let me begin with a few statistics prepared by the Department of Energy’s Energy Information Administration (EIA), to put sources of energy supply in the proper perspective with regard to consumer demand:

I would like to emphasize that fossil fuels supply fully 88 percent of the Nation’s

primary energy requirements.

In its Annual Energy Outlook (2001) Report, the EIA made the following projections regarding energy supply and demand over the next 20 years (1999–2020).

• GDP is expected to increase by 86 percent.

• Total energy consumption will increase by 32 percent. Energy demand grew 20

percent since 1979, yet domestic supply increased by only 4.3 percent.

• Petroleum demand will increase by 62 percent.

• Natural Gas demand will increase by 45 percent.

• Coal demand will increase by 22 percent.

• Electricity demand will increase by 45 percent.

• Nuclear power will decline by 11 percent.

• Despite a 37 percent increase in energy efficiency, crude oil imports will increase

40 percent to a total 64 percent of domestic supply, and petroleum product imports will increase by 148 percent.

Given these significant increases in projected energy demand, and the electricity

curtailments and natural gas price spikes of this past winter, the public must be

assured that the Nation can indeed supply the energy required to fuel our economy

in the 21st Century. It is the job of the USGS and MMS to quantify the Nation’s

energy mineral resources.

AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS

The American Association of Petroleum Geologists was founded in 1917. It is the

largest professional geological society in the United States, and has members worldwide. The membership is dedicated to the geological study of the earth and its environment, and the exploration and development of hydrocarbon resources and other

energy minerals. Because much of the membership is engaged, either directly or indirectly, in the search for hydrocarbons and the economic development of hydrocarbon deposits, the AAPG is keenly interested in understanding the amount and

geographic distribution of hydrocarbon reserves and resources. AAPG advocates a

comprehensive national energy policy based on sound science and knowledge of the

Nation’s resources and reserves.

COMMITTEE ON RESOURCE EVALUATION

In 1993, the AAPG Executive Committee chartered the Committee on Resource

Evaluation (CORE) to provide input and facilitate U.S. Government agencies in performing assessments of U.S. hydrocarbon resources. The charter was amended in

1997 to include international assessments so CORE would have a worldwide view

of hydrocarbon resources. Since inception, CORE has reviewed the methodologies

and scientific methods used for assessments by the U.S. Geological Survey (USGS)

and the Minerals Management Service (MMS). In several instances, CORE has

made individual AAPG members with specific knowledge of certain geological provinces available to the agencies. To a lesser degree, CORE has offered opinions and

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technical information to the Energy Information Administration (EIA). For example,

CORE supplied feedback to the EIA regarding its study of the economic impacts of

the Kyoto Protocol on U.S. energy markets and made members with Deepwater Gulf

of Mexico knowledge available to the EIA for consultation.

The Committee membership consists of employees of major petroleum companies,

independent geologists, two directors of state geological surveys, three past AAPG

Presidents, a member of the Potential Gas Committee (Colorado School of Mines),

the Canadian Potential Gas Committee (University of Calgary), and the USGS. Although the membership is diverse, all are advanced in their careers and have a

great deal of expertise in the science and technology of reserve and resource estimation. At most of its meetings, CORE has invited guests from the USGS, MMS,

and other experts who can contribute to our knowledge of the nature, amount, and

geographic distribution of potential petroleum resources, and yet to be discovered

resources. CORE does not restrict its interest to conventional hydrocarbons but includes basin-center gas in continuous reservoirs, coalbed methane, shale gas, and

some level of interest in gas hydrates.

Since its formation, CORE has consulted with the USGS on its 1995 National Assessment of United States Oil and Gas Resources, the 1999 Arctic National Wildlife

Refuge 1002 Area assessment, and the 2000 World Petroleum Assessment. For all

of these, the Committee on Resource Evaluation has recommended to the AAPG Executive Committee that AAPG endorse the scientific methodologies and techniques

used by the USGS, and the AAPG has publicly done so. AAPG has not endorsed

specific resource numbers generated by the assessments but has endorsed the sound

scientific process used to generate the probability distributions.

RESERVES AND RESOURCES

Often people confuse or use interchangeably the terms reserves and resources .

Reserves are known, somewhat measurable, economic accumulations of hydrocarbons, and are readily available as supply to meet demand. Resources are potential, undiscovered, estimated hydrocarbons. The estimates are based on our current

state of geological knowledge and existing technology. Whether resources are ever

converted to reserves is dependent on economic conditions, policy decisions, and incentives for companies to perform exploration activities. As exploration proceeds and

more geological data is collected, our ability to make better estimates of resources

increases. Also, as resources are converted to reserves, supply increases and the

ability to meet demand improves.

This figure was developed jointly in 2000 by AAPG, the Society of Petroleum Engineers (SPE), and the World Petroleum Congress (WPC), and published by SPE.

At the top of the figure, we define reserves as having been discovered, are commercial in nature, and are planned, undergoing development, or currently producing.

34

We discuss them as being proved; proved plus probable; and proved plus probable

plus possible; thus conveying a degree of certainty about the quantity.

At the bottom of the figure we define resources as undiscovered, of higher risk,

and as plays, leads, or prospects. We discuss them in terms of low estimate, best

estimate, and high estimate. These levels of estimation are driven by our geological

knowledge, available data, and technology available to assess them. In order for

resources to be converted to reserves and ultimately to supply, exploration has to

take place. The exploration process consists of leasing acreage, acquiring and interpreting seismic and subsurface data, and drilling. Depending on location and the required permitting, this process can be conducted over a matter of months or even

years.

In the middle portion of the chart is a category named Contingent Resources.

These are defined as hydrocarbons which have been discovered, but for which a

commercial market does not exist. In earlier years of low natural gas prices, the gas

cap at Prudhoe Bay could be considered a contingent resource.

As the debate over energy policy has developed we often see people confusing reserves and resources. An example is ANWR is the biggest oil field left in North

America. ANWR is actually a large estimated resource that will not be an oil field

with quantifiable reserves (and part of the U.S. supply) unless the exploration process takes place.

SUPPLY AND DEMAND

Two other terms that need to be better understood are Supply and Demand as

they pertain to oil and gas. In a New York Times article (10/17/00), Daniel Yergin

said I concluded that there were really just two characters who dominated the industry over a century and half: one named supply, and the other demand. In a 1997

AAPG position paper entitled Energy Data and Analysis For a Sound Energy Policy,

prepared by CORE, we defined supply as that quantity of hydrocarbons that is produced from existing wells in a given period of time. Demand is the amount of hydrocarbons that can be drawn from supply to meet existing energy needs.

The key idea to capture is that supply is limited to existing wells. As described

earlier, it can take months or years to add new wells to bolster the supply. That

is why it is so important for policymakers to understand the difference between reserves and resources. Resources cannot be converted to reserves, and hence supply,

by merely flipping a switch—the process takes time. That is why industry needs

reasonable access to Federal lands to keep exploration moving forward.

We’ve all heard the argument that ANWR would only satisfy six month’s of U.S.

energy needs. This is a fallacious argument that ignores the fact that, depending

on size of a potential discovery, it might supply 15–25 percent of U.S. energy needs

for 15–20 years. The truth is, it won’t supply anything unless exploration takes

place and resources are converted to reserves.

The figure below is an attempt to show those relationships. At the far left of the

figure is where we start with Contingent and Prospective Resources. If the size of

the resource is sufficient, and other factors such as the economy, prices, and technology are favorable, then industry is motivated to conduct exploration and convert

the resources to reserves. Then if other factors are favorable, reserves are developed

and become the supply. Hopefully, supply is sufficient to meet demand. Over the

last few years, our industry has been wrenched when supply exceeded demand, and

when supply failed to meet demand.

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U.S. ENERGY RESOURCES

AAPG believes the U.S. still has a large energy resource remaining to be tapped.

We believe the techniques and scientific methods used by both the MMS and USGS

are sound and provide a good basis for discussion of a national energy policy.

The most recent resource assessments of the USGS, MMS, EIA, and the National

Petroleum Council (NPC) all confirm that the United States has huge remaining oil

and gas resources.

According to the USGS, the technically recoverable onshore U.S. oil resource base

is 110 billion barrels. This is five times our onshore and offshore proven reserve of

21 billion barrels. The United States consumes about 7 billion barrels of petroleum

liquids per year.

The 1995 USGS assessment concluded that the United States has a remaining

gas resource base in the Lower 48 States of 1,074 trillion cubic feet of gas (TCFG).

It should be noted that only 135 TCFG, or just under 13 percent of the estimated

resource, is considered proven. There are an additional 261.2 TCFG in Alaska; however, this gas is useless without a pipeline to the lower 48 markets. We presently

consume about 22 TCFG/year. Even at a projected 32 TCFG/year consumption by

2020, there is more than a 33-year potential supply. Cumulative domestic production over the past hundred plus years is estimated to be about 890 TCFG.

The United States has the potential to be self-sufficient in natural gas supply well

into the 21st Century. We have significant oil resources, but they are not likely to

be adequate to satisfy future demand. However, unless the petroleum industry is

allowed access to the areas where the remaining resources are located, the domestic

energy crisis will become worse.

DISTRIBUTION OF THE RESOURCE

There are significant remaining known oil and gas resources in the traditional onshore producing areas of the Gulf Coast, West Texas, and in the Mid-Continent.

However, these areas are now intensely drilled and blanketed with 3-D seismic, and

are not yielding the large new discoveries required to replace the Nation’s depleting

proven reserves. Major oil companies and large independents have been exiting onshore exploration, and moving their operations into the sparsely drilled waters of

the Deep Gulf of Mexico and overseas. However, recent actual and proposed acquisitions by BP and Shell may indicate a return to the onshore U.S. by the majors driven by the value of natural gas.

Many small oil and gas companies and the majority of the independent prospect

originators are having trouble finding partners, as well as the capital, to drill the

smaller reserve exploratory prospects that remain in the traditional producing

areas. Higher oil and gas prices have significantly increased the drilling rig count;

however, over 90 percent of the current drilling activity is for the development of

known reserves.

Studies by the USGS and NPC have concluded that the most prospective areas

for major new discoveries, particularly natural gas, are on public lands in the Rocky

Mountain sedimentary basins, offshore in the Gulf of Mexico, in the Eastern Gulf

36

of Mexico, and on the Atlantic and Pacific Outer Continental Shelf. The AAPG concurs with this assessment. Despite the huge potential of these areas, Federal law

presently prohibits exploration on the Atlantic and Pacific OCS and in the Eastern

Gulf of Mexico. Access to much of the remaining resource potential of the Rocky

Mountain basins is restricted or closed. The total estimated gas resource of these

areas is 213 TCF (per NPC 1999 study) or a 9-year supply at current rates of gas

consumption. It is likely that with further exploration, these resource figures would

increase significantly.

The total area of the U.S. Federal offshore, including Alaska, to the 200-mile economic limit, is about 2 billion acres. Only 2 percent has been leased. In its 1995

study, the MMS assessed a mean undiscovered recoverable resource of 46 billion

barrels of oil and 268 TCF of natural gas in the Federal OCS. This is 2.5 times the

offshore reserve found to date. However, by a 1998 Presidential directive, there is

presently a Federal moratorium on any exploration of the Lower 48 OCS outside

of the Central and Western Gulf of Mexico until 2012.

In its 1995 National Oil and Gas Assessment of Onshore Federal Lands, the

USGS estimated that the Northern Alaska province accounts for more than half of

the of the undiscovered conventional gas assessed on onshore Federal lands. As previously stated, Alaska’s total gas resources were cited in the USGS report as 261.2

TCFG. This represents a 12-year supply at current demand!

There is a huge domestic gas resource, yet access to much of this remaining

resource is either closed or so restricted that development is not economically feasible or timely. As part of the policymaking process, the public must understand

that the United States actually has the gas resources to meet future demand. Congress then must determine if the public will support continued access restrictions,

and if so, is the public then prepared to accept significantly higher gas prices and

possible regional supply curtailments during times of peak demand.

ACCESS TO GAS RESOURCES ON FEDERAL LANDS

Natural gas is cited as a cleaner, more environmentally benign, energy resource

to fuel our economy. However, access to the huge gas potential of undeveloped public lands is limited, in the Western states and on the OCS. Additionally, the Federal

regulatory maze hinders domestic petroleum exploration operations and investment.

With more than a decade of U.S. neglect in developing and implementing a comprehensive National Energy Supply Policy, and the environmental protection priority of the public, gas demand has caught up with, and probably overtaken, peak

supply. This situation cannot be blamed on Big Oil and Gas , nor the distribution

companies.

The U.S. cannot depend on gas imports from OPEC to meet rising demand. Natural gas is a North American commodity that is locked into a pipeline delivery system. Imports from Mexico will be minimal. The 1999 NPC study projected LNG imports of less than 1 percent of supply through 2015. That same study projected U.S.

gas demand in 2010 to be 29 TCFG on an annual basis and projected U.S. production to be 25 TCFG/yr. The shortfall, according to the NPC, will be made up by 4

TCFG of imports from Canada. What happens if the Canadian imports do not materialize? The United States must develop its own gas resources to meet future demand. This requires access to the public lands that are deemed most prospective

for natural gas.

Conservation and renewable energy resources often are cited by as the solution

to our energy requirements. This is not a realistic expectation if one appreciates the

actual tiny magnitude of current alternative energy, and that fossil fuels supply 88

percent of our primary energy. Energy conservation has been effective in certain

areas, particularly in regard to increased miles per gallon for automotive engines.

Nevertheless, demand for transportation fuels continues to skyrocket.

Despite DOE expenditures of over $9 billion since fiscal year 1980 on solar and

other renewable energy research, alternative energy resources provided only 0.3 percent of primary energy supply in 1999, exclusive of traditional hydroelectric power

(3.8 percent). Obviously time and effort for research must continue on alternate

energy resources.

The AAPG does not advocate any reduction in alternative energy research. However, the fact is, that our economy will continue to depend on fossil fuels for the

majority of the Nation’s primary energy requirements for at least another generation. On April 18, 2000 at the AAPG Annual Meeting in New Orleans, Jay E.

Hakes, Energy Information Administrator, presented a paper entitled Long Term

World Oil Supply . One of the conclusions in that paper was that with an estimated

mean ultimate recovery of 3.0 trillion barrels worldwide, and production growth

rates of 0–3 percent, the estimated peak year of world oil production would range

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from 2030–2075. That is over another century of hydrocarbons being a significant

part of the energy mix.

NATURAL GAS FOR ELECTRICITY GENERATION

The rise in demand for natural gas for electricity generation has increased dramatically. The Gas Research Institute (GRI) in 1999 estimated gas consumption for

electricity generation would increase from 3.8 quadrillion BTU’s in 1985 to 5.2 quadrillion BTU’s in 2000. They projected the 2015 level to be 9.1 quadrillion BTU’s. For

purposes of this discussion we can equate 1.0 quadrillion BTU’s to 1.0 trillion cubic

feet of gas. Over a 30-year period, gas consumption for electricity generation will

increase about 239 percent!

The Gas Research Institute also projected the share of natural gas production that

would be used for electricity generation to increase from 23.2 percent in 1998 to 33.1

percent in 2015. A full third of all gas produced and imported in the U.S. would

go to electricity generation.

These projections are based on normal growth rates of supply and demand. Although the 1999 NPC study concluded that a U.S. demand of 29 TCFG in 2010

could be met, it required massive increases in capital, manpower, and infrastructure. The NPC study estimated $1.5 trillion would be needed to fund the industry

from 1999–2015, the number of wells drilled annually would have to double from

24,000 in 1998 to 48,000 by 2015, and that 2,100 onshore and 180 offshore drilling

rigs would have to be built. These figures would indicate a massive effort is needed

to meet normal projected growth rates of natural gas demand between now and

2015.

However, lurking in the background is the proposed Kyoto Protocol agreed to by

160 countries to limit greenhouse gas emissions. Binding limits for emissions were

set for 40 developed nations, with no limits imposed on the remaining countries. The

U.S. goal is a 7 percent decrease in emissions relative to our 1990 levels. In order

to achieve this reduction in emissions, a significant reduction in the use of petroleum liquids and coal is required. Natural gas will have to replace these fuels. The

Energy Information Administration in its 1998 Impacts of the Kyoto Protocol on

U.S. Energy Markets and Economic Activity projected natural gas demand for electricity generation with the Kyoto Protocol in place at 12.7 TCF. Compare that with

the 7.5 TCF estimated for 2010 without the Kyoto Protocol.

The EIA study also projected the gas price in 2010 with Kyoto in place to be $3.30

per thousand cubic feet ($/mcf). As consumers painfully experienced this winter, gas

prices quadrupled, soaring over $10/mcf at one point. Implementation of the Kyoto

Accord will put significant additional pressure on gas supply. Accordingly, a sound

national energy policy must provide access to additional gas resources, and is going

to have to promote the use of all fuels, including coal and nuclear energy, to meet

projected energy demand.

RESOURCE ASSESSMENTS

The ability to access estimates of oil and gas supplies, reserves, and resources is

essential for development of a sound energy policy and strategy by the Federal Government. In addition, many companies use these estimates to plan exploration and

development strategies in the United States. Some of the agencies engaged in preparing such assessments also estimate international reserves and resources that can

have an impact on foreign policy, national security, and understanding global supply

and demand.

The agencies for the most part do a good job on these assessments using the geological data, scientific knowledge, and tools available to them. At times the agencies

have been behind industry’s thinking, especially in the area of new or evolving exploration plays (a play is a geological concept for exploration in a particular rock

formation or geographic location). Examples of hot new exploration plays with huge

oil and gas potential include: drilling beneath thick regional salt deposits in the Gulf

of Mexico; production of natural gas from coal seams in the Powder River Basin of

Wyoming; and drilling in the ultra-deep waters of the Gulf of Mexico OCS. As a result the assessments have sometimes been too conservative and have required subsequent revisions. Until these new trends were proven, the agencies assigned limited resources to them, and probably rightly so. Once these kinds of frontier plays

have been discovered and proven by the risk takers of industry, the total resource

impact can be assessed.

One of the characteristics of assessments we have discovered is their tendency to

grow in size over time. This is due to increased exploration and gathering of subsurface data, improvements in geological knowledge, and acquisition of additional

seismic data. As our knowledge of a basin increases, so does our ability to estimate

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its resources; which generally results in an increase in the size of the resource. That

also is why exploration is so competitive. Different interpreters can look at the same

data set, and draw dramatically different conclusions about exploration prospects.

The figure below illustrates this point. It also illustrates the growth in reserve or

field size as production occurs over time.

Note the early 1970’s estimates by M. King Hubbert of about 250 TCFG, and the

almost ten times increase to 2,000 TCFG in 2000.

ANWR ASSESSMENT

In 1999 the USGS completed an assessment of the Arctic National Wildlife

Refuge. The AAPG Committee on Resource Evaluation reviewed the methodologies

and scientific techniques used by the USGS. The Committee did not review, nor

have any input into the actual resource estimates ultimately generated by the

USGS. We concluded that the work of the USGS was scientifically sound, and that

they had done a very good job of locating and wisely using all of the available data.

This was the first ANWR assessment where the USGS had access to proprietary

seismic data. Although the AAPG does not routinely generate resource estimates,

a 1991study chaired by AAPG past-president Robert Gunn predicted a mean

resource for ANWR of 7.0 billion barrels of oil. This compares very favorably with

the USGS 1999 estimate of 6.4 billion barrels for the undeformed portion of the

ANWR 1002 Area.

CONTINUOUS RESERVOIR ASSESSMENT

In the 1995 National Assessment of United States Oil and Gas Resources, the

USGS assigned 358 TCFG to gas accumulations in continuous reservoirs. Continuous reservoirs are defined by the USGS as pervasive accumulations throughout a

large area, which is not significantly affected by hydrodynamic influences, and lack

well-defined down-dip water contacts. In other words, these deposits appear to be

somewhat stratigraphic in nature, with little or no structural trapping, and produce

gas with very little or no associated water. These reservoirs tend to be relatively

impermeable sandstones, shales, coals, and chalks.

Such tight sandstone reservoirs are very prominent in many basins of the Western U.S. In its 1995 study, the USGS assigned 200 TCFG of recoverable resource

to this type of reservoir in the Rocky Mountain Basins. The USGS is currently embarking on a reassessment of resources in this type of reservoir.

39

Given the recent events in California and the spotlight on natural gas for electricity generation, this could be one of the most important assessments the USGS

will perform. A Subcommittee of the Committee on Resource Evaluation has already

held meetings with the USGS to share ideas on the nature of continuous reservoirs,

and probability distributions to best characterize the resource they contain.

AAPG ENERGY POLICY RECOMMENDATIONS

The United States has abundant energy resources. However we are now faced

with a real energy crisis, because the Nation has not developed and implemented

a comprehensive energy policy. In order to assure that our way of life is not dramatically impacted because of energy shortages, the AAPG recommends the following: • The U.S. must develop a national energy policy that provides dependable, affordable, and uninterruptible energy for the public and commerce, and is based on

a sound scientific assessment of the Nation’s resources and reserves. • Energy policy must address the needs of all-stakeholders especially the consumers, and not over react to the demands of the shrillest interests with the

most money for publicizing a particular position. • Energy policy must be strategic and long-term, not quick fixes to short-term

crises.

• Energy policy must include a role for all energy sources, including coal and

nuclear energy. • Resources assessments are a vital planning tool for policymakers and industry.

The agencies that perform these assessments and track oil and gas resources

and reserves need continued support. They have done a good job to date.

• A major, long-term, and capital intensive energy industry effort is required to

explore for, develop, produce, and build the infrastructure necessary to deliver

the energy supplies required to meet projected demand. Energy policy must facilitate the process of capital formation and energy development, without creating costly and time-consuming regulatory roadblocks.

• Industry access to public lands, which contain hydrocarbon resources, should be

a priority to encourage exploration for and production of domestic natural

energy sources. We cannot become dangerously dependent on unreliable foreign

energy imports.

• The public must be assured that energy resource development can be accomplished in an environmentally responsible manner. The technology is available

to do this.

• The impact of the Kyoto Protocol on the ability of the Nation to supply the

energy needed to fuel our economy without major disruptions must be carefully

evaluated.

We look to the House Committee on Resources to take a leadership role in formulating a sound national energy policy, and thank you for giving the AAPG the opportunity to present its recommendations.

APPENDIX I.

ENERGY DATA AND ANALYSIS FOR A SOUND ENERGY POLICY

Energy is critical to all sectors of our economy and way of life. Data and analyses

on supplies, reserves, and resources are critical to a prudent energy policy that provides for needed supply, wise use, and affordable prices. The American Association

of Petroleum Geologists supports the continued efforts of the Federal agencies responsible for collecting and analyzing such data.

The U.S. Government, appropriately, collects, maintains, and analyzes data to

support the assessment of reserves and resources of energy commodities on an objective basis, chiefly through the Energy Information Administration of the Department of Energy, and the U.S. Geological Survey and Minerals Management Service

of the Department of the Interior.

In times of budget constraints, some suggest that these basic data collection, assessments, and analyses can be eliminated, deferred, or significantly reduced from

their current modest funding levels. Such action, however, would eliminate or severely reduce our national capability and adversely affect good energy policy.

Crude oil and natural gas are particularly important because they are the source

of 65 percent of the Nation’s total energy supply. These sources can be described

as follows:

• Supply: That quantity that is produced from existing wells in a given period of

time.

• Reserves: The estimated amount that eventually can be recovered from existing

reservoirs and fields under current technology and pricing conditions.

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• Resources: The estimated amount that remains to be discovered based upon geological knowledge and exploration and development technologies.

Information about supply is available from both public and private sources. Regulatory agencies in producing states and Federal regulatory agencies concerned with

public lands commonly collect production data and make them available. At a national level, these data are collected, aggregated, and analyzed, and made available

by the Energy Information Administration of the U.S. Department of Energy. Private companies also provide selected data organized in ways convenient for client

usage.

Information about reserves is important to be able to estimate the quantity of future supply from existing production. Historically, the American Petroleum Institute

(API) and the American Gas Association (AGA) developed this information on an annual basis. The blue book , jointly produced by a committee of these trade associations, was considered a standard reference for such information.

Following the energy crisis of 1973, the Executive Branch and the Congress determined that information on supply, reserves, and resources was so vital to the development of sound public policy in meeting the Nation’s energy needs that the collection and analysis of such data should be done by a public entity. Accordingly, in

the creation of the U.S. Department of Energy at that time, a quasi-independent

agency, the Energy Information Administration (EIA), was established to collect,

analyze, and disseminate a broad range of energy information to aid in the development of national energy policy.

The EIA developed a program that was implemented in 1978 to estimate annually

the U.S. reserves of crude oil, natural gas, and natural gas liquids. This program

was operated in parallel with the API/AGA blue book for 5 years to establish a connection with historical data for time-series analyses. The EIA reserves estimation

program has served the Nation well for almost 20 years. The data collected and reserves estimated by this program are the only comprehensive source of such data

for the U.S. As such, these data are used extensively by both public and private entities for a broad range of applications. Continuation of this program of developing

estimates of reserves on an annual basis is a vital component of a sound public policy that addresses the Nation’s future energy needs.

Over the longer term, estimates of crude oil and natural gas remaining to be discovered are important for both public-policy decisions and private-sector business

considerations. Such estimates provide policymakers with a view of the quantities

of crude oil and natural gas that might be discovered through future exploration to

meet a part of the Nation’s growing need for transportation fuel and other energy

requirements. These data can be factored into policies that could encourage domestic exploration or the development of alternative energy supplies. These data also

are important for the private sector in considering long-term plans for domestic

versus international operations.

Estimates of resources have been made by various public and private sector organizations over the past several decades. Because of the important policy considerations attendant to such estimates, the Congress has requested that the U.S. Geological Survey and the Minerals Management Service provide such estimates on a

periodic basis for the onshore lands and in state waters, and the offshore public

lands, respectively. The U.S. Geological Survey recently completed a national assessment, and the Minerals Management Service will soon release a report on their

area of responsibility.

Resource estimates conducted by the U.S. Geological Survey and the Minerals

Management Service are important activities that need to be continued in future

years. Likewise, reserve estimates conducted annually by the Energy Information

Administration also are important in support of sound public policy. This nation’s

energy policy can be no better than the basic data and analyses on which it is based.

Therefore, the American Association of Petroleum Geologists urges that the Congress and the Administration continue to support these important activities.

Mrs. CUBIN. I thank the panel for their valuable testimony.

I would like to start with Dr. Leahy on the questioning round.

In your written statement you referenced the inventory required

in section 604, the Energy Act of 2000, and I am very pleased to

see that the USGS and other agencies have begun to scope out the

work necessary to comply with this mandate. As you know, that

provision became law after the fiscal year 2001 Interior appropriaVerDate 11-MAY-2000 16:16 Dec 04, 2001 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6602 71289.TXT HRESOUR1 PsN: HRESOUR1
41

tions act was passed. Can you give me any notion at this time of

the cost that the Department needs to budget for this work?

Mr. LEAHY. We are in the process of defining those numbers,

and, frankly, I think we need to work with the Department before

we move them forward because they do involve other bureaus as

well as the USGS.

Mrs. CUBIN. So at this time do you have any idea if—I guess you

probably wouldn’t—if a reprogramming request would be sent to

the appropriators to get it done?

Mr. LEAHY. Yes. That is correct.

Mrs. CUBIN. Okay. What level of detail—I will just not ask that

question, because if you don’t know what you are going to need yet,

you can’t answer what level of detail is going to be incurred.

Mr. LEAHY. We certainly would define the Federal lands in more

detail than we did in our earlier assessments. So that the information is more usable in terms of the purposes of act.

Mrs. CUBIN. Good. And in your testimony I think you said it

would be 2004 before that would be complete?

Mr. LEAHY. No. I believe the legislation actually calls for it to be

completed two years after enactment.

Mrs. CUBIN. Right. So that would be 2002.

Mr. LEAHY. That is right.

Mrs. CUBIN. Do you think it will take the full two years to do

that? Certainly I think this is a place that we really need to begin

with this issue, and at the IPAA convention last week or the week

before, Dan Yergin stated that he thinks that is something that

should be done right away. But you do think it will take the full

two years to do that?

Mr. LEAHY. We are in the planning stage, and certainly two

years is moving right along. And I think the two years was identified because whoever wrote the legislation realized this was a big

order.

Mrs. CUBIN. Big task. That is right. Actually that was my

amendment. It is a big task, but I think that it will be certainly

useful in the time to come.

Ms. Kallaur, six offshore fields with estimated reserves of 3-1/2

trillion cubic feet of natural gas are being developed near Sable Island off Nova Scotia in the Canadian waters. Have these developments impacted MMS estimates for the North Atlantic area at the

OCS?

Ms. KALLAUR. When we did our 2000 assessment, we did look at

the drilling results in Canada and updated our numbers from the

1995 assessment.

Mrs. CUBIN. Would you repeat that? I am not sure I understood

your answer.

Ms. KALLAUR. The answer is that we did take into account the

drilling in eastern Canada in developing the numbers for our own

2000 assessment.

Mrs. CUBIN. Okay. Is it within the Secretary’s authority to acquire seismic data in areas which are off limits by reason of annual

appropriations riders or Executive Order?

Ms. KALLAUR. I believe it is, because I know we are able to acquire environmental information, so I believe that we would also

be able to acquire seismic information.

42

Mrs. CUBIN. Thank you.

Mr. Kumar, what level of drilling in the United States do you

think would be required to stabilize all production at current levels?

Mr. KUMAR. One of the estimates that was published by the

National Petroleum Council, it addressed primarily gas, and I believe for the gas the estimate was that from 24-, 25,000 wells per

year, we would have to go to 40- to 50,000 wells per year to maintain the level needed to supply the gas.

Mrs. CUBIN. You said 25,000 wells?

Mr. KUMAR. Yeah.

Madam Chairman, we would have to essentially double the number of wells we are drilling right now for the last few years in order

to stabilize the available supply.

Mrs. CUBIN. Okay. I would like to ask each one of you—then I

am sure my time will be up even though the clock isn’t working— based on the USGS oil and gas assessment, what—this is for each

one of you in your areas—what do you think the most promising

frontier area is for finding new oil reserves and gas reserves? Dr.

Leahy, do you want to start?

Mr. LEAHY. Yes. Certainly in my opening remarks I said our assessment was targeting some areas that showed potential for natural gas, and coal-bed methane—the Rocky Mountain area is an

area that is of interest. Alaska is clearly an area of interest as well.

We are actively doing an assessment of the National Petroleum Reserve up there as we speak.

Ms. KALLAUR. Clearly the Gulf of Mexico, central and western

Gulf of Mexico, continue to be viewed as being highly prospective.

As I mentioned in my testimony, it is the oil production that is increasing more so than the natural gas production. Industry’s number one priority at this point is having access to the Eastern Gulf

of Mexico, both for the near-shore natural gas potential as well as

having access to the deep water, where they expect to find some

large oil fields because the area straddles the very prolific central

Gulf of Mexico.

Mrs. CUBIN. Thank you.

Mr. Kumar, do you have anything to add?

Mr. KUMAR. Yes. I concur with the areas that have been mentioned, and, as I mentioned in my oral presentation, the Rocky

Mountain sedimentary basins, offshore Gulf of Mexico, the eastern

Gulf of Mexico, Atlantic, Pacific outer continental shelf, north slope

of Alaska. I would like to mention again for the record that on the

north slope of Alaska, the total gas resource was cited in the range

of 260 trillion cubic feet of gas. That represents a 12-year supply

at the current demand.

Mrs. CUBIN. Twelve years?

Mr. KUMAR. Twelve years. Because currently we use 22 to 23

TCF per year, and this is 260 trillion cubic feet on the north slope

of Alaska.

Mrs. CUBIN. I think you touched on a very important point, because every time an area is brought up, whether it is ANWR, wherever it is, someone jumps up and says, oh, well, that is only 18

minutes’ supply, so we don’t need to open that up. That is only six

months supply, so we don’t need to open that up. But cumulatively

43

there has to be—all of those minutes or days or hours or months

or years or whatever, it has a big effect.

So, okay. Thank you for your answers.

The Chair now recognizes Mr. Kind.

Mr. KIND. Thank you, Madam Chair.

Thank you again for your testimony. I really believe it is helpful

for us to have as accurate a picture as possible in regards to the

resources that are available on the public lands.

But, Dr. Leahy, let me start with you, and following up on my

opening statement with regards to some of the comments I made

with geothermal potential and that, are you aware, has USGS done

any studies or reports in the past exploring the potential of geothermal sources on public lands in this country?

Mr. LEAHY. We did an assessment of geothermal resources, I

think, in about 1979, so it is quite dated.

Mr. KIND. Do you have the potential under the existing budget

right now to do a more modern update of that study looking into

the potential? If not, what resources would you need in order to

conduct such a study, and do you have the expertise in the Department to carry out such a study?

Mr. LEAHY. We certainly have the expertise. It is a question of

priorities and funding.

Mr. KIND. Are you saying that you don’t have the resources right

now in your existing budget to conduct such a study, and would

you need some authorization from us and some appropriation from

us?

Mr. LEAHY. That is correct.

Mr. KIND. I certainly appreciate the concern, the need to look at

our short-term managing needs and what already exists and the

potential for extraction given our current energy consumption, but

it is astounding to me when you have such an abundant and clean

and inexhaustible source of geothermal energy, and we are at virtual standstill in this country in exploring this potential, and you

have a country like Kenya that is way ahead of the curve even in

relation to this as tapping into this, why more attention isn’t being

devoted in this area as well.

With your permission I would like to follow up and see what we

may do to explore this in a little bit greater detail, and find out

what we can accomplish here to get you those resources so we can

start looking into this in a much more comprehensive fashion.

On an unrelated subject we were informed, or we discovered, actually, from Greenwire, which is an online news service, which reported that USGS finds 16 new national monuments have energy

potential. And apparently this came from a request from some

members, Republican members, on the Parks and Public Land Subcommittee of the Resources Committee for USGS to conduct this

report. But also apparently we didn’t receive an original copy of

that report. We have since been able to obtain an original copy. But

I wonder if we could have an understanding whenever you are supplying reports, whether they are official or unofficial, to the Majority, can you can shoot a copy our way, too?

Mr. LEAHY. We would be happy to do that. This was—as you

very accurately stated, a request from a Subcommittee staff, and,

frankly, having a National Assessment of resources allowed us the

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ability to do these qualitative appraisals very quickly. And we are

more than happy to satisfy the needs of individuals in Congress.

[Provided below is a response to Representative Kind’s request of

Dr. Leahy for follow-up information on geothermal energy}

The Geothermal Energy Research, Development and Demonstration Act of 1974

(P.L. 93–410) assigned responsibility for the evaluation and assessment of geothermal resources to the USGS through the U.S. Department of the Interior (DOI).

The assessment efforts initiated under this Act led to the publication of USGS Circular 726, Assessment of Geothermal Resources of the United States - 1975 and

USGS Circular 790, Assessment of Geothermal Resources of the United States -

1978. These reports established the methodology for geothermal resource assessments and provided estimates of potential electric power generation that have guided geothermal energy research and development for the past 22 years.

With USGS staff working in collaboration with universities, BLM and the Department of Energy, the USGS can deliver a new geothermal resource assessment of the

Great Basin and adjoining areas within 3 years. After completion of the Great Basin

assessment, continued geothermal studies would focus on other regions with the significant geothermal potential. The USGS has the expertise to help reduce uncertainties in the assessment of domestic geothermal resources and to participate in research efforts in geothermal science and technology to benefit the development of

geothermal energy. In order to accurately assess the geothermal resources of the

western U.S., significant progress needs to be made on understanding the processes

responsible for the formation of geothermal systems, particularly in the Great

Basin. Recent investigations of the interrelationships among heat flow, groundwater circulation, active faulting, volcanism, and geochemical fluid-rock interactions

suggest that the Earth Science community is on the verge of developing a new, comprehensive understanding of geothermal systems. The resulting models for the nature and extent of geothermal systems would not only improve the accuracy of any

new assessment but also enable the development of more economical exploration

and development strategies for geothermal energy.

What is the geothermal energy resource base? For the potential geothermal electric power yield from identified systems, estimates vary from 6300 to 27,400MW, depending on the analysis of specific systems and assumptions regarding the impact

of new technologies. The electric power potential from undiscovered resources is far

less certain. The estimates in Circular 790 range from 72,000 to 127,000 MW, although these are almost certainly overstate the extent of undiscovered resources.

What is USGS doing now in geothermal resources? The USGS conducts research

into the nature of volcano-hosted geothermal systems as part of the Volcano Hazards Program. This research is focused on volcanic systems posing a significant hazard and only involves existing or potential geothermal reservoirs in three places -

Long Valley and Medicine Lake in California and Kilauea in Hawaii. The USGS

also continues to monitor the thermal features contained within Yellowstone

National Park.

Mr. KIND. Apparently the report I am referring to was an unofficial report, not an official. Can you tell me the difference?

Mr. LEAHY. Basically it is a request for information. It is not a

published report. It would be much like someone calling in and

asking a question, a citizen, in terms of what are the Appalachian

Mountains made out of. It was not a major effort to put together

a response to that request.

Mr. KIND. I believe we do have copies of that report. I would ask

unanimous consent to have that included in today’s hearing as

well.

Mrs. CUBIN. Without objection. We haven’t seen this either.

[The aforementioned report was too lengthy to be included in the

printed hearing. It has been retained in the Committee’s files.]

Mr. KIND. All right. I appreciate that. Thank you, Dr. Leahy.

Dr. Kumar, let me move to you. Within the last week obviously

many of us are aware of the reports of the Brazilian oil rig that

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has sunk now in the South Atlantic due to fire and explosion, and

one of the pillars collapsing, and it going down. There appears to

be every effort being made in order to contain any type of spill that

may result from the sinking of that oil rig, but what we are looking

at is a potential of 312,000 gallons of diesel fuel and 78,000 gallons

of crude oil that could potentially be released into that environment. Do you have any more information perhaps in regards to

what happened down there resulting in this sinking of the oil rig,

and could you speak to the potential off our own shores of such an

accident occurring here?

Mr. KUMAR. Congressman Kind, I am not personally aware of exactly what happened. I haven’t seen the reports myself. I do know

the country of Brazil quite well. I have done a lot of geology there.

I have published papers on the geology of Brazil.

In this particular incident we don’t know whether it was a

human error or a machine failure or something else. Obviously

these kinds of things are possible in Brazil. Each incident has to

be looked at in its own way, and the incidents that have happened

in the past, many times they have been related to transportation.

Exploration and production accidents are actually much, much less

than the transportation errors. In transportation things happen

over many years.

Mr. KIND. Perhaps, Madam Chair, I may suggest that might be

an appropriate area for future hearing exploring into what happened down there with that Brazilian oil rig, and also exploring in

a little more detail the potential here off our own coast, because obviously when you are exploring and drilling, you also have to transport it. I think we need to be sensitive to those safety concerns as

well. So I thank you, and I appreciate your testimony.

Mrs. CUBIN. The gentleman’s time has expired. I ask unanimous

consent to insert into the record an article about that spill from the

Chicago Sun Times where the article says that this spill poses

minimal threat to the environment, that there is a plan in place

to protect the environment. ‘‘scientists’’—this is a quote—‘‘Scientists said the environmental impact would likely be negligible.

The lighter diesel fuel oil tends to evaporate in just a few days.’’

so, we just need both sides of the story on that.

[The article referred to follows:]

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Mrs. CUBIN. The Chair now recognizes—I don’t know who was

here first.

Mr. THORNBERRY. Thank you, Madam Chairman.

I would like to ask unanimous consent, Madam Chairman, that

a letter I received from a constituent, Mr. Dwayne Cochran, who

is an engineer with some considerable expertise with ANWR, be

considered as part of the record. It is a very detailed discussion of

some of those issues. I think it would be important to include as

part of the record.

Mrs. CUBIN. Without objection.

[The letter from Mr. Cochran follows:]

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Mr. THORNBERRY. Dr. Kumar, I think you started out your testimony in a way that is helpful to kind of put these discussions in

a bigger context. You cite the energy information statistics that

now 88 percent of our energy comes from fossil fuels, and their estimate is that over the next 20 years, total energy consumption is

going to go up by about a third. The petroleum demand is going

to go up by about twice that fast. Natural gas demand will go up

faster than total energy demand will go up. And they also find that

even if we get a 37 percent increase in energy efficiency, crude oil

imports will increase to about 64 percent of our domestic supply.

And so not only are we going to continue to be dependent upon oil

and gas—and actually it seems like grow more dependent upon oil

and gas—our dependence upon foreign sources of oil and probably

gas are also going to increase.

I think that is what makes these assessments important as we

try to figure out how we can keep from sinking as fast into greater

dependency.

I thought it was interesting in your testimony you, as I understood it, said that as we do these various assessments along, they

tend to increase. In other words, the more we are out there drilling,

exploring and surveying, the more we seem to find.

You know, we have all heard over a number of years that we are

running out of oil and gas. We are running out of oil and gas. But

it doesn’t seem to work out that way. You say we keep finding surprises. Is that what is happening, that the more we are out there

finding, the more supply we tend to discover?

Mr. KUMAR. Congressman, my State, which was one of the earliest States to produce oil and gas in the United States, there are

basins that have been producing for 70 years, and yet we are finding new significant reserves in the east Texas basin and Fort

Worth basin, in Oklahoma. These are places that have people been

studying and producing for 60, 70 years, and yet we are finding

new reserves, new discoveries that are commercial and making

money for people today. In the north slope of Alaska, Prudhoe Bay,

giant field, major work has been done there, and yet in the 1980’s

Point McIntyre was discovered, which was a 500-million-barrel

field, the largest discovery of the 1980’s for the United States, and

that was primarily a surprise because a few years earlier, few wells

had been drilled through it without recognizing a 500-million-barrel field until ARCO and partners went back and drilled there.

Yes, sir, the technology has improved. Technology has provided

an additional efficiency. So between surprises and technology, and

attempts to keep doing things and having different ideas from different people working the same area, those are all the things that

contribute to our resources.

Mr. THORNBERRY. You don’t have any reason to believe that we

are at the end of technological development for finding new supplies of oil and gas, do you?

Mr. KUMAR. No, sir.

Mr. THORNBERRY. Ms. Kallaur, let me ask you, as I look at your

map and your assessment around the country, it looks to me like

the highest numbers are the places where there is the most drilling. So I listen to what we have just been talking about, and I wonder, you know, those places that have for whatever reason been

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placed off limits, isn’t it difficult for you to make your assessments

where there is not the kind of activity that there is down in the

Gulf of Mexico? It looks to me like where there is the most drilling,

the most work, the most surveying, that is where we have the most

reserves.

Ms. KALLAUR. I agree with you, Congressman, because even in

my testimony I say our numbers for the moratoria areas are much

more uncertain because of the lack of activity. I think those who

are familiar with the Gulf of Mexico realize that in the late 1980’s,

it was viewed as the ‘‘Dead Sea’’, and then companies began to develop prospects in deeper water. Now it is a world-class production

province.

So things do change with additional activity, even though there

are some areas companies have spent a lot of money drilling dry

holes. But generally, particularly now with the new technology,

more prospects are found if there is further drilling activity.

Mr. THORNBERRY. Dr. Leahy, would you agree with this point

that generally everybody else has agreed with: As we explore more

and survey more and drill more and find out more information,

generally there is more available?

Mr. LEAHY. I would just like to refer to the chart I had up before,

and this is our 1995 Natural Oil and Gas Assessment. If you look

at the dark green pieces of the pie, which is reserve growth, that

is really what we are talking about here. The development of technology, 3-D seismic and directional drilling, has improved the

amount of our estimate in terms of what may be in these known

fields.

Mr. THORNBERRY. Thank you.

Mrs. CUBIN. The Chair now recognizes the gentleman from Oklahoma Mr. Carson.

Mr. CARSON. Thank you so much, Madam Chairman. I just have

a couple of questions to the panel about the proven reserves versus

the prospective resources, a distinction that Dr. Kumar so eloquently presented to us in the testimony.

A couple of you mentioned that we are consuming, if I am not

correct, about 7.5 billion barrels of petroleum liquids per year. Dr.

Kumar, would that be roughly correct?

Mr. KUMAR. Yes, sir.

Mr. CARSON. And about 22 trillion cubic feet of gas per year are

being consumed as well; is that correct?

Mr. KUMAR. Yes.

Mr. CARSON. Now, the estimates from the USGS as well as your

organization a few years ago talk about the prospective oil reserves

or resources. If you could clarify which of those it was, in the studies in ANWR, that talks about a mean value of about—I think it

was between 6 and 7 billion barrels of oil in ANWR; is that roughly

correct? Or perhaps Dr. Leahy from the USGS.

Mr. LEAHY. In terms of the USGS 1998 Assessment, in the 1002

area, there was a mean estimate of 7.7 billion barrels of oil.

Mr. CARSON. And that would be seen as resources or reserves in

Dr. Kumar’s distinction?

Mr. LEAHY. This would be resources.

Mr. CARSON. Understood.

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It is probably an elementary question. In the testimony you talk

about the amount of resources there, Dr. Kumar, and you emphasize how highly contingent these are. What is the likelihood of realization of a resource into a reserve?

Mr. KUMAR. I can refer to that chart here, Congressman Carson.

These assessments that MMS and USGS does, they are based on

the data that is available and yet they are only estimates. The only

way the resource can be converted to a reserve would be through

exploration activity, actual drilling and proving that resource.

So at ANWR today, the numbers that Dr. Leahy just mentioned,

that is still the resource, and in their publication there is a whole

range and that 6.8 billion barrels is the means of that estimated

resource. There is no way that is going to be considered a reserve

until that has been drilled and meets the definition of the Security

and Exchange Commission on what the reserves are, which has to

be commercially producible with the current technology.

Mr. CARSON. I am sympathetic to opening up ANWR for exploration production, but it seems under the predictions of USGS and

what you present in your testimony that our consumption is 7 billion barrels of petroleum liquids per year. The mean value of

resources at ANWR is roughly 7 billion barrels of oil. We are talking about, under the mean value, ANWR might produce about 1

year’s worth of petroleum liquids consumption for the country? Is

that an accurate statement?

I know that obviously if the reserves in ANWR prove to be far

above the mean value that that could change.

Mr. KUMAR. Congressman, the way I look at it, Prudhoe Bay has

produced almost 10 billion barrels of oil so far, and all of these oil

fields, as you know in your own State, they stay producing and contributing to the national mix for a long, long time. So ANWR, if it

produces roughly one million barrels a day, we are looking at 15

percent of national production for the next 10, 15, 20 years. I think

that is probably the more appropriate way to look at a resource because I hope it never happens that everything else in the country

would be shut down and there would be only one field in the whole

area that will be supplying the rest of the country.

Mr. CARSON. Right. Understood. Understood. Across the country,

what is the natural gas production per year? How many trillion

cubic feet of natural gas production do we have in this country

right now? Perhaps Dr. Leahy from the USGS, you could answer

that question.

Mr. LEAHY. I believe you mentioned 22 trillion cubic feet, and I

believe of that about 4 trillion cubic feet is imported. The rest is

domestic.

Ms. KALLAUR. I believe the OCS produces 5 TCF, and that is approximately 25 percent of domestic production. So I am assuming

it is about 20 TCF that are produced domestically with the remainder imported from Canada.

Mr. CARSON. For all of the major areas of Federal lands that

were discussed here, the Rocky Mountain Sedimentary Basin, the

Eastern Gulf, Alaska, the Central and Western Gulf, what are the

mean values of predicted resources there for both gas and oil? Do

you have that information at your disposal?

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Ms. KALLAUR. In terms of the offshore, the mean conventional

resources is 362.2 trillion cubic feet of natural gas.

Mr. CARSON. That would be between both Pacific, Atlantic, as

well as the Gulf?

Ms. KALLAUR. Yes it includes moratoria areas as well as nonmoratoria areas.

Mr. CARSON. Thank you very much, Madam Chairman.

Mrs. CUBIN. The Chair now recognizes the gentleman from

Nevada, Mr. Gibbons.

Mr. GIBBONS. Thank you very much, Madam Chairman.

I was very interested in the statement of the Ranking Member

when he opened his comments about the need for developing geothermal. I come from Nevada, a State that has very little oil and

gas, although it does have some, but it has a great deal and a great

potential for geothermal energy.

One of the big problems we have, however, in the State of

Nevada is the continual attempt at the restrictions of areas that

have these potentials. In fact, just last year the creation of the

Black Rock National Conservation Area put off limits one of the

largest geothermal producing areas in the State of Nevada, with

about 1.3 million acres in Nevada off limits to geothermal.

If we continue to go in this direction where we restrict the development of geothermal, we will at some point find that the development of those geothermal resources is nonexistent, that we cannot

make that difference.

I want to get back to the testimony of Dr. Leahy and Ms.

Kallaur. The USGS—and this is one where I would ask you to help

me—the USGS and the Minerals Management Service use two different terms. One of them is technically recoverable resources and

the other, Minerals Management, is ‘‘conventionally recoverable

resources.’’ . Will each of you tell me what you mean by that? Are they the

same terms and, if they are, why are you using two different

terms?

Ms. KALLAUR. Let me try to answer that question, sir. They are

the same terms, and I think if we had to do it over again we might

use the same terms. I think the one difference is that when USGS

comes up with a number for what they call ‘‘technical’’, they include coalbed methane, tar sands and some of what I would consider more exotic fuels; whereas, our ‘‘conventional’’ number only

includes oil and gas.

Mr. GIBBONS. So would there be a difference then in the definition of total reserves available to the United States, based on your

terminology versus USGS?

Ms. KALLAUR. No, I think we can do a comparable chart so you

would be able to see what the total amount is for conventional

resources, both onshore and offshore, as long as we were able to do

it from the USGS resource estimates, including tar sands and coalbed methane.

Mr. LEAHY. I would agree with Ms. Kallaur on the comparability

of the numbers.

Mr. GIBBONS. Okay.

Mr. LEAHY. Also, I would like to state that the definition of ‘‘technically recoverable’’ is in my written testimony, but the way I guess

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I would characterize it very simply, it is the quantity that can be

extracted with current technology.

Mr. GIBBONS. Very good. Would you, for the record, submit to

this Committee the refined estimates based on a common terminology for the use of reserves?

Ms. KALLAUR. Yes.

Mr. GIBBONS. Just submit it for the Committee. I would appreciate it.

Ms. KALLAUR. Yes, sir.

[The information referred to follows:]

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Mr. GIBBONS. Mr. Leahy, the crude oil, the estimated resources

that are based on the USGS studies, presented in testimony to this

Subcommittee on March 21st, in 1996, appears to differ significantly from that presented in Circular 1118, and indeed your testimony here today, which is different. Specifically the 1996 testimony, total estimated technically recoverable reserve, crude oil reserves were 142 billion barrels versus the 112.3 billion barrels in

Circular 1118 in your testimony. Can you explain this difference to

us?

Mr. LEAHY. Yes, I can. The results of the USGS 1995 National

Oil and Gas Assessment, I believe it is on page 2 of my testimony,

what we did in that earlier assessment is to combine the estimates

for oil, which is 112 billion barrels, with the natural gas liquids;

and these are liquids. They call them condensates, too. When the

pressure in the reservoir is reduced, they go from a gas phase to

a liquid phase, and we included them with the oil estimate. That

estimate is about 30 billion barrels. So if you add them together,

the number is the same as that earlier testimony.

Mr. GIBBONS. Dr. Kumar, you indicated in your testimony and

state that we have very large natural gas and oil reserves in the

United States. If this is the case, why aren’t we using, drilling, producing these resources today? What is the barrier? What are the

limitations that you see?

Mr. KUMAR. Well, one of the main barriers, Congressman, is access. We just heard how many of the areas that have significant

potential are off limits, the East Coast of the United States, Arctic

National Wildlife Refuge, the Pacific OCS, and the resources can

never be converted to reserves and supply unless the industry can

go and have access.

In addition, since the 1980’s, while in our own country oil companies were having trouble getting access, the permitting process was

getting more and more onerous year after year after year. I personally dealt with that in Alaska for almost 10 years. At the same

time the rest of the world was opening up, and companies found

going outside the United States sometimes they could find bigger

targets to look at and the climate was sometimes more welcoming

to them outside the country than in their own country.

Mr. GIBBONS. I see my time is up, Madam Chairman.

One last statement or question. Dr. Kumar, could you for the

Committee and for the record submit to us your estimate, your

agency’s or organization’s estimate, of what oil and gas reserves or

resources are precluded, locked up and unavailable out of the total

that this country may possess? Can you give us that kind of an estimate on paper at a later date?

Mr. KUMAR. We can provide a summary of what has been

already generated by various agencies. Our association, as I mentioned in my testimony, we do not generate numbers, and the reason is that our thousands of entities in the United States are actively working for oil and gas, and we thrive on having differences

of opinion. So we would be happy to submit a summary that was

published actually by the National Petroleum Council recently,

which actually right now in front of me there is a map that shows

the areas that have been locked up and that are not available. So

we will be very happy to submit our AAPG position on that.

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Mr. GIBBONS. That would be fine.

Thank you, Madam Chairman.

[The information referred to follows:]

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Mrs. CUBIN. The Chair now recognizing the gentleman from

Massachusetts, Mr. Markey.

Mr. MARKEY. Thank you, Madam Chair.

Dr. Leahy, ‘‘technically recoverable’’ is a term of limited usefulness in the real world. Don’t you agree?

Mr. LEAHY. Yes.

Mr. MARKEY. Since it presumes that you have infinite money to

spend. So, for example, if I ask you to tell me how many technically

recoverable kilowatts of solar energy fall in California each day, it

is a lot. I mean, it is technically recoverable, every single ray of sun

that hits in California, but it is not available at a reasonable price.

So proponents of drilling in ANWR often use the number 16 billion barrels of technically recoverable oil, citing the USGS as their

authority. If you were trying to give Congress an accurate idea of

what ANWR might contribute to our energy supply, would you use

that number?

Mr. LEAHY. What you raise is an interesting issue, and, of

course, the economics are a key element here.

Mr. MARKEY. Would you call that number misleading?

We need help here. We are trying to make big decisions.

Mr. LEAHY. I think the number, as stated, as technically recoverable, is correct.

Mr. MARKEY. But, again, solar energy is technically recoverable.

We are talking about—remember now, there has been an EIS that

has been approved for 18 years to bring the natural gas down from

Prudhoe Bay. That is economically recoverable under your definition, is that not true?

Mr. LEAHY. Technically.

Mr. MARKEY. Technically, I mean technically recoverable?

Mr. LEAHY. Yes.

Mr. MARKEY. Yes, okay. So we need a little bit of help now as

we are looking over at this other issue.

Mr. LEAHY. I think, again, I will go back to my earlier statement

that the economics come to play here. Frankly, one has to add that

economic piece in terms of cost.

Mr. MARKEY. That is not your job?

You would agree with me that there is a tendency for that term

‘‘technically recoverable’’ to be misleading, though, would you not?

Mr. LEAHY. Well, we have attempted in our assessments to add

the economic piece. In my testimony, I believe there is a chart at

the end that demonstrates how these estimates change as a function of the market price of oil.

Mr. MARKEY. What is economically recoverable at $30 a barrel?

Mr. LEAHY. I will use the mean value—.

Mr. MARKEY. Yes, please.

Mr. LEAHY. —in terms of the probability. Approximately six billion barrels.

Mr. MARKEY. Six billion, okay; not 16.

Okay. Thank you.

Now have you ever done a study such as the one you have done

on the refuge for the National Petroleum Reserve?

Mr. LEAHY. Excuse me?

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Mr. MARKEY. Have you ever done a study such as the one you

have done on the refuge, the Arctic Refuge, for the National Petroleum Reserve?

Mr. LEAHY. We have one in progress as we speak.

Mr. MARKEY. When was the last one you conducted? Have you

ever conducted one?

Mr. LEAHY. Approximately 20 years ago.

Mr. MARKEY. Now, the National Petroleum Reserve, that is not

a refuge, is it?

Mr. LEAHY. No, it is not.

Mr. MARKEY. It is a wilderness in the legal sense, is it not?

Is it a wilderness in the legal sense, the National Petroleum Reserve?

Mr. LEAHY. No.

Mr. MARKEY. No, absolutely not. It is intended to provide a

source of oil and gas for our country, is it not?

Mr. LEAHY. That is correct.

Mr. MARKEY. Democrats and Republicans, as far as you know,

agree on that?

Mr. LEAHY. Yes.

Mr. MARKEY. So why have you spent so little time analyzing

what is legally approved by Democrats and Republicans instead of

spending so much time on what is legally prohibited in terms of

your analysis of technically recoverable oil and gas?

Mr. LEAHY. Well, I think we try to look at frontier areas across

the board.

Mr. MARKEY. But why would you look at them before you have

looked at the National Petroleum Reserve where we all agree that

there should be drilling?

That doesn’t make a lot of sense to me, sir.

Mr. LEAHY. We look at areas that have potential. As I stated in

my testimony, this issue—.

Mr. MARKEY. But there is a prohibition on the refuge, as this

Committee is well aware, and there is none in—what I am saying

is I don’t think you have been providing the right focus for your

agency in terms of what would have been useful for Congress and

for the private sector.

Now, BP recently announced that they are looking at a very

large structure in the NPRA. Are you familiar with it?

Mr. LEAHY. Yes.

Mr. MARKEY. Now BP says it is the same size as Kuparuk Field

structure. Kuparuk is the second largest field in the North Slope,

second only to Prudhoe Bay, is that correct?

Mr. LEAHY. I will have to check.

Yes, that is correct.

Mr. MARKEY. It is. Okay. Good.

Mrs. CUBIN. Would the gentleman yield if I make up the time for

him?

Mr. MARKEY. Yes.

Mrs. CUBIN. The reason they did ANWR was because in a lame

duck session in 1980, when Jimmy Carter was the President, the

Congress told them they had to do it, told USGS they had to do

it. So that is why they did it.

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Mr. MARKEY. Has there been any updating since 1980 in the

Arctic Refuge?

Mr. LEAHY. 1998 was the recent one.

Mr. MARKEY. Was that because of a Jimmy Carter lame duck

session or request, do you know?

Mr. LEAHY. No. There had been some seismic information collected on ANWR. There was new information on drilling in State

lands adjacent to ANWR.

Mr. MARKEY. All right. I appreciate it, but not in the National

Petroleum Reserve, yes.

People are still blaming Jimmy Carter for the energy crisis. They

are giving Ronald Reagan credit for the entire 1990 economic recovery, which I appreciate.

Do the economics of searching for natural gas on the North Slope

change once a pipeline is built?

Mr. LEAHY. They certainly will.

Mr. MARKEY. They would. So all of that oil that has now been

a by-product of—all of that natural gas that has historically been

a by-product of looking for oil takes on a different light, does it not,

once a pipeline is built?

Mr. LEAHY. That is correct.

Mr. MARKEY. We approved the building of a natural gas pipeline

back in 1982, but it has never been built. Democrats and Republicans agreed on that. Now I am told by those who hold the permits

that it is now econometrically likely that it could be built and a full

return could be given.

How much more gas could we expect to find up there if there was

a pipeline in place to bring it out?

Mr. LEAHY. Technically recoverable, and this is—the only numbers I have are the ANWR 1002 area, but there are other numbers

for more of Alaska and we would be glad to share those with you,

but in terms of ANWR it would be about 3.5 TCF at the mean

value.

Mr. MARKEY. Okay. Let me ask one final question. BP, the largest player in the North Slope, recently sent me an estimate of oil

dependence in the year 2010. It was based on the estimates of a

leading consultant whom they respect. The estimate is that assuming no significant change in current policies our oil dependence will

fall, not increase, over the next 10 years. Instead of rising to 61

percent, as estimated by EIA, it will fall to 50 percent. Fifty percent is the 10-year goal in the Senate energy bill, as you know, that

we would basically reach if we drilled in the ANWR.

In other words, if BP and their consultant are correct, are we

already going in the right direction and would we reach the Senate

goal even if we don’t touch the Arctic Refuge? Do you agree with

that analysis?

Mr. LEAHY. That is a policy issue and, frankly, our role is to provide the estimates of the resource.

Mr. MARKEY. Mr. Kumar, could you give me your view on that?

Do you agree with BP?

Mr. KUMAR. I have not seen that report or the statement or the

consultant that provided that, but I personally think it would be

very unlikely that we can reduce our dependence on foreign oil.

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Mr. MARKEY. I have the BP report here, Madam Chair, and I

would like to get permission to put it into the record.

Mrs. CUBIN. Without objection.

Mr. MARKEY. I think it would be very helpful to our discussion.

[The information referred to follows:]

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Mrs. CUBIN. Last week Mr. Downey testified in front of the Committee that if you take the gas out of the ground first then you

can’t get the oil out so you are wasting the oil resource, and that

is one of the biggest reasons why it hasn’t been economically feasible to do that because they don’t want to waste the oil that is in

there.

The Chair now recognizes Mr. Tancredo.

Mr. TANCREDO. Thank you, Madam Chairman.

Ms. Kallaur, the MMS revised its estimates upward, significantly

upward, on conventionally recoverable resources in the Gulf of

Mexico.

Ms. KALLAUR. Yes.

Mr. TANCREDO. Could you give us a little more detail as to why

these estimates increased and perhaps where the identified

resources exist?

Ms. KALLAUR. Yes. The majority of the increase is attributable

to the new finds in the deep water, and in addition there were several new prospects that were analyzed in the 2000 assessment that

were not analyzed in the 1995 assessment.

Mr. TANCREDO. If you can segregate the data, how about in Sale

Area 181; if you could identify it specifically how would the

resource estimates compare to the NPCS estimate of 7.9 trillion

cubic feet of gas?

Ms. KALLAUR. The numbers that we are currently using for Sale

181 are 396 million barrels of oil and 2.9 trillion cubic feet of natural gas. And I note that the NPC numbers, or the industry numbers, I have seen are much higher.

Mr. TANCREDO. Thank you. That is all the questions I have.

Mrs. CUBIN. The Chair now recognizes Mr. Inslee.

Mr. INSLEE. Thank you, Madam Chair.

I have some articles from the New York Times about the sinking

of the oil rig, the Brazilian rig. If I may enter these into the record,

I would appreciate that opportunity.

Mrs. CUBIN. Without objection.

[The articles referred to follow:]

WIDOWS OF OIL WORKERS MOURN IN BRAZIL

BY MICHAEL ASTOR, ASSOCIATED PRESS WRITER

MACAE, Brazil (AP)—Widows of oil workers tossed rose petals from a helicopter

Wednesday over a mile-long oil slick in the South Atlantic where the world’s biggest

floating oil rig sank Tuesday, taking eight bodies with it.

Meanwhile, the president of Brazil’s Environmental Protection Agency, Hamilton

Casara, flew over the site of the spill to assess the damage, and an 11-boat flotilla

worked to contain the oil.

According to the state oil company, Petrobras, some 80,000 gallons of mostly diesel fuel already had leaked but thanks to cleanup efforts and evaporation only 3,000

gallons remained on the surface.

‘‘The slick is moving northeast out to sea but there is absolutely no risk whatsoever that it will hit beaches,’’ said Petrobras’ Environment and Safety Superintendent Irani Varela.

An overflight of the area revealed a slick about a mile-and-a-half long and a halfmile wide along with scattered debris from the platform, which sank about 75 miles

off the coast.

‘‘It’s not a disaster. But the oil could affect migrating species and possibly ecosystems near the coast, like banks of coral,’’ said Roberto Kishinami, the head of

Greenpeace in Brazil. ‘‘This will have an impact on the environment and Petrobras

is glossing over it.’’ Petrobras President Henri Phillipe Reichstul said he believed

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containers holding 312,000 gallons of diesel fuel would collapse under water pressure on the sea bottom at a depth of 4,455 feet.

The rig also had 78,000 gallons of crude—most of it in hoses between the wells

and the rig. Those hoses were attached when the rig went down and could break,

he said.

The 40-story-tall rig began sinking on Thursday after three unexplained explosions ripped through it. Two of the 175 workers were killed, and eight others are

missing, presumed dead inside the sunken rig. Rescue workers wept as the rig sank

beneath the waves on Tuesday.

Petrobras said it had done everything possible to recover the bodies.

Relatives of the victims, however, believe otherwise.

‘‘I won’t leave here without his death certificate, and I won’t stop fighting to get

his body back,’’ said Rita Araujo.

‘‘They can turn the rig upside down, do anything they have to. I want Charles’s

body. Even if it’s just the bones, I want them,’’ said Vanusi Oscar, widow of oil

worker Charles Oscar.

Varela, the Petrobras safety official, said recovering the bodies would be almost

impossible given the depth of the water of about a mile.

Built in Italy and later modified in Canada, the rig was the top producer in the

oil-rich Campos Basin, which accounts for most of the 1.5 million barrels of oil

Brazil produces daily. The platform was pumping about 83,000 barrels of oil and

processing 1.3 million cubic meters of gas daily, but the company had plans to raise

its production to 180,000 barrels a day.

Oil workers plan to stage a 24-hour work stoppage to protest safety conditions

and honor the dead on Thursday.

OIL RIG SINKS; SOME LEAKING IS ‘‘INEVITABLE,’’ OFFICIAL SAYS

BY LARRY ROHTER

The New York Times Company, March 21, 2001

RIO DE JANEIRO, March 20, 2001—After 5 days of frantic efforts to keep it

afloat and recover the bodies of nine workers left onboard, the world’s largest offshore oil platform sank into the South Atlantic this morning.

Henri Philippe Reichstul, president of the state-controlled oil company, Petroleo

Brasileiro, or Petrobras, which operated the rig, said today that it was ‘‘inevitable’’

that at least some of the nearly 400,000 gallons of oil stored on it would spill into

the ocean.

Brazilian television showed the platform, which was 40 stories high and weighed

more than 31,000 tons, tipped over sideways and almost entirely submerged this

afternoon, with little more than a helicopter pad still above water.

The giant rig, known as P–36, was built in Italy and later modified at shipyards

in Canada and Singapore before Petrobras acquired it through a Bolivian intermediary; it was insured for $500 million.

It began operating a year ago this month in the oil-rich Campos Basin in the

South Atlantic, about 78 miles off the coast of Rio de Janeiro state. Drilling to a

depth of more than one mile, the platform had been producing 83,000 barrels of oil

a day, about 5 percent of the total output of Petrobras.

But early on March 15, the rig was shaken by a series of explosions and began

to list.

With fires raging and one firefighter already dead, all but 9 of the 175 workers

were evacuated to another platform, and then to the mainland. Petrobras workers

immediately began to try to stabilize the platform and find their missing co-workers,

who are presumed dead.

Rough weather and high waves have hampered their work. ‘‘Sea conditions undoubtedly complicated the work of the divers and contributed to the sinking of Platform P–36,’’ Mr. Reichstul said today at a news conference. ‘‘Certainly the bad

weather accelerated its sinking.’’ He also said that the rig’s oil and gas wells had

been sealed before it was evacuated. But oil and diesel fuel were stored in tanks

aboard the rig, and industry experts said the tanks would almost certainly be ruptured by mounting water pressure as the platform sank. The ocean is about 4,400

deep at the site of the rig.

Petrobras officials said that more than a dozen vessels equipped with floating barriers have been sent to try to contain any spill.

Meteorologists said today that prevailing winds were blowing to the south, away

from the coast, but that high winds were also preventing effective use of the barriers.

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‘‘There is a plan in place to protect the environment,’’ Mr. Reichstul said. ‘‘We are

not terribly worried about the environmental question.’’ The demise of P–36 is the

latest in a series of problems for Petrobras, whose stock price fell more than 2 percent as soon as the sinking was announced.

Two major oil spills in 14 months have led to large fines and heavy criticism of

the company, Brazil’s largest, which produces nearly all the country’s oil and reported a profit of $5.2 billion in 2000.

The platform disaster is also a setback for Brazil’s drive to become self-sufficient

in oil.

Petrobras had been producing about 1.5 million barrels a day and hoped to raise

its output to 1.8 million barrels by 2005. But now, the company will need to spend

an estimated $500 million importing oil to replace P–36’s lost production until a new

rig can be bought and put in place.

‘‘We’re going to increase oil production this year, despite the accident, ‘‘ Mr.

Reichstul said. ‘‘Production in 2001 will exceed that of last year.’’

STRICKEN RIG ADDS TO PETROBAS WOES

BY JENNIFER L. RICH

March 20, 2001, The New York Times Company

SAO PAULO, BRAZIL, March 19, 2001—With its largest offshore oil platform still

listing after a series of deadly explosions last week, Brazil’s state- owned oil company, Petroleo Brasileiro, or Petrobras, is struggling to ease the damage to its bottom line and to the international reputation it has painstakingly built.

The accident is the latest in a string of problems, including environmental disasters, that Petrobras has had to answer for.

‘‘It has been a pretty bad last 14 months, and clearly the company has suffered

as a result of that,’’ said Myles McDougall, senior petroleum analyst at ABN Amro

in Sao Paulo.

After three explosions crippled one of the oil platform’s support pillars on Thursday, causing the 40-story rig to sink more than 13 feet, Petrobras has been frantically working to keep the $350 million rig afloat. Ten of the platform’s 175 workers

are presumed to have died in the explosions and one is seriously injured, making

the accident the deadliest on a Brazilian oil rig since 1984. Petrobras today named

a commission to investigate the cause of the explosions.

The platform, situated in the oil-rich Campos Basin, 120 miles off the coast of the

state of Rio de Janeiro, had stopped sinking by Sunday, but a storm front brought

larger waves today, causing the rig to lean further.

Petrobras is hoping that the rig, which is covered by $500 million in insurance

and is one of the world’s largest platforms, can be saved. If so, the company said

it would take at least a year to repair the structure, resulting in a loss of production

worth $450 million this year.

If the rig sinks, the 400,000 gallons of crude and diesel fuel on board will probably

spill, increasing clean-up costs and leaving the company open to fines for environmental damage.

Analysts say that the financial damage to Petrobras, while significant, should account for only about 6 percent of the company’s earnings. Last year, the company

reported net profit of $5 billion, up from $880 million in 1999.

More damaging, the analysts say, may be the short-term effect of having to import

additional oil on Brazil’s already precarious trade deficit. At present prices, the imports could cost as much as $40 million a month.

The platform, called P–36, has been in production since March 2000, processing

around 80,000 barrels of oil a day, or slightly more than 5 percent of Brazil’s daily

production of about 1.3 million barrels. Production on the rig was to reach 180,000

barrels a day by 2003, helping the country, which consumes about 1.8 million barrels of oil a day, reach oil self-sufficiency by 2005. Such production was also expected to increase Petrobras’s oil and gas exports, currently a tiny portion of its

business.

Analysts say that the accident should not affect Brazil’s long-term oil plans. But

to resume production as soon as possible, Petrobras is considering subcontracting

P–36’s oil processing to smaller production ships or diverting a new platform, which

recently arrived in Brazil and was going to be used elsewhere, to replace the damaged one.

After a 50-year monopoly, the Brazilian oil industry recently opened to private

and foreign companies. To compete with the multinational newcomers, Petrobras

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has been modernizing and streamlining domestic operations, cutting staff to 33,000

from around 70,000 the last 7 years while stepping up development and production.

Employee unions say that in Petrobras’s rush to expand production, it has overlooked security precautions that could have prevented last week’s accident. And they

say that the downsizing and the hiring of contract laborers have resulted in 82

deaths nationwide at company facilities the last 3 years, including the deaths earlier this year of two workers on a natural gas platform also in the Campos Basin.

‘‘For Petrobras to outsource these jobs creates a certain level of risk for us, since

these workers are often not as prepared as we are,’’ said Coaracy Guimar es, a director at Sindipetro, the Brazilian petroleum workers union.

The unions organized protests last Friday, demanding stricter attention to workers’ safety.

Analysts say a combination of faulty technology and human error has caused two

major oil spills the last 14 months, the worst of which dumped 325,000 gallons of

oil in Rio de Janeiro’s Guanabara Bay in January 2000, two months before the Carnival holidays filled the city with international tourists.

Petrobras denies the union’s arguments and says that the spills were caused by

years of neglect that will take time to rectify. In response to the Guanabara Bay

spill, the company’s president, Henri Philippe Reichstul, announced a 3-year, $900

million program to improve operational security and lessen environmental impacts.

‘‘The Brazilian market has only been open for 5 years, and this type of evolution

is normal to the process,’’ said Jean-Paul Prates, a petroleum lawyer in Rio de Janeiro. ‘‘Things are going to be learned little by little.’’ In the meantime, he said that

last week’s accident should have little or no effect on foreign business interest in

Brazil.

‘‘The amount of investment in the sector is unprecedented and that opening is not

going to close because of this,’’ Mr. Prates said. ‘‘You have 20 more operators that

are beginning to enter into the Brazilian scene. It’s a boom.’’

Mr. INSLEE. These are broad-based questions. I was looking at a

national assessment of undiscovered conventionally recoverable

resources on the outer shelf, and it includes two outer shelves, one

around Florida that I am interested in and one off Washington and

Oregon. It is my understanding, just if you can tell me if you know

the administration’s position on this, that at the request of the

Governor of Florida, the President of the United States has decided

to take those areas off limits, that he intends—of all the offshore

areas, the Governor of Florida has requested those not be subject

to exploration. It is my understanding that in honoring that specific request the President of the United States is not going to seek

exploration in those areas.

Is that your understanding?

Ms. KALLAUR. Congressman, the Minerals Management Service

has responsibility for leasing and regulating all offshore oil and gas

activity. We are completing the final EIS on Sale 181 in the Eastern Gulf. It is scheduled to be released in June of this year and

then we would be issuing a proposed notice of sale in July. We

have received no direction from the President to stop our work.

Mr. INSLEE. I am sorry. Which?

Ms. KALLAUR. Sorry. We have received no direction from the

President to stop doing the work we are currently doing right now

on Sale 181 in the Eastern Gulf of Mexico.

Mr. INSLEE. That would include waters off Florida, then?

Ms. KALLAUR. That is correct, sir. Sale 181 is principally offshore

Alabama, Mississippi, but there is also a portion that is offshore

Florida.

Mr. INSLEE. So you are telling me you are not sure what the Administration’s position is regarding Governor Bush’s suggestion?

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Ms. KALLAUR. All I know is what my staff is working on right

now, sir.

Mr. INSLEE. I see. Well, assuming that the President honors the

Governor of Florida’s request not to drill off his shores in Florida,

if the Governor of the State of Washington requested that you don’t

drill off the Washington shores or, in fact, national monuments like

the Hanford Reach in Washington, is there any reason not to honor

those other Governors’ requests that you are aware of?

Ms. KALLAUR. I can speak to the offshore, and there is currently

both a presidential withdrawal that was issued by President Clinton that goes through the year 2012, and congressional moratoria

language that precludes any type of leasing activity along the West

Coast, the East Coast and a portion of the Eastern Gulf of Mexico

and one area in Alaska.

Mr. INSLEE. But with recent experience, we can’t be entirely confident that those environmental policies will remain standing, unfortunately.

So I guess this is a question I have, if President Bush honors

Governor Bush’s request for Florida, is there any geological or economic reason you can see why he shouldn’t honor other Governors’

requests about territory in their areas?

Ms. KALLAUR. That really isn’t an issue before the Minerals

Management Service. As I previously said, there are congressional

restrictions currently in place for all of the areas that I cited.

Mr. INSLEE. Okay. Thank you.

Can you tell us about any assessments that have been done

about the potential energy that could be obtainable through conservation or efficiency measures taken by the United States, those

from a whole gamut of sources, energy savings that would be obtained, essentially free oil, if you will, by having more efficient cars

and trucks, by having more efficient light bulbs, by having more efficient refrigerators, by having more efficient heating systems in

the home? Do you have any assessments of the available energy to

the United States of America from those sources?

Ms. KALLAUR. That work is done by the Department of Energy

and not prepared by the Department of Interior.

Mr. INSLEE. Do you have any information of how those relate to

one another? Which one is larger? Do we have larger potential

through conservation and energy efficiency or do we have larger potential through drilling in offshore, national monument areas, do

you know?

Ms. KALLAUR. The one thing I do know is when the National

Petroleum Council did a study of future natural gas needs for our

Nation, they also took into account estimates of conservation. They

said that the OCS would need to produce 7 to 8 TCF of natural gas

in the year 2012 in order to allow consumption of natural gas to

go from 22 TCF to 30 TCF, and I believe they took into account

conservation in coming up with those numbers.

I think you know in this area reasonable people can disagree.

Mr. INSLEE. Thank you. That is something I totally agree with.

Ms. KALLAUR. Yes.

Mrs. CUBIN. The Chair now recognizes Mr. Rehberg.

Mr. REHBERG. Thank you, Madam Chairman.

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I apologize for coming late. This is something I am particularly

interested in, representing the State of Montana and the entire

Rocky Mountain front.

I get a little sweaty-palmed when we talk about wells because

having been a rancher and having drilled dry wells, I don’t think

I could ever be in the oil and gas business. But we all know there

is uncertainty in estimating undiscovered oil and gas resources.

How is the uncertainty, and this is for the entire panel, how is the

uncertainty for making the estimates, in your assessments, how

can they be reduced, in your mind?

Mr. LEAHY. Why don’t I start? More information. Our assessments are based on geologic information, and the more geologic information we have, the more we can reduce the uncertainty.

Ms. KALLAUR. I would agree with that. I mean, clearly you don’t

know what is out there until you either acquire additional seismic

information and then the only definitive way to know whether or

not oil and gas is present is through exploratory drilling.

Mr. KUMAR. Congressman, in all of these areas, as assessments

are made, they are made on the basis of existing data and we have

seen significant revisions. As a certain play becomes more economic, more drilling is done, more information. That is one of the

things when I mentioned surprises, we are all good at assessing

what is known. It is the unknown part that sometimes becomes the

most important play in a given area, and that can only happen

with additional seismic and drilling information.

Mr. REHBERG. Okay. Ms. Kallaur, I understand that the MMS

has recently sought the comments of the coastal state Governors

with respect to the next OCS 5-year plan. Were any comments received suggesting that areas currently under the moratoria should

be studied further by your agency as to the natural gas potential,

even if they are not to be considered for leasing before 2002?

Ms. KALLAUR. We are in the process of developing the next OCS

5-year program, and we did not receive any comments from Governors at this time suggesting that we relook at the moratoria

issue. Even so, we do have in place an advisory committee that is

an advisory committee to the Secretary of the Interior that has

coastal state members, and they have formed a Subcommittee to

look at the question of the role of natural gas—of the role of the

offshore in providing natural gas to our Nation. They are going to

be setting forward some recommendations to Secretary Norton at

a meeting that is scheduled for late May. They are coming up with

some innovative approaches. They are looking to the success that

has occurred in Eastern Canada, particularly with respect to natural gas, and thinking sort of broadly as to whether or not there

might be a way to target small U.S. areas along the Atlantic, perhaps to see whether or not we could develop some OCS natural gas

resources offshore in the United States.

Mr. REHBERG. Thank you.

Dr. Kumar, from your perspective, what will be required in order

for the United States to meet projected natural gas demand over

the next 5 years?

Mr. KUMAR. We mentioned earlier that we would probably need

to double the number of wells being drilled currently. That would

require significant capital commitment.

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One of the things our industry is also facing is the lack of trained

personnel. The oil industry has not been an area where a lot of students are wanting to go. So we will need to make a major national

commitment to developing our resources, making the areas available and creating the drilling and providing the access.

Mr. REHBERG. Thank you. Thank you, Madam Chairman.

Mrs. CUBIN. We thank you very much for your valuable testimony and for your patience in answering our questions.

Some of the Subcommittee members may have some additional

questions and if you would answer those in writing, the record of

the hearing will be open for 10 more days.

If there is no further business, this Subcommittee on Energy and

Minerals is adjourned.

[Whereupon, at 3:40 p.m., the Subcommittee was adjourned.]

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