```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 
  SHORT-TERM SOLUTIONS FOR INCREASING ENERGY SUPPLY FROM THE PUBLIC 
                                 LANDS
=======================================================================

                           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

                               __________

                              May 22, 2001
                               __________

                           Serial No. 107-30
                               __________

           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

                        U.S. GOVERNMENT PRINTING OFFICE
72-515                          WASHINGTON : 2002
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001

                         COMMITTEE ON RESOURCES

                    JAMES V. HANSEN, Utah, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska,                     George Miller, California
  Vice Chairman                        Edward J. Markey, Massachusetts
W.J. ``Billy'' Tauzin, Louisiana       Dale E. Kildee, Michigan
Jim Saxton, New Jersey                 Peter A. DeFazio, Oregon
Elton Gallegly, California             Eni F.H. Faleomavaega, American Samoa
John J. Duncan, Jr., Tennessee         Joel Hefley, Colorado                Neil Abercrombie, Hawaii               Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland           Frank Pallone, Jr., New Jersey
Ken Calvert, California                Calvin M. Dooley, California
Scott McInnis, Colorado                Robert A. Underwood, Guam
Richard W. Pombo, California           Adam Smith, Washington
Barbara Cubin, Wyoming                 Donna M. Christensen, Virgin Islands
George Radanovich, California          Ron Kind, Wisconsin
Walter B. Jones, Jr., North Carolina   Jay Inslee, Washington
Mac Thornberry, Texas                  Grace F. Napolitano, California
Chris Cannon, Utah                     Tom Udall, New Mexico
John E. Peterson, Pennsylvania         Mark Udall, Colorado
Bob Schaffer, Colorado                 Rush D. Holt, New Jersey
Jim Gibbons, Nevada                    James P. McGovern, Massachusetts
Mark E. Souder, Indiana                Anibal Acevedo-Vila, Puerto Rico
Greg Walden, Oregon                    Hilda L. Solis, California
Michael K. Simpson, Idaho              Brad Carson, Oklahoma
Thomas G. Tancredo, Colorado           Betty McCollum, Minnesota
J.D. Hayworth, Arizona               
C.L. ``Butch'' Otter, Idaho
Tom Osborne, Nebraska
Jeff Flake, Arizona
Dennis R. Rehberg, Montana

                   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     Nick J. Rahall II, West Virginia
Mac Thornberry, Texas                Edward J. Markey, Massachusetts
Chris Cannon, Utah                   Solomon P. Ortiz, Texas
Jim Gibbons, Nevada,                 Calvin M. Dooley, California
  Vice Chairman                      Jay Inslee, Washington
Thomas G. Tancredo, Colorado         Grace F. Napolitano, California
C.L. ``Butch'' Otter, Idaho          Brad Carson, Oklahoma
Jeff Flake, Arizona
Dennis R. Rehberg, Montana
                                 ------                                

                            C O N T E N T S

                              ----------                              
                                                                   Page

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

Statement of Members:
    Gibbons, Hon. Jim, a Representative in Congress from the 
      State of Nevada............................................     1
        Prepared statement of....................................     2
    Kind, Hon. Ron, a Representative in Congress from the State 
      of Wisconsin...............................................     8
        Prepared statement of....................................     9
        Article ``Pipeline leak's a doozy'' submitted for the 
          record.................................................    50
        Article ``Phillips finds NPR-A oil'' submitted for the 
          record.................................................    51
        Article ``Corrosion is constant enemy'' submitted for the 
          record.................................................    52
    Markey, Hon. Edward J., a Representative in Congress from the 
      State of Massachusetts.....................................     3

Statement of Witnesses:
    Fry, Tom, President, National Ocean Industries Association...    41
        Prepared statement of....................................    43
    O'Connor, Terry, Vice President, External Affairs, Arch Coal 
      Company, on behalf of the National Mining Association......    17
        Prepared statement of....................................    19
        Response to questions submitted for the record by Hon. 
          Nick Rahall............................................    26
    Rubin, Mark, Upstream General Manager, American Petroleum 
      Institute..................................................    10
        Prepared statement of....................................    12
    Sims, Earl R., President, Sims Consulting, on behalf of the 
      Independent Petroleum Association of America...............    31
        Prepared statement of....................................    32

Additional materials supplied:
    The Geothermal Energy Association, Statement submitted for 
      the record.................................................    79
    Whitsitt, William F., President, Domestic Petroleum Council, 
      Letter submitted for the record............................    80

SHORT-TERM SOLUTIONS FOR INCREASING ENERGY SUPPLY FROM THE PUBLIC LANDS

                              ----------                              

                         Tuesday, May 22, 2001

                     U.S. House of Representatives

              Subcommittee on Energy and Mineral Resources

                         Committee on Resources

                             Washington, DC

                              ----------                              

    The Subcommittee met, pursuant to call, at 10:13 a.m., in 
Room 1324, Longworth House Office Building, Hon. Jim Gibbons 
[Chairman of the Subcommittee] presiding.

  STATEMENT OF THE HONORABLE JIM GIBBONS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF NEVADA

    Mr. Gibbons. The oversight hearing by the Subcommittee on 
Energy and Mineral Resources will come to order.
    The Subcommittee is meeting today to hear testimony on 
short-term solutions for increasing energy supplies on public 
lands under Rule 4(g). The Chairman and the ranking minority 
member, in this case it will be Mrs. Napolitano, can make 
opening statements. If any members have other statements, they 
can be included in the record under unanimous consent.
    Today's hearing is the seventh in a series of oversight 
hearings which the Energy and Mineral Resources Subcommittee is 
conducting to examine the issues concerning energy supplies 
from our public lands, including the outer continental shelf.
    This is the first since President Bush released his 
national energy policy report of the task force led by the Vice 
President. The administration has said many times since that 
our energy woes did not happen overnight, nor can they be fixed 
quickly.
    The President's plan envisions reductions in energy demands 
and increases in supply over the long term, a very sensible 
approach.
    Today, however, we have asked our witnesses to give us 
their ideas for changes in the manner in which onshore and 
offshore Federal mineral estates can best contribute to 
America's energy supplies within the relatively short-term 
period of the next 5 years or less.
    For Californians and others suffering through some of the 
rolling blackouts, 5 years may seem like an eternity. But there 
is an old saying that Rome wasn't built in a day.
    Surely, increased natural gas supplies will reach 
California sooner than that from other pipelines from the San 
Juan basin of New Mexico or from increased production on 
existing pipelines.
    But for the nation as a whole, where will the gas come from 
to meet forecasted demand while at the same time production 
from the Gulf of Mexico and existing wells declines at a faster 
and faster pace?
    Chairman Cubin, who is unable to be here today, asked the 
oil and gas and coal and geothermal industries to testify, the 
latter of which is submitting written testimony for the record.
    Likewise, I understand that an environmental organization 
from Chairman Hansen's state will be submitting written 
testimony as well.
    The President submitted a proposed amendment to Congress on 
May 7 for his Fiscal Year 2002 budget for the Department of 
Energy. The amendment would increase spending on research and 
development of renewable energy resources by nearly $40 
million, reflecting a strong commitment to advancing solar, 
wind, geothermal, and biomass energy supplies for the future.
    But let's be realistic. Renewables can provide but a tiny 
fraction of our needs any time soon, with geothermal energy 
providing the lion's share when it comes to public lands. By 
necessity, we must rely upon fossil fuels and existing nuclear 
power to alleviate power shortages.
    And let me remind everyone that the nuclear option is 
dependent upon finding a solution to nuclear waste, another 
problem that will probably not be solved within the 5-year 
timeframe that is the subject of this hearing.
    So we come back to oil, gas and coal once again to satisfy 
our energy appetite for the near term as we starve ourselves. 
The hunger pangs we feel today are because we let the pantry 
run low before realizing it was time to restock our energy 
supplies and staples. The public lands and the OCS, outer 
continental shelf, can provide us with a grocery store, but 
will the checkout line be express or an interminable delay?
    [The prepared statement of Mr. Gibbons follows:]

Statement of The Honorable Jim Gibbons, Vice Chairman, Subcommittee on 
                      Energy and Mineral Resources

    Today's hearing is the seventh in a series of oversight hearings 
which the Energy & Mineral Resources Subcommittee is conducting to 
examine issues concerning energy supplies from our public lands, 
including the outer continental shelf.
    This is the first since President Bush released his National Energy 
Policy report of the task force led by the Vice President. The 
Administration has said many times recently that our energy woes did 
not happen overnight, nor can they be fixed quickly. The President's 
plan envisions reductions in energy demand and increases in supply over 
the long-term, a very sensible approach.
    Today, however, we have asked our witnesses to give us their ideas 
for changes in the manner in which onshore and offshore Federal mineral 
estate can best contribute to America's energy supplies within the 
relatively short-term period of the next five years or less. For 
Californians and others suffering through rolling black-outs, five 
years may seem an eternity, but Rome wasn't built in a day. Surely, 
increased natural gas supplies will reach California sooner than that 
from another pipeline from the San Juan Basin of New Mexico or from 
increased compression on existing pipelines. But for the Nation as a 
whole, where will the gas come from to meet forecasted demand while at 
the same time production from Gulf of Mexico existing wells declines at 
a faster and faster pace?
    Chairman Cubin, who is unable to be here today, asked the oil, gas, 
coal and geothermal industries to testify, the latter of which is 
submitting written testimony for the record. Likewise, I understand 
that an environmental organization from Chairman Hansen's state will be 
submitting written testimony as well.
    The President submitted a proposed amendment to Congress on May 7th 
for his Fiscal Year 2002 budget for the Department of Energy. The 
amendment would increase spending on research and development of 
renewable energy resources by nearly $40 million, reflecting a strong 
commitment to advancing solar, wind, geothermal and biomass energy 
supplies for the future.
    But, lets be realistic, renewables can provide but a tiny fraction 
of our needs anytime soon, with geothermal energy providing the lion's 
share when it comes to public lands. By necessity then we must rely 
upon fossil fuels or nuclear power to alleviate power shortages. And, 
let me remind everyone that the nuclear option is dependent upon 
finding a solution to nuclear waste - another problem not about to be 
solved within the five-year time-frame of this hearing.
    So, we come back to oil, gas and coal once again to satisfy our 
energy appetite for the near-term, or we starve ourselves. The hunger 
pangs we feel today are because we let the pantry run low before 
realizing it was time to restock our energy staples. The public lands 
and the OCS can provide us with a grocery store, but will the check-out 
line be express or interminable delay?
                                 ______
                                 
    Mr. Gibbons. With that, I would turn now to Mrs. 
Napolitano, if she wishes to make any remarks, or Mr. Markey.

 STATEMENT OF THE HONORABLE EDWARD J. MARKEY, A REPRESENTATIVE 
          IN CONGRESS FROM THE STATE OF MASSACHUSETTS

    Mr. Markey. Thank you, Mr. Chairman.
    Let me begin by just framing this issue: Is there an energy 
crisis in the United States? There is an electricity crisis in 
California and the states that abut California because of a 
unique set of circumstances that center around one of the 
stupidest laws ever passed in the history of the United States 
and a historic drought in the Pacific Northwest.
    If we had a national electricity crisis, we would hear 
threats of blackouts and brownouts all across the United 
States, which obviously we are not hearing.
    So we have a regional electricity crisis that is caused by 
a peculiar set of unique circumstances that has only one short-
term remedy, which is the Federal Government moving in to 
control exploitive, unfair, and unjust prices being charged by 
energy producers because of a dysfunctional marketplace, the 
price of electricity rising from $7 billion to $70 billion in 
California over the last 2 years. Dysfunctional.
    Is there a national oil crisis, refinery crisis? In fact, 
there has been a 20 percent increase in refinery capacity over 
the last 10 years in the United States.
    People say, ``Well, there are fewer refineries today than 
there were 15 years ago.'' That is true. However, that's like 
saying, ``Well, there are fewer supermarkets today than there 
were 15 years ago,'' which is also true, because, more and 
more, the supermarkets have 24 checkouts and so they close down 
four or five supermarkets in each community.
    Does it mean that there is less food because there are 
fewer supermarkets? No. There is actually more food.
    Does it mean because the large oil industry interests have 
consolidated onto larger sites, their refinery capacity, and in 
fact increased it by 20 percent over the last 10 years, that 
there is less of refined production? Absolutely not. A phony 
issue.
    What happened was, without question, the industry has been 
caught sleeping. One, the auto industry refused to increase the 
fuel economy standards of SUVs and automobiles, and, in fact, 
had the Republican leadership attach a rider to each years' 
appropriations bill for the last 7 years prohibiting the 
Federal Government--prohibiting it--from dealing with the fuel 
economy standard issue.
    Now, we put two-thirds of all oil in the United States into 
gasoline tanks. Two-thirds. So if there is an oil crisis, it 
relates to gasoline tanks, with a prohibition on dealing with 
that issue.
    Now, in turn, the Federal land issue is central. But 
interestingly, Bill Clinton increased oil and gas production on 
Federal lands greater than George Bush and Ronald Reagan did. 
They leased more land that led to more production. That is the 
Clinton plan on public lands.
    But you can only have so much production if it is 
unaccompanied by a look at the technologies in the United 
States. We only have 3 percent of the world's oil reserves. 
OPEC has 75 percent of the oil reserves. We can't compete with 
them on that field. We're never going to have energy 
independence.
    As the Cato Institute said, that is nonsense on stilts. We 
can't. It is just a crazy concept.
    The question is, are we going to be smart? Are we going to 
reduce our consumption? Are we going to use technology?
    Every single car in the United States going to a junk yard 
today--a junk yard--is more fuel efficient than the vehicle 
being replaced by the consumer in the United States. Now, that 
can't be a good sign.
    These OPEC ministers aren't stupid. They know that we have 
a prohibition on our laws that increase the fuel economy 
standards for motor vehicles in this country, so they are in 
the driver's seat.
    But if we did what Gerald Ford did, who deserves the 
Kennedy Profiles in Courage award for what he did in 1975, 
signing a bill which doubled the fuel economy standards, we 
wouldn't have to risk what I think the Republicans are calling 
for, which is a compromise of the environmental protections for 
the most sensitive American public lands.
    Their proposal is a Trojan horse aimed at environmental and 
health laws, which the energy industry has always opposed, 
vigorously tried to keep off of the books.
    And so it is a very small, narrow agenda, which they have 
developed, aimed only at one purpose, going into the most 
sensitive lands, whether it be the Arctic wildlife, national 
monuments, even though President Clinton has proved that you 
can dramatically increase the amount of oil and gas production 
on public lands without endangering those most precious lands 
that should be passed for a 1,000 years to all subsequent 
generations, all Americans.
    So I thank you for the opportunity, Mr. Chairman, of 
speaking here.
    Mr. Gibbons. Thank you, Mr. Markey.
    Interesting to see that President Clinton was the drill, 
drill, drill president.
    Mr. Markey. He was, indeed.
    [Laughter.]
    Mr. Gibbons. Mr. Tauzin?
    Mr. Tauzin. Thank you, Mr. Chairman.
    There is a guy back in town. We haven't seen him for a long 
time. His name is David Freeman. He was around during the 
Carter years. He had an interesting theory. In fact, he 
propounded one of the most profound energy statements, I think, 
this country has ever heard.
    His theory was that energy will last forever if we simply 
don't use it. And I thought about that, and said, ``Golly, you 
know, he's right.''
    Unfortunately, we use energy in this country. 
Unfortunately, this country depends upon energy. Unfortunately, 
we depend upon others to make it for us in all too many cases.
    I think one of the greatest ironies today is that we are 
buying oil from Iraq to turn it into jet fuel to fly our planes 
over Iraq to bomb Iraqi radar sites. It is an incredible irony.
    And yet, that is the policy of this country as we receive 
it from the past administration.
    We have, indeed, a situation with riders on appropriations 
in this Congress and in past Congresses. And the riders I think 
we ought to most focus on are the riders that say all across 
this country that even we know there are abundant energy 
resources available for this country in this country, that 
riders are attached declaring moratoriums on drilling and 
producing on lands that are easily available and easily 
producible.
    Not only are they easily producible, easily available, but 
testimony from various Interior Secretaries in this Committee 
room have indicated that they are high in hydrocarbon 
potential, low on environmental risk, but we still pass riders 
locking them up.
    If Mr. Clinton is famous for one thing--and it isn't drill, 
drill, drill, which I really question--
    [Laughter.]
    --it is in locking up access to resources available in 
America for Americans.
    Now, look, we can argue about how much more we can do with 
conservation. And we will have that argument in the Energy and 
Commerce Committee this year.
    In fact, the first bill I hope to offer to the Full 
Committee will be a conservation measure, so we can see as far 
as we can see demand reduction in this country, and we can 
promote as far as we can promote it.
    But when we get through with a conservation measure, I 
suspect, as we look toward the energy future for our country, 
we are going to see several unassailable facts we have to deal 
with.
    The first fact is that even with conservation measures 
already in place and new ones we are going to propose, this 
country's dependence on other people to produce energy for us 
will continue to grow, and some of those people are not so 
reliable as others.
    It was astounding to me to find out that Louisiana sent 
more young men and women per capita than any state in America 
in the Persian Gulf war to defend those oil fields. I was 
astounded by that fact. I couldn't understand it at first until 
we examined it a little more thoroughly.
    What we found out was that the young men and women of 
Louisiana who served in higher numbers per capita than any 
other state in America were in the Persian Gulf because they 
had lost their jobs in the oil fields in Louisiana. They joined 
the National Guard and Reserves for extra money for their 
families.
    The irony was that because we couldn't put them to work in 
America producing needed supplies of fuel for this country in 
this country, they were putting their lives on the line 
defending somebody else's oil fields, in a very risky corner of 
the world.
    I don't think that is the kind of policy that sane 
Americans would endorse. We have to think about how we provide 
access to lands in this country that are producible with new 
technologies with all due concerns for the environment and for 
the protection of those lands.
    In Louisiana, we produce most of our reserve lands. And we 
put some of the trust money into preserving those same lands. 
We actually produce them, and we use the money developed from 
the resources.
    I think we have sunk 1,600 wells into preserved wetlands of 
our state. And we take revenues from those productions, and we 
turn it back into projects to preserve and enhance the quality 
of the environment of those wetlands areas in our state.
    That is good, sensible policy, using the best technology so 
you do as little or no harm as possible in production of its 
resources and turning the resources back into preservation and 
protection.
    That makes good, common sense. This Committee ought to be 
thinking about that. And I hope it will as we move forward with 
an energy policy that begins to establish some sanity and some 
common sense to the needs of this country as we move into this 
high-tech economy.
    And if you don't think we have a crisis--the first question 
I was asked by Bill Press on ``Crossfire'' the other night was, 
``You guys are really making up this crisis, aren't you? 
There's no real crisis in America?''
    Mr. Markey, we have expanded refining capacity in this 
country. But our dependence on foreign-refined fuels has 
tripled and quadrupled over the same period.
    And depending on refined fuels is even more dangerous than 
depending upon crude oil. We can get more crude oil, but if you 
can't refine it in this country, what are you doing to do with 
it?
    Every time I hear a call to open up the SPRO (Strategic 
Petroleum Reserve) so we can have more gasoline in this country 
so prices will come down, I laugh. My question is, where do you 
want to send it? To what country are we going to refine it to 
bring it back to this county, because our refineries are 
operating at 96 percent, 98 percent capacity today, and we 
can't keep up with demand.
    We haven't licensed a new refinery in America since 1976, 
the Marathon refinery built in Garyville, Louisiana, in my 
district.
    What are we going to do? Just continue to rely upon other 
people to refine our products? Are we going to be like 
California, relying on price controls and restraints on 
production in our country so that we end up depending upon 
other people, who we can't control, to set the prices and the 
quality of fuel available to us in this country?
    I suggest to you the last place we ought to look for 
suggestions about improving America's energy future is 
California. California has locked up its own resources. It 
refused to build pipelines. It hasn't built effective grids to 
move energy from one part of the state to the other.
    It has put price controls at the retail level. It has put 
price controls at the wholesale level. And it had to ignore 
those because it found that it didn't work.
    And now they find themselves depending upon their neighbors 
for the reserve energy. And their neighbors need that reserve 
energy. They are not going to give it to California. They are 
going to sell it to California; they are going to demand 
exactly a huge price for it. And that is terrible.
    That is terrible. But why do you expect California's 
neighbors would want to sell California energy on a price that 
is determined by California, when they need their reserves for 
their own growth in their own states?
    The head of ISO in California himself testified that price 
controls at the wholesale level on imported energy into 
California would lengthen and deepen the blackouts in 
California. It wouldn't add an ounce of energy. It would 
detract energy from California.
    But that is the kind of policy we are being told is good 
for America, the same policy that has California in the dark 
today. No thank you.
    Now, we ought to think about a rational policy that gives 
real, serious looks and access to hydrocarbon-rich areas in 
this country that can be developed in an environmentally 
sensitive manner and that plows back some of the resources from 
that development into preservation and protection and 
enhancement of those areas.
    That is the policy we use in our state today in Louisiana.
    And I want to say one final thing. Just as it galled me to 
think about the young men and women in Louisiana who were 
putting their lives on the line in somebody else's oil field, 
because they couldn't work in their own, it galls me to hear 
folks from other parts of the country continue to talk about 
locking up areas around this country and saying, ``Oh, don't 
worry. Louisiana and Texas and Oklahoma, those states will 
produce it for America.''
    There are consequences to production, indeed there are 
consequences. I have a port in my district that is growing like 
gang busters and it is served by a two-lane road. And it is the 
biggest jumping off port right now for the deep drilling that 
is occurring, that is producing oil and gas for America.
    As a consequence, that road is falling apart. I would like 
to see that road built. I wish somebody would help us build it.
    There are consequences to us developing in Louisiana. But 
this notion that nobody else should develop, lock up everything 
in this country and count on a few states to do it, is crazy.
    And if ever the people in my state took the attitude some 
people around this country took to opening up our lands to 
development, what a sick shape this country would be in today.
    You better hope we never do. You better hope we continue in 
our enlightened view that you can develop with an eye toward 
the environment, that you can develop by putting resources back 
in the enhancement and protection of areas.
    And you had better develop until you depend less on people 
you can't depend upon to satisfy your economy's needs for 
energy in the future.
    Thank you, Mr. Chairman.
    Mr. Gibbons. Thank you, Mr. Tauzin.
    And let me say that during hearing we held in New Orleans, 
I think it was last week, on this very issue, the two-lane road 
into Port Fourchon, it was concluded that is what is needed 
there is to line and pave that road with some weather-resistant 
gold mined in Nevada so that it doesn't wear out.
    What we would like to do now is recognize Mr. Kind, the 
ranking Democratic member, for his opening statement.

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

    Mr. Kind. I thank my friend from Nevada for recognizing me.
    And I always feel so conflicted, sitting between these two 
gentlemen, my friend from Massachusetts and my friend from 
Louisiana, listening to their opening statements.
    First of all, let me thank the witnesses for coming to give 
your testimony. Hopefully, we will be able to have an 
enlightened conversation in regard to our short-term energy 
needs.
    I want to compliment my friend from Louisiana for the 
leadership he has shown on certain important conservation 
pieces; CARA, namely, the chief one that we vote very closely 
on, and I thought was a very good bill that we need to get back 
to work on as well.
    But I don't think that anyone is suggesting here that 
production isn't going to be a short-term issue for this 
country. No one is expecting us to turn on a dime when it comes 
to our dependence on fossil fuel and the burning of fossil fuel 
for our short-term energy needs.
    I think the real question though is, what is the answer in 
the short term in order to address short-term energy challenge 
that we are facing?
    We are unquestioningly facing a 21st century energy 
challenge. And, hopefully, we are going to have 21st century 
response, one that is going to bring balance to this energy 
debate, recognizing that there is production going on in this 
country right now. We need to find out what restrictions are in 
place, inhibiting our ability to meet short-term needs, what 
type of regulatory burdens that the private producers are 
facing that we might be able to streamline.
    But I think we also need to have a conversation in regard 
to the balance of this energy debate, one that also recognizes 
the values of alternative and renewable energy sources, the 
potential of geothermal power, for instance, one that is going 
to emphasize the use of modern technology for increased energy 
efficiency.
    I think all of this is going to have to be a part of the 
equation as we move forward in this debate, and that it 
shouldn't just be one-sided, and that is drill, drill, drill, 
and more access, more access, and more access.
    I just want to raise a few quick points before we begin the 
testimony.
    First, according to sworn testimony that we already have in 
one of the eight hearings that we have had in this Subcommittee 
in regard to access to our energy resources on public lands, 
approximately 110 million acres, or 95 percent of Federal 
lands, are already open to energy development.
    Secondly, and according to the Department of the Interior, 
during the 8 years of the Clinton administration, the Federal 
Government operated oil and gas offshore and onshore leasing 
programs that exceeded production levels during the previous 
Reagan and Bush administrations.
    And third, while we can debate what the Clinton 
administration did or did not do during those 8 years, the fact 
is that oil and gas prices were, by historic standards, very 
low during most of the past 8 years, and thus discouraged 
energy exploration and investment.
    It is one of the questions I am going to pose to the panel 
here today, is how much of this is being driven by just 
economics and market forces and investment decisions, and how 
much of it is dependent on greater access to the public lands, 
to an easing of regulatory burdens.
    Or is the vice president of Exxon/Mobil correct, that if we 
just allow the market forces to play out, that the market 
eventually is going to clear it, because investments are being 
made on generating capacity and refinery capacity in this 
country? And is it really a supply problem that we are facing 
right now, especially of OPEC keeping per barrel prices, 
recently, within the $25 to $30 range?
    And we certainly are not looking at the same type of energy 
crisis we had during the 1970's, so I think our response is 
going to have to be a little bit different as well.
    Obviously, a lot of issues, a lot of questions that need to 
be answered, so I look forward to the testimony. And I 
appreciate the witnesses' presence here today.
    Thank you.
    [The prepared statement of Mr. Kind follows:]

     Statement of The Honorable Ron Kind, Ranking Democrat Member, 
              Subcommittee on Energy and Mineral Resources

    This will be the eighth oversight hearing conducted by the 
Subcommittee on Energy and Mineral Resources this year, including one 
held at full committee, to address the availability and need for 
additional energy supplies from Federal lands.
    The stated purpose of today's hearing is to identify specific 
``short-term'' policy options for Congress that would that would 
significantly increase the supply of energy resources from Federal 
lands, including the Outer Continental Shelf, within the next five 
years or less.
    Despite the amount of time spent on this issue by the Subcommittee, 
the case for opening up additional public lands to energy development 
in order to increase the supply of energy resources has simply not yet 
been made by those who would benefit most from such a policy.
    First, according to sworn testimony to this Subcommittee, 
approximately 110 million acres or 95 percent of Federal lands are 
already open to energy development.
    Second, according to the Department of Interior, during the eight 
years of the Clinton Administration, the Federal government operated 
oil and gas offshore and onshore leasing programs that exceeded 
production levels during the previous Reagan and Bush Administrations.
    Third, while we can debate what the Clinton Administration did or 
did not do, the fact is that oil and gas prices were, by historic 
standards, very low during most of the past eight years, and thus 
discouraged energy exploration and investment.
    Consequently, the issues of high energy costs or possible supply 
shortages do not derive from restricted or diminished access to public 
resources, as some would have us believe.
    There are two essential issues related to energy that the Federal 
government should address. One has to do with the high price of 
electricity in California and other Western States. And the other has 
to do with high prices at the gasoline pump. Both of these issues are 
serious and important to our constituents. However, opening up 
protected Federal lands to oil and gas drilling will solve neither of 
these problems.
    Instead, we see the issue resolving itself in the market place. 
According to the New York Times, the latest statistics from government 
and industry analysts show that the energy industry is shifting into 
high gear, investing heavily in areas that were seen as unattractive 
just a few years ago. Even before the government has eased regulations, 
the investment boom promises a cyclical increase in supplies that is 
expected to stabilize or reduce prices in coming months.
    It would appear that if we allow the market to work, as suggested 
by a vice president of the Exxon Mobil Corporation, ``the markets will 
clear,'' or meet demand.
    I look forward to hearing the testimony of our industry witnesses 
today.
                                 ______
                                 
    Mr. Gibbons. Thank you, Mr. Kind.
    In an effort to move this hearing along, if any of the 
members wish to make opening remarks, I would suggest that we 
do that in writing, so that we can get to the witnesses. I know 
they all have a busy schedule, and they are here today to 
graciously help educate us.
    Let me, as Chairman, ask that if members wish to make 
additional opening remarks, that we leave the record open and 
allow for them to submit written testimony.
    Let me introduce now the first panel that will come before 
us. And in doing so, let me recognize Mr. Mark Rubin, upstream 
general manager, American Petroleum Institute; Mr. Terry 
O'Connor, vice president, external affairs, for Arch Coal 
Company, and he will be testifying on behalf of the National 
Mining Association; Mr. Earl Sims, president of Sims 
Consulting, and he will be testifying on behalf of the 
Independent Petroleum Association of America; and Mr. Tom Fry, 
president of the National Ocean Industries Association.
    The Chairman would recognize Mr. Mark Rubin.
    But before I do, let me introduce you to our traffic light 
system that we have here before us. There will be green light, 
which will give you approximately 5 minutes to summarize your 
testimony.
    And for the record, you may submit your complete written 
statement. And within that 5-minute time frame, verbally 
summarize your statement, if you wish.
    When you see the yellow light, you have approximately 1 
minute remaining.
    And of course, the red light, just like a traffic light, 
would indicate that time has expired. Please make every effort 
to sum up at that point in time so that we can continue this 
hearing in a timely fashion.
    With that, Mr. Rubin, welcome. The floor is yours, and we 
look forward to your testimony.

  STATEMENT OF MARK RUBIN, UPSTREAM GENERAL MANAGER, AMERICAN 
                      PETROLEUM INSTITUTE;

    Mr. Rubin. I am Mark Rubin, General Manager of upstream for 
the American Petroleum Institute, a national trade association 
representing more than 400 companies engaged in all sectors of 
the U.S. oil and natural gas industry.
    We are gratified that members of the Subcommittee 
appreciate the importance of access to Federal lands, and we 
applaud the administration for including access in its energy 
plan.
    Today, we have been asked to comment on measures that might 
increase the supply of energy from Federal lands in the next 5 
years.
    One area that clearly should be a focus of short-term 
efforts to increase production is BLM and Forest Service 
multiple-use lands in the western U.S. Many of the barriers to 
development of these lands involve permitting problems or 
regulatory processes that could be streamlined by 
administrative action.
    Often, getting a lease is not the most significant problem 
for oil and natural gas producers on Federal lands. Inadequate 
agency resources in many BLM offices and outdated resource 
management plans make it difficult to get drilling permits, and 
the expediting of the permitting process and updating resource 
management plans could produce significant supply effects 
within 1 to 2 years.
    For example, in Wyoming's Powder River basin, BLM has a 
backlog of more than 2,700 drilling permits for coal bed 
methane wells that are delayed mainly due to a lack of staff 
resources to complete the planning and permitting processes.
    Difficulties in acquiring permits to drill on Federal lands 
and overly restrictive lease stipulations are responsible for 
limiting production. The BLM and Forest Service often dictate 
extraordinary lease stipulations as conditions of approval for 
exploration and production.
    Such stipulations are intended to protect resource values 
in conjunction with proposed projects, yet many conditions 
required essentially prevent exploration and production.
    Relaxing unnecessary restrictions is especially important 
for natural gas, which tends to be a North American commodity 
and is not easily supplemented by large-scale imports. Almost 
half of the untapped natural gas on Federal lands in the 
Rockies is in areas that are either off limits or restricted by 
these types of stipulations.
    The Gulf of Mexico currently supplies around one-quarter of 
both the oil and natural gas produced in the U.S. And while the 
shallow waters of the outer continental shelf provide the bulk 
of supply from the gulf, production from this area is 
declining.
    Fortunately, as shallow water supply has declined, 
deepwater supply has increased enough to keep production 
growing. The question of whether this growth will be sustained 
may well be decided in the next 5 years.
    We must increase deepwater development. Much of the shift 
to deepwater has occurred due to the far-sightedness of 
Congress in passing the Deepwater Royalty Relief Act in 1995. 
This shows the importance of not losing sight of long-term 
objectives as we focus on the next 5 years.
    We will soon have a great opportunity to sustain this 
growth. Outer continental shelf Lease Sale 181 in the eastern 
Gulf of Mexico is scheduled for December 2001.
    The sale area is based on comprehensive environmental 
reviews and consultations with then-Governors Lawton Chiles of 
Florida and Fob James of Alabama.
    Congress understands the importance of Sale 181 and did not 
include it in the area placed off limits by moratoria in the 
past appropriations bills. The Sale 181 area is estimated to 
contain 7.8 trillion cubic feet of natural gas and 1.9 billion 
barrels of oil.
    Also, the consistency provisions of the Coastal Zone 
Management Act are another matter that should be considered by 
Congress when looking to ways to expedites resource 
development.
    Under the guise of due process and consultation, these 
provisions have caused serious, costly delays to Federal OCS 
activities.
    Regulations issued by NOAA in the last days of the previous 
administration add impediments to energy development in the 
OCS, contrary to the balancing of competing interests directed 
by Congress when it enacted CZMA.
    A third area of potential increased production is the NPR-A 
area in Alaska, where a Federal lease sale was held in 1999 in 
which 133 leases were awarded. There has been significant 
exploration activity on these leases over the past two winters. 
And just yesterday, Phillips and Anadarko announced that 
several of these wells had yielded significant new field 
discoveries.
    The Department of Interior should of consider broadening 
the area leased in NPR-A in order to encourage exploration and 
development in the near term.
    Finally, it is important to note that in providing more 
access to Federal lands for exploration, we do not believe that 
we must choose between domestic energy supplies and 
environmental protection. We can have both.
    Our Federal lands are an asset with multiple values, and 
the time has come to recognize that energy values play a 
significant role in that mix.
    One additional comment: Although my prepared remarks are 
focused on public lands, I would add one comment in response to 
Congressman Markey's mention of increases in refinery capacity. 
I am told by our refining experts that the actual increase in 
refining capacity over the last decade has only been 6 percent, 
not 20 percent, and that additional capacity additions have 
been limited by permitting problems and regulatory 
restrictions.
    Thank you for this opportunity.
    [The prepared statement of Mr. Rubin follows:]

 Statement of Mark Rubin, Upstream General Manager, American Petroleum 
                               Institute

    The American Petroleum Institute (API) welcomes this opportunity to 
present the views of its member companies on the question of short and 
intermediate term initiatives to enhance energy development in the 
United States. API is a national trade association representing more 
than 400 companies engaged in all sectors of the U.S. oil and natural 
gas industry, including exploration, production, refining, 
distribution, and marketing.
    We are gratified that this Committee appreciates the importance of 
access to the Federal lands in our nation's future energy supply. We 
applaud the Bush Administration for including access to Federal lands 
in its review of energy policy by a Cabinet-level task force on the 
subject, and we are encouraged that you and other Members of Congress 
of both parties are putting access high on your agendas.
    Today, we are asked to comment on measures that might be taken to 
impact the supply of energy from Federal lands within the next five 
years. In fact, while there are some frontier developments in deep 
water offshore and on the North Slope of Alaska that require longer 
lead times, most of the access issues we have emphasized in other 
testimony before this Committee this session could result in positive 
supply impacts in a time frame of five years or less. However, as I 
will point out, some of the most significant supply developments on 
Federal properties over the next five years are the result of 
congressional and administrative actions in the mid-90's. As a 
consequence, we should be cautious that a focus on the next five years 
does not distract us from measures needed today with equally or more 
serious consequences for supply 10 or 15 years in the future.
What do we mean by access?
    Let me begin by defining carefully what we mean by access to 
Federal lands, and just as importantly, what we do not mean. Our 
critics characterize our quest for improved access as a call for the 
wholesale opening of all Federal lands to resource development, without 
regard to environmental impacts. Quite the contrary is in fact the 
case. The U.S. oil and gas industry does not ask to drill on parklands 
or in wilderness areas set aside by Acts of Congress. Rather, we seek 
access to a very selective set of resource-prone areas offshore, and in 
the American West that have been designated as ``multiple-use'' by 
Congress, and areas of Northern Alaska designated for potential oil and 
gas development. What we ask is that on these lands the value of energy 
potential be considered along with other values, and that when this 
potential can be developed consistent with such values, that 
development should be permitted.
Onshore Access in the Western States
    The first area, and the area with the greatest potential for short-
term impact, is the multiple use land in the Western states. Most of 
the barriers to development on these lands involve regulatory processes 
that could be streamlined by administrative action. Most of these 
multiple-use areas are simply vast expanses of nondescript Federal 
lands. However, because they lack the beauty and grandeur of the Grand 
Canyon or the Grand Tetons does not mean that we treat them with less 
respect than we do any other lands entrusted to us by the government, 
or by private landowners. Most people driving near or hiking in one of 
these areas would be hard-pressed to locate one of our facilities once 
the drilling rig is removed. Safety and environmental protection are 
critical concerns, regardless of the location of drilling.
    Yet, despite our record of sound stewardship, President Clinton 
used his executive powers under the Antiquities Act to bar oil and gas 
exploration and other activities on vast regions of government lands. 
For example, the designation of the Grand Staircase-Escalante Monument 
in Utah in 1996 summarily withdrew promising valid oil and gas leases 
on state lands without even notice to or consultation with state and 
local authorities, or affected communities. Likewise, the U.S. Forest 
Service recently banned our companies from exploring for oil and 
natural gas on promising government lands when it published rules to 
bar road building on nearly 60 million acres in the Forest System that, 
according to a Department of Energy study, could hold 11 trillion cubic 
feet of natural gas. Furthermore, the roadless rule case illustrated 
the cavalier disregard with which energy potential is dismissed in 
Federal land use actions. In the Rocky Mountains, access to about 83 
percent of the affected gas resource could have been preserved by less 
than a 5 percent reduction in the roadless acreage. It was not.
    In the lower-48 states, a study by the Cooperating Associations 
Forum found that Federal lease acreage available for oil and gas 
exploration and production in eight Western states (California, 
Colorado, Montana, Nevada, New Mexico, North Dakota, Utah and Wyoming) 
decreased by more than 60 percent between 1983 and 1997--and that does 
not count the major land withdrawals, such as Monument designations, 
since 1997.
    Approximately 205 million acres of Federal lands in these states 
are under the control of two Federal agencies with broad discretionary 
powers. The Bureau of Land Management (BLM), whose land management 
planning authority is derived from the FLPMA of 1976, and the U.S. 
Forest Service (USFS), whose jurisdiction is derived from the National 
Forest Management Act, administer these Federal, non-park lands. Both 
agencies are required to manage most of these lands under the 
congressionally mandated concept of multiple use. Yet, BLM and USFS 
discretionary actions have withdrawn Federal lands from leasing, and 
long delayed other leasing decisions and project permitting.
    Congress has directed the BLM and Forest Service to allocate non-
wilderness lands for resource use, identify areas that are available 
for oil and gas leasing, identify important wildlife habitat areas, and 
inventory wilderness candidate lands among other uses. Each agency has 
completed land resource management plans for the lands they administer, 
including lands that are candidates for wilderness designation. Yet, 
some lands found unsuitable for wilderness designation are, however, 
managed as ``wilderness study areas,'' effectively removing 
approximately 28 million acres inappropriately from consideration for 
resource development. Further, these agencies often dictate 
extraordinary lease stipulations as conditions of approval for 
exploration and production. Stipulations are intended to protect 
resource values in conjunction with proposed projects, such as 
exploratory wells, yet many conditions required, such as ``no surface 
occupancy,'' essentially preclude exploration and production from 
occurring.
    Relaxing these restrictions is particularly important if we are to 
address the immediate problem of natural gas supply in the U.S. Unlike 
oil, gas tends to be a North American commodity, not supplemented 
easily by large scale imports from outside of North America. Gas is 
also critical to a serious transition currently underway in the manner 
we are going to satisfy the already burgeoning demand for new 
electrical generating capacity. Since natural gas markets are regional, 
rather than global, 86 percent of the natural gas consumed in the 
United States is produced domestically. The Rocky Mountains are one of 
the areas of the U.S. with the greatest potential, containing an 
estimated 346 TCF of remaining technically recoverable gas. Moreover, 
it is an area where development can occur quickly, if allowed, so that 
it offers the real potential of substantial supply effects within a 1 
to 2 year window. In the Foreland region, for instance, supply is 
estimated by the NPC to rise by about 38 percent between 2000 and 2005.
    Often, getting a lease is not the most significant problem for 
producers. Difficulties in acquiring permits to drill wells on onshore 
government lands and overly restrictive lease stipulations are 
responsible for limiting natural gas production. These are 
restrictions, such as ``no surface occupancy'' or seasonal 
stipulations, which go above and beyond the normal environmental 
stipulations and can prevent economic development of the lease without 
commensurate environmental benefit.
    Almost half of the untapped natural gas on multiple-use government 
lands in the Rockies is in areas either off limits or restricted by 
this type of stipulation laid down by one Federal agency or another.
    This information is important because the facts are often ignored 
and often distorted by those who do not believe greater access to 
government lands is needed by our industry. In recent testimony before 
this subcommittee, for instance, we heard material distortions by the 
witness for the Wilderness Society. In particular, the Wilderness 
Society witness, in his testimony and in the study submitted for the 
record, concluded that only a small percentage of BLM lands in five 
western states is off limits to leasing and development.
    Those conclusions gloss over the most significant point: the 
percentage of government lands available for leasing is a meaningless 
figure without knowing whether the leases can be developed. In many 
instances, lessees cannot obtain the permits needed to develop leases. 
In others, development is rendered uneconomic by unnecessarily 
restrictive operating stipulations.
    The Wilderness Society witness surgically selected certain data, 
and omitted other significant data to attempt to prove their inaccurate 
assertions. For example, while the numbers presented by the Wilderness 
Society do show that only about 3.5 percent of the BLM lands in 
Wyoming, Utah, New Mexico, Montana, and Colorado is strictly off limits 
to development, oil and gas resources in those states are not 
distributed uniformly across BLM lands. Specifically, while the 
Wilderness Society says only 3.5 percent of BLM lands are off-limits, 
the NPC study identifies another 3.2 percent that are subject to No 
Surface Occupancy. The NPC study indicates that this 6.7 percent of BLM 
lands represents 15 percent of the BLM natural gas resources, which are 
either off-limits or significantly impinged.
    More important, however, is the role of non-standard lease 
stipulations. The Wilderness Society's data show that seasonal and 
other non-standard stipulations restrict access to an additional 32 
percent of BLM lands. However, this impacts access to 47 percent of the 
natural gas resources estimated to exist on BLM lands in the Rockies. 
When all of these restricted and off-limit BLM lands are combined they 
total 38.7 percent, affecting 62 percent of the natural gas resources.
    Further, BLM is not the only Federal land management agency making 
such restrictions. These witnesses omitted the U.S. Forest Service, the 
Bureau of Indian Affairs and the departments of Defense and Energy in 
their computation of Federal multiple-use lands that are restricted to 
oil and gas development. In total, the National Petroleum Council 
estimates that some 137 TCF of natural gas resources lie beneath 
Federal land in the Rockies that is either off limits to exploration, 
or heavily restricted. This is 48 percent of the natural gas on Federal 
land in the region. This does not include the more than 11 trillion 
cubic feet (TCF) of natural gas that was summarily placed off limits 
late last year alone by the USFS ``Roadless'' rule, as mentioned above.
    But stipulations are not the only impediments to bringing the oil 
and natural gas to America's consumers. Inadequate agency resources in 
many BLM offices and required but outdated resource management plans 
often make it difficult to get drilling permits, seriously delaying 
viable projects for up to 100 days, or sometimes years. In the Rawlins, 
Wyoming BLM office, for example, thousands of Applications for Permits 
to Drill are awaiting action because of manpower shortages. In the 
Buffalo, Wyoming office, thousands more are not being accepted by BLM 
because of limitations of the resource management plans (RMP) for the 
area. This is because the ``Reasonable Foreseeable Development'' (RFD) 
figures, estimates of future development, failed to recognize the 
interest in developing coal bed methane. Updating these RMPs and RFDs 
takes the BLM two or more years to complete, thus limiting further oil 
and gas activity in that area until the plans are finished. Expediting 
the land use planning process is critical to increasing production from 
these lands over the next 5 years.
    The NPC study on natural gas referred to earlier also points out 
that vast reserves of natural gas in the form of coal bed methane (CBM) 
lie beneath Federal lands, especially in Wyoming and Montana. However, 
BLM's inability to grant permits in a timely manner has greatly 
hindered CBM development, and may contribute to further shortfalls in 
necessary future gas production. In some instances, we recognize that 
individual BLM offices may be understaffed and therefore are simply 
unable to efficiently process permitting requests. We therefore support 
increased funding for BLM to adequately address these critical 
permitting backlogs.
    In summary, the resources of the Federal lands in the Western 
states offer enormous potential to address the immediate energy demands 
for natural gas in the U.S. This potential is currently highly 
underutilized due to restrictions on land use for energy development, 
and relaxing the restraints on access described here could produce 
significant supply effects within one to two years.
Federal OCS
    The second area of Federal property of key importance to supply 
growth over the next five years is the Federal Outer Continental Shelf. 
The OCS has assumed increasing importance to U.S. energy supply over 
the past half century. The Federal portion of the OCS now supplies 24 
percent and 27 percent of the oil and gas produced in the United 
States. Offshore production promises to play an even more significant 
role in the future. The Department of Energy forecasts that offshore 
production will rise to nearly a third of our domestic oil and gas 
supply within a decade.
    Technological revolutions, such as 3-D seismic profiling of 
promising structures, coupled with astounding computer power and 
directional drilling techniques which allow numerous reservoirs to be 
accessed from one drill site have driven down the costs of finding oil 
and gas. And at the same time these technologies allow development with 
much less disturbance to the environment. Tremendous advances in our 
ability to drill and produce in the deep waters of the Gulf have also 
resulted in vast new reserves being added to our resource base.
    The Gulf of Mexico currently supplies over 25 percent of U.S. 
natural gas production. However, it is currently in the midst of a 
transition that will be substantially played out over the next five 
years. That is, while the shallow waters of the shelf now provide the 
bulk of supply from the Gulf, there is now accumulating evidence that 
resource depletion is overtaking the effects of technical advances on 
the cost structure of shelf development, and the decline from new gas 
wells there is now estimated to be as high as 40 percent per year. 
Fortunately, as the supply from the shallow waters of the shelf 
declines, that from the deepwater is increasing, at a sufficient rate 
to keep total production from the Gulf growing, although there is a 
question as to how long. The NPC report, prepared in 1999, estimated 
that this expansion would continue until 2010, when Gulf production 
would peak at 8 TCF/yr. An MMS report prepared last year estimated a 
somewhat lower peak, of 6.7 TCF, also by 2010. This year, new estimates 
from the MMS project a peak much earlier, in 2002, at a still lower 
level, 5.2 TCF/yr.
    These numbers illustrate three points. First, they illustrate the 
growing importance of the deep water in OCS supply, which is rapidly 
transitioning to becoming the principal source of such supply. Second, 
they raise the possibility that the feasibility of sustaining this 
transition may well be decided in the five year window we are concerned 
with. The numbers suggest that the drilling and capital expenditures 
required to replace and augment reserves will become increasingly 
important, and that we must increase deepwater development. Finally, 
the transition to deepwater illustrates the importance of not losing 
sight of long term objectives as we focus on the next five years. That 
is, much of the shift to deepwater activity has occurred within the 
past five years, in part due to the farsightedness of Congress in 
passing the Deepwater Royalty Relief Act in 1995. It is essential that 
as the deepwater grows into the major source of Gulf supply, we not 
lose sight of the actions that need be taken today to sustain this 
growth. The MMS OCS Policy Committee, Subcommittee on Natural Gas on 
the Outer Continental Shelf, concluded that unless exploration and 
development scenarios in the Gulf of Mexico change dramatically, the 
production forecasts such as those estimated by the NPC will not be 
realized.
    The nation will soon have a great opportunity to sustain this 
growth. Federal OCS Lease Sale 181, in the Eastern Gulf of Mexico 
Planning Area, is scheduled for December 2001. The sale area is based 
on comprehensive environmental reviews, and consultations between 
former Secretary of the Interior Bruce Babbitt and then-Governors 
Lawton Chiles of Florida and Fob James of Alabama. Congress in the past 
several appropriations bills understood the importance of Sale 181 
going forward and did not include it in the areas placed off-limits by 
moratoria. The area available in Sale 181 is estimated by the National 
Petroleum Council to contain 7.8 trillion cubic feet of natural gas and 
1.9 billion barrels of oil. This means that natural gas from the Sale 
181 area could satisfy the current electricity needs of Florida's 5.9 
million households for the next 13 years. Moreover, the crude oil from 
the Sale 181 area (most of which is expected to come from the deepwater 
areas, far removed from the coastline) could fuel 74,000 cars for 20 
years.
    Finally, of both short and long term significance are the 
``consistency'' provisions of the Coastal Zone Management Act (CZMA). 
Under the guise of due process and consultation, these provisions have 
caused serious duplicative and incredibly costly delays to Federal OCS 
leasing and production activities that would have no adverse 
environmental impacts on states' coastal zones. And regulations issued 
by the National Oceanic and Atmospheric Administration (NOAA) in the 
last days of the Clinton Administration appear to add impediments to 
environmentally compatible energy development in the OCS, contrary to 
the balancing of competing interests directed by Congress when it 
enacted the CZMA. Both the summary withdrawal of multiple use 
government lands without stakeholder consultation under the Antiquities 
Act, and the endless due process used by opponents to block Federal 
offshore production that does not affect a state's coastal zone are 
extreme, and must be moderated.
Alaskan North Slope
    A third area of concern to both short and long-term energy supply 
is the Federal lands of Alaska's North Slope.
    First, again we note that an area of growing current exploratory 
interest is the Northeast corner of the National Petroleum Reserve in 
Alaska, where a Federal lease sale was held in 1999, in which 133 
leases were awarded. Eight wells have been drilled, and more are 
planned. Again, the activity we are now seeing in 
NPR-A and the prospective supply effects in the next five years is 
attributable to actions taken by the Federal government in the past 
five years. Likewise, actions needed within the current five year 
window should be designed to sustain the activity begun in the last 
one, including the planning of further lease sales within 
NPR-A.
    While probably not within the five year window for new production, 
it is no less urgent that Congress authorize exploration on the small 
section of the Arctic National Wildlife Refuge (ANWR) that was 
specifically set aside by law for exploration in 1980. DOE's Energy 
Information Administration estimates that the ANWR coastal plain 
contains between 5.7 billion and 16 billion barrels of technically 
recoverable oil. The coastal plain provides the best prospect in North 
America for a new giant, Prudhoe Bay-sized oil field.
Summary
    Increased access to Federal lands--in the West, offshore, and 
Alaska--is the single most important lever that the government holds to 
affect domestic oil and gas supply in the next five years and beyond. 
Increased access extends beyond the mere act of leasing property it 
extends to removing barriers to the utilization of that property in a 
manner consistent with environmental protection, recognizing the fact 
that technology has greatly reduced the scope of conflict between 
energy development and environmental protection. Those in the Federal 
government who are most familiar with our industry have lauded our 
technological advances. A 1999 DOE report, Environmental Benefits of 
Advanced Oil and Gas Exploration and Production Technology, stated 
that, ``innovative E&P approaches are making a difference to the 
environment. With advanced technologies, the oil and gas industry can 
pinpoint resources more accurately, extract them more efficiently and 
with less surface disturbance, minimize associated wastes, and, 
ultimately, restore sites to original or better condition. [The 
industry] has integrated an environmental ethic into its business and 
culture and operations [and] has come to recognize that high 
environmental standards and responsible development are good 
business.''
    To promote such growing access, there is a strong need for improved 
information on the access status of the existing resource base. We 
applaud the action taken in the last Congress when it reauthorized the 
Energy Policy and Conservation Act (EPCA) (Section 604) directing the 
Departments of the Interior and Energy and the Forest Service to 
conduct an inventory of the oil and gas resources on Federal lands and 
the restrictions that prevent access to these critical resources. We 
urge Congress to fully fund this inventory in the Fiscal Year 2002 
appropriations bill so that adequate information will be available on 
resource availability. This is an important step in bringing about 
increased development of U.S. oil and gas resources and an important 
component in any effective national energy policy.
    The American public does not have to choose between domestic energy 
supplies and environmental protection. We can, as a nation, have both--
and we cannot afford to heed those negativists who tell us otherwise. 
Meeting U.S. energy needs and protecting the environment are both 
critical to our nation's continued economic growth--and critical to 
achieving the future prosperity and well being we all seek. Our Federal 
lands are an asset with multiple values, and the time has come to 
recognize that energy values play a significant role in that mix.
                                 ______
                                 
    Mr. Gibbons. Thank you, Mr. Rubin.
    Mr. O'Connor, the floor is yours. Welcome to the Committee. 
We look forward to your testimony.

STATEMENT OF TERRY O'CONNOR, VICE PRESIDENT, EXTERNAL AFFAIRS, 
 ARCH COAL, INC., ON BEHALF OF THE NATIONAL MINING ASSOCIATION

    Mr. O'Connor. Thank you very much.
    For the record, my name is Terry O'Connor. I am Vice 
President of Arch Coal, the nation's second largest coal 
producer, here representing the National Mining Association.
    I thank all of you gentlemen and ladies for the opportunity 
to appear here on this very timely subject.
    I think most of us are aware that, from an electricity 
standpoint, over 50 percent of all the electricity generated in 
this country comes from coal. And 40 percent of that coal is 
mined on Federal lands, almost exclusively in the western 
United States.
    Various energy experts project that as we look out into the 
next 20 years, some 90 percent of the projected increase in 
coal demand for this country is going to come from these 
Federal lands, so this is a very relevant and timely subject.
    I want to address three principal areas today. I would ask 
you to allow me to incorporate our written testimony into the 
record. It covers a lot more, but I will address three in the 
interest of time.
    First is the issue of conflicts between coal bed methane 
development and coal mining and production. This is exclusively 
an issue in the Powder River basin of Wyoming and Montana; it 
doesn't have any impacts outside of those two states, other 
than from a supply standpoint.
    And the issue goes back for some 30 years--35 years, in 
fact--as the Bureau of Land Management has issued oil and gas 
leases to one company and coal leases to another company off of 
Federal lands, without regard, without regulations, 
stipulations, legislation or policies as to how to deal with 
these issues when those two valuable resources collide.
    Those of you who have been to the Powder River basin are 
aware that we are blessed with an incredible magnitude and 
quality of both of these resources.
    From a coal bed methane standpoint, this is an emerging 
industry in which there may be 70,000 wells drilled in the 
course of the next 10 years from the Powder River basin.
    The Powder River basin itself is the Saudi Arabia of coal. 
One mine--there are 14--one mine itself on an energy 
equivalency basis represents about an equivalency of 650,000 
barrels of oil a day, larger than any oil field in the southern 
48.
    We desperately need legislation to deal with these issues 
of conflict, so that both of these valuable industries can go 
forward without the unnecessary and acute problems that are 
occurring, that are creating investment uncertainties.
    I will give you one anecdotal piece of information here to 
identify this. Three years ago, my company was a successful 
bidder on a lease. We submitted a bid of $158 million. We did 
not know that there would be coal bed methane development on 
there. And only later did we find that a coal bed operator 
planned to put some 60 wells right in the face of our ongoing 
operations.
    Had we known that was going to happen, we would not have 
bid the $158 million, but have been required significantly to 
devalue that bid, because we would have known then, after we 
got the right to mine that, we were going to have to pay many, 
many millions of dollars to the coal bed operator to entice him 
to move more expeditiously and remove his production 
activities.
    There are lease sales coming up as early as this fall that 
are going to address this same issue. And unless and until 
Congress deals in a proactive manner, both the Federal and 
state governments are going to receive less revenues from these 
coal lease sales than they would otherwise receive.
    So I urge you to look favorably on this issue, and pass 
legislation as introduced by Congresswoman Cubin, H.R. 1710.
    The second issue, the issue of public land withdrawals and 
the roadless initiative, is an issue that others have testified 
before this and other Committees earlier.
    A couple of quick points on there. We are unsure where the 
administration is going to be going in light of the Idaho 
injunction, but Congress must keep the pressure for rational 
forest protection here. Two very quick examples.
    One of our mines in Colorado, we are actually facing a 
potential very serious safety problem, because it is an 
underground mine. We have experienced unexpectedly high levels 
of methane. The only way that we are able to flush this area 
from the active mine areas is to actually drill bore holes down 
from the surface in order to get fresh air and flush that.
    These bore holes will be drilled on leased ground that we 
have under lease. But to get to that surface, we have to cross 
a small section of Forest Service lands, and we are 
encountering major impediments because of the roadless 
initiative that prohibit us or are impeding us now from being 
able to drill those holes, creating a major potential safety 
issue for our employees. And these are issues that will spread 
elsewhere.
    In Utah, are plans to develop at least two additional power 
plants to service the electrical shortages for the Rocky 
Mountain west. This roadless initiative has the potential to 
create a serious problem, because in all likelihood, new coal 
mines would be needed to supply those new power plants. And 70 
percent of all the coal production now is on Forest Service 
lands.
    A final point, very quickly, because I know my time is 
running out here. We need to accelerate the Federal coal 
leasing scheduling process, because of the important strategic 
value of western Federal coal leasing.
    I understand that the 2002 budget has allocated an 
additional $1.3 million and four FTEs to accelerate Federal 
coal leasing. We are not sure how that money will be spent or 
where it is going to be spent.
    But right now, particularly in the Powder River basin of 
Wyoming, if we expressed interest in a lease sale today, it 
would probably be 2011 or 2012 before we would be producing on 
that.
    We have to accelerate that process. And we can do it 
without compromising environmental or other regulatory means by 
really administratively focusing BLM in the areas where there 
needs to be greater focus.
    Thank you very much.
    [The prepared statement of Mr. O'Connor follows:]

  Statement of Terry O'Connor, Vice President, External Affairs, Arch 
        Coal, Inc., on Behalf of the National Mining Association

    Madame Chairwoman, my name is Terry O'Connor. I am Vice President 
of External Affairs for Arch Coal, Inc. I am appearing here on behalf 
of Arch Coal and the National Mining Association (NMA) to testify on 
the potential that energy resources on Federal lands, specifically coal 
resources, have to play in solving our nation's short-term energy 
supply problems. We would like to thank you for your leadership in 
holding these hearings and working to find ways to increase energy 
production on Federal lands, while at the same time making certain that 
exploration and production is done in a way that is compatible with 
protecting the environment in which we live and work.
Summary
    Our nation is facing a crisis--a shortage of affordable energy. 
While this is a long term problem that will only be solved with 
policies that encourage long term investments in the environmentally 
sound development of our energy resources, in efficiency and 
conservation, the problem also requires short term solutions. Domestic, 
affordable and increasingly clean coal that provides over 20 percent of 
all the energy that is used in the United States, the fuel of choice 
for over 50 percent of the electricity generated in our nation today, 
must be part of the short run answer. Nearly 40 percent of our coal 
production is from mines located on Federal lands. Over one-third of 
the nation's coal reserves are owned or controlled by the Federal 
government. Forecasts show that over 90 percent of new production 
expected to come on line over the next 20 years will be from mines on 
Federal lands. Much of this production can come on line quickly if 
electric generators can use it. However, policies now in effect 
discourage modification of existing capacity and construction of new 
clean coal generating capacity. Policies also have discouraged, or 
prevented the exploration, development and investments that will be 
required to bring new coal production on Federal lands quickly on line. 
That is the subject of this hearing today. The Congress, in concert 
with the Administration, can take action in three areas to allow 
expansion of coal production from Federal lands, dependent upon the 
demand to use coal.
     LThe Congress can enact legislation to resolve conflicts 
involving simultaneous development of coal bed methane and leased 
Federal coal reserves in the Powder River Basin. We thank you Madame 
Chairman, for the legislation, H.R. 1710, which you introduced for this 
purpose and which has been referred to this Sub- Committee;
     LThe Administration can extend its review of public lands 
withdrawals and lease stipulations, announced last week as part of the 
President's energy policy, to include coal resources as well as oil and 
gas. In particular, the Administration needs to address changes needed 
in the Forest Service Roadless Area Conservation Rule; and,
     LThe Administration can extend its review of Federal 
leasing policies--also announced last week--to include a review of the 
coal leasing process with the goal of taking the administrative actions 
necessary to accelerate the leasing process. Legislation is also 
required to reform Federal coal leasing.
Background
    By way of background, Arch Coal, Inc., headquartered in St. Louis, 
is the second largest coal producer in the United States. In 2000, our 
operating subsidiaries mined more than 112 million tons of coal--
approximately 10 percent of the nation's production--from surface and 
underground mines in Wyoming, Colorado, Utah, Illinois, West Virginia, 
Kentucky and Virginia. Arch shipped coal to approximately 149 power 
plants in 30 states providing the fuel for 6 percent of the electricity 
used by Americans last year. Arch owns or controls approximately 3.2 
billion tons of coal reserves including reserves on Federal lands.
    In 2000, our company mined nearly 65 million tons of low-sulfur, 
sub-bituminous coal from our two large surface mines in the Powder 
River Basin (``PRB'') of Wyoming, Black Thunder and Coal Creek mines. 
We also produced 3.4 million tons in our West Elk Mine in Colorado and 
9.4 million tons at three mines in Utah. This coal is almost 
exclusively mined on Federal lands, including four mines that operate 
at least partially on National Forest Service Lands. One of Arch Coal's 
highest priorities is to operate safe and environmentally responsible 
mines. Our production and reclamation experience on our mines on 
Federal lands are prime examples of the way that our priorities are 
met.
    The National Mining Association represents producers of coal, 
metals and non-metal minerals, as well as manufacturers of processing 
equipment, machinery and supplies, transporters, and engineering, 
consulting and financial institutions serving the mining industry. The 
members of National Mining Association produce over 80 percent of 
America's coal, a reliable, affordable, domestic fuel choice used to 
generate over 50 percent of the electricity used in the nation.
The Nation Has a Long-Term Energy Problem, But, Short-Term Actions Can 
        Help
    Without question our nation is facing the most serious shortage of 
affordable energy since the 1970's. Gasoline prices are at record or 
near record highs throughout the country. Refinery capacity cannot keep 
up with the demand for the many regionally required fuels. Natural gas 
prices were very high during the winter and are still far above price 
levels of only 18 months ago. Electricity shortages and rolling 
blackouts, a reality in California, may also occur this summer in New 
England, New York City and Texas 1 as the capacity to 
generate affordable electricity has not kept up with demand. As 
President Bush pointed out in his report ``National Energy Policy'' 
released last Thursday May 17th, there is a fundamental imbalance 
between supply and demand--that if allowed to continue will inevitably 
undermine our economy, our standard of living, and our national 
security. 2 Our nation's energy infrastructure has an 
investment deficit. This is a long-term problem that requires the long-
term solutions suggested by the President's new energy policy.
---------------------------------------------------------------------------
    \1\ North American Electric Reliability Council, 2001 Summer 
Assessment, May 15, 2001
    \2\ National Energy Policy, Report of the National Energy Policy 
Development Group, May 17, 2001
---------------------------------------------------------------------------
    But, the effects of this crisis--a shortage of affordable energy--
are being felt by our citizens now. We must take short-term actions 
that will assist in alleviating the crisis even as policies are being 
developed and implemented to address the longer-term issue. Increasing 
the supply of energy produced on Federal lands, including coal that is 
produced on Federal lands, can be part of the short-term solution.
Coal Is An Important Part of Short- and Long-Term Energy Policy
    Increasing the production and use of coal, our nation's most 
abundant domestic resource, is an important piece of both short and 
long term energy policy. In 2000, 1.1 billion tons of coal were 
produced in mines located in 26 states. Coal, or electricity generated 
from coal, is used in all 50 states. Last year almost all our 
production, or 1.026 billion tons of coal, was the fuel that generated 
nearly 52 percent of all electricity used in the United States. The 
reason that coal has this market share is straightforward: coal is 
domestic and reliable; coal is affordable (electric rates in regions 
dependent upon coal for electricity average at least one-third lower 
than regions dependent upon other fuels for electricity); and, coal is 
increasingly clean. Although coal use in 2000 was more than triple the 
amount of coal used for electrical generation in 1970, emissions have 
declined by over one-third, a trend that will continue.
    As the National Energy Plan so correctly stated: ``If rising U.S. 
electricity demand is to be met, then coal must play a significant 
role. 3 Coal fired electricity is and will remain the most 
affordable electricity available. Coal production will increase by at 
least 25 percent over the next two decades to meet the increased demand 
arising from the expected 40 percent or greater increase in demand for 
electricity.
---------------------------------------------------------------------------
    \3\ Ibid. p. 5-14
---------------------------------------------------------------------------
Coal on Federal Lands, Is and Will Continue To Be, a Vital Part of the 
        Nation's Domestic Energy Supply
    Coal mined on Federal lands provides a vital portion of the 
nation's domestic energy supply. In 2000 approximately 405 million tons 
of coal, 37 percent of national production, were mined on Federal 
lands. Considering western production only, nearly 80 percent came from 
mines on Federal lands and, considering that the majority of privately 
held western reserves are on lands that are effectively controlled by 
Federal land policies, one can assume that 85 percent or more of the 
growing western coal industry depends upon Federal land management 
policies. Coal mines on Federal lands are found in Colorado (89 percent 
of production within the state), Montana (46 percent), New Mexico (24 
percent), North Dakota (7 percent), Oklahoma (35 percent), Utah (88 
percent), Washington (33 percent) and Wyoming (92 percent). Less than 
0.1 percent of coal production on Federal lands - 365,000 tons - was 
from lands located in the Appalachian states (Alabama and Kentucky).
    Coal produced on Federal lands contributes directly to local 
economies in a positive way. In 2000, this coal was worth an estimated 
$3 billion. Production activities provided high paying jobs for over 
15,000 workers in 2000, paying wages in excess of $600 million. 
Considering both direct and indirect economic benefits, coal produced 
on Federal lands provided employment for nearly 150,000 workers with 
wages of over $3.5 billion dollars.
    Coal produced on Federal lands contributed nearly $400 million to 
state and local tax revenue. Royalties paid to the Federal Government 
last year were an estimated $330 million.
    All the benefits of coal mined on Federal lands do not remain 
within the region as this coal is shipped to electric generators in 30 
states. Major destinations outside the western region include 
generators in Michigan, Minnesota, Illinois, Indiana, Iowa, Wisconsin, 
Texas, Kansas, and Arkansas with some being shipped as far as Alabama, 
Mississippi and Georgia. Taken as a whole, coal mined on Federal lands 
is used to generate nearly 40 percent of all electricity generated from 
coal, or approximately 20 percent of all electricity produced in the 
US. This is not an insignificant amount being enough to supply 
electricity to the entire South Atlantic census region or to all the 
customers in the East North Central and West North Central states 
combined or to 3.2 Californias.
    The Federal Government owns about one-third of the Nation's coal 
resources, which are located on approximately 76 million acres of land 
principally in the western United States. Western Federal lands contain 
approximately 60 percent of the total western coal reserve base. An 
additional 20 percent of the coal resources in the West are managed or 
impacted by the Federal Government by virtue of (1) the commingling of 
State and private coal reserves with Federal leases and (2) trust 
responsibilities for Indian lands.
    It is important to note that the enormous coal reserves on Federal 
lands include some of the best coal from an environmental standpoint. 
Many of the reserves, especially those located in Wyoming and Montana, 
are low in sulfur and also low in inherent NOx when burned 
in power plants. These coals are ideally suited to meet the 
increasingly stringent emission requirements of the Clean Air Act 
Amendments of 1990 and the regulations that EPA has promulgated.
    Whether viewed as an environmental, an economic or as a domestic 
energy security and reliability issue, continued coal production from 
reserves on Federal lands is critically important to the economy and 
the well being of the United States. Energy, especially electricity 
would not be as readily available or as affordable if it were not for 
coal from Federal lands.
    Coal from federal lands is projected to increase over the next two 
decades. The EIA Annual Outlook 2001 forecasts shows that over 90 
percent of the expected 250 million tons increase in US coal production 
will come from coal reserves located on Federal lands. Clearly, coal 
resources on Federal lands not only can, but must play a major role in 
meeting the demands of the future.
What Is Needed to Make the Coal Production Forecast A Reality?
Expansion of coal fired electric generating capacity is a condition 
        precedent.
    First and foremost, coal will not be mined unless it can be used. 
The future demand for coal depends upon the capability of the electric 
generating industry to continue operation of its existing fleet and to 
expand with construction of new plants using advanced clean coal 
technologies. Maximum efficient use of generating capacity in turn 
depends upon a reliable nation wide transmission network with greater 
capability than exists today. President Bush has suggested several 
policies that will allow existing generating capacity to operate at 
maximum efficiency, new capacity to be built, and the transmission 
network to be expanded without impact on the environment. Although 
these policy proposals are beyond the scope of this hearing today, it 
is important to note that the capacity to use coal, the capability to 
turn coal into electricity efficiently with minimum impact on the 
environment, is a necessary precedent to expanding coal production 
capacity. National Mining Association supports the provisions included 
in the President's energy plan to expand research to continue 
development of advanced clean coal technologies. We also believe that 
legislation to implement a new energy policy must include a provision 
for incentives to assist companies building new clean coal plants by 
assuming part of the financial risks associated with commercializing 
new technologies.
Coal production on Federal lands can increase rapidly but not without 
        changes in Federal policy.
    As pointed out, coal production on Federal lands is a large and 
growing portion of production in the United States. Over the next four 
years, the 405 million tons produced in 2000 can certainly increase to 
meet demands throughout the nation but most particularly in the west 
and southwest.
    For example, coal production from reserves located in Utah on 
Forest Service lands, or on lands controlled by the Forest Service, 
fuels several plants that in turn generate affordable electricity for 
the California market. The potential power plant expansions in Utah 
could increase demand for coal mined in Utah by as much as 40 percent 
in the short term. Production in Wyoming, now at 340 million tons could 
continue to grow rapidly in both the short and the long term to fuel 
demand from electric generators in the Mountain states, but also in the 
Mid west, Texas and in the Southeastern states.
    The rate at which the coal industry operating on Federal lands can 
respond however, depends on several changes in policy. Interpretations 
of legislation over a long period of time added to the regulatory 
policies of the previous Administration over the last eight years have 
acted to discourage or actually prevent responsible development of coal 
resources on Federal lands. Although there are several issues that need 
to be considered, rapid increases in coal production in the short term 
will depend upon action in three areas.
     LResolution of conflicts involving simultaneous 
development of coal bed methane and leased Federal coal reserves in the 
Powder River Basin;
     LIncreased access to the resources located on Federal 
lands for responsible exploration and development activities. Large 
reserve blocks have already been effectively removed from development 
by actions of the Federal Government. 4 The Forest Service 
Roadless Area Conservation Rule will remove even larger portions of the 
coal reserves located on Federal lands from responsible development; 
and,
---------------------------------------------------------------------------
    \4\ For example, the unsuitability provisions under SMCRA (the 
Surface Mine Control and Reclamation Act of 1977) and land use planning 
policies under FLPMA (the Federal Land Policy Management Act) have 
removed some 53 billion tons of Federal coal from future leasing; the 
previous Administration's use of the Antiquities Act to create National 
Monument designations removed additional blocks of reserves from 
development.
---------------------------------------------------------------------------
     LReform of the Federal coal leasing process.
Coal/Coal Bed Methane Conflict in the Powder River Basin
    It is important that the Congress act quickly to enact legislation 
that provides for orderly development of energy resources located on 
Federal lands to ensure that development of one resource does not 
preclude economic development of a co-located resource. Madame 
Chairman, you have sponsored and introduced H.R. 1710 to address this 
problem. A companion bill, S. 675, has been introduced in the Senate.
    The Powder River Basin of Wyoming and Montana is one of the world's 
richest energy resource regions and includes the largest reserves of 
low sulfur coal in the United States. Virtually all of the coal, and 
about 50 percent of the oil and gas reserves in the Basin, are owned by 
the Federal government and managed by the Bureau of Land Management 
(BLM) under the Mineral Leasing Act of 1920. Problems have arisen 
because BLM has issued Federal coal leases and Federal oil and gas 
leases for the same locations in the Basin. In many cases when these 
oil and gas leases were issued coal bed methane resource development 
was not contemplated.
    In those areas leased both for coal and for oil and gas, disputes 
over timing of mineral development have arisen. The sequence of 
development frequently becomes a critical issue because the production 
of any one of the minerals can result in the loss of another. For 
safety and operational reasons, concurrent development typically is 
impossible. No clear statutory direction exists to resolve disputes 
over the sequence of mineral development in these areas where the 
Federal government has ``double leased'' its minerals. BLM has not 
provided effective guidance or included conditions in its leases that 
would provide a resolution to these disputes.
    In the 2nd Session of the 106th Congress, the entire Wyoming 
delegation sponsored legislation (The Powder River Basin Resource 
Development Act of 2000 - S. 1950 and H.R. 4297) to resolve these 
conflicts. The proposed legislation (which was reintroduced this year 
as H.R. 1710 and S. 675) would require competing mineral developers to 
negotiate first, and urges the BLM to use its regulatory authority to 
achieve a possible resolution to each conflict. If both negotiations 
and regulatory efforts fail, either the coal developer or the oil and 
gas developer could invoke the formal resolution process established by 
the legislation by filing a petition in the local Federal district 
court and with the Secretary of the Interior. The bill's process then 
would require a public interest determination first by the Secretary, 
then by the court, as to which mineral will be developed first. There 
would follow a temporary suspension or termination of rights to develop 
the conflicting mineral. The court, with the aid of an expert panel, 
would determine the amount to be paid to the non-prevailing mineral 
developer.
    The proposal is the result of lengthy negotiations between the 
previous Administration, coal producers and oil and gas developers and 
should be quickly considered and passed by this Congress. Until 
legislation is passed, conflicts involving simultaneous development of 
competing fossil fuel resources in the PRB will continue to threaten or 
delay orderly development of much needed environmentally favorable 
domestic energy resources.
Forest Service Roadless Conservation Areas
    The Administration can extend its review of public lands 
withdrawals and lease stipulations, announced last week as part of the 
President's energy policy, to include coal resources as well as oil and 
gas. The Forest Service Roadless Conservation Area Rule must be part of 
this review.
    This Committee knows well the history and the effects of the last 
Administration's Roadless Area Conservation rule that was published on 
January 12, 2001. Due to the lack of detailed information, Forest 
Service significantly underestimated the rule's impact on energy 
supplies in the western United States. Industry analysis however, 
showed that the implementation of this rule could sterilize over 40 
percent of the coal production in Colorado and Utah.
    And, according to the Department of Energy:
          ``The roadless initiative will have an impact on coal 
        reserves in Colorado and Utah, including both the expansion of 
        existing mines and tracts of coal of near-term commercial 
        interest. While these resources are recovered using underground 
        mines, roads are needed to build ventilation shafts and for 
        safety, e.g., to fight underground fires. The mines would not 
        be built or expanded if roads cannot be constructed.
          Existing leases may also be affected...'' 5
---------------------------------------------------------------------------
    \5\ Department of Energy Report to the Forest Service, William 
Hochheiser (November, 2000)
---------------------------------------------------------------------------
    In Colorado, one of the mines in the Grand Mesa-Uncompahgre Forest 
is my company's, West Elk Mine where 200 million tons of coal could 
become unrecoverable because of the rule. This loss of reserves will 
result in the premature abandonment of the mine and its $100 million 
infrastructure.
    The Bowie Mine in the Grand Mesa-Uncompahgre Forest will be blocked 
from developing 50 million tons of high quality coal reflecting over 
$2.5 billion in economic activity. The Oxbow Mine, adjacent to the 
Bowie leases is surrounded on the east and north by roadless areas. 
These roadless prohibitions will thwart future development at this 
operation.
    The Forest Services Final Environmental Impact statement for the 
roadless rule declares that in Utah's Manti-La sal Forest three tracts 
alone account for 185 million tons of high Btu coal that are prejudiced 
by the rule. Further investigations of coal resources in the area 
indicate the impact could be much greater.
    The Forest Service chose to accept these severe prescriptions even 
though mine roads are temporary and the Surface Mining Control and 
Reclamation Act (SMCRA) mandates that these roaded areas be reclaimed 
to a condition as good or better than they were before mining. It 
should be noted that surface coal mines cannot be permitted on Forest 
Service administered lands unless the Secretary of Interior ``finds 
that there are no significant recreational, timber, economic, or other 
values which may be incompatible with such surface mining 
operations...'' In other words, the values the rule is supposed to 
safeguard have already been considered and protected by an existing 
statute. Yet, millions of tons of low sulfur coal have been sterilized 
by this needless and unlawful regulation.
    The reserves removed from development by this rule will have an 
effect on the ability of the coal industry mining on Forest Service 
lands to meet demand in the short term as well as over the longer run. 
The Forest Service delayed implementation of this rule until May 12 as 
part of the Bush Administration's overall assessment of rules issued at 
the end of the previous Administration. However, on May 10 a Federal 
judge's ruling blocked implementation of the rule pending further 
review and amendment.
    Secretary Ann Veneman has announced that the Department of 
Agriculture intends to propose amendments to the rule in June. We would 
urge this Committee to do all it can to encourage a rapid review of 
these amendments with a view toward allowing industry to continue 
responsible development of coal, and other energy, resources on Forest 
Service lands as quickly as possible. Coal production on lands affected 
by the Forest Service Rule can increase rapidly, but only after 
resolution of this issue.
Federal Leasing
    The Administration can extend its review of Federal leasing 
policies--also announced last week--to include a review of the coal 
leasing process with the goal of taking the administrative actions 
necessary to accelerate the leasing process. Legislation is also 
required to reform Federal coal leasing.
    In August 1976, the Federal Coal Leasing Amendments Act (``FCLAA'') 
was enacted. FCLAA imposed for the first time a series of radically 
more stringent requirements upon Federal coal lessees, the compliance 
with which forced such lessees to make a host of major financial and 
operational commitments, many of which made good policy sense but 
others were counterproductive. Over the past 25 years, those Federal 
coal lessees who have managed to stay in business have fully complied 
with both the rational and the questionable requirements.
    Federal coal lessees are not today calling for major reform of the 
FCLAA program, although over time certain of FCLAA's provisions 
ultimately may need to be revisited and modified. Even where 
modifications ultimately may be needed, in most instances, the debate 
on such modifications can be deferred to a later time when adverse 
impacts become more focused and imminent. There are two areas that need 
immediate attention however.
1. Advanced Royalty Provisions
    The first issue that must be addressed is a segment of FCLAA's 
current ``advanced royalty'' provisions, which call for early 
legislative reform by Congress. The current advance royalty provisions 
provide, among other items, that:
     LAdvance royalties may not be paid for more than an 
aggregate of 10 years,
     LAdvance royalties paid during the initial 20 year term of 
a lease may not be carried over past the 20th year, and
     LThe Secretary of Interior may unilaterally cease to 
accept advance royalties.
    With the progressive deterioration of U.S. coal market prices, 
several Federal coal lessees have been forced temporarily to curtail 
production and idle mines. Without the option of extending the lease by 
paying advanced royalties, producers will be forced to prematurely 
terminate leases. Once leases are terminated, the probability of the 
location being mined again is small. The Federal coal and Federal 
revenues associated with it will be lost.
    We recommend that narrowly drafted, surgical changes be made to 
FCLAA's advance royalty provisions which would:
     LExtend the aggregate entitlement to pay advance royalty 
in lieu of continued operations from 10 years to 20 years;
     LDelete the current prohibition on the carry-over of 
advance royalty payments made during the initial 20-year period of the 
lease;
     LDelete the current authorization for the Secretary 
unilaterally to cease to accept advance royalties in lieu of continued 
operations; and
     LDelete the last sentence of Section 39 of the MLLA of 
1920 (Section 14 of FCLAA) prohibiting the waiver, suspension, or 
reduction of advance royalties.
2. Address the Need to Move Expeditiously on Lease-By Applications
    The Federal Coal Leasing Amendments Act of 1976 (``FCLAA'') 
requires that all leases for Federal coal be conducted by a competitive 
leasing process. One of the mechanisms for initiating competitive 
leasing is through a lease-by application (``LBA'') procedure, which 
allows an existing coal mining operation to nominate a tract for the 
expressed purpose of prolonging the life of the existing mine. The LBA 
process has been effectively used in Utah, Colorado and Wyoming for 
over a decade now. In the Powder River Basin (``PRB'') of Wyoming, 
which is called by many the ``Saudi Arabia of coal'', since that area 
is producing in excess of 1/3 of all U.S. coal, the LBA process has 
been critical to the orderly development of Federal coal reserves.
    As pointed out, coal production in the PRB has jumped dramatically 
since the Clean Air Act Amendments of 1990 primarily because western 
coals are typically very low in sulfur and also very low in inherent 
NOx when burned in power plants. With this dramatic increase 
in demand for low sulfur western coal has come the need for continued 
access to Federal coal reserves. Western coal producers clearly 
recognize this need and make their leasing plans accordingly. 
Unfortunately, the Bureau of Land Management now is only processing and 
holding one Federal coal lease sale per year in the Wyoming PRB. Thus, 
the most recent coal lease applications filed may not be offered for 
sale for eight years. Permitting requirements will then add another 
approximately three years. As a consequence, it is readily apparent 
that there is an excessive backlog of Federal coal lease applications 
on file and that the timeframe for processing LBAs and issuing leases 
has become unacceptable to orderly development of this most important 
domestic energy resource.
    There are several administrative opportunities to address this 
backlog. The first opportunity is to consolidate the NEPA process 
instead of conducting separate EIS's for each lease application. 
Several LBAs should be combined into one document. Second, and even 
more importantly, the Department of Interior expeditiously should 
evaluate the workload of other BLM offices to determine if there are 
any personnel available to help work through this backlog. Finally, and 
of relevance to this hearing, Congress should give favorable 
consideration to supporting additional Federal funding for the 
processing of these lease applications in order to short the 
intolerable backlog.
    This concludes my statement Madame Chairwoman and I would be please 
to answer any questions you may have.
                                 ______
                                 
    [Mr. O'Connor's response to questions submitted for the 
record by The Honorable Nick Rahall follow:]
[GRAPHIC] [TIFF OMITTED] T2515.001

[GRAPHIC] [TIFF OMITTED] T2515.002

[GRAPHIC] [TIFF OMITTED] T2515.003

[GRAPHIC] [TIFF OMITTED] T2515.004

[GRAPHIC] [TIFF OMITTED] T2515.005

    Mr. Gibbons. Thank you, Mr. O'Connor.
    Mr. Sims, welcome to the Committee. We look forward to your 
testimony. The floor is yours.

 STATEMENT OF EARL SIMS, PRESIDENT, SIMS CONSULTING, ON BEHALF 
      OF THE INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA

    Mr. Sims. Thank you very much. My name is Earl Sims. I am 
president of Sims Consulting, a Houston-based firm that I 
formed to help independent producers with public issues, 
particularly in the offshore.
    Today I am representing Forest Oil and Mariner Energy and 
testifying on behalf of the Independent Petroleum Association 
of America.
    Increasingly, independent producers--from family owned 
enterprises in a single state to publicly traded companies with 
international operations--are bringing offshore and onshore 
reserves to the market.
    I appreciate the opportunity to share with this Committee 
recommendations from that independent community--for increasing 
supply of oil and gas from offshore and onshore lands within 
the next 5 years.
    My remarks today will address the issue we face on two 
broad themes: providing land access and providing access to 
capital through royalty incentive policies.
    Let's begin with access. First, we wholeheartedly support 
the executive order the President signed Friday, requiring 
agencies to include in their regulatory actions a statement of 
the proposal's energy impact. Including what we call energy 
accountability in further decisionmaking will promote sounder 
energy policies.
    Second, Congress needs to assure adequate funding for the 
Department of the Interior's offshore and onshore oil and gas 
programs. Increases contained in the President 2002 budget is a 
good first step.
    A long-term solution may be to adopt the proposal from 
Congresswoman Cubin, which is to use part of the royalty stream 
to fund DOI's programs/ offices that are responsible for 
production.
    Turning to the offshore, the MMS's next 5 year OCS leasing 
plan, covering the years 2002 to 2007, which we consider to be 
our blueprint for the future, is a good starting point.
    Beyond providing the important annual sales in the western 
and central Gulf, we need to find ways to obtain affected state 
buy-in for targeted exploration in top geological plays 
contained in off-limit areas.
    Next, Sale 181, scheduled in a nonmoratorium area in the 
eastern Gulf, is an important step to take this December. And 
take it we must, with all the tracts, on time, and with good 
terms and stipulations that will encourage development and 
production.
    Make no mistake, this sale is very important to independent 
producers.
    Finally, in the offshore arena, IPAA agrees with the 
administration's recommendations in its energy policy that it 
is time to reexamine the current energy siting regime, like 
coastal zone management policies, to determine if changes are 
needed.
    Turning to onshore land access, a good first step is the 
timely completion of a land inventory with a description of the 
impediments to access and development.
    Chairwoman Cubin, the IPAA applauds you, along with 
Chairman Skeen, for leading this effort in the House for this 
requirement. And we are pleased to see that the administration 
energy policy includes the recommendation to accelerate this 
effort.
    Finally, the onshore permitting process should be improved 
and properly funded. IPAA supports the provision of S. 388, 
which expands state involvement and establishes time frames for 
reviewing permits. IPAA supports the executive order signed by 
the President on Friday, requiring the expedition of energy-
related approvals in an environmentally sound manner. The next 
step is to review the stipulation process.
    Turning to the royalty theme, IPAA believes royalty 
incentive policies can be a powerful tool in generating capital 
investments in exploration and production projects on Federal 
lands.
    My written statement offers a number of royalty incentive 
ideas, including:
     LThe renewal of deepwater royalty relief policies 
that were in place until last November,
     LThe application of relief volumes on a lease 
basis rather than a field basis for all deepwater leases,
     LExpansion of royalty-incentive policies to 
nondeepwater, but high-cost situations, such as deep wells, 
subsalt prospects, and highly deviated wells, as well as 
marginal production, and
     LConsideration of similar royalty incentives for 
onshore production.
    The IPAA supports the administration's energy policy 
recommendation that Interior consider economic incentives for 
environmentally sound offshore oil and gas development for 
specific areas that would otherwise be uneconomic.
    We encourage the administration to expand its consideration 
to include onshore production. We also agree the administration 
royalty incentive should provide a fair return to the public. 
Price triggers are one way to accomplish this.
    In conclusion, providing access to the resource base and 
attracting capital are critical for increasing domestic 
production. It is time that the nation take its energy supply 
issues seriously and develop a sound future policy.
    Thank you for allowing me to appear before you today.
    [The prepared statement of Mr. Sims follows:]

   Statement of Earl R. Sims, on Behalf of the Independent Petroleum 
                         Association of America

    Madam Chairwoman, members of the committee, my name is Earl Sims, 
president of Houston-based Sims Consulting, a recently established firm 
that represents independents on offshore issues and advises them of the 
political risks of operating in the Outer Continental Shelf (OCS). 
Today, I am representing Forest Oil Corporation and Mariner Energy, 
Inc. and am here on behalf of the Independent Petroleum Association of 
America (IPAA) and all of its members that operate in the OCS and 
onshore Federal lands. I am the immediate past vice Chair of the IPAA 
Offshore Committee and the current Chairman of the IPAA Offshore Access 
Taskforce. Until late last year, I chaired the industry's OCS Sale 181 
Work Group.
    Forest Oil Corporation is engaged in the acquisition, exploration, 
development, production and marketing of natural gas and crude oil in 
North America and selected international locations. Forest's principal 
reserves and producing properties are located in the United States in 
the Gulf of Mexico, Louisiana, Texas, Cook Inlet, Alaska and in Canada 
in Alberta and the Northwest Territories.
    Mariner Energy, Inc. is a Houston-based oil and natural gas 
exploration and production company with principal operations in the 
Gulf of Mexico and along the U.S. Gulf Coast. The company is majority 
owned by an affiliate of Enron North America Corp. which, along with a 
group of Mariner employees, provided equity financing for a management-
led buyout in 1996. Mariner has been an active explorer in the Gulf 
Coast area since the mid-1980s (initially as Trafalgar House Oil and 
Gas USA Inc. and then as Hardy Oil & Gas USA) and has successfully 
grown its production and reserve base through the drill bit. Mariner is 
one of the most experienced independent operators in the Deepwater Gulf 
of Mexico, having operated nine field developments in the Deepwater 
Gulf since 1995.
    IPAA represents thousands of independent petroleum and natural gas 
producers that drill 85 percent of the wells drilled in the United 
States. Independent producers of both oil and natural gas have grown in 
their importance, and are a key component of a national energy policy. 
Independent producers produce 40 percent of the oil--60 percent in the 
lower 48 states onshore--and produce 65 percent of the natural gas.
    The presence of independents in the offshore is rapidly increasing. 
Not only do independents now hold 80 percent of all acreage under lease 
on the OCS, but as a group, independents have amassed as much acreage 
in the deepwater as have the majors. And, they participated in half the 
wells drilled in the deep Gulf in 2000. In total, it has been estimated 
that independents hold more than 40 percent of the active leases in the 
deepwater Gulf.
    The March 2001 sale in the central Gulf of Mexico further 
demonstrated the substantial presence of independents in the offshore. 
With high bids from 90 companies totaling over $505 million--up from 
around $300 million a year ago--industry has clearly stepped up its 
activity level in response to today's marketplace. At sale 178, of the 
90 companies bidding, 77 were independents (86 percent).
    Today's hearing focuses on actions that Congress may take that 
significantly increase the supply of energy resources from Federal land 
(including the OCS) within the next five years. This testimony will 
focus on such recommendations for both onshore and offshore Federal 
lands. On two previous occasions, IPAA has submitted for the record 
written testimony documenting the critical role oil and natural gas 
reserves lying beneath Federal onshore and offshore lands will play in 
meeting the nation's energy needs. And it seems that the Public agrees. 
A recent USA Today poll indicated that 63 percent percent of those 
surveyed support drilling for natural gas on Federal lands. The 
Administration's National Energy Policy, unveiled on May 17, highlights 
the need to examine the potential for regulated increase in the oil and 
natural gas development on Federal lands as part of increasing energy 
supplies. We agree with President Bush that we can increase energy 
supply and protect the environment. We can accomplish both goals to 
ensure this country has access to its oil and natural gas resources 
lying beneath government controlled lands.
    Today, I will discuss the steps Congress can and should take now to 
increase production tomorrow. Indeed, if some of these steps had been 
taken yesterday, our nation's energy situation would be far less 
uncertain today. For reference purposes, the two previous testimonies 
submitted by IPAA are dated April 25 and May 14, 2001.
                         the congressional role
    The predominant areas where Congress and the Administration play a 
major role in promoting or inhibiting domestic oil and natural gas 
production are: providing access to the natural resource base and 
providing access to essential capital.
                  i. access and permitting constraints
    A national energy policy must recognize the importance of accessing 
the natural resource base. In 1999, the National Petroleum Council 
(NPC) in transmitting its natural gas study, ``Meeting the Challenges 
of the Nation's Growing Natural Gas Demand'', concluded:
          The estimated natural gas resource base is adequate to meet 
        this increasing demand for many decades. However, realizing the 
        full potential for natural gas use in the United States will 
        require focus and action on certain critical factors.
    Much of the nation's natural gas underlies government-controlled 
land both offshore and onshore. These resources can be developed in an 
environmentally sound and sensitive manner. The Department of Energy 
recently released a comprehensive report, Environmental Benefits of 
Advanced Oil and Gas Exploration and Production Technology, 
demonstrating that the technology is available. And, it is being 
employed, when exploration is allowed.
    Without policy changes, many of which can be initiated by Congress, 
the nation may not be able to meet its needs. The NPC study projects 
demand increasing by over 30 percent over the next decade. This will 
require not only finding and developing resources to meet this higher 
demand, but also to replace the current depleting resources. While many 
analysts are focusing on how much more natural gas demand will grow, it 
is equally important to recognize what is happening to existing supply. 
All natural gas wells begin to deplete as soon as they start producing. 
However, as our technology has improved, we now are able to identify 
probable reservoirs more effectively. This allows us to find and more 
efficiently produce smaller fields.
    Unlike petroleum, natural gas supply is dependent on North American 
resources with 80 to 85 percent coming from the United States. However, 
much of this domestic supply is most cost effectively accessible from 
government controlled lands. The current restrictions affecting access 
to these lands differ depending on the area, but all must be altered to 
meet future demand.
Offshore--Western and Central Gulf of Mexico
    These portions of the Gulf of Mexico have proven to be a world-
class area for natural gas as well as petroleum production, accounting 
for over 25 percent of domestic natural gas production. Production 
comes from the continental shelf, the deepwater, and the emerging 
ultra-deepwater. The NPC study projects that future production 
increases in these areas are essential to meet projected demand.
    A Minerals Management Service (MMS) report on Future Natural Gas 
Supply from the OCS, estimates the future natural gas production from 
the shelf and slope of the Gulf of Mexico in a high case peaking at 6.7 
trillion cubic feet (TCF) in 2010 followed by a decline. However, 
recently published MMS data indicates much lower expected natural gas 
from the Gulf of Mexico. Using new data, the high case estimation could 
peak in 2002 at about 5.22 TCF.
    The Subcommittee on Natural Gas on the U.S. Outer Continental Shelf 
of the OCS Policy Committee recently reported, ``Based on this 
projection, it can be concluded that unless exploration and development 
scenarios in the Gulf of Mexico changes dramatically, the production 
from the Gulf of Mexico may not be able to meet the expected share of 
natural gas supply to meet the expected future natural gas demand of 
the U.S.'' Later in this testimony, I will discuss what IPAA believes 
needs to occur to reach the expected 8.0 TCF of natural gas annual 
production from the Gulf of Mexico (National Petroleum Council's 
estimate for 2010) and, as well, to increase oil production.
Offshore--Eastern Gulf of Mexico, Atlantic Ocean, and California
    The substantial domestic natural gas reserves in these three areas 
is unavailable because of Congressional or Administrative moratoria. 
President Clinton extended these moratoria until 2012 saying, ``First, 
it is clear we must save these shores from oil drilling.'' This is a 
flawed argument ignoring the state of current technology; it results in 
these moratoria preventing natural gas development as well as oil. In 
fact, both the Eastern Gulf and the Atlantic reserves are viewed 
primarily as gas reserve areas, not oil. Too often, these policies seem 
to be predicated on the events that occurred 30 years ago. Federal 
moratoria policy needs to be reviewed and revised to reflect advances 
in the industry's technology. Based on the MMS' 2000 resource 
assessment, the MMS determined that offshore moratoria forgo 
conventionally recoverable 16 billion barrels of oil and 62 trillion 
cubic feet of natural gas. Of course these estimates are based on 
little or no exploration and could be much more significant if 
exploration is allowed. In the western and central Gulf of Mexico, 
estimates have proven to be much greater after exploration.
Onshore - Rockies
    Onshore, the NPC Natural Gas study estimates that development of 
over 137 TCF of natural gas under government-controlled land in the 
Rocky Mountains is restricted or prohibited. A recent study by the 
Energy Information Administration concludes that about 108 TCF are 
under restriction. Regardless of the exact number, the amount is 
significant. A Congressionally-mandated inventory of these resources is 
underway. While an important first step, it is equally important to 
recognize that access to these resources is limited by constraints 
other than explicit moratoria. These constraints that often result in 
``de facto'' moratoria vary widely. Examples include Monument and 
wilderness designations, Forest Service ``roadless'' policy, and 
prohibitions in the Lewis and Clark National Forest.
    At the same time the permitting process to explore and develop 
resources often works to effectively prohibit access. These constraints 
range from Federal agencies delaying permits while revising 
environmental impact statements to habitat management plans overlaying 
one another thereby prohibiting activity to unreasonable permit 
requirements that prevent production. There is no single solution to 
these constraints. What is required is a commitment to assure that 
government actions are developed with a full recognition of the 
consequences to natural gas and other energy supplies. IPAA believes 
that all Federal decisions--new regulations, regulatory guidance, 
Environmental Impact Statements, Federal land management plans--should 
identify, at the outset, the implications of the action on energy 
supply and these implications should be clear to the decision maker. 
Such an approach does not alter the mandates of the underlying law that 
is compelling the Federal action, but it would likely result in 
developing options that would minimize the adverse energy consequences.
IPAA's Priority Short-Term Recommendation for Increasing Access to 
        Production from the OCS and Onshore Federal Lands:
    Energy Accountability. If there is one immediate action the 
Congress and/or the Administration can take that will have a dramatic 
affect on increasing oil and gas production in the short-term, it is 
mandating energy accountability. If all Federal agencies associated 
with decisions affecting oil and gas development are held accountable 
for how their decisions impact national energy supply, production will 
increase.
    Such a requirement is contained in the Administration's National 
Energy Policy:
          ``Issue an Executive Order directing all Federal agencies to 
        include in any regulatory action that could significantly and 
        adversely affect energy supplies a detailed statement on the 
        energy impact of the proposed action.
    A similar provision is contained in S. 388, the National Energy 
Security Act of 2001. Independents all agree that this type of 
requirement should be implemented immediately to bring balance in the 
land use decision making.
IPAA's Short-Term Recommendations for Increasing Access to Production 
        from the OCS:
1. Sale 181
    IPAA and its members companies have long considered Sale 181 to be 
a high priority issue. It represents an important component of our 
future in the offshore. Scheduled for December 2001, it would be the 
first eastern Gulf of Mexico Lease Sale since 1988, and for some our 
members that confine their activities to the Gulf of Mexico, the first 
opportunity to bid outside the central and western Gulf of Mexico ever.
    The Sale 181 area is estimated to hold about 7.8 TCF of natural gas 
and perhaps 1.9 billion barrels of oil. The natural gas resources could 
be used to meet the nation's growing natural gas demand estimated to 
increase by 30 percent from today's level to nearly 30 TCF/yr by the 
year 2010. It is noteworthy that the NPC natural gas study cited 
earlier, assumes Sale 181 occurs on time, with all tracts offered, and 
that development proceeds without delay. The NPC study projects that 
Sale 181 could result in adding 400 billion cubic feet (BCF) per year 
in new gas production--production that would be lost if the Sale were 
not held or restrictions inhibited exploration and production.
    Back in the early to mid-1990's the MMS engaged in a comprehensive 
consultation with Alabama and Florida as well as other coastal states, 
about leasing in the eastern Gulf of Mexico. Both States expressed 
concerns about leasing and both requested that leasing not occur within 
certain distances to their states--15 miles in the case of Alabama and 
100 miles in the case of Florida. Sale 181 was crafted to meet both of 
these criteria and was placed on the current 5-year schedule by the 
MMS. Congress subsequently ratified this decision through the 
appropriations process. Based on this buy-in from coastal states, 
industry began to prepare--accumulating seismic data, reviewing 
geologic trends, conducting preliminary engineering studies--in 
anticipation of Sale 181. Independents have spent millions of dollars 
with the expectation that the Sale would occur as scheduled.
    Today, the debate continues as to whether the Sale should go 
forward. But, after ten years of consultation, it is now time to open 
up to leasing a relatively small area of the eastern Gulf of Mexico 
that was established after exhaustive consultation with coastal states.
2. The Five-year OCS Lease Sale Schedule
    Every five years, the MMS takes on a very thorough process to draft 
a new five-year OCS Leasing Schedule. That process is now underway to 
establish a leasing program for the period 2002-2007. Industry, and 
other interested parties, provided comments to the MMS during the 
earlier stages of the process. A draft schedule should be ready for 
review very soon.
    IPAA vows to work with the MMS to establish a schedule that helps 
meet the nation's growing appetite for energy. For many of our members, 
those that confine their activities to the Gulf of Mexico, it has meant 
annual sales in the central and western Gulf of Mexico. It is essential 
that these annual sales continue. IPAA is encouraged by the 
recommendation contained in the Administration's National Energy Policy 
that OCS oil and gas leasing and approval of exploration and 
development plans on predictable schedules should continue.
    As this Country drafts a national energy policy, now is no time to 
be timid. Yet, we know that resistance in some regions to offshore 
exploration and production remains a major impediment despite the 
obvious energy needs. We have our work cut out for us if we are to be 
successful at making enough offshore lands available to meet the 
nation's energy needs.
    One possible approach interested parties should consider during 
development of the next five year plan, in consultation with industry 
and affected states, is the identification of a small number of prime 
natural gas plays in moratoria areas to determine if limited pilots 
could demonstrate how oil and gas operations could be safely conducted 
in new areas. Such an approach would require congressional funding for 
scientific, environmental, and social/human impact studies. Any 
piloting would require site-specific stakeholder consultations.
3. Coastal Zone Management Issues
    Coastal zone management (CZM) matters are increasingly important to 
independents operating in the Offshore. These matters play a direct 
role in land access for the offshore. CZM issues have not historically 
been seen as a priority issue for independents operating in the western 
and central Gulf of Mexico, as states have not attempted to obstruct 
offshore activities under the Coastal Zone Management Act (CZMA). With 
an increased interest in the eastern Gulf of Mexico, independents' 
interest in CZM is heightened. It is one thing to have a lease sale; it 
is quite another to be allowed to explore, develop and produce from 
that lease once it is purchased.
    A coastal state with a Federally-approved coastal zone management 
plan is empowered to block offshore exploration and production plans, 
if the state can allege that the Federal lessee's activity will have 
some affect on resources in the coastal zone. If the lessee's activity 
will have an effect, the activity must be consistent with the state's 
coastal zone management plan.
    The coastal zone itself generally extends only 3 miles offshore, 
but extends 9 miles in the Gulf of Mexico off Texas and Florida. The 
effects test, however, can be used to extend the state's reach great 
distances from shore. The Interior Department itself determines before 
issuing leases that the projects it expects lessees to undertake will 
be consistent with the plans of any affected states. But states can 
change their minds after the leases are issued.
    A Federal lessee offshore must certify that both its exploration 
plan and production plan are fully consistent with the coastal zone 
plans of affected states. If a state disagrees, the lessee faces 
considerable delay in an appeal before the Secretary of Commerce.
    Chief risks to lessees in current CZMA implementation are:
     LCompliance costs caused by unexpected interpretations of 
vague policies in state CZM plans,
     LDelay costs caused by lengthy appeals process before 
Department of Commerce,
     LRisk of losing lease rights without compensation when 
state changes its mind on what its plan requires.
    Congress should encourage a review of the CZMA and its consistency 
provisions. The Administration's National Energy Policy recommends that 
the President direct the Secretaries of Commerce and Interior to re-
examine the current Federal legal and policy regime (statutes, 
regulations, and Executive Orders) to determine if changes are needed 
regarding energy-related activities and the siting of energy facilities 
in the coastal zone and on the OCS. The review should include:
     LA review of the Coastal Zone Management Act, particularly 
as amended in 1990,
     LImplementing regulations, especially those finalized late 
in 2000 by the National Oceanic and Atmospheric Administration on 
consistency,
     LState implementation programs, and
     LProcess issues, particularly as the process is used to 
delay projects.
4. Congressional Funding
    IPAA recommends that the Congress adequately fund the MMS to ensure 
that its mission is not compromised during this critical period in 
which the Nation aggressively seeks new energy resources to meet 
growing demand. Specifically, IPAA recommends:
     LSupport the Administration's Fiscal Year 2002 budget 
request increasing the MMS budget by $14.7 million to meet increased 
workload brought about by offshore program services and to implement 
royalty in-kind.
     LFully fund the MMS and other related agencies in future 
years to ensure they have the resources available to increase gas and 
oil supplies from the OCS.
     LRequire that appropriated funds be directed to education 
and outreach regarding the benefits the OCS program provides the 
Nation.
    Funding is always difficult during budget reductions and tax cuts. 
However, investing in the offshore program provides taxpayers a great 
return on their investment. In Fiscal Year 2000 alone, the MMS 
collected and distributed about $7.8 billion in mineral leasing 
revenues from Federal and American Indian lands. Madam Chairwoman, IPAA 
applauds your proposal for using part of the onshore oil and gas 
royalty streams to fund those BLM offices responsible for generating 
production on which royalty payments are based. The vast majority of 
royalty payments come from offshore production and, similar to your 
proposal for the onshore, we recommend that a part of the offshore 
royalty stream should be directed to offshore programs that will 
promote increased production, especially natural gas.
    For example, IPAA supports a collaborative effort for research, 
development, and transfer of technologies used in the production of 
natural gas, so long as there are not additional charges or costs such 
as increased royalties, taxes or surcharges. Other uses of the onshore 
and offshore royalty stream, including taking the stream in-kind, could 
include low-income programs and environmental projects.
IPAA's Short-Term Recommendations for Increasing Access to Production 
        from Onshore Federal Lands:
1. Congressional Funding
    Like President Bush's Fiscal Year 2002 budget request for the 
offshore program, IPAA supports the President's proposed increases for 
the onshore Federal oil and gas program. Specific items include:
     LA $7.1 million increase to support improvements in the 
land use planning and accelerate the multi-year process of updating 
management plans. This is a good first step. The entire planning 
process needs to be reviewed, including the funding process.
     LAn $11.8 million increase for oil and gas programs, 
including energy resources surveys, Alaska North Slope oil and gas 
exploration, coal-bed methane permits, and oil and gas inspections.
     LA $3.0 million dollar increase for Bureau of Land 
Management (BLM) to work with U. S. Geological Service (USGS), the U. 
S. Forest Service (USFS), and the Department of Energy to conduct an 
inventory of public lands and describe the impediments and restrictions 
to access and development. Madam Chairwoman, you, along with Chairman 
Skeen, led the effort in the House for getting this included in the 
Energy Policy and Conservation Act (EPCA), which was signed into law 
late last year. We agree with the Administration's National Energy 
Policy that this inventory required under EPCA should be accelerated.
     LA $2.0 million dollar increase to accelerate leasing by 
15 percent and to process an additional 1,000 to 2,000 drilling permits 
in the most promising areas.
    Similar to your proposal of using the royalty stream to fund BLM 
offices managing the production generating this royalty streams, IPAA 
also supports a provision contained in the Administration's National 
Energy Policy to direct royalties from ANWR to conservation efforts and 
eliminating the maintenance and improvements backlog on Federal lands. 
If proceeds from ANWR do not become available in the foreseeable 
future, IPAA would advocate that Congress fund other sources of funding 
to eliminate this backlog.
Permitting Process
    There are costly delays with every aspect on the onshore Federal 
permitting process. In fact, there are a number of examples of 
approvals that are never granted resulting in reserves never being 
developed. The National Energy Security Act of 2001, S.388 reforms the 
permitting process in a subsection entitled Improvements to Federal Oil 
and Gas Lease Management.
    This section contains a number of very important reforms. It allows 
a state, if willing, to conduct a number of non-environmental oil and 
gas approvals on behalf of the Federal government. Our experience has 
been that states can perform oil and gas activities at a much lower 
cost and in much more timely fashion than the Federal government. For 
decisions remaining with the Federal government, the bill establishes 
reasonable timeframes for processing different documents related to oil 
and gas development. Additionally, it provides adequate funding for 
environmental documents. Timing is capital and if there are never-
ending delays, this capital will be directed overseas or to private 
lands.
    If Congress cannot pass such reform in the short-term, it should 
encourage the Administration to determine which of these reforms can be 
implemented administratively. In fact, if approval processes are 
improved, production will occur sooner resulting in more revenues to 
the treasury. The following are two examples of this:
     LApprove Pending Drilling Permits. It is our understanding 
that hundreds of drilling permit are pending before the government. If 
these were approved, production would increase.
     LApprove Balanced Planning Documents. If pending planning 
documents, like the one in Otero County, New Mexico, were approved, 
production will increase. The Otero County document should allow for 
development and, if it did, up to 1 trillion cubic feet of gas could be 
delivered to market from one planning area.
    IPAA agrees with two-related recommendations contained in the 
Administration's National Energy Policy:
     LAn executive order to rationalize permitting for energy 
production in an environmentally sound manner by directing Federal 
agencies to expedite permits and other Federal actions necessary for 
energy-related projects.
     LReview public lands withdrawals and lease stipulations, 
with full public consultation, especially with the people in the 
region, to consider modification where appropriate.
3. Other Administrative Actions
    The government should not implement cost recovery regulations that 
would place unnecessary costs on every facet of the oil and gas 
program. These costs will further discourage small independent 
producers from developing onshore Federal lands and are inappropriate 
given the billions of dollars the oil and gas industry pays each year 
to the Federal government in the form of royalties.
    Additionally, all regulation rewrite efforts that were mandated 
under Vice President Gore's ``Plain English'' Initiative should be 
terminated. The proposals issued for onshore oil and gas regulations 
under this Initiative proposed significant policy changes and would 
result in more uncertainty. Specifically, smaller independent producers 
are concerned about the proposed increase of bonding amounts. Bonds are 
rarely called for the purpose of reclamation. The vast majority of good 
operators on Federal land should not be punished for the bad behavior 
of the few. Enforcement is the key.
Royalty In-Kind
    IPAA has been a long-time supporter of RIK programs. By giving more 
tools to the Federal government to maximize return to the American 
taxpayer when taking in kind, the program can be expanded. When royalty 
in-kind is expanded, more certainty is provided to the government and 
the oil and gas lessees; thereby making offshore and onshore Federal 
lands more attractive for development. IPAA support the RIK provisions 
contained in S. 388. As well, we support funding and providing MMS 
needed RIK authorities in their Fiscal Year 2002 appropriations.
               ii. providing access to essential capital
    Because oil and natural gas exploration and production are capital 
intensive and high-risk operations that must compete for capital 
against more lucrative investment choices, much of its capital comes 
from its cash flow. The Federal tax code and royalty policies play a 
critical role in determining how much capital will be retained. The 
Administration and Congress need to enact provisions designed to (1) 
encourage new production, (2) maintain existing production, and (3) put 
a ``safety net'' under the most vulnerable domestic production--
marginal wells.
    However, given that this Subcommittee has jurisdiction over royalty 
policies, not the tax code, I will not discuss IPAA's tax proposals. 
Rather, I will address the area of royalty policies.
IPAA's Recommendations for Increasing Access to Capital for the OCS:
1. Deepwater Royalty Relief
    The Deep Water Royalty Relief Act of 1995 (Act) provided for 
automatic royalty relief for all new oil and gas leases issued from 
1995 through 2000 in waters deeper than 200 meters in order to 
stimulate exploration and production of natural gas and oil in the 
deeper waters of the central and western Gulf of Mexico. The portion of 
the Act that provided this automatic relief for new leases expired in 
November 2000.
    The MMS has now put in place regulations that would leave to its 
discretion the use of any upfront royalty relief for future Gulf of 
Mexico lease sales. IPAA is concerned that, although the new MMS 
royalty incentives put into place for water depths greater than 800 
meters, subsalt, and deep gas drilling are a good first step, they fall 
short of truly accelerating the rate of development and production of 
natural gas and oil in the Gulf of Mexico. Additionally, the MMS is not 
offering any relief for water depths between 200 and 800 meters.
    To this end, IPAA supports the reauthorization of the original 
automatic royalty suspension volumes as contained in the expired 
provision of the 1995 Act. These terms led to a boom in natural gas and 
oil activities in the deep waters of the Gulf of Mexico in the five 
short years they were in place. At the most recent central Gulf of 
Mexico Lease Sale 178, where no royalty relief was offered for water 
depths of 200 to 800 meters, bidding activity fell sharply compared to 
that previously experienced with royalty relief incentives. We believe 
if the Act would have been reauthorized, there would have been 
substantially more interest in these water depths and in ultra-
deepwaters.
    Would such a reauthorization of the Act cost the American taxpayer 
revenues? Simply put--no. Third party modeling demonstrates that a 
reauthorization of the act would have provided additional, not less, 
revenues to the American taxpayer. Increased production would occur, 
far outweighing the temporary loss of royalty. We should remember that 
prices will not always be this high and we need to encourage aggressive 
leasing now, to meet our production needs for the future.
    We agree with Senator Murkowski's recommendation that under the 
auspices of a National Energy Policy Taskforce that the Secretaries of 
the Interior and Energy form a Gulf of Mexico Leasing Incentives Review 
Team to determine what level of incentives for all water depths are 
appropriate in order to ensure that we optimize the domestic supply of 
natural gas and oil from offshore areas that are not subject to current 
leasing moratoria. In particular, the team should further examine the 
field size distribution of the Gulf of Mexico resource base and the 
international competitiveness of the Gulf. Recommendations, as a result 
of this review, should be made in the context of the importance of the 
development of the natural gas and oil resources of the Gulf of Mexico 
to the Nation's future energy and economic needs. These recommendations 
should be implemented prior to the August 2001 western Gulf of Mexico 
lease sale.
2. Deepwater Leases Issued prior to November 2000
    During Sale 178, the MMS adopted an important approach to stimulate 
activity in the 800 meter plus water depths--royalty incentives were 
offered on a lease-basis . For deepwater lease issued prior to sale 
178, the MMS only offered royalty incentives on a field-basis. If the 
MMS would retroactively offer such relief on a lease-basis, this would 
greatly stimulate production from the deepwaters. Too many leases 
issued during the term of the Deepwater Royalty Relief act were found 
to be ineligible for royalty relief because of the existing policy of 
relief to be offered on a field-basis (vs. lease-basis) or the MMS' 
interpretation of the rules implementing this policy.
3. High Risk Exploration on the Shelf
    In addition to the deepwaters, independents are quite interested in 
the significant natural gas and oil reserves that could be developed by 
deep drilling, drilling into subsalt structures, and drilling highly 
deviated wells. IPAA recommends royalty incentives be offered for (1) 
wells below 15,000 where there is no current production AND (2) extend 
royalty relief as embodied in Central GOM Sale 178 for new and existing 
leases for drilling of sub-salt prospects or prospect located in 
abnormal pressure conditions AND (3)for drilling highly deviated wells 
off existing platforms which might not otherwise have been attempted. 
In other words, these incentives would apply to expensive, high risk 
plays on new and existing leases. Such relief would, of course, be 
phased out at higher prices.
    During Sale 178, the MMS took some important first steps. It 
offered a royalty incentive for new leases whereby natural gas is 
discovered for drilling in excess of 15,000 feet for water depths of 0 
to 199 meters. Similar relief is needed for existing leases where 
production has not yet been established.
    With regard to subsalt, the MMS recognized the high risk nature of 
exploring such a play in the OCS by offering for new leases a 2 year 
extension of the 5 year term should a well be drilled. What are truly 
needed are more incentives to encourage drilling.
4. Marginal Production on the Shelf
    Independent producers report that there are significant resources 
still remaining on the Shelf that would be developed if royalty 
incentives were available. Marginal properties and/or fields are being 
left behind. IPAA understands that DOE had initiated modeling of 
different royalty incentives to stimulate production from marginal 
fields. This modeling effort should be completed and, if appropriate, 
royalty incentives implemented.
IPAA's Recommendations for Increasing Access to Capital for the 
        Onshore:
1. High Risk Exploration Onshore
    Like in the offshore, independents are interested in the 
significant natural gas and oil reserves that could be developed by 
onshore deep drilling. Royalty incentives should apply to expensive, 
high risk plays on new and existing onshore Federal leases. Such relief 
would, of course, be phased out at higher prices.
2. Marginal Production Onshore
    It has always been understood that much of the production lying 
beneath onshore Federal lands is marginal. This is why the Bureau of 
Land Management continues to offer royalty relief for stripper oil 
wells (e.g., wells that produce less than 15 barrels per day) under 
certain prices. A similar program should be implemented for marginal 
natural gas wells.
3. The National Energy Security Act of 2001, S. 388
    The National Energy Security Act of 2001, S.388 contains a 
provision entitled Royalty Investment in America. This provision allows 
lessees to forgo Federal royalty payments during periods of low energy 
prices and instead make capital investments in energy production. 
During low prices this type of provision will reduce the likelihood of 
dramatic decreases in exploration, such as those during the 1998-99 
downturn. This applies to both onshore and offshore production.
4. The Administration's National Energy Policy
    The National Energy Policy acknowledges the contribution the 
Deepwater Royalty Relief Act made to increasing supply. It recommends 
that the President
        ...direct the Secretary of Interior to consider economic 
        incentives for environmentally sound offshore oil and gas 
        development where warranted by specific circumstances: explore 
        opportunities for royalty reductions, consistent with ensuring 
        a fair return to the public where warranted for enhanced oil 
        and gas recovery; for reduction of risk associated with 
        production in frontier areas or deep gas for formations; and 
        for development for small fields that would otherwise be 
        uneconomic.
IPAA supports this review and encourages the Administration to have 
this review include the above incentive proposals for both offshore and 
onshore Federal production.
    Royalty incentives, in conjunction with new tax policies, must be 
developed to encourage renewed exploration and production needed to 
meet future demand, particularly for natural gas. The NPC gas study 
projects future demand growth for natural gas and identifies the 
challenges facing the development of adequate supply. For example, the 
study concludes that the wells drilled in the United States must 
effectively double in the next fifteen years to meet the demand 
increase. Capital expenditures for domestic exploration and production 
must increase by approximately $10 billion/year--roughly a third more 
than today. Generating this additional capital will be a compelling 
task for the industry. As the NPC study states:
          While much of the required capital will come from reinvested 
        cash flow, capital from outside the industry is essential to 
        continued growth. To achieve this level of capital investment, 
        industry must be able to compete with other investment 
        opportunities. This poses a challenge to all sectors of the 
        industry, many of which have historically delivered returns 
        lower than the average reported for Standard and Poors 500 
        companies.
    In fact, as the past year has shown, capital markets have not 
shifted to supporting the energy sector. For the industry to meet 
future capital demands--and meet the challenges of supplying the 
nation's energy--it will need to increase both its reinvestment of cash 
flow and the use of outside capital. The role of royalty incentives and 
the tax code will be significant in determining whether additional 
capital will be available to invest in new exploration and production 
in order to meet the $10 billion annual target.
           there's no short-term fix--recovery will take time
    It will take time for any realistic future energy policy to achieve 
results.. There is no simple solution. The popular call for OPEC to 
``open the spigots'' failed to recognize that the low oil prices of 
1998-99 reduced capital investment from the upstream industry all over 
the world. Only Saudi Arabia had any significant excess production 
capacity and no one knew just how much or whether the oil was of a 
quality that it could be refined in most refineries. The collateral 
damage of low oil prices on the natural gas industry is affecting gas 
supply today and will until the industry recovers. The producing 
industry lost 65,000 jobs in 1998-99. While about 40 percent of those 
losses have been recovered, they are not the same skilled workers. If 
measured by experience level, the employment recovery is far below the 
numbers. Less obvious, but equally significant, during the low price 
crisis equipment was cannibalized by operating and support industries 
who were decimated. It will take time to develop the infrastructure 
again to deploy new drilling rigs and provide the skilled services that 
are necessary to rejuvenate the industry.
                               conclusion
    Providing access to the resource base will be critical and requires 
making some new policy choices with regard to the onshore and offshore 
Federal lands. Access has and can occur while we accelerate the 
protection and improvement of the environment, and increase our 
nation's energy security. A critical first step is to require agencies 
to measure and document the impact of their decisions on the 
development of energy resources.
    Overall, attracting capital to fund domestic production under these 
circumstances will be a continuing challenge. This industry will be 
competing against other industries offering higher returns for lower 
risks or even against lower cost foreign energy investment options. The 
slower the flow of capital, the longer it will take to rebuild and 
expand the domestic industry.
    These two issues are the ones that are particularly dependent on 
Federal actions, and should be the immediate focus of this Congress and 
the Administration.
    Energy production--particularly petroleum and natural gas--is an 
essential component that must be included and addressed at once. 
Independent producers will be a key factor, and the industry stands 
ready to accomplish our national goals, if policies reflect that 
reality.
                                 ______
                                 
    Mr. Gibbons. Thank you, Mr. Sims.
    Mr. Fry, welcome to the Committee. Again, the floor is 
yours. We look forward to hearing you.

  STATEMENT OF TOM FRY, PRESIDENT, NATIONAL OCEAN INDUSTRIES 
                          ASSOCIATION

    Mr. Fry. Mr. Chairman, it is always a pleasure to be with 
you and this Committee. I would like to ask that my written 
remarks be made a part of the record.
    Mr. Gibbons. Without objection.
    Mr. Fry. Thank you.
    Mr. Chairman, I am here today representing the more than 
300 members of the National Ocean Industries Association. This 
is an organization that represents all facets of the offshore 
oil and gas business, from producing, to drilling, engineering, 
transportation, telecommunications, finance, law, and 
insurance. Everybody who works in offshore tends to be a member 
of the National Ocean Industries Association.
    Today I would like to address, though, a bigger picture--
our national energy needs.
    Secretary Pena asked the National Petroleum Council to look 
into natural gas supplies over the next 20 years. They did so 
and finished their report about 2 years ago.
    They determined that we were going to need an additional 
one-third natural gas over the next 10 to 12 years in order to 
fuel this economy. Now, the first 2 years of that report are 
now under our belt.
    It turns out, we used more than was even projected. But 
allowing for dips in the economy, other things to happen, I 
think the report thus far has proven to be right on track.
    The question than becomes, where will this natural gas come 
from? About a third of all the natural gas that is produced in 
this country comes from the offshore. As you look at all the 
new power plants that are being built in this country, over 90 
percent are going to be fueled by the clean-burning natural 
gas.
    Where is this gas going to come from? It has either got to 
come from the offshore, the onshore, but certainly, it has to 
come from this hemisphere. We do not import natural gas from 
overseas, with the exception of small amounts of natural gas 
liquids. It is important that we look for domestic supplies of 
natural gas.
    Now, I would like to agree with what I think Mr. Kind and 
Mr. Tauzin both said: We have to look everywhere in terms of 
where we will find our energy for the future. We are going to 
look to the offshore. We are going to look to the onshore. We 
are going to have to look to coal. We are going to have to look 
to conservation. We are going to have to look to geothermal. We 
are going to have to look to renewables.
    All of those are going to have to be a part of the mix as 
our economy continues to grow and continues to need the energy 
to fuel the economy.
    As I look at the offshore program, I note that over 85 
percent of all Federal lands offshore are now under either 
congressional or presidential moratoria. We only really look in 
the eastern and western Gulf of Mexico.
    I recognize that the President campaigned and made a 
promise to recognize existing moratoria. But I think as we look 
at the long-term needs of this country, relative to oil and gas 
and oil and gas development, we need to start planning for the 
long-term range future.
    And while I am not here today to recommend to you that we 
repeal current, existing moratoria, certainly we need to have 
access to those areas that are not under moratoria--the 181 
eastern Gulf of Mexico area, which is more than 100 miles off 
the shoreline of Florida.
    But we also need to look to areas currently in moratoria to 
start doing some looks to see what is there. The work that was 
done 20 years ago developed the current estimates of how much 
oil and natural gas may exist in the Federal offshore, but that 
is old technology, old information. We need to update that 
information.
    The Minerals Management Service needs to be given the 
ability over the next portion of the 5-year plan to start 
developing the kind of information and inventory of what kind 
of energy resources are in our offshore.
    Lastly, I would ask that, along with the other things that 
have been suggested by my fellow panelists, that we also begin 
a pilot project on e-commerce. One of the things that can speed 
up the process of leasing in the offshore is to have the 
ability for people to communicate through the Internet, to file 
permits through the Internet, provide information back and 
forth through the Internet. And a pilot project along that line 
would be most helpful for the industry and I think for the 
Minerals Management Service in the year 2002.
    With that, I would like to thank you, Mr. Chairman, for 
giving us the opportunity to testify, and we look forward to 
your questions.
    [The prepared statement of Mr. Fry follows:]

 Statement of Tom Fry, President, National Ocean Industries Association

    My name is Tom Fry and I am the President of the National Ocean 
Industries Association, or NOIA. NOIA is the only national trade 
association representing all segments of the offshore industry with an 
interest in the exploration and production of hydrocarbon resources on 
the nation's Outer Continental Shelf. The NOIA membership comprises 
more than 300 companies engaged in numerous business activities ranging 
from producing to drilling, engineering to marine and air transport, 
offshore construction to equipment manufacture and supply, 
telecommunications to finance and insurance.
    I am delighted to have the opportunity to discuss some of the 
possible short-term solutions available to the American people to 
increase our domestic energy supply from public lands, specifically the 
important choices that we face with regard to offshore energy 
exploration and production from the submerged public lands of the 
Federal Outer Continental Shelf (OCS). In light of the tightened energy 
markets, volatile commodity prices, and the tragic situation in 
California, this topic clearly demands our urgent attention. 
Furthermore, a frank discussion of our current energy situation is 
particularly timely because I believe that the nation has arrived at a 
pivotal point with respect to how we address these issues.
    Pivotal in this sense: in the next few months our elected leaders 
will be asked to make some important choices. If the right decisions 
are made, the United States could be embarking on an unprecedented era 
of innovation and growth. If the wrong decisions are made, we could be 
walking down a path of uncertainty, constriction, and economic tumult. 
The choices that this committee and other of our national leaders will 
make in the coming months will determine whether our future will be a 
time of growth and prosperity, or a time of constriction and 
uncertainty.
    I have been called here to address short-term solutions to these 
problems, and I will. But when I discuss ``short term'', I am thinking 
in terms of years as opposed to weeks. I have no immediate answers to 
California's quandaries, but I will offer some suggestions as to how we 
as a nation can avoid the missteps that could create similar crises in 
other regions of the country.
Background
    At present, the United States imports considerably more than half 
of the oil that we require to support our quality of life and our 
economy. As demand escalates, we will likely continue to grow more 
dependent on foreign oil. While it is unlikely that our nation could 
ever operate independently of the volatile world oil markets, an 
increase in production would go far toward stabilizing domestic prices, 
and increasing our ability to counterweight OPEC's price manipulations. 
The United States has oil--a great deal, in fact. In recent times, 
however, we have chosen to rely increasingly on overseas production, 
treating our domestic hydrocarbon production as if it were a shameful 
vice to be hidden and avoided. Of course, energy production is not a 
vice, and we certainly cannot afford to avoid or ignore it. It is now 
clear that an increase in domestic oil production is needed if we are 
ever to attain some degree of flexibility with which to cope with the 
issues that have confounded consumers across the country in recent 
years.
    With respect to natural gas, an increase in domestic production is 
not only desirable to cushion us from volatile markets; it is 
absolutely necessary if we are to meet even our most basic needs. 
According to the Secretary of Interior's OCS Policy Committee's 
Subcommittee on Natural Gas, in 1998, the United States consumed 21 
trillion cubic feet (TCF) of natural gas, but produced only 18.7 TCF. 
Imported Canadian natural gas provided the balance of supply.
    Recently the U.S. Department of Energy, the National Petroleum 
Council and others have predicted that the U.S. demand for natural gas 
will increase to 35 TCF in little more than a decade. While we continue 
to import a great deal of gas from Canada, our neighbors to the north 
are running at full tilt in order to meet their own climbing domestic 
needs. Here is an important point: since natural gas is imported 
through pipelines, it is not currently feasible to meet our 
skyrocketing demands with natural gas from overseas. We must increase 
our domestic production to meet this demand. The American people have 
demonstrated their preference for clean-burning natural gas to generate 
their electricity. Over 90 percent of our planned electrical generation 
capacity in this country will be natural gas-fired. It is clear that we 
are moving rapidly toward a much greater reliance on natural gas. This 
is not a bad direction for our nation. Increasing our utilization of 
natural gas will enhance our quality of life. It is our most readily 
available source of clean energy. We should use more. However, if we 
head in the direction of greater natural gas reliance, while 
simultaneously choking off our supply; we are heading for tragedy. The 
policy of increasing our demand while decreasing our access to supply 
is a recipe for disaster. We must make swift and direct steps that will 
increase our domestic production in order to preserve our strong 
economy and high standard of living.
    The offshore energy industry is working tirelessly to increase 
production. More than one-fourth of the oil and one-third of the 
natural gas produced in the United States is harvested from the Gulf of 
Mexico. NOIA's members are currently working at maximum capacity to 
bring America the energy it needs. We will do our part, but we can't do 
it alone. You, our congressional leaders, as well as the President and 
the Executive Branch agencies, face some important choices that will 
determine whether we as a nation are able to meet these pressing 
demands.
The 5-Year Plan
    The first decision that must be addressed is the Minerals 
Management Service's 5-Year Plan for Oil and Natural Gas Leasing on the 
OCS, which the MMS is currently in the process of compiling for the 
years 2002 through 2007. This plan determines which of our submerged 
Federal lands will be available for leasing, and which will be off 
limits to mineral exploration. Areas included in the plan are 
considered for leasing, but need not be leased. Areas not included in 
the plan, however, cannot be leased.
    The choices made in the formation of this plan will impact our 
economy and our standard of living for years to come. It is important 
to underscore here that the 5-Year Plan will dictate what energy 
resources we have at our disposal well into the future. For many 
offshore operations, the cycle time from the moment a tract is leased 
to the time first oil or gas production occurs can average between 2 to 
5 years, though in many deepwater regions, the time required sometimes 
exceeds 10 years. It is important to understand therefore, that the 5-
Year Plan will determine what energy resources we will have at our 
disposal not only in the next two years, but also in the year 2012 and 
beyond.
    NOIA asks that the MMS be allowed to include areas currently under 
moratoria in the 5-Year Plan in order to determine the resource 
potential of the Federal OCS. Basic assessment activities such as 
socioeconomic studies, geological and geophysical studies, and 
environmental impact assessments that are typically done on areas 
included in the 5-Year Plan, should be done on these areas, even though 
leasing is not currently an option because of executive moratoria. 
Failing to engage in these basic assessments would be to continue to 
conduct the energy debate in a vacuum, ignoring the entire spectrum of 
our choices and alternatives until it is too late.
    As it now stands, we have little knowledge of what our hydrocarbon 
resource base comprises. Excepting what we know of the central and 
western Gulf of Mexico, and certain areas off the coasts of California 
and Alaska, we simply do not have any adequate knowledge of what 
resources we are sitting on, and whether or not they are recoverable 
economically and environmentally. Not all areas are suitable for 
development. However, before we can have an informed discussion, it is 
imperative that we carefully examine all areas likely to contain 
hydrocarbons that can be found and harvested in a manner consistent 
with our nation's highest environmental standards by including them in 
the 5-Year Plan. Any other course of action would rob the MMS, and the 
nation, of the flexibility we require in order to meet our rapidly 
changing energy needs.
    Currently 85 percent of the lower 48 state's coastal lands are off 
limits to hydrocarbon resource development. Although the MMS continues 
to issue a resource assessment every year that estimates the amount of 
hydrocarbons available in these areas, the agency is basing these 
determinations on decades-old information. In light of the 
technological leaps that the industry has made in the past few years 
with seismic exploration and deepwater drilling ability, to name but 
two, the current MMS assessments based on data from the 1980s in most 
cases, are grossly inaccurate. If we do not include these areas in the 
5-Year Plan and allow for basic work to be done, we cannot have a 
reasonable debate about a national energy policy, because we will not 
have all, or even most, of the facts before us.
    The most important lesson to be drawn from the energy crisis in 
California is that we must not allow ourselves to be painted into a 
corner. Our policymakers must allow themselves the full flexibility to 
deal with changes in our energy supply including the machinations of 
OPEC countries, a volatile business cycle, aging infrastructure, and a 
tight labor market.
    If the MMS is not given the authority to consider the full range of 
options in the upcoming 5-Year plan, then we will be painting ourselves 
into a corner. And I fear that such a decision will leave us without 
the energy security and reliability required for prosperity and growth.
Lease Sale 181
    Another vital step that we must take to increase energy production 
is ensuring that upcoming Eastern Gulf Lease Sale 181 occurs as planned 
and on schedule.
    At a time when 90 percent of our planned electrical generation 
capacity will be fired by natural gas, the estimated 7.8 trillion cubic 
feet of natural gas in the Sale 181 region is vital to our national 
security and our economic prosperity. That is enough clean-burning 
natural gas to supply 4.6 million households for 20 years--and if our 
experience in the central Gulf is any indication, 7.8 trillion cubic 
feet is a very conservative estimate of the resource potential of the 
area. (Again, as I noted earlier, the current resource estimates of the 
Sale 181 region's potential are based on very limited exploration work 
done in the mid-1980s.)
    Lease Sale 181 is a key component of our energy future because it 
is a region with an already existing infrastructure that can be 
utilized rapidly and with a minimum of turnaround time to bring our 
country the energy we need. That the Eastern Gulf is also nestled 
neatly in one of the most rapidly growing population centers in the 
United States only underscores the sale's importance. The streamlined 
development of the Sale 181 area's resources is what will prevent 
Florida from becoming our next California-style energy crisis.
Coastal Zone Management
    Another important issue that I would ask Congress to address, which 
could have even more immediate implications for the stability of our 
domestic energy supply is the Coastal Zone Management Act of 1972 
(CZMA), and its subsequent implementing regulations. The CZMA is an 
excellent example of good legislation that has gone awry as it has been 
implemented over the years. The act was passed with the laudable 
intention of creating a national program that would encourage states to 
manage and balance competing uses of, and impacts to, coastal 
resources. However, anti-development interests within states have used 
the law to stall or halt offshore development by taking advantage of 
loosely worded passages within the statute and regulations that enmesh 
offshore lessees in a never-ending loop of permit approvals and 
appeals.
    A recent example of the law's potential for misuse occurred when 
Florida officials signaled their intention to use the CZMA's Federal 
consistency provisions to oppose the use of Floating Storage, 
Production, and Offloading (FPSO) systems in the central and western 
planning areas of the Gulf of Mexico--regions that are far removed from 
Florida's coastal waters. NOIA believes that it is vital that FPSOs are 
approved for use in the Gulf, as they hold great potential to improve 
the economics and efficiency of the deepwater operations that are 
behind the continued dynamism of the region. NOIA is asking legislators 
to review the CZMA and to remove the aspects of the law that obfuscate 
its original intent--paying specific attention to the approval 
processes that currently have no finality or reasonable timeline in 
place.
Streamlining the Minerals Management Service
    Another issue that relates to expedited permit processes--and 
therefore to a more rapid increase in energy supplies--is the MMS's 
proposed ``e-Government'' initiative. The hip, ``new economy'' name of 
this effort disguises a regulatory initiative that could have real 
value for government officials, industry operators, and energy 
consumers. In essence, the e-Government program would allow the 
industry to submit permit applications over the Internet, stream safety 
and geophysical data to a secure central server at MMS. This would 
allow for immediate permit confirmation, more reliable and accurate 
record keeping, and a greatly streamlined working relationship with the 
MMS. In an industry where consumer responsiveness is so important, 
where time is money, and where good data equals sound decisions, NOIA 
strongly supports the e-Government initiative at MMS and asks that the 
appropriators ensure that the agency gets the funding it needs to pilot 
such an effort.
Conclusion
    In closing, I would like to comment on a very positive step that 
was recently taken by the Vice President's Energy Policy Development 
Group, and that is the recommendation that the President create a 
governmental unit of energy policy oversight. This White House-level 
oversight body will ensure that new regulations and policies will be 
carefully examined for the potential impacts to our energy supply and 
demand. The office would be similar to the White House's Council of 
Environmental Quality whose mandate is to review regulatory impacts to 
the environment. NOIA believes that such an office would guard against 
the enactment of regulations that, while well intentioned, have an 
overall negative impact on the stability of our energy supply or, 
conversely, on our energy demand.
    I have touched on only a handful of the choices that our leaders 
must face. But the course that is chosen will have a lasting impact on 
the reliability and abundance of our domestic energy supply and 
therefore, on our nation's economic future and the sustained health of 
our standard of living.
    On behalf of the ocean industries, I ask our nation's leaders to 
choose wisely. Their public trust obliges them to plan carefully now to 
secure a bright future for the United States.
    Thank you very much for your time and attention.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Fry.
    And let me ask one real quick question of you, because just 
now, in your oral testimony, you indicated that we are looking 
for oil and gas in the western and eastern portion of the Gulf 
of Mexico.
    Mr. Fry. Excuse me. Western and central, Mr. Chairman.
    Mr. Gibbons. I just wanted to clarify that it is the 
central portion.
    Mr. Fry. Thank you.
    I wish we were looking for it in the eastern.
    Mr. Gibbons. There are a lot of people who wish you were 
looking for it in the eastern.
    Let me pose a question within the time limits I have--we 
are going to limit our members to 5 minutes--to all of you and 
then maybe get some feedback, if I could, from you.
    And the question that I want to ask--and I want to give all 
of you a minute to think about it, so I am going to ask this 
question first, and I am going to follow it up with a couple of 
other questions, and then give you time to think about it.
    And I want to know, from your standpoint, what three 
actions could the Federal Government do to increase energy 
production from government land during the next 5 years. Just 
give me your top 3 actions that this government could do that 
would increase energy production from public lands in the next 
5 years.
    Now, let me ask also, because I think this question will be 
just a little bit easier, all of you have in one way or another 
addressed the problem of the delays in the permitting process, 
principally due to inadequate funding for staffing, et cetera.
    Let me ask this question to all of you and get your 
visceral reaction to it. Would you support a portion of the 
Federal share of the royalties that are taken from oil and gas 
today being directed to the Minerals Management Service or the 
permitting process to expedite this effort of getting more 
permits more quickly accomplished than we have seen in the past 
or what has been your experience in the past?
    And I will start with Mr. Rubin and just go right down the 
line.
    Mr. Rubin. Thank you. Yes, the three actions that can be 
taken to increase production:
    First, I would start with expediting the permitting and 
land management planning process in the western U.S. There are 
a lot of places where there are permits piled up, where people 
are ready to drill wells. We need to get those permits out.
    In addition to the permitting problem, we have to make sure 
that we have enough rigs and capital to drill those wells. But 
the permitting issue would help significantly.
    I would also add that it is important to keep Lease Sale 
181 in the eastern Gulf of Mexico on track, and to keep all 
tracts in the sale, because some of the tracts that can be 
brought on the quickest are those in the shallowest areas.
    And I would also add that additional leasing should be 
conducted in the NPR-A in Alaska, where just yesterday, as I 
mentioned, there were several discoveries that were announced, 
some fairly exciting discoveries.
    So those are the three areas.
    As far as supporting royalties being used to expedite the 
permitting process, I don't see why that should not be done. I 
think it is up to the Congress, of course, to figure out how to 
pay for it. But we do think it is very important to increase 
the resources committed to the permitting process.
    Mr. Gibbons. Thank you.
    Mr. O'Connor, your answers to the two questions.
    Mr. O'Connor. Yes, sir. I identified three items in my 
testimony, dealing legislatively with the coal bed methane 
conflicts issue. Secondly, providing some additional degree of 
flexibility and local involvement in the roadless issue. And 
third, additional funding for more expedited Federal coal 
leasing analysis.
    With your permission, I would like to throw in a fourth 
that I did not identify, but which is of really overriding and 
overreaching importance, and that is, it is absolutely critical 
to this country that we have more expedited permitting and 
construction of transmission lines, particularly in the western 
United States, in order to be able to provide a delivery system 
for electrical needs.
    On the question about whether or not we would be willing to 
consider seeing some share of the Federal share or some portion 
of the Federal share to help with the funding of more expedited 
permitting and leasing, you know, it is appropriate to consider 
that. We would not oppose it. And we think there would be an 
enormous return on that investment.
    Mr. Gibbons. Thank you.
    Mr. Sims?
    Mr. Sims. The several items I would identify would be, 
first, the successful implementation of the executive order 
regarding energy impact analysis on regulatory matters. We 
think that would, over the near term and long term, bring much 
better balance into play in terms of regulatory actions as they 
affect energy supply.
    Second, I would agree with Mark Rubin, my good friend from 
the API, that Sale 181 is a high priority and should go 
forward. That is a high priority for independents in the near 
term. And we believe that with the 7.8 trillion cubic feet of 
gas and 1.9 billion barrels of oil estimate, that it is a very 
good opportunity that we shouldn't miss.
    And finally, we believe that royalty incentives in the 
offshore and onshore would be good to help stimulate that kind 
of capital deployment into these kinds of activities.
    Earlier, there was a citing that production had increased 
during the Clinton administration. And I don't know those 
numbers exactly, but one of the big successes over the last 5 
years was the deepwater royalty relief program that led to an 
increase in activity in deepwater. And we believe that kind of 
stimulus and incentive should continue going forward and be 
helpful.
    Mr. Gibbons. Thank you, Mr. Sims.
    Mr. Fry?
    Mr. Fry. First off, I hesitate almost to get into what are 
the three most important, because I mentioned, Mr. Chairman, I 
think that everything we do is going to important to deal with 
this problem.
    However, I will suggest that I think Sale 181, which was a 
sale that was proposed by the Clinton administration, be a sale 
that goes forward in its entirety.
    The second area is area of coastal zone management. We have 
lots of opportunities to development natural gas in the 
offshore. But the Coastal Zone Management Act, because of some 
deficiencies in terms of timing in the act, make it almost 
impossible to finally bring production on-line in some offshore 
areas.
    Thirdly, it has already been mentioned, the area of royalty 
relief. We have seen that royalty relief, given properly and in 
proper ways, will increase activity that wouldn't normally 
occur.
    So I think those three things would be items that would be 
high on my list, recognizing that I think we are going to have 
to do everything.
    In terms of sharing the Federal royalties, there is 
currently a program within the Minerals Management Service 
where some of the fees that are collected go to supporting some 
of those programs.
    I think those are appropriate when set up properly and 
managed properly, and we would certainly support continuation 
of those. And I think it is proper to look past those at other 
possibilities, Mr. Chairman.
    Mr. Gibbons. Thank you, Mr. Fry.
    Mr. Kind?
    Mr. Kind. Thank you, Mr. Chairman. Just a few questions.
    It is an interesting proposal in regard to the royalty 
issue, but obviously, you still have to deal with the 
appropriators. We found that in dealing with CARA, where a lot 
of the offshore royalties were going to go into some good land 
conservation programs. We ran into a huge fight at the 
appropriation level with our appropriators, who kind of like to 
control these funds and decide how best to use them.
    But there is another problem with the royalty aspect, and 
we have seen this over the last half a year to a year or so, 
and that is the numerous cases of litigation that have gone to 
trial now, even government audits showing that there have been 
some problems in getting the true market value of the royalties 
that are being sent back to the American taxpayer.
    In fact, a recent jury verdict in Alabama, I think, against 
I think it was BP, recently showed that--the argument was that 
reasonable people can disagree in regard to what an accurate 
royalty payment should be in that, but the evidence there 
showed that there was certainly some undermining of data and 
information being used.
    So if we are going to be relying on royalty payments, I 
think we need to address that issue as well, which is a growing 
concern with a lot of people here in Congress.
    One of the questions I have for you gentlemen today is in 
regard to existing oil capacity and the danger of corrosive 
pipes that we are seeing more and more so, especially up in the 
North Slope.
    We have had numerous stories of corroding pipes leaking and 
that affecting the tundra up there. This is with existing oil 
fields and production that is going on right now, and the whole 
argument about being able to go into new public lands, for 
instance, in an environmentally safe manner when existing 
facilities right now are having problems and are experiencing 
severe leaking problems.
    And I am wondering if you would address that issue, first 
of all.
    Mr. Rubin, want to start with you?
    Mr. Rubin. Regarding the corrosion issues on the North 
Slope, the companies that operate up there spend of millions of 
dollars every year on corrosion protection, on working to 
maintain their facilities. The corrosion problems exist mainly 
with produced water piping systems.
    And while the problems have to be addressed, they have to 
be corrected, and the companies are spending a great deal of 
money on those, it is important to note that those leaks that 
are occurring are mainly leaks of produced water, not 
hydrocarbons. And that is something that is helpful.
    Mr. Kind. Mr. Rubin, let me just ask, as far as the 
environmental impact of that, though, I think a lot of this 
water is saltwater that is being used. Does that also not have 
the environmental impact with the--
    Mr. Rubin. No, it does have an environmental impact, and it 
is important that we have to remediate those sites.
    One of the things that helped the recent spill was that the 
produced water mixed with the snow that was on the ground, and 
that reduced the salinity of the water that impacted the 
tundra. That is important.
    No doubt, we have to do the best job we can of protecting 
the tundra on the North Slope, of protecting the environment.
    And in fact, the companies that operate on the North Slope 
have spent more money than any other area of the world for 
spill protection, for spill response. They have the best spill 
response facilities in the entire world on the North Slope of 
Alaska.
    I would add one comment regarding your comment regarding 
royalties. We have long advocated greater use of royalty in-
kind so that we can get past many of these arguments of how oil 
and natural gas should be valued.
    There have been successful pilots conducted in Wyoming and 
in the Gulf of Mexico that show that royalty in-kind does work 
to the benefit of the Federal Government. And we think that 
expanding the use of royalty in-kind, we will get past these 
arguments that you are talking about.
    Mr. Kind. Mr. Sims, do you have any additional comments? 
Because I think there is a public perception problem here. The 
American people, by and large, are not completely convinced 
that we have the technology to be able to do this in an 
environmentally safe way. Even Governor Jeb Bush isn't 
convinced that we can do this in an environmentally responsible 
way, given the potential effects on the west coast of Florida.
    So, Mr. Sims, if you have any--
    Mr. Sims. I would begin by amending my previous answer to 
address the question of tying a portion of the royalty stream 
to MMS funding. Yes, the IPAA would support that, for the 
record.
    Regarding pipeline or flow-line corrosion on the North 
Slope, I just don't have the experience there. Most of our 
members operate in the lower 48, in the offshore.
    I could speak to the importance of our safety and 
environmental practices offshore. Independents, like the larger 
companies, participate in what is called a SEMP program on the 
offshore that tracks our performance and establishes guidelines 
for performance. And we think we have a very good track record 
offshore as well as onshore.
    But my firsthand knowledge of North Slope, I just don't 
have it.
    Mr. Kind. Mr. Chairman, with my remaining time, I would 
like to submit for the record, for purposes of this hearing, a 
few articles from the Anchorage Daily News: one that was 
published on April 17 of this year, ``Pipeline Leak's a 
Doozy,'' talking about some of the problems of the leaks on the 
North Slope; as well as an article that appeared on April 22 of 
this year, ``Corrosion Is a Constant Enemy,'' a very insightful 
and detailed article; and then finally one that appeared on May 
22 of this year in the Anchorage Daily News, ``Phillips Finds 
NPR-A Oil,'' discovery of three oil and gas fields on the North 
Slope inside the newly opened National Petroleum Reserve in 
Alaska.
    And if preliminary estimates prove correct, it is the 
largest oil and gas find in the last decade. This was land that 
apparently was leased under the Clinton administration.
    So I would like to submit those three articles for the 
record, Mr. Chairman.
    Mr. Gibbons. Without objection.
    [The articles referred to follow:]

                        Pipeline leak's a doozy

   KUPARUK: Crude and saltwater soak tundra in year's biggest spill.

Anchorage Daily News
By Ben Spiess Anchorage Daily News
(Published April 17, 2001)

    In what may be one of the largest spills ever on the North Slope, 
92,400 gallons of saltwater and crude oil leaked from a pipeline at the 
Kuparuk oil field Sunday night.
    The mixture, which was more than 97 percent saltwater, leaked from 
a 10-inch pipeline at a temperature of more than 100 degrees. The spill 
saturated nearly an acre of tundra, said Ed Meggert, head of oil spill 
response with the state Department of Environmental Conservation in 
Fairbanks.
    No exact cause has been determined, but Meggert said ``it looks 
like erosion or corrosion to the pipe is the cause.''
    This is the fourth major spill on the North Slope this winter and 
the second due to erosion or corrosion.
    By midday Monday, Phillips, which operates the Kuparuk oil field, 
North America's second largest, said it had cleaned up most of the 
spill.
    Corrosion from water and erosion from abrasive material such as 
sand is a growing problem on the North Slope. As Kuparuk and Prudhoe 
Bay age, the companies are grappling with internal pipe corrosion from 
water running through lines and external corrosion from water seeping 
between pipe insulation and hot steel pipe walls, where it eats at the 
metal.
    The accident timing is bad for Alaska's big oil companies--
Phillips, BP and Exxon Mobil--and state leaders who are trying to put a 
positive spin on the oil industry's environmental record in an effort 
to open the Arctic National Wildlife Refuge to drilling. The refuge 
sits about 90 miles east of existing oil fields and, according to 
government geologists, may hold the largest undeveloped oil reserves in 
the nation.
    Workers discovered the spill at 10:45 p.m. Sunday when a drop in 
pipeline pressure set off an alarm in Kuparuk's central processing 
facility. Within 12 minutes the pipe was shut down, said Phillips 
spokeswoman Dawn Patience. It is unknown how long the water and oil 
spilled before the leak was discovered.
    The pipe carries what is known as ``produced water.'' For more than 
a decade, the oil companies have injected saltwater deep into oil 
fields to boost reservoir pressure and enhance oil flow. As a result, 
large amounts of water come out of the underground reservoir along with 
oil and gas. The mixture runs to the processing facility where the gas 
and most crude oil are stripped off. Then, operators send the water, 
along with some crude, back to the production pad and re-inject it to 
keep reservoir pressure high.
    The leak occurred in a line that returns the water and trace oil to 
Kuparuk production pad 1B. The leak happened at a road culvert close to 
where the pipeline leaves the processing facility's gravel pad, 
Patience said.
    At the time of the spill the weather was 9 degrees Fahrenheit.
    While Meggert said that the oil content in the water was low, about 
1 percent, the huge spill size means that independent of the saltwater, 
nearly 1,000 gallons of crude hit the tundra. That crude spill would be 
one of the 10 largest spills on the North Slope in the past five years, 
according to state statistics. The high temperature as it left the pipe 
may mean the mixture penetrated into the ground.
    Meggert said the saltwater may be more damaging to the tundra than 
oil.
    ``It's just as toxic as diesel,'' he said. ``The plants that 
normally grow die. The crude will only coat but the saltwater 
penetrates.''
    By 1 p.m. Monday, Patience said, Phillips and its contractors had 
cleaned up more than 92,000 gallons of fluid. Much of that may have 
been snow and ice melted by the hot crude and water mixture.
    Meggert said that in the coming days the spill area will likely be 
diked with sandbags and flooded with freshwater and, possibly, a 
chemical agent to flush the salt and crude from the tundra.
    Meanwhile, the cause of the spill was under investigation.
    A particular problem in the oil fields is water seeping between 
thick insulation and the hot transportation pipes. High temperatures 
and water make a perfect climate for corrosion.
    Phillips and BP, which operates the neighboring Prudhoe Bay field, 
use an array of techniques including X-rays, chemical corrosion 
prevention and infrared monitoring to detect points of pipeline 
weakness.
    At Kuparuk, Patience said, Phillips spends about $24 million a year 
on corrosion control. Yet problems persist.
    On March 6, more than 3,200 gallons of drilling lubricant spewed 
across the tundra at Prudhoe Bay after grit carved a hole inside a 
pipe.
    In October 1998, an oil-processing building at Prudhoe Bay exploded 
after natural gas leaked from an eroded pipe.
    In June 1999, a pipeline ruptured at a Prudhoe Bay production pad 
due to corrosion, according to state officials.
Reporter Ben Spiess can be reached at [email protected].
Copyright--2001 The Anchorage Daily News (www.adn.com)
                                 ______
                                 

                        Phillips finds NPR-A oil

        The three prospects may be the largest found in a decade

Anchorage Daily News
By Ben Spiess
(Published May 22, 2001)

    Phillips Alaska Inc. announced Monday it discovered three oil and 
gas fields on the North Slope inside the newly opened National 
Petroleum Reserve- Alaska.
    The Clinton administration opened the environmentally sensitive 
reserve amid a storm of controversy in 1998. Monday, the expanse of 
tundra and lakes yielded its first oil and gas prospects: Rendezvous, 
Lookout and Mooses Tooth.
    Phillips Alaska president Kevin Meyers declined to say how much oil 
and gas the fields may produce, but he described the combined reserves 
of the three prospects as ``in the ballpark of Alpine''--a 429 million-
barrel oil field 25 miles northeast. If the fields prove that big, the 
three would be among the largest onshore oil discoveries in the United 
States in a decade.
    Meyers said Monday that the drilling results are preliminary but 
that ``we believe all three have the potential to be economic.'' 
Phillips owns 78 percent of the prospects. Houston-based Anadarko owns 
22 percent.
    He said the companies will continue to assess their drilling from 
last winter and likely drill more wells next winter before deciding how 
to develop the new fields. At the earliest, the fields would begin 
production in three years, he said.
    The discoveries are small relative to fields like 13 billion-barrel 
Prudhoe Bay or 2.8 billion-barrel Kuparuk, more than 50 miles east. The 
discovery of those giant fields three decades ago sparked an 
exploration frenzy on the North Slope and drew comparisons between 
Alaska tundra and Saudi sands. Thirty years of exploration has found no 
other multibillion-barrel giants. But in the past 10 years a string of 
large, promising prospects have been discovered, adding almost a 
billion barrels of oil to the North Slope reserves.
    Coming amid a simmering national energy crisis and a debate over 
opening the Arctic National Wildlife Refuge to oil companies, some 
people may see the new discoveries as confirmation of the North Slope's 
long-term potential to produce oil and gas.
    After Phillips' announcement, Fran Cherry, Alaska director of the 
Federal Bureau of Land Management, said the agency plans to hold a 
second petroleum reserve lease sale in the vicinity of the new 
discoveries in June 2002. Cherry said the BLM is also considering 
opening a new swath of land west of the existing lease area in 2004.
    Phillips' announcement and the pledge for more North Slope lease 
sales drew loud applause at Anchorage Chamber of Commerce luncheon, 
where Meyers announced the discoveries.
    BLM estimates the swath of the petroleum reserve leased two years 
ago may hold 1.24 billion barrels of oil that can be produced, a 
fraction of the estimated 10 billion barrels in ANWR's coastal plain.
    ANWR packs controversy. But some people say the petroleum reserve 
is also a valuable environment. The oil-rich coastal fringe of the 
reserve is mostly a spongy spread of lakes and grass and is habitat for 
tens of thousands of nesting birds, including two threatened species.
    ``Its wildlife values for bird life are unexcelled. It may well be 
the most important area on the Slope for birds,'' said Mike Frank, an 
attorney with environmental law firm Trustees for Alaska. Trustees 
challenged the 1999 reserve lease sale, asserting that the 
environmental review was inadequate and failed to follow required 
procedures for leasing wetlands. The lawsuit is pending in Federal 
district court in Washington, D.C.
    But unlike ANWR, which was largely set aside for its wildlife and 
wilderness values, President Warren Harding designated the reserve 
expressly for its oil potential in 1923.
    Oil companies explored the reserve in the 1960s and 1970s but had 
little luck. A lease sale in 1986 drew no bidders. But Arco Alaska 
Inc.'s 1996 Alpine discovery on the eastern edge of the reserve fired 
beliefs that similar fields lay to the west inside the reserve. In 
1998, amid opposition from environmentalists, the Clinton 
administration agreed to reopen the area to leasing.
    In the past two winters, BP and Phillips have drilled eight 
exploration wells in the reserve. BP has not announced the results of 
its two exploration wells.
    Phillips' Meyers said Monday that five of the company's six wells 
hit commercial quantities of oil or gas in the three discoveries.
    A test well at the Rendezvous site produced 1,550 barrels a day and 
26.5 million cubic feet of natural gas.
    ``It's a sign that this area is going to be a producer long-term 
for the state,'' said Ken Boyd, a geologist and former director of the 
state Division of Oil and Gas.
Reporter Ben Spiess can be reached at [email protected].
Copyright--2001 The Anchorage Daily News (www.adn.com)
                                 ______
                                 

                      Corrosion is constant enemy

    KUPARUK: Oil company, state monitors try to keep up with aging 
                               pipelines.

Anchorage Daily News
By Ben Spiess
(Published April 22, 2001)

    Just past 11 p.m. last Sunday, Phillips Alaska's Kuparuk field 
operations manager, Bill Patterson, got the call an oil executive 
dreads: The field had a spill.
    A pipeline had ruptured, spilling a hot mixture of salt water and 
crude onto the tundra. At 92,400 gallons, the spill may be the largest 
ever to hit the North Slope's fragile tundra.
    The next day Patterson flew to Kuparuk, which sits west of Prudhoe 
Bay and is the Slope's second-largest oil field. Within 24 hours, most 
of the water and crude had been recovered. But the damage had been 
done. Some crude still coats vegetation. Salt, which may be more 
damaging than oil, covers the ground.
    The cause was an ongoing problem for oil executives like Patterson: 
corrosion. Water seeped between insulation and pipe at a weld joint and 
ate away the steel.
    Every year hundreds of spills hit the ground on the North Slope. 
Most are less than 10 gallons. Corrosion accounts for only a few, 
usually five to 10 a year. But they tend to be big, averaging 4,261 
gallons, according to state statistics.
    Over the past 15 years, corrosion and abrasion in the Slope's 2,000 
miles of oil, water and natural gas pipelines have worsened from 
occasional problems to constant headaches for BP and Phillips, the two 
companies that run the fields. Both companies spend tens of millions of 
dollars to X-ray pipes, run infrared tests and pump chemicals to 
control corrosion rates. Spill rates have fallen and in some cases 
corrosion rates eased. But problems persist.
    This winter, there have been four large spills, two from corrosion 
or abrasion.
    ``We recognize this as a serious problem,'' Patterson said. ``Over 
the past several years there has been a major effort to get on top of 
this.''
    All agree the problem is serious--so serious it was under 
negotiation during BP's takeover of Arco last year. And the timing of 
the Kuparuk spill is bad, as the industry is trying to put the best 
face on its operations to help open the nearby Arctic National Wildlife 
Refuge to exploration.
    However, Kuparuk-type spills are not likely to afflict new 
development in ANWR--at least not right away.
    Corrosion and abrasion are symptoms of aging oil fields, like 
Prudhoe, which started up 24 years ago, and 20-year-old Kuparuk. As oil 
production has fallen at the fields, the companies pumped huge amounts 
of seawater underground to boost oil flow. Now vast volumes of water 
come out of the ground with the crude. The oil companies have built a 
network of pipes and pumps to gather, inject, separate and transport 
the water.
    The water is not benign. It has a mild acid that eats at the pipes 
and must be constantly combated.
    At risk is not only the tundra but also worker safety and the 
industry's reputation as an environmentally friendly operator in the 
Arctic.
    State environmental regulators say the industry appears to be 
making a good effort to control the problem.
    But the section of pipe where last week's spill happened had never 
been inspected for the type of external corrosion that caused the 
spill, Patterson said.
    Regulators also note that corrosion and abrasion problems grow as 
the fields age. And unlike with big pipes like the 800-mile trans-
Alaska oil pipeline, state environmental regulators have little power 
to ensure the safety of the thousands of miles of lines inside the 
fields. They also lack the manpower to monitor all lines.
    ``If we had more presence up there, maybe these problems would come 
to light sooner,'' said Ed Meggert, state spill coordinator in 
Fairbanks. ``The companies have been pouring a lot of money into it. Is 
it enough? I don't know.''
    Observers note that as oil flow falls, the managers are under 
pressure to spend less money. Like an old car, however, the fields are 
giving less performance but are demanding more money in maintenance. 
The motive to cut costs could run counter to protecting the tundra, 
said Richard Fineberg, a Fairbanks economist who follows the oil 
industry.
    ``The idea is to hold maintenance costs just below the cost of 
cleaning up a spill,'' Fineberg said.
    Since 1996, BP's corrosion control budget at Prudhoe has fallen 14 
percent, to $37 million this year.
    BP's corrosion manager, Richard Woollam, agreed there is pressure 
to control costs at the aging field but ``that is secondary to 
controlling corrosion.''
    The falling budget is caused by efficiencies, such as mixing 
expensive corrosion control chemicals at Prudhoe instead of incurring 
shipping costs to the Slope, he said.
    Woollam says the corrosion program is successful. The company is 
injecting more chemical inhibitors, and Prudhoe pipeline corrosion 
rates have fallen. Overall, there is a decreased number of corrosion-
related repairs.
    Still, when corrosion and erosion happen, the results can be ugly.
    In March 1997, almost 5,000 gallons of crude spilled as Arco 
workers repeatedly tried and failed to increase pressure in an oil line 
in the eastern part of Prudhoe Bay. Later they discovered a rupture 
caused by corrosion in the pipe, said Meggert, the DEC official.
    ``We contemplated criminal charges for that,'' he said.
    In October 1998, sand and grit cut a small hole in a pipe at a 
Prudhoe production site, known as Z-Pad. Natural gas leaked inside a Z-
Pad building. Only minutes after a worker left the area, the building 
exploded.
    At Kuparuk, water running through the pipes is less acidic and 
corrosion has typically been a smaller problem than at Prudhoe Bay.
    But in an interview last year, Kuparuk field manager Tom Wellman 
said that then-operator Arco got a wake-up call in July 1997. At a weld 
joint, meltwater seeped through insulation and settled against a hot 
oil transportation line.
    The water ate at the steel. Eventually, the pipe ruptured, spraying 
2,000 gallons of oil over the tundra.
    Since then, workers have checked about 67,000 weld joints. The 
corrosion budget has climbed 71 percent since 1996 to $24 million.
    Wellman said that although pressure to control costs is constant, 
prevention is cheaper than spill cleanup and repair.
    ``We can't afford to let these lines get to that point. It's not 
good business to have these lines fall apart,'' Wellman said.
    But the spill last week points to continuing problems.
    The leak happened where a pipe runs through a culvert, where it is 
difficult to check pipe integrity. Kuparuk operations manager Patterson 
said the pipe section had never been checked for that type of 
corrosion, though it was scheduled for inspection later this year. 
Phillips and BP have been working on new technology, similar to X-ray, 
to examine such hard-to-reach pipes.
    ``This is a hole in the program,'' Meggert said. At 10:45 p.m. 
Sunday, the pipe split. The crack was 30 inches long and 3 inches wide.
    ``Looks like a smiley face,'' Meggert said.
    Though the oil fields sit on state land, most pipelines in the oil 
fields are private property. State officials have no direct regulatory 
oversight and cannot set maintenance schedules or require inspections.
    ``The real problem here is a lack of regulatory structure,'' said 
Jenna App, an attorney with Trustees for Alaska, an Anchorage 
environmental law firm that has sued the oil industry. ``There is no 
way to enforce safety. Spills keep happening.''
    Recognizing the lack of oversight, the state used negotiations over 
BP's takeover of Atlantic Richfield Co. to win cooperation from the 
industry to address the problem. BP agreed to pay $500,000 a year for 
10 years to help fund state corrosion experts and increased monitoring.
    Meanwhile, the state relies on the industry to take care of the 
public interest.
    Susan Harvey, head of oil spill response planning for the state, 
said that for now no new regulations are planned.
    ``If they have more spills, that's the next step, to regulate them 
more,'' Harvey said.
Reporter Ben Spiess can be reached at [email protected].
Copyright--2001 The Anchorage Daily News (www.adn.com)
                                 ______
                                 
    Mr. Gibbons. Mr. Flake?
    Mr. Flake. Yes, thank you.
    A question for Mr. Sims. Forgive me if this was covered 
during testimony.
    When natural gas prices were up, obviously there was more 
exploration and activity going on. Are there now some inactive 
or abandoned resources that could be easily revived to step up 
production in an expedited fashion?
    Mr. Sims. In terms of existing fields that are ready for 
production, excess capacity, you know, occasionally, when we 
get to an energy shortage situation, people say that what we 
need to do is turn on the spigot. We don't really have a 
spigot, in terms of excess capacity that we can bring into the 
system in the very near term.
    Prices for both natural gas and crude oil are attractive 
from a historical perspective. And I am just now aware of any 
resources, reserves in the ground, that are ready for 
production that we are not already actively producing.
    Mr. Flake. Mr. O'Connor, the geothermal plants obviously 
requirement very little dedicated land--well, relatively--can 
be installed fairly quickly. Is that a solution that could come 
fairly quickly or not?
    The permitting process is difficult, I realize, but as far 
as actually producing, what potential is there for an expedited 
fashion there?
    Mr. O'Connor. I am not a representative of the geothermal 
industry, so I am going to have to beg off on that. I have to 
confess, I don't know that much about that industry.
    Mr. Flake. Okay.
    Mr. O'Connor. I am here on behalf of the coal mining and 
the National Mining Association, and whatever I would say would 
expose my ignorance.
    [Laughter.]
    Mr. Flake. Mr. Rubin, could you attack that a little 
better?
    Mr. Rubin. The geothermal resources?
    Mr. Flake. Yes.
    Mr. Rubin. I am really not familiar enough with geothermal 
resources to be able to give you a really valid answer.
    Mr. Flake. Mr. Sims?
    Mr. Sims. If it is possible, I know less than Mr. O'Connor.
    [Laughter.] 
    Mr. Flake. Okay. Well, great.
    Mr. Fry, unless you want to tackle that one--
    Mr. Fry. I just know that geothermal projects are just as 
hard to permit as anything else.
    [Laughter.]
    Mr. Flake. We actually went through that in another 
hearing, and, yes, we did learn that the permitting process is 
no faster. But installation, I am told, is a little quicker. 
And actually, time from permitting to production can be faster.
    I was just wondering if any of you saw that as a solution 
that could be moved to more quickly. But we will save that for 
another panel, I guess.
    Thank you.
    Mr. Gibbons. Thank you, Mr. Flake.
    Mr. Inslee?
    Mr. Inslee. Thank you.
    I would like to ask Mr. Sims and Mr. Rubin, in June 1999, 
as a result of some mistakes by some folks in your industry, 
three young men were incinerated in Bellingham, Washington.
    And since then, the U.S. Senate has passed a bill 
overwhelmingly for pipeline safety, to improve our pipeline 
safety.
    And I just ask Mr. Sims and Mr. Rubin, have you urged the 
Republican leadership and Mr. Young to move that bill through 
the House expeditiously? If you can just me a clear answer, I 
would appreciate it.
    Mr. Rubin. We have supported passage of pipeline 
legislation. Unfortunately, I am not familiar with the various 
bills that you are describing. And we have others in API who 
deal with those issues. So I can't speak to the specific bills, 
but we do support moving forward with pipeline legislation.
    Mr. Inslee. Mr. Sims?
    Mr. Sims. I am not familiar with that legislation either. I 
am representing truly the upstream part of the business, the 
exploration and production. Our members are not generally 
engaged in the transportation part of the oil and natural gas 
business.
    Mr. Inslee. Well, let me ask, sir, that you do become 
engaged in that debate because, mysteriously, I hear from 
industry that you support pipeline safety, but nothing ever 
passes here, any meaningful measure. And we would appreciate 
your support of the Senate bill or my bill or Mr. Oberstar's 
bill.
    It is not just a safety issue; it is a reliability issue. 
We can't have a reliable source if the pipelines explode. And 
that is one of the problems with the El Paso line.
    We appreciate your interest that.
    I want to note on this issue of drilling in public lands 
that I think that this hearing is a perfect metaphor for the 
Bush administration energy plan, which intends to drill in some 
of our most pristine areas, in that the shades are drawn to 
keep light out of the hearing room.
    [Laughter.]
    But you have, by my count, 73 light bulbs burning fossil 
fuel to light the room that could be lit by God himself through 
the window.
    And I think it is a perfect metaphor of what is wrong with 
this policy, both in its shortsightedness in conservation and 
its failure to recognize new technologies that are going to be 
coming on-line.
    I want to note that the Department of Energy of itself 
concluded over a 3-year study that by doing things like opening 
the blinds, we can save 25 to 45 percent of all of the energy 
needs that the country will need over the next 10 years--
through conservation and efficiencies.
    And yet, this administration has failed in any meaningful 
way to move forward on either alternative renewable sources of 
fuel, which happen to not be the ones, at least at the moment, 
that your industries are involved in, or to help Americans move 
forward to have conservation technologies available to them.
    And I think it is a major, major failing of this policy. 
And instead, at the same time that this administration has 
failed to try to improve the efficiencies of our vehicles by 
one-tenth of one gallon per mile, they want to open up these 
pristine areas, which I can tell you people in my district have 
a very, very strong feeling about.
    And I think it is a major, major mistake.
    I also believe it is mistake for your industry, which I 
want to note is an extremely important industry and extremely 
useful. We appreciate your personal commitments to providing 
energy for my constituents.
    But it has failed, as far as I can tell, to support meaning 
conservation efforts, for instance, in our automobile fleet.
    So I guess I just ask Mr. Sims and Mr. Rubin, have your 
associations supported improving CAFE standards?
    Mr. Rubin. You know, we don't represent the auto industry, 
and so we don't spend a lot of time working the CAFE issue.
    We do, however, recognize the importance of conservation as 
part of the solution to energy problems. Especially when you 
are talking about short-term solutions, conservation is one of 
the most important things that can be done to deal with the 
current problems. In fact, if you will go to our Web site, you 
will see a number of recommendations on how drivers can use 
less gasoline.
    Mr. Inslee. So is that a yes or a no? Do you support 
improving our CAFE standards, your association?
    Mr. Rubin. We support conservation efforts. We are not 
taking a position on CAFE because it is really not our 
industry; it is the auto industry that has to deal with the 
CAFE issue.
    Mr. Inslee. You see, that is what I don't understand. We 
have an energy crisis in our country. You are intimately 
involved in the energy industry, and you come before us and 
don't make a recommendation one way or another on CAFE 
standards?
    I don't understand that. Why not?
    Mr. Rubin. Congressman, we presume to be experts on the oil 
industry. We do not presume to be experts on the auto industry, 
which is why we are not taking that position.
    Mr. Inslee. Mr. Sims I think wanted to answer as well.
    Mr. Sims. I will. I am involved in the upstream part of the 
business, the supply part of it. And I wouldn't disagree, Mr. 
Inslee, that we don't talk a lot about conservation because we 
mostly talk about what we know, and we know a lot about supply.
    I, quite frankly, don't know if the IPAA has a position on 
CAFE standards. That is not a part of the business we are 
actively involved in.
    But I wouldn't disagree that perhaps we as an industry 
should be more balanced in terms of addressing both sides of 
the equation. And that would be something important for us 
going forward.
    Mr. Inslee. Thank you.
    Mr. Gibbons. Thank you, Mr. Inslee.
    Let me say that this is my fifth year on this Committee, 4 
years under which the Clinton administration, and not one penny 
was ever invested by their administration in venetian blind 
research to lighten the rooms.
    [Laughter.]
    Nor did they come up with an energy policy.
    Mr. Inslee. We give that advice free, Mr. Chairman.
    Mr. Gibbons. Right, right.
    Mr. Rehberg?
    Mr. Rehberg. Thank you, Mr. Chairman.
    I get downright giddy when you finally get to me.
    [Laughter.]
    I am not sure on the Full Committee I will ever live long 
enough to get ask a question.
    [Laughter.]
    Thank you to the panel and for all you are trying to do to 
help us out of this situation.
    I want to ask you some specific questions.
    First of all, were any of you involved in the Vice 
President's task force? Did you provide information to the 
administration, as far as your resources?
    Mr. Rubin. Yes, we provided information to the 
administration, just as we provide information to Members of 
Congress on both sides.
    Mr. Rehberg. Okay. I just wondered if they asked you 
specifically.
    I see that you all are nodding your heads.
    I guess the question I would ask is, specifically, could 
you make available to me or the Committee the kind of 
information that will show how close many of the projects that 
your individual companies are working on are to actually being 
ready to be either drilled or dug? Is that possible?
    The reason I ask that question is, Mr. Sims, you had 
mentioned that you didn't know of anything that wasn't in the 
pipeline yet. And one of the projects that I am familiar with 
in Montana is up northwest of Chouteau, Montana. I think it is 
Startech Energy.
    Seven years ago, the EIS was done on their lease proposal. 
Most recently, Bureau of Land Management has said that they 
have to now go back and do a supplemental to that EIS. The 
company tells us that they are 8 months from production.
    So I guess what I am interested in, can you provide 
information to us, both in the coal arena and the natural gas 
or oil arena, that can tell us how far away, within the next 12 
months, there are projects that can be put into the pipeline?
    And I will start with you, Mr. Sims.
    Mr. Sims. Yes, I would be willing to provide that.
    Mr. Rehberg. You have that kind of information?
    [The information referred to follows:]

    Independent Petroleum Association of America

    In the Administration's fiscal year 2002 budget request, the BLM 
admitted to a backlog of about 2500 drilling permits for oil and gas 
projects on onshore federal lands. IPAA believes this number remains to 
be about the same today. Therefore, Mr. Rehberg, if these backlogged 
projects were approved, significant oil and gas resources could be put 
into the pipeline in a very timely fashion.
                                 ______
                                 
    Mr. Rehberg. Mr. O'Connor?
    Mr. O'Connor. The information of the National Mining 
Association submitted to the energy task force was more public 
policy in orientation, and so they didn't focus in, in terms of 
specific projects and specific time frames. But we will be 
delighted to provide you some information.
    [The information referred to follows:]

                 ENERGY POLICY - PRINCIPLES FOR ACTION
                      NATIONAL MINING ASSOCIATION
    Reliable affordable energy is necessary for both economic growth 
and national security. All domestic energy resources - coal, natural 
gas, petroleum, nuclear (uranium) and renewables - will be required and 
each is essential to meeting the nation's future energy needs. Use of 
domestic energy resources must increase while we simultaneously 
develop, produce and use energy more efficiently and cost effectively 
while we maintain and improve the quality of our environment.
    Energy policy must be based on several underlying principles: 
economic efficiency and support for market based policies; advancing 
energy technology; use of additional regulations only if based on sound 
science and relative risk assessments; and, expanded use of incentives 
to promote investment in technology and infrastructure. Policy must be 
able to recognize and react to the rapidly changing energy requirements 
of our society and to advances in technology. As recent events clearly 
illustrate, energy policy must address both energy supply and energy 
demand.
Energy Policy and Coal.

    The need for a dynamic energy policy is underscored by rapid 
electrification of our economy. Affordable and reliable electricity has 
supported much of the economic expansion of the past several years and 
affordable and reliable electricity is necessary to support the economy 
of the future.
    Coal is electricity. Over one-half of the nation's electricity 
requirements are met with coal-fired power. Coal is the nation's 
largest and most affordable domestic resource. Coal must be a major 
factor in the future as demand for electricity continues to increase at 
a rapid pace.

    Coal generating capacity and coal use must increase to support a 
growing demand for electricity; efficiency and environmental 
performance must continue to improve.

    The nation's electric generating fleet is not sufficient to meet 
current, let alone future, demands for electricity. Barriers to 
construction of generation and transmission infrastructure must be 
removed, regulatory certainty with respect to criteria pollutants is 
necessary and incentives to increase environmental performance and 
power generation efficiency are necessary to spur investment to ensure 
that additional capacity is built and existing capacity upgraded. Fuel 
diversity, and affordability are essential for economic growth. Coal 
must be used in existing plants and much of the new capacity must be 
advanced clean coal technology.
     LThe Administration should support legislative and 
regulatory actions that provide a measure of burden sharing to improve 
operational and environmental performance of the existing coal-based 
fleet and incentivize construction of a number of commercial 
applications of advanced clean coal technologies.
     LFuture regulation of criteria and hazardous air 
pollutants from coal based electricity generation, if warranted by 
sound economic and scientific considerations, should be implemented 
under a well defined and integrated strategy to optimize control and 
minimize costs. The Administration should take immediate steps to 
harmonize air quality regulations currently pending at EPA.
     LClimate policy is an integral part of energy policy. 
Command and control regimes to control or reduce greenhouse gas 
emissions should not be part of the policy. Policies should encourage 
aggressive voluntary actions to reduce emissions, development of new 
technologies and accelerated research in sequestration. The United 
States' climate policy must recognize the global nature of the issue 
and support responsible international agreements that focus on 
technology transfer and on energy efficient economic development 
throughout the world.

Investments in Coal Production Capacity Must Be Facilitated

    Coal output is approaching 1.1 billion tons annually. Production is 
forecast to increase by 250 million over the next decade to meet 
demand. Unnecessary barriers to coal reserves must be removed and 
income tax policies should encourage, not discourage, investments in 
expanding capacity, while continuing to incentivize the highest safety 
and environmental standards in the world.
                                 ______
                                 

    Mr. Rehberg. I am thinking, in the coal arena, the Otter 
Creek as an example of the Bureau of Land Management sitting on 
their duffs. We have been waiting for them to make an agreement 
to fulfill a deal that they made when they said we couldn't 
have the New World mine north of Yellowstone Park.
    We are still sitting around, waiting for it. That process 
ought to be far enough along that it could be put into the 
pipeline somewhere, hopefully within the next 12 months.
    How about you, Mr. Rubin?
    Mr. Rubin. Yes, we can certainly provide more detailed 
information on permitting backlogs and other things that 
would--
    Mr. Rehberg. I am not sure if the Committee is interested, 
but I am certainly am, because we are really one of the states 
that, in fact, are a net producer of energy, and yet we are 
going through the same crisis everyone else is. We are seeing 
our price go up.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T2515.010
    
    [GRAPHIC] [TIFF OMITTED] T2515.011
    
    [GRAPHIC] [TIFF OMITTED] T2515.012
    
    [GRAPHIC] [TIFF OMITTED] T2515.013
    
    [GRAPHIC] [TIFF OMITTED] T2515.014
    
    [GRAPHIC] [TIFF OMITTED] T2515.015
    
    Mr. Rehberg. So it isn't just California. Montana is 
feeling the effects as well.
    And we think it is time to pass the point trying to point 
fingers and blame particular parties. With all do respect to 
some of the people in Congress, we think this is nonpartisan 
issue, and we ought to be solving it from an nonpartisan 
standpoint.
    That, of course, is easy for me, as a freshman, because I 
don't have anybody to point fingers at.
    [Laughter.]
    Let me ask the next question. I am having a hearing up on 
the Missouri River next week, having to do with the national 
monument that the last administration designated within the 
State of Montana. And I know of an existing oil and gas leases 
within that property.
    Can you tell me of other existing oil and gas leases that 
are either producing or not producing that are within 
designated monument areas that perhaps could be readdressed 
quickly, at least within the next 12 months?
    Mr. Rubin?
    Mr. Rubin. Yes, I don't have the details on all the 
monuments handy. But certainly there is production, for 
example, in the area of Canyon of the Ancients, I believe, the 
monument in Colorado. And there are a couple of other monuments 
that have existing production.
    Mr. Rehberg. Have they been within Federal boundaries 
already, or were they added to the monument designation?
    Mr. Rubin. The production was on government lands, I 
believe, in the case of Colorado.
    I am not sure I completely understand the question.
    Mr. Rehberg. There is a different management procedure or 
protocol once it becomes a monument.
    Mr. Rubin. Yes.
    Mr. Rehberg. Were those within an existing protective 
status of Montana, we had a wild and scenic designation which 
moved to a monument designation. It changes the management, the 
Bureau of Land Management.
    And I guess my question is, does it change the potential 
for that property?
    Mr. Rubin. Certainly. It is my understanding that it 
significantly changes the potential especially for things like 
in-fill drilling to enhance the production of those fields.
    Mr. Rehberg. Mr. Sims, if I could ask you to finish that 
question, then, the same question.
    Are you familiar or aware of oil and gas potential on 
leases that are within designated monument areas that the 
President most recently added?
    Mr. Sims. I am not familiar with any of the details of 
that. We would be glad to track that down from the independent 
producer segment of the industry and see what we can provide 
you on that.
    There is no doubt that my own remarks about the 
availability of near-term supply, I was referring to reserves 
in the ground that are waiting to produce. There are a number 
of projects that are being held up through different kinds of 
permitting delays and that kind of thing that could be brought 
on in the fairly near term if we could break that logjam.
    We will provide you with something.
    Mr. Rehberg. Mr. Chairman, if I might just ask one quick 
question, and this is, that brought to mind, that in a former 
life, I was a lobbyist for the real estate industry. And we 
always wanted to have subdivision and plotting review.
    And we found that oftentimes the supply of lots outstripped 
the ability of our state regulators to review. And it was our 
fault as legislators ultimately to make a determination, which 
was subjective or objective.
    Do you honestly believe the Bureau of Land Management has 
the potential to increase employment fast enough to do an 
adequate job to follow the law or are we, you know, barking 
into the wind here? Or even that we can get these out faster, 
but under what circumstances could they get them out faster, 
because of either objectivity or subjectivity of the review 
procedure.
    Mr. Sims. I know the association would support increased 
funding to the Bureau of Land Management as well as MMS in 
order to get some of this backlog of permitting handled in an 
expeditious way. That would be very important to us.
    Mr. Rehberg. And do you think they can, in fact, find--
    Mr. Sims. I think they can, given the resources, given the 
tools to do the job. I think they, going forward, ought to be 
able to look at these things in a more timely fashion.
    Mr. Rehberg. Thank you, Mr. Chairman.
    Mr. Gibbons. Thank you, Mr. Rehberg.
    Mr. Carson?
    Mr. Carson. Mr. Sims, if I could ask you a quick question.
    One of the glaring omissions, I thought, in the Bush energy 
report, which generally I was quite sympathetic to, coming from 
Oklahoma, where I know you spent some of your early years in 
the business, is there is no discussion at all of incentives 
for domestic production of oil and gas.
    Our focus is on the use of public lands and opening up the 
Rockies or the OCS or other areas like that for more 
production, but having talked to many of your members who are 
in my state, public lands is usually far at the bottom of their 
list when they talk about what we need in energy policy.
    Instead, it is the clever use of the tax code to encourage 
the maintenance of stripper wells, for example, when you have 
tremendous swings in the oil and gas economy.
    My question to you is, do you think we can have a coherent 
energy policy? As important as many of the Bush recommendations 
are, to your industry, that you mentioned produces about 60 
percent in the lower 48 onshore, can we have a coherent energy 
policy that doesn't do things that encourage domestic 
production onshore on the lower 48?
    Mr. Sims. My response would be, in the Bush energy plan, 
there is a call for review of royalty incentive programs--
    Mr. Carson. Right.
    Mr. Sims. --for the offshore, that we would welcome that 
opportunity to look at that.
    Regarding other incentives, I know the association is 
looking at the strategy that came out last week and hasn't come 
to any firm conclusions on the pluses and minuses of it.
    But I do know that the association does support changes in 
the tax code that would provide for some incentives.
    And the three that come to mind--I am no expert here, but 
the three that come to mind include expensing G&G expenses, AMT 
reform, as well as tax credits for marginal well production, 
which would be very important in the State of Oklahoma.
    I am a graduate from the University of Tulsa; I know 
Oklahoma production well.
    Mr. Carson. Thank you.
    Mr. Rubin, you had shaken your head earlier when Mr. 
Rehberg asked whether you had some influence on the Vice 
President's report. You provided them with some input, what the 
API's perspective was.
    Was there any input from the API about the use of the tax 
code, outside of the royalty issue, that was in the Bush 
report, to encourage domestic production?
    Mr. Rubin. Yes, API supports, for the most part, the same 
tax incentives supported by IPAA, expensing of geological and 
geophysical and other types of tax treatment that would help 
the industry in our efforts.
    Mr. Carson. The question to both you and Mr. Sims, then, 
is, how important are those as part of a larger energy policy?
    As I mentioned, talking to a lot of people in the oil and 
gas industry, both now in Congress and being from the State of 
Oklahoma, where it is the No. 2 industry, that is the very 
definition of an energy policy to most people in the oil and 
gas industry that I have talked to Oklahoma and Texas.
    Public lands are no doubt important. That is an essential 
part; I agree with you on that. I am a supporter of those 
issues.
    But the omission of it, far from being tertiary to 
discussion, seems to be quite glaring. I mean, I would like 
your opinion about, can we have a real energy policy in this 
country that doesn't deal with protecting domestic production 
from vicissitudes of the oil and gas economy?
    Mr. Rubin. You know, we would certainly prefer to see those 
types of tax issues addressed. We are hopeful that there will 
be continuing opportunities, as Congress considers legislation, 
to address those issues.
    Mr. Carson. Mr. Sims?
    Mr. Sims. We would certainly agree.
    Tax issues have been a high priority for IPAA, more 
particularly last year, and they continue to be so.
    Whether or not they have to be included in this particular 
package or not is something that is still being sorted out at 
the association.
    Mr. Carson. Understood.
    And if I could ask a question to Mr. O'Connor on the issue 
of coal. In this discussion, especially in the Bush energy 
report, and in the larger debate about energy, about the role 
of coal in economy, obviously, as Mr. Fry mentioned, 90 percent 
of the new plants are coming on board--and the Bush plan calls 
for about 1,500 new power plants to be built in the next 20 
years--are gas-fired.
    Can you give me any projections, or does your industry have 
projections about what the demand for coal is going to be over 
the next 20 years?
    We hear much about oil, the demand for oil going up by 30 
percent, natural gas 45 percent, electricity by 50 percent. But 
largely, we are going to be moving to a more gas-fired world 
and away from the coal-fired world.
    Can you discuss what the long-term demands for coal are 
going to be?
    Mr. O'Connor. Certainly.
    As part of that answer, let me say that, as this country 
inventories its presently identified, proven and economically 
recoverable fossil fuel reserves, we can see that somewhere 
between 85 and 90 percent of all of the reserves are coal. This 
country is amazingly blessed with an enormous amount of 
presently recoverable coal reserves that are located in more 
than 20 states in this country.
    Depending upon the market economics, this is an industry 
that has the capability of dramatic increase. To put it in a 
different perspective, coal production has tripled in the last 
20 years in this country. I might add that during this time 
that coal production has tripled, emissions have been reduced 
by a third. And so, despite popular misconceptions to the 
contrary, we are an increasingly clean industry.
    I think there is no doubt but that a substantial portion, 
probably a substantial majority, of the new generation in this 
country that we will see over the course of the next 20 years, 
is going to be gas-fired.
    The real question is, what are going to be the costs and 
what is going to be the availability of additional gas 
production? To the extent that it is available at economic 
costs, it is going to take a very significant amount.
    The Energy Information Administration has projected 
recently that we will see, in all likelihood, between now and 
2020, a 20 percent increase in coal production in this country. 
Whether or not it will be that much, whether or not it will 
double, is really dependent on market economics, as coal 
competes with other fuels for its logical place in the 
electrical generation marketplace.
    One of the big differences between coal versus natural gas, 
among many, is that natural gas goes into a number of different 
markets, whether it is for heating purposes in homes and 
businesses, whether it is for synthetic use in fertilizer or 
whether it is for electrical generation.
    Electrical generation has been a really expanding 
opportunity for the gas business. Coal almost exclusively in 
this country goes to electrical generation.
    Mr. Carson. Right.
    Thank you, Mr. Chairman.
    Mr. Gibbons. Thank you, Mr. Carson.
    It is interesting to note that the one community in 
California which is not suffering from blackouts is the city of 
Los Angeles. And it does so because it has coal-fired 
electrical plants, in which the supply of coal has not been 
interrupted, compared to the supply of gas to the new 
generation facilities, which will not be able to come on-line 
to prevent the blackouts.
    It is an issue of which this Committee does have great 
concern, and was part of the reason why we are here today 
talking about short-term energy supplies, how do we get those 
supplies from the areas where they are being produced to the 
demand-side area.
    One of the things that struck me as interesting is when you 
look at the map or the outer continental shelf areas around the 
Gulf of Mexico and the Atlantic coast--of course, the Pacific 
coast is off-limits--Florida's increased projection of its 
demand increase for natural gas is like double or triple over 
the next 10 or 15 years.
    How are we going to be able to supply even one state, like 
the State of Florida, with its natural gas increased demands, 
unless we look at areas like 181 and go forward with those 
lease sales?
    The issue that I see there is that Florida, even though it 
recognizes a tremendous increase in its demand for natural gas, 
refuses to permit exploration, drilling and other areas of 
exploration for the supply of those natural resources, 181 
happening to be right down the border of Alabama. It is not in 
Florida until you get beyond the 100-mile range, and then does 
sort of an eastern loop and cuts in there.
    But we put off-limits so much area of Florida when Florida 
itself is becoming an enormous demand.
    What are your solutions to states like Florida? What would 
you suggest to Florida and to east coast states who have a 
demand for fossil fuel resources, yet they are unwilling to 
look at their own backyard, so to speak, for a supply of those?
    What would be your recommendation?
    Mr. Rubin. Certainly, the 181 area that you mentioned, the 
resource estimate for natural gas, for example, in 181 is 
that--if you equate that to home residential electricity use, 
there is enough natural gas just in the area of that lease sale 
to provide all of the electricity needs of all of Florida's 
homes for about 13 years. So there is a great deal of natural 
gas that could be used for electricity generation.
    If you look at other areas, certainly Canada has been far 
less opposed to developing the resources off its eastern coast 
than we have. And they found significant volumes of natural gas 
that are being shipped to the U.S. for use in the Northeast.
    Ultimately, we believe that we have the track record in our 
operations in the Gulf of Mexico that shows that we can operate 
responsibly. And ultimately, we would hope that that would be 
viewed favorably by the public and that some of these other 
areas would be opened to us.
    And there would be significant resources, especially of 
natural gas some of these areas, for electricity.
    Mr. Gibbons. The Canadian field of natural gas that you 
mentioned, does that extend down the Northeastern Atlantic 
coast into some of the Northeastern States?
    Mr. Rubin. It is my understanding that, yes, the geology 
does come down farther south, off U.S. waters. And there may be 
significant natural gas potential there as well.
    Mr. Gibbons. But those areas are currently off-limits?
    Mr. Rubin. Yes, sir.
    Mr. Fry. Mr. Chairman, some of those areas we looked at 20 
years ago, as I mentioned in my earlier testimony, with old, 
old technology. And that is why we have to really get an 
inventory of what is out there.
    The OCS Lands Act, which established how we shall do 
business in the offshore, said it should be a balanced program; 
it should balance regionally, that all states and all regions 
should participate in this program. We have gotten away from 
that.
    Mr. Gibbons. So you recommend a complete revision of the 
estimates under MMS studies that are outdated?
    Mr. Fry. I would like to see those updated so that we have 
a better idea of what is there, so that we can really make 
informed choices about areas where it may be appropriate to 
have future development, as we look to try to fuel this economy 
in the future.
    Mr. Gibbons. In my final question here that I want to ask, 
I want to talk about royalty in-kind, and open it up to anybody 
for discussion out there. I know that it has been mentioned by 
Mr. Rubin, but royalty in-kind is truly a responsible way to 
deal with the royalty issues.
    And since you brought up the issue that royalty in-kind is 
the truth serum of the valuation of oil and gas production, are 
there any states out there that do accept royalty in-kind? How 
are they putting it together? And how this should this 
government, the Federal Government, look at royalty in-kind 
issues?
    Mr. Rubin. The State of Texas takes some of its royalties 
in-kind, I believe. I am not familiar with all of the programs 
out there. I believe the State of Alaska also takes some of its 
royalties in-kind. And I believe that Alberta in Canada, they 
also take royalties in-kind.
    And everywhere it has been used, it has been relatively 
successful. I think the MMS's own pilot programs have also been 
very successful.
    And we can certainly rely on the data that has been 
developed at the Wyoming pilot and the data that is being 
developed in the offshore pilots, to point to that success as 
well.
    Mr. Gibbons. Mr. Sims?
    Mr. Sims. Well, I would just add that I am not familiar 
with all other states and how they have conducted RIK.
    We certainly support RIK programs because it takes the big, 
long debate of valuation out of the formula. And we think it 
would help both sides go forward without the question of 
evaluation taken in-kind.
    Mr. Gibbons. Thank you.
    And, Mr. Inslee, do you have any--
    Mr. Inslee. I do, Mr. Chairman, if you allow a few minutes.
    I want to ask Mr. Sims, my understanding is there has been 
a substantial increase in the number of drilling operations now 
going on in the last 2 years, something like there were 400 
rigs in operation a couple years ago and now there is pushing 
1,000. Is that about right?
    Mr. Sims. I don't know the numbers, but there has been a 
substantial increase both onshore and offshore, responding to 
market forces.
    Mr. Inslee. Well, that is what I wanted to ask you about.
    The reason there weren't 1,000 rigs 2 years ago was not 
because the environmental laws were bad 2 years ago; it was 
because the price wasn't good enough, right?
    Mr. Sims. We do respond to price. Price is something we pay 
a lot of attention to.
    Mr. Inslee. I want to make sure I understand.
    Two years ago, the impediment, the thing that was choking, 
preventing people from going out and drilling more wells, was 
not environmental regulations, it was the fact that price was 
not high enough. Now the price is high enough, and they are now 
drilling. Isn't that right?
    Mr. Sims. It is certainly true that price is a big driver. 
In terms of overall activity, there are other factors at play, 
including restrictions that we have talked about today. They 
aren't exclusively, but price is a big factor in our level of 
activity.
    Mr. Inslee. Well, I appreciate you saying that. In fact, 
you kind of agree with Mr. Gene Edwards, the senior vice 
president of Valero Energy of San Antonio, who said, ``Our 
margins are not wide enough to justify building new refineries. 
When we need to expand, we do it at existing sites.''
    The reason I say that, I think there is substantial 
evidence that the price is what is going to drive additional 
exploration, not rolling back environmental standards.
    One more point, and then I will finish.
    As you know, there is substantial concern about price 
gouging in the wholesale electrical markets in the western 
United States. I am going to read to you, and I am going to ask 
Mr. O'Connor a question, if I may, from the San Francisco 
Chronicle, this Sunday.
    It starts out:
    Large power companies have driven up electricity prices in 
California by throttling their generators up and down to create 
artificial shortages, according to dozens of interviews with 
regulators, lawyers, and energy industry workers.
    According to the accounts of three plant operators, company 
X's--and I won't embarrass them with their name here--company 
X's operations schedulers on the energy trading floor ordered 
them to repeatedly decrease then increase output at the 1,046-
megawatt plant X. This happened as many as four or five times 
an hour.
    Each time the units were ramped down and the electricity 
production fell, plant employees watched on a control room 
computer screen as spot market energy prices rose. Then came 
the phone call to ramp the units back up.
    ``They were telling us what to do, and we would do it,'' 
said one of the men, who only agreed to speak on condition he 
not be identified because they feared being fired.
    ``Afterwards, we would just sit there and watch the market 
change.''
    Now, Mr. O'Connor, I understand you are not involved in 
that specific level of the industry, but if that kind of thing 
is going on, would you agree that it would be important, by 
some jurisdiction, to have some price mitigation strategy to 
prevent these incredible price spikes, which, as you realize, 
have gone up 1,000 percent since last year on the spot market 
at times, at least at the same time, or I would think before, 
we open up national monuments to drilling for new sources?
    Would you generally agree, if some of those things were 
going on?
    Mr. O'Connor. You are absolutely correct in your first 
assumption that I am not familiar with that specific 
circumstance, so I am not going to even--
    Mr. Inslee. I understand that.
    Mr. O'Connor. I am not even going to try to get close to 
that.
    But let me start your answer with this more general 
proposition. We have heard a lot of rhetoric in the course of 
the last few years, and particularly in the last 6 or 8 months, 
that we haven't seen new power plants built in this country. 
And it really raises the question, well, how did this country 
get along for the last 10 years while new power plants not 
being built because electrical demand was increasing in this 
country?
    Well, the answer was that the power plants that existed 10, 
15 years ago were running at about low 60's percentile capacity 
factors, which means that they were running--you know, power 
plants can't run 100 percent of the time, 365 days a year. 
There are outages and there are also, in the spring and fall 
time periods, those are shoulder months in which demand for 
electricity isn't as great as they are in the heat of the 
summer and the dead of the winter.
    What we saw over the course of the last 10 to 15 years is 
that these capacity factors generally in this country have 
increased from about 60 percent up to the low 70's, 73, 74 
percent.
    How far can these plants increase without just absolutely 
hitting a wall? They can't go to 100 percent.
    From time to time, there may be a few plants that can get 
into the high 80's. But generally, we are reaching a point 
where plants, as a general proposition, are running close to 
their maximum capacity factors.
    There are still some more that can be squeezed out of 
individual different plants, but we have been able to avoid 
much of the problem in the last 10 or 15 years because of this 
increase in capacity factor utilization. We are not 
indefinitely going to be able to do that in the future.
    Now, are individual utility power plant operators 
curtailing production at different times? Absolutely so.
    Is part of the reason for that the absolute need for 
maintenance and repairs? Absolutely so.
    Are there individual decision being made by individual 
plant operators on a day-to-day basis for market reasons to cut 
back or to accelerate production? You will, honestly, have to 
ask those people what their rationale for doing this is.
    But I will tell you that our industry is not in favor of 
price controls. It is not our industry, but we think that it 
creates major market disruptions that will actually exacerbate 
over the long term the electrical needs of this country.
    Mr. Inslee. Can I ask just one more question, Mr. Chairman, 
if you would allow me? Thank you.
    I understand, I think, your answer. You don't have 
individual knowledge of what is going on in the circumstances.
    But if through investigations we find that, in fact, this 
isn't a maintenance issue, it is consciously withholding power 
from a generator sometimes on an hourly basis in order to drive 
the price up and maximize profits and have an induced shortage, 
if you will, and if we find out that that is a significant 
problem on the west coast, would you agree with me that we 
ought to solve that problem before we are drilling in a 
national monument, the Hanford Reach up in Washington, for 
instance?
    Mr. O'Connor. I think the answer to that, in generics, is 
you need to look to see if that utility is acting in concert 
with other utilities in order to restrain the market in a 
manner that is inconsistent and probably in violation of the 
antitrust laws, in which case enforcement action needs to be 
taken. Or does it have such market dominance that it has 
monopolistic power, in which case, regulatory measures need to 
be examined.
    But operating in a market situation where an individual 
utility does not have market dominance will create exacerbated 
problems by trying to regulate their prices over these periods 
of time, because while it may grant some short-term relief, it 
will create an enormous disincentive for the construction of 
additional generation or expansion of existing generation.
    Mr. Inslee. Mr. O'Connor, your answer is one I don't agree 
with, but it is entirely clear, and I thank you.
    [Laughter.]
    Mr. O'Connor. Thank you, sir.
    Mr. Gibbons. Thank you, Mr. Inslee.
    And I will say that there is only one type of generating 
facility that cannot ramp up and down and that would be a coal-
fired facility, compared to hydroelectric facilities which can 
control the flow of energy to the generating capacity, which is 
like in your State of Washington, and natural gas, which would 
be the other type of ability to control the combustion cycle 
for that.
    But coal-fired power plants cannot control that kind of--
    Mr. Inslee. Mr. Chair, there are four questions Mr. Rahall 
would love to propound to Mr. O'Connor. Would he be amenable to 
taking--
    Mr. Gibbons. The Chair is going to announce, and I will do 
it today, do it now, that written questions submitted by 
members of the Committee will also be open and submitted--
    Mr. Inslee. Thank you.
    Mr. Gibbons. --to the witnesses. And we would like to ask 
that the record remain open.
    Mr. Otter, do you have any questions that you want to ask?
    Mr. Otter. Yes. Thank you very much, Mr. Chairman. And my 
apologies to the panelists for my having to absence myself from 
here, but I had another pressing issue to deal with.
    I believe that I truly pay a great deal of disrespect to 
the panel when I ask you to come here, and I come and give a 
statement and then I just leave and not even listen to what you 
say.
    So, I think that is terribly disrespectful, and I apologize 
to the extent that that has happened here this morning, because 
I think what you do have to say should be important to us. 
Otherwise, we ought to have the courage enough not to ask you 
to come.
    One of the things--and I am not sure you all are prepared 
to answer this right now--but one of the things that I have 
found, which has a tendency to put an awful lot of light on the 
energy shortage, which does or does not exist.
    Quite frankly, I do believe that it exists. And I believe 
that it has been caused. And I believe that it has been caused 
by over government regulation and not enough dependence on the 
private sector instead of too much, because all the situations 
that you have talked about, whether it is ramping up and down 
in order to fluctuate the spot market--I do not know of a power 
plant that isn't indeed licensed by the government.
    And the government already has the control to withdraw that 
license, should those kind of activities take place. So we 
don't need more government, as far as I am concerned, involved.
    But one of the things that I would like to shed an awful 
lot of light on, unlike the previous representative's question, 
I think prices of energy were way too high last year and the 
year before. And I believe, so do an awful lot of the 
consumers, especially in the State of Idaho that are on fixed 
income, and especially those producers in the State of Idaho 
that their third highest cost ingredient in the last 10 years 
has become energy.
    It takes 27,000 Btus, for instance, to make a pound of 
french fries.
    And the cost of energy going up continues to cause havoc in 
the marketplace for our product, especially when you have to 
compete with Australia, Argentina, and other places that can 
produce the same product with a much cheaper source of energy 
because they don't have the government control to the extent 
that we do.
    But one of the things that I would like to know, whether it 
is coal, whether it is oil, or whether it is gas, I would like 
to know the cost per 1,000 cubic feet, per unit of measurement. 
Maybe 1,000 Btus is the best.
    What is the government cost per 1,000 Btu measurement?
    For instance, in the Idaho right now, we know that, between 
regulations and taxes, when we pay $1.68 for a gallon of 88 
octane gasoline, we know that between taxes and regulation, 
that our costs are almost $1.
    And if you don't have that answer today, I would be more 
than happy to receive that answer from you. Do any of you 
happen to have that answer today?
    Mr. Rubin. No, sir.
    Mr. Otter. Mr. Rubin, is that an attainable figure? Can we 
obtain that from the petroleum industry?
    Mr. Rubin. I don't know how easily obtainable it is. In a 
lot of cases, the regulatory burdens are so great that we are 
not able to drill. So I guess that would drive the cost of the 
regulation to infinity.
    Mr. Otter. Doesn't that, in fact, constrict the market and 
limit the supply? And as a result, supply and demand, isn't 
that going to make the price go up?
    Mr. Rubin. Absolutely.
    Mr. Otter. So that can be a contributing factor?
    Mr. Rubin. Absolutely.
    Mr. Otter. Okay.
    And the reason I bring that up is because we did a little 
research in the fast food business here a few years ago and 
found out that a Big Mac, as it was going up in price, had 258 
taxes and regulations on it; 258.
    So I suspect, as regulated as the energy industry is, it is 
going to be even more.
    Mr. O'Connor, how do we stop future conflicts between the 
coal methane bed and the drilling? How do we stop those kinds 
of conflicts?
    Mr. O'Connor. I will address that question. First of all, 
may I respond to your earlier question with regard to the layer 
of taxes and other fees?
    On a national average, first of all, the delivered price of 
coal into power plants, on a national average, has been about 
$1.25 to $1.30 per million Btus. That has generally been 
anywhere from a third to a fourth of the price of delivered gas 
or oil into power plants on a delivered basis.
    On a more specific level though, and particularly since we 
are talking here about Federal lands, I will address the 
Federal lands component exclusively.
    Looking at the Powder River basin, which I alluded to 
earlier, Campbell County, if it were its own country, Campbell 
County, Wyoming, would be the fourth largest coal-producing 
country in the world, with the United States being number two. 
So let's look at just it, since it is such an enormous resource 
area.
    When coal in 1999 was selling on a spot market basis for 
about $4.25 or $4.30 a ton, if one broke that component into 
taxes and other fees--and I will address those in just a 
moment--plus fixed costs, plus all the variable costs of 
depletion and what minimal profit there was, if you looked at 
the fixed costs--the employment, the costs of explosives, costs 
of reclamation, those sorts of unavoidable fixed costs--the 
taxes and royalties combined were almost as great as the fixed 
costs themselves.
    What are those made up of: 12.5 percent royalty to the 
Federal Government (by the way, I am not here to argue pro or 
con; I am just identifying them) 12.5 percent royalty to the 
Federal Government; 10.5 percent state severance and ad valorem 
property taxes; a $.35 a ton abandoned mine lands fee; a black 
lung fee--that is amazing because this is surface coal; it 
doesn't create any of these impacts--but a black lung tax of up 
to $.55 ton; and then various other more indirect taxes.
    And as I said, that came to almost the direct costs of our 
operations.
    Let me turn now to the second question: How do we deal 
prospectively with these issues of conflict in coal bed arenas? 
And I will do it in two parts.
    One is, the problem has occurred because historically--and 
this is not an indictment of any administration or of any party 
because for 35 years this has been the rule by BLM up until the 
last year or so.
    When leases were issued, there was no mechanism to do 
anything. BLM, to its credit, is now, starting in the year 
2000, has started looking at when leases are issued in the 
future to impose some stipulations and trying to impose through 
regulatory means mechanisms to address this.
    So as we look into the long-term future, this issue can be 
dealt with administratively through regulations, through 
stipulations in leases as leases are issued.
    But the crying problem here is what do you do with those 
leases that have already been issued and, much more acutely, 
the parties are already in conflict? The leases are issued. You 
can't enact regulations to try to retroactively go back and do 
something, unless there was a statutory mechanism to do it.
    And the legislation introduced by Congresswoman Cubin, H.R. 
1710, quite simply would do this--and I am going to 
overgeneralize in the interests of simplicity--say, first of 
all: Parties, go away and try to negotiate your differences out 
between yourselves, coal and coal bed methane operator.
    If you can, great. Bring it back and give it to us.
    But if you can't, and despite your best efforts, you are 
not able to, then a panel of experts--one selected by the coal 
company, one selected by the coal bed operator, one selected by 
the Interior Department, for example, under the jurisdiction 
and supervision of a Federal court in that district--will look 
at, first, the issue of who creates the greatest financial 
value to the Federal and state government.
    And that party that does that will be given the right of 
possession, but will also be given the obligation to pay fair 
market value to the party that is giving up its right of 
possession.
    And that fair market value will be determined on a case-by-
case basis by that panel of experts.
    Mr. Otter. Mr. O'Connor, excuse me. If I were the landlord, 
and I rent my land to two different people, one to grow 
potatoes on, the other to grow hay on, neither of which can 
exist with the other, why isn't it the landlord's problem 
instead of the lessors or the lessees problem?
    Mr. O'Connor. A spectacularly good question.
    [Laughter.]
    I absolutely agree with you.
    Very honestly, you know, the Bureau of Land Management 
historically has said, basically: It doesn't make any 
difference if we created the problem; it is your obligation to 
figure your way out of this.
    Mr. Otter. When was the last time we did this? When was the 
last time we committed this kind of thing?
    Mr. O'Connor. Case in point, 1998, our company paid $158 
million for a Federal coal lease, and we found out later that 
we were going to have to pay many, many millions of dollars to 
a coal bed operator.
    Mr. Otter. I guess my question goes to, are we still 
involved in this, in this lease practice?
    Mr. O'Connor. Yes.
    Mr. Otter. Thank you.
    I would just like to ask Mr. Rubin one more question.
    Would your company be interested in your landlords having a 
working interest, even if your landlord was the Federal 
Government? A working interest rather than a royalty? Would 
your industry, I mean?
    Mr. Rubin. That is not an issue that I think we have ever 
even thought about, at least certainly not when I have been 
around.
    As a working interest owner, depending on the size of the 
working interest, that working interest owner has a say in the 
development.
    Look, I mean, any company will look at any terms offered 
and decide whether it is appropriate for that company to go 
forward, so I couldn't preclude anything.
    But I will tell you, it is not something that we have 
talked about or thought about.
    Mr. Otter. Thank you, Mr. Chairman.
    Mr. Gibbons. Thank you, Mr. Otter.
    Gentlemen, it is obvious that we have kept you here for the 
requisite 2 hours--
    [Laughter.]
    --and even then a little bit more.
    We certainly appreciate the courtesy of your cooperation 
and your presence, as well as the testimony you have provided.
    As I mentioned earlier, the staff or the Committee may have 
written questions that it will submit to you, and we would ask 
that you do respond to the Committee with an answer to those 
questions in writing.
    This has been an hearing which has obviously brought us new 
information, information which we certainly appreciate 
learning. We are actively interested in finding a solution, and 
even short-term solutions to the energy problems that this 
nation in the beginning of the 21st century.
    Your presence here has helped us greatly, and we appreciate 
your recommendations.
    With that, there being no other questions from the 
Committee, we would again say thank you and call this hearing 
to an end.
    [Whereupon, at 12:07 p.m., the Subcommittee was adjourned.]

    [Additional material submitted for the record follows:]

    1. Statement for the record from The Geothermal Energy 
Association
    2. A letter from William F. Whitsitt, President, Domestic 
Petroleum Council, submitted for the record follows:]
               Near Term Potential For Geothermal Energy
    The National energy crisis is most immediate and severe in 
California and the far West. This region has a wealth of renewable 
resources, including geothermal energy. Geothermal energy has 
significant potential to contribute to alleviating the energy supply 
crisis in the West, and the Department of Energy's programs could 
assist with realizing this potential. With proper support, hundreds of 
Megawatts of geothermal electricity could be brought on line fairly 
quickly, and thousands of megawatts could be added in a matter of a few 
years.
    We estimate that electricity production from many existing power 
plants could be improved through better technology and operational 
changes. Existing plants could provide perhaps 2030% more power--adding 
400600MW--if there was a significant short-term investment in these 
improvements. Also, efforts to supply treated wastewater to The Geysers 
need to be continued on a priority basis to achieve projected increases 
in generating capacity.
    In fairly short order, new geothermal capacity could be on-line in 
the West. A thousand megawatts or more of additional capacity lies in 
or immediately near existing facilities. Because there is some 
knowledge of the subsurface resource, and some infrastructure already 
in-place, these sites could be developed as fast as markets and 
permitting allow. (This does not include substantial undeveloped 
geothermal resources in Mexico that lies close to the California 
border.)
    Further, USGS has estimated that as much as 20,000 MW of additional 
geothermal electric power resources could be developed in the West. 
This level of development would presume sustained strong markets, or 
financial incentives like the production tax credit, and continued 
development of technology that DOE's research and development efforts 
support. Based upon our review of experts in the field, this level of 
power development may be possible over the next decade with appropriate 
federal and state support.
    Of course, this is only electric power resource development. Today, 
there is also a significant direct use industry throughout the West 
that uses geothermal heat in schools, homes, farms, and industrial 
processes. Dr. John Lund of the Oregon Institute of Technology has 
estimated than an equal amount of energy could be harnessed through 
direct use applications in buildings, commercial operations and 
industrial processes. Of course, Dr. Lund also assumes that both 
federal and state governments continue to support expanded use of 
geothermal resources.
    Combined, geothermal power and direct-use energy has enormous 
potential for the Western United States. Together, these estimates 
represent energy equivalent to roughly 20% of total current U.S. energy 
needs. And, with continued advances in technology, the ultimate 
potential for geothermal energy will continue to expand far beyond this 
range.
    Keys to achieving the potential of geothermal energy are: 1) 
extension of the production tax credit to new geothermal facilities and 
incremental capacity additions at existing power plants, 2) priority 
processing by federal and state agencies of leases and permits for new 
geothermal development and expansions at existing facilities 
(consistent with the substantive requirements of the law) and, 3) a 
strong DOE geothermal research and development program that works 
closely with industry.

    The Geothermal Energy Association
    209 Pennsylvania Ave SE
    Washington, D.C. 20003
    Phone: 202-454-5261; Fax: 202-454-5265
                                 ______
                                 
                                 [GRAPHIC] [TIFF OMITTED] T2515.006
                                 
                                 [GRAPHIC] [TIFF OMITTED] T2515.007
                                 
                                 [GRAPHIC] [TIFF OMITTED] T2515.008
                                 
                                 [GRAPHIC] [TIFF OMITTED] T2515.009
                                 
                                   - 

```