```

[Senate Hearing 107-104]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 107-104

                 COALBED METHANE DEVELOPMENT IN MONTANA

=======================================================================

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

                      COMMITTEE ON APPROPRIATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            SPECIAL HEARING

                   MARCH 10, 2001--BILLINGS, MONTANA

                               __________

         Printed for the use of the Committee on Appropriations

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

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
71-744 PS                   WASHINGTON : 2001
_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402

                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
                                     MARY L. LANDRIEU, Louisiana
                   Steven J. Cortese, Staff Director
                 Lisa Sutherland, Deputy Staff Director
               James H. English, Minority Staff Director
                                 ------                                

             Subcommittee on Interior and Related Agencies

                    CONRAD BURNS, Montana, Chairman
TED STEVENS, Alaska                  ROBERT C. BYRD, West Virginia
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
ROBERT F. BENNETT, Utah              HARRY REID, Nevada
JUDD GREGG, New Hampshire            BYRON L. DORGAN, North Dakota
BEN NIGHTHORSE CAMPBELL, Colorado    DIANNE FEINSTEIN, California
                                     PATTY MURRAY, Washington
                           Professional Staff
                              Bruce Evans
                              Ginny James
                            Leif Fonnesbeck
                            Christine Drager
                              Ryan Thomas
                       Peter Kiefhaber (Minority)
                      Brooke Livingston (Minority)

                         Administrative Support
                              Isaac Green

                            C O N T E N T S

                              ----------                              
                                                                   Page

Opening statement of Senator Conrad Burns........................     1
Statement of Senator Max Baucus..................................     2
Statement of Thomas P. Richmond, administrator, Montana Board of 
  Oil and Gas Conservation.......................................     4
    Prepared statement...........................................     6
Statement of Mat Millenbach, State director, Montana, Bureau of 
  Land Management................................................     8
    Prepared statement...........................................    11
Statement of H. William Hochheiser, Manager, Oil and Gas 
  Environmental Research, Office of Fossil Energy, U.S. 
  Department of Energy...........................................    14
    Prepared statement...........................................    17
Statement of Michael C. Caskey, vice president, Redstone Gas 
  Partners, LLC..................................................    27
    Prepared statement...........................................    29
Statement of Neta Old Elk, director, Crow Tribal Mining and 
  Minerals.......................................................    35
    Prepared statement...........................................    36
Statement of Geri Small, president, Northern Cheyenne Tribe......    37
    Prepared statement...........................................    41
Statement of Wayne L. Kelley, president, Omega Oil Co............    43
    Prepared statement...........................................    45
Statement of Michael E. Nicklin, Ph.D., PE, president, Nicklin 
  Earth & Water..................................................    55
    Prepared statement...........................................    57
Statement of Steve Gilbert, board member, Northern Plains 
  Resource Coun- 
  cil............................................................    59
    Prepared statement...........................................    61
Statement of David R. Heinz, manager of business development, CMS 
  Oil and Gas Co.................................................    65
    Prepared statement...........................................    66
Questions submitted by Senator Conrad Burns......................    71

 
                 COALBED METHANE DEVELOPMENT IN MONTANA

                              ----------                              

                        SATURDAY, MARCH 10, 2001

                               U.S. Senate,
     Subcommittee on Interior and Related Agencies,
                               Committee on Appropriations,
                                                      Billings, MT.
    The subcommittee met at 10:01 a.m., in the ballroom of the 
Student Union Building of Montana State University, Billings, 
MT, Hon. Conrad Burns (chairman) presiding.
    Present: Senator Burns.
    Also present: Senator Baucus.

               OPENING STATEMENT OF SENATOR CONRAD BURNS

    Senator Burns. We will gavel this committee to order. This 
is the Appropriations Subcommittee on Interior Appropriations. 
And we have seen sort of a--over the past couple of years we 
have seen a law that the government did not write that is 
working very well right now, called the law of supply and 
demand. And, of course, the energy has been in the minds of and 
also in the pocketbooks of a lot of people in the last couple 
of years. We see a lot of things happening.
    So I would like to thank our witnesses for coming today and 
everybody that is in here because it does indicate quite a lot 
of interest in what is going on, not only here in our State, 
but Wyoming and, of course, energy production across this 
country.
    Everyone in this room is familiar with both the economic 
potential and the possible environmental concerns associated 
with coalbed methane development. I was pleased to see both 
KTVQ here in Billings and the Billings Gazette set the stage 
for this hearing for their recent series on coalbed methane 
development.
    It is my hope that today will shed more light on some of 
the concerns mentioned in those articles and give us an idea as 
to how we can move ahead with responsible development that will 
allow Montana to capture the potential of this resource. Not 
only does Montana want to be a part of solving the problem on 
energy, but we also should participate in the benefits of 
those.
    The economics of coalbed methane development are 
staggering. All estimates of gas volume in the area reach into 
the tens of trillions of cubic feet of available gas. The 
estimated value of that gas deposit has reached as high as $70 
billion. A majority of potential lies in Wyoming, but Montana 
has the opportunity to capture a sizeable portion of this 
economic boom.
    With our current budget concerns in the State, royalties 
and the tax base that this development will provide is a 
welcome addition to the State's revenue stream. This added 
money could be invested in our education system, used to foster 
economic development in new industry sectors, and new 
opportunity comes at a time when Montana needs it most.
    And our congratulations goes to my colleague to my left 
here because he started this idea of economic development a 
year ago, been holding meetings. And we would hope that it 
would fit into his ideas and all of our ideas on how we turn 
this State around economically.
    Montana has seen the boom and bust before, and the impacts 
sometimes were negative. Environmental concerns must be 
addressed, and they must ensure that we are not threatening the 
agricultural section of the region. Water is our most precious 
resource, and Montana's largest economic sector, agriculture, 
is dependent on it.
    Montana has some of the most stringent environmental 
guidelines in the world because we recognize the land is the 
foundation for our quality of life as well as our economy. We 
must ensure that the Federal agencies have adequate funding and 
environmental impact statements prepared in a timely manner. We 
must explore options to mitigate the impacts of water disposal 
and find ways to do so in a manner that makes economic sense.
    So I want to close by reminding everyone here of the 
greater potential available. Right now America is facing an 
energy crunch. I was struck by--I went and made a speech to the 
consumer electronics industry about a month ago, and especially 
we are seeing the blackouts and the rolling blackouts in 
California.
    And some of that that is going on in California is self-
imposed by their own State and their attitude towards energy, 
but they are a part of this Union. And their economy is so 
large. No matter what they do, they have impacts on the rest of 
us, especially us in the Northwest. So we want to be a part of 
the solution, not a part of the problem.
    And we also know that fossil fuels--we are going to put 
more money into clean coal technology and in ways that we can 
use the energy, and we can be a positive answer before America. 
It is essential. I do not think there is anything that is 
contributing to the economic slowdown in this country right now 
as the energy impact is having on our country.
    We have the best and the brightest in the room today. And I 
hope we can sit back, discuss these issues frankly in order to 
create a strong record of detailing the best option and then 
move ahead. Make the decision and do it.
    And again I want to thank Senator Baucus, who is the 
ranking member on the Senate Finance Committee, for attending 
today. And, Max, thank you very much for coming. And if you 
have a statement, why, it's all yours.

                    STATEMENT OF SENATOR MAX BAUCUS

    Senator Baucus. Thank you very much, Conrad.
    This is clearly a very important decision for us in 
Montana. Wyoming has reaped huge benefits in the development of 
coalbed methane gas. I am struck with the disparity between our 
respective State legislatures' abilities to balance their 
budgets, and Helena having a very difficult time. And clearly 
Wyoming has a large surplus. And it is also true that a lot of 
people individually have benefitted from the development of 
coalbed methane gas.
    We stated the obvious. We do know the problems that are 
associated--whether it is water quantity, water quality, 
erosion, other roads and fumes and whatnot--all the problems 
that are associated with development. I suppose they are not 
always problems, but they are problems to some people. So the 
real key question is how to best find balance and how best to 
mitigate against any potential problems that might arise so 
that we can have the benefits but minimize the problems; 
recognizing that there's no free lunch.
    It is something we all know more and more as we grow older, 
that there always are trade-offs. There is compensation in 
everything. So that those who see large dollar signs might have 
to back off a little bit and help work to mitigate against some 
of the adverse effects. On the other hand, those who see 
nothing but disaster might have to also think a little bit 
more, back off a bit and look for ways to see if maybe they 
can--that there are ways to mitigate potential problems, and 
maybe they can find some benefits as well.
    So I just urge all of us to--while we are giving facts and 
points of view, to also sit back a bit and listen, and 
particularly listen to the other guy's point of view and put 
ourselves in the shoes of the other person a little bit, 
because in so doing we are more likely to find, I think, a 
solution in how to deal with all of the questions that evolve 
around this.
    We can learn a lot from Wyoming. And Wyoming, they're ahead 
of us.
    Senator Burns. And we cannot allow that to continue.
    Senator Baucus. In all respects.
    But we can learn. That's an advantage we do have here at 
home.
    So I am just very honored to be here and be a part of this 
hearing and very much thank my colleague. You know, this 2001, 
this millennium is kind of a new era. The Montana delegation is 
really starting to work real well together here. Now, that 
might not be a good thing, but I think it is a good thing. And 
I just wanted to compliment Conrad for inviting me to join him 
here. And who knows? There may be some reciprocation on down 
the road. Let's get on with it.
    Senator Burns. Thank you, Senator, and we appreciate you 
being here.
    We are going to open the panel up this morning with three 
representatives we think that can sort of lay the groundwork 
for us today and to take into consideration what they have to 
say and, of course, the questions we may have for them. We have 
Tom Richmond, who is the administrator of the State of Montana 
Oil and Gas Board; Mat Millenbach, who is the Montana State 
director for the BLM--and, Mat, congratulations on being named 
to that--and Bill Hochheiser, environmental program manager, 
Office of Natural Gas and Petroleum in the Department of 
Energy. So we appreciate you gentlemen being here today.
STATEMENT OF THOMAS P. RICHMOND, ADMINISTRATOR, MONTANA 
            BOARD OF OIL AND GAS CONSERVATION
    Senator Burns. And we are going to ask Tom Richmond if he 
will open up with his testimony today, and we look forward to 
hearing from you.
    Mr. Richmond. Thank you, Mr. Chairman, Senator Baucus.
    Senator Burns. You might want to pull that microphone up to 
you because we want everybody to hear every word they will hang 
on.
    Mr. Richmond. I was going to thank you for making my 
Saturday interesting.
    Senator Burns. I figured you need one.
    Mr. Richmond. Again, thank you for the opportunity to 
discuss coalbed methane development in Montana.
    The Montana Board of Oil and Gas Conservation is the 
regulatory agency for oil and gas development activities on 
State-owned and private land in Montana. Our board consists of 
seven members appointed by the governor, including industry 
representatives, landowners, and public members.
    We regulate industry activities to prevent economic and 
physical waste, to conserve oil and gas resources by 
establishing rules for exploration and production, and we 
protect the property rights of the owners of oil and gas. We 
are very interested in seeing that coalbed methane development 
occurs in a way that maximizes the recovery of the gas resource 
while protecting the land and water resources.
    Through a process of notice and public hearing our board 
establishes the parameters that determine the density of wells; 
the minimum distances that wells can be drilled from property 
lines; and the drilling, completion, and producing practices 
appropriate for a particular area. We have been doing this 
since 1954.
    The board developed a programmatic environmental impact 
statement in 1989 to incorporate environmental review and 
assessment processes into its regulatory activities. The 
board's environmental review process is required by the Montana 
Environmental Policy Act, legislation that mirrors the National 
Environmental Policy Act.
    There have been CBM exploration activities in Montana for a 
number of years. In 1990, two wells were drilled in the 
vicinity of Decker, Montana, to test the wall and canyon coals 
of the Fort Union formation for potential gas production. One 
of those wells reported an initial production capacity of 
75,000 cubic feet of gas per day.
    In 1990 and 1991, a Billings-based operator drilled several 
wells in the Bear Creek area in Carbon County to test for gas 
in the Fort Union formation. And some gas was encountered in 
those wells.
    In 1995, another operator drilled a well near Boyd in 
Carbon County to test deeper, geologically older wells in--
older coals in Eagle formation. This well encountered no 
commercial shows of natural gas, but did encounter very high 
quality water.
    Also in 1995, Redstone Gas Partners drilled seven CBM test 
wells in the Decker area. More CBM exploration and production 
activities occurred in Big Horn County in 1997 as Redstone 
expanded the Tongue River pilot project. In that year we 
permitted 31 CBM wells. 41 more wells were permitted in 1998, 
and 156 wells in 1999.
    We had issued an additional 24 permits by the time Northern 
Plains Resource Council filed its lawsuit against the board in 
March of 2000. I should note that not every permitted well is 
drilled. In the case of these several permits, a number of them 
have expired or been withdrawn.
    As a result of NPRC's lawsuit, the board instituted a 
moratorium in new CBM permits. In June 2000, we agreed with 
NPRC to settle the lawsuit. The agreement provides for the 
completion of the Redstone project by authorizing the drilling 
of up to 325 wells, 250 of which may be produced commercially.
    The drilling of an additional 200 wells on a statewide 
basis is allowed under the stipulations that prohibit 
commercial production and the discharge of produced water. The 
board agreed to prepare or participate in the preparation of an 
environmental document that would supplement it's 1989 
programmatic to cover coalbed methane exploration and 
production.
    A 1999 report from the Gas Research Institute attributes 39 
trillion cubic feet of natural gas to the coalbeds in the 
Powder River Basin in Montana and Wyoming, 3.7 trillion cubic 
feet to coalbed--coal basins entirely within the State, and 
another 3 trillion cubic feet to the Big Horn Basin, also 
shared with Wyoming.
    There are varying opinions as to the recoverable portion of 
gas attributed to Montana, but clearly our CBM resources 
present a significant opportunity for economic development in a 
part of our State where opportunities are scarce.
    Development of natural gas from coalbeds presents unique 
challenges to regulatory agencies such as our board. No one in 
my organization believes we should trade away or impair the 
traditional agricultural base of the areas likely to be 
affected by CBM. Yet it is our experience that oil and gas and 
agriculture coexist, perhaps not without occasional conflict, 
but certainly without the need for one use to exclude the 
other.
    Our challenge is to implement a regulatory framework that 
uses good sense and good science to manage the impacts of 
development. As we educate ourselves about CBM development, we 
also need to educate others about our existing regulatory 
framework and about those new problems we need to address. The 
CBM environmental impact statement will be the centerpiece of 
this education effort.
    The board regulates oil and gas activities on private and 
State-owned lands, but has no power to determine when or if 
those lands are leased for oil and gas. The parties to the 
lease determine the terms and conditions of development. Our 
board is challenged by the need to assure equity in development 
of oil and gas resources. Each owner must be afforded the 
opportunity to recover his or her fair share of the resource.
    We have had a long and mutually beneficial relationship 
with BLM in Montana in regulating the spacing and location of 
the wells to ensure that both the public interest and the 
interests of the private landowners are protected. The joint 
Federal/State EIS builds on that relationship and provides a 
measure of assurance that neither public nor private land will 
be disadvantaged by agencies of government failing to reach 
decisions concurrently.
    The Senate Interior Appropriations Subcommittee's timely 
financial support of the CBM EIS in BLM's current year has 
allowed this effort to proceed within the time frame we had 
predicted would be needed if the board were to independently 
develop a supplement to our programmatic.
    I want to thank the subcommittee for its support of some 
Department of Energy issues in two key areas important to us. 
The first is the database that we use to track and generate 
statistics for coalbed methane activities, as well as 
conventional oil and gas, and UIC in Montana, underground 
injection controls.
    This is the risk-based data management system that was 
developed through the Ground Water Protection Council using DOE 
grant money. Montana was one of the original four test States 
to develop the system. Now 14 States use all or part of RBDMS, 
and the States of Alaska and North Dakota will soon be using 
RBDMS to run their oil and gas programs.
    DOE's ongoing support of RBDMS has allowed us to develop a 
website that both industry and the public can use to obtain 
information and track development on a real-time basis. All of 
our permitting activities and completion reports and other 
information is updated daily.
    The second DOE project that we are participating in 
involves the development of best management practices for CBM. 
And it will include a computer-based geographic information 
system to facilitate better decision making. An important part 
of this process is sharing data with both industry and the 
public.
    Natural gas is a premium fuel and its demand to generate 
electricity for both new power plants and as a replacement for 
other fuels makes unconventional sources such as CBM economic 
to recover. Natural gas has been the fuel of choice for space 
heating in residential and commercial establishments for many 
years, and that demand continues to grow. Montana coal fields 
contain a significant resource of natural gas that can be 
developed with this need.

                           PREPARED STATEMENT

    To add our resources to the nation's gas supply requires 
that we complete the necessary environmental planning, develop 
appropriate mitigation, and provide a framework necessary to 
assure good decisions. We have joined with our State and 
Federal partners in an ambitious schedule to accomplish these 
goals as quickly as possible. This committee's support of the 
DOE programs and the Federal/State EIS is very much 
appreciated.
    Thank you for the opportunity to testify today.
    [The statement follows:]
                Prepared Statement of Thomas P. Richmond
    Thank you for the opportunity to discuss Coal Bed methane 
development in Montana.
    The Montana Board of Oil and Gas Conservation is the regulatory 
agency for oil and gas development activities on state and private land 
in Montana. Our Board consists of seven members appointed by the 
Governor and includes industry representatives, landowners, and public 
members. We regulate industry activities to prevent physical and 
economic waste, to conserve oil and gas resources by establishing rules 
for exploration and production and to protect the property rights of 
the owners of oil and gas. We are very interested in seeing that CBM 
development occurs in a way that maximizes the recovery of the gas 
resource while protecting land and water resources.
    Through a process of notice and public hearing, the Board 
establishes the parameters that determine density of wells, minimum 
distances that wells can be drilled from property lines and drilling, 
completion, and producing practices appropriate for the area. We have 
been doing this since 1954. The Board adopted a Programmatic 
Environmental Impact Statement in 1989 incorporating environmental 
review and assessment policies into its regulatory activities. The 
Board's environmental review process is required by the Montana 
Environmental Policy Act, legislation that mirrors the National 
Environmental Policy Act.
    There have been CBM exploration activities in Montana for a number 
of years. In 1990, two wells were drilled in the vicinity of Decker, MT 
to test the Wall and Canyon coals of the Fort Union Formation for 
potential gas production. One well reported an initial production 
capability of 75,000 cubic feet of natural gas per day. In 1990 and 
1991 a Billings based operator drilled several wells in the Bear Creek 
area of Carbon County to test for gas in the Fort Union Formation. Some 
gas was encountered in these wells. In 1995 another operator drilled a 
well near Boyd, also in Carbon County, to test deeper, geologically 
older coals in the Eagle formation. This well encountered no commercial 
shows of natural gas, but did encounter very high quality water. Also 
in 1995 Redstone Gas Partners drilled seven CBM test wells in the 
Decker area. More CBM exploration and development activities occurred 
in Big Horn County in 1997 as Redstone expanded the Tongue River pilot 
project. In that year we permitted 31 CBM wells, 48 more wells were 
permitted in 1998 and 156 wells in 1999. We had issued an additional 24 
permits by the time Northern Plains Resource Council filed its lawsuit 
against the Board of Oil and Gas Conservation in March of 2000. I 
should note that not every permitted well is drilled and in the case of 
these permits, several have expired, or been withdrawn.
    As a result of NPRC's lawsuit, the Board instituted a moratorium on 
new CBM permits. In June 2000, we agreed with NPRC to settle the 
lawsuit. The agreement provides for the completion of the Redstone 
project by authorizing the drilling of up to 325 wells, 250 of which 
may be produced commercially in the Decker area. The drilling of up to 
200 additional exploratory wells on a statewide basis is allowed under 
stipulations that prohibit commercial production and discharge of 
produced water. The Board agreed to prepare or participate in the 
preparation of an environmental document that supplements its 1989 
Programmatic EIS to cover coal bed methane exploration and production 
activities.
    A 1999 report from the Gas Research Institute attributes 39 
trillion cubic feet of natural gas to the coal beds of the Powder River 
Basin in Montana and Wyoming, 3.7 trillion cubic feet to coal basins 
entirely within Montana, and another 3 trillion cubic feet to the 
Bighorn Basin in Montana and Wyoming. While there are varying opinions 
as to the recoverable portion of that gas attributed to Montana, our 
CBM resources present a significant opportunity for economic 
development in a part of our state where opportunities are scarce. 
Development of natural gas from coal beds presents unique challenges to 
regulatory agencies such as the Board of Oil and Gas. No one in my 
organization believes we should trade away or impair the traditional 
agricultural base in the areas likely to affected by CBM development. 
Yet it is our experience that oil and gas and agriculture co-exist, not 
without occasional conflict but certainly without the need for one use 
to exclude the other.
    Our challenge is to implement a regulatory framework that uses good 
science and good judgment to manage the impacts of development. As we 
educate ourselves about CBM development we also need to educate others 
about our existing regulatory framework and those new problems we need 
to address. The CBM Environmental Impact Statement will be the 
centerpiece of this education effort.
    The Board of Oil and Gas Conservation regulates oil and gas 
activity on private and state-owned lands, but it has no power to 
determine when or if those lands are leased for oil and gas. The 
parties to the lease determine the terms and conditions of development. 
Our Board is further challenged by the need to assure equity in 
development of oil and gas resources. Each owner must be afforded the 
opportunity to recover his or her fair share of the resource. We have 
had a long and mutually beneficial relationship with BLM in Montana in 
regulating the spacing and location of wells to ensure that both the 
public interest and the interests of private owners are protected. The 
joint Federal/State EIS builds on that relationship and provides a 
measure of assurance that neither public nor private land will be 
disadvantaged by agencies of government failing to reach decisions 
concurrently. The Senate Interior Appropriations Subcommittee's timely 
financial support of the CBM EIS in BLM's current year appropriation 
has allowed this effort to proceed within the same timeframe we had 
predicted would be needed if the Board were to independently develop a 
supplement to our 1989 Programmatic EIS.
    I also thank the subcommittee for its support of the Department of 
Energy budget in two areas important to CBM development and to my 
agency. The first is the database we are using to track and generate 
statistics for Coal Bed Methane activities as well as conventional oil 
and gas and Underground injection in Montana. The Risk Based Data 
Management System was developed through the Ground Water Protection 
Council using a DOE grant. Montana was one of four test states in the 
development of this system; now over 14 states use all or part of RBDMS 
to operate their Oil and Gas programs; the states of Alaska and North 
Dakota will soon be added to the list.
    DOE's ongoing support of RBDMS has allowed us to develop a website 
both industry and the public can use to obtain information and track 
development on a real time basis. All our permitting activity, well 
completion information and production are replicated to our web server 
daily. The second DOE project in which we are participating involves 
the development of Best Management Practices and mitigation strategies 
for CBM based on production practices in specific environmental 
settings. A computer based geographic information system will be 
developed to facilitate better decision-making and manage environmental 
concerns on a site-specific basis. An important feature of the project 
is sharing of the GIS system and data with industry and the public 
using the Internet. We are just staring the initial phase of this 
project and have received a great deal of assistance and support from 
our DOE Program Manager, Mr. John Ford in DOE's National Petroleum 
Technology office in Tulsa.
    Natural gas is a premium fuel and the demand for gas to generate 
electricity for both new power plants and as a replacement for other 
fuels in existing plants makes unconventional gas such as CBM economic 
to recover. Natural gas has been the fuel of choice for space heating 
in residential and commercial establishments for many years and that 
demand continues to grow. Montana's coal beds contain a significant 
resource of natural gas that can be developed to meet this need. To add 
our resources to the nation's gas supply requires that we complete 
necessary environmental planning, develop appropriate mitigation, and 
provide a framework necessary to assure good decisions. We have joined 
with our state and federal partners in an ambitious schedule to 
accomplish these goals as quickly as possible. This committee's support 
of the DOE programs and the State/Federal EIS is very much appreciated. 
Thank you again for the opportunity to testify today.

    Senator Burns. Thank you. And I failed to mention we are 
going to kind of hold you to anywhere around 5 minutes, if you 
can consolidate your statements. But your full statement will 
be made part of the record. But if you could consolidate, that 
would sure help us along.
STATEMENT OF MAT MILLENBACH, STATE DIRECTOR, MONTANA, 
            BUREAU OF LAND MANAGEMENT
    Senator Burns. Mat Millenbach, who is the new director for 
the Montana District of Bureau of Land Management. And, Mat, 
congratulations, and thanks for giving up your Saturday today.
    Mr. Millenbach. Thanks, Senator Burns, Senator Baucus. I 
appreciate the opportunity to appear here today and discuss the 
development of coalbed methane resources in the Powder River 
Basin in Montana.
    First of all, I would like to introduce some of the folks 
that are here from the BLM. Al Pierson, down here in the front 
row, is the State director for Wyoming, who will be here to 
answer any question you might have about BLM development down 
there. And then Fred O'Farrell in the blue shirt and Jim Lidown 
in the blue sport coat are our coalbed methane experts in Miles 
City.
    As you know, the Powder River Basin contains large coal 
deposits that have methane gas trapped in the coal seams. 
Recently there has been a significant increase in coalbed 
methane production within the basin, particularly in Wyoming, 
where over 8,500 private, State, and Federal coalbed methane 
wells have been drilled. And it's estimated that roughly 50 
percent of them are now producing.
    Currently in Montana, there are about 215 producing coalbed 
methane wells. All of these wells are nonfederal wells. With 
rising natural gas prices, the industry is interested in 
coalbed methane development in southeastern and south central 
Montana. And we put up a couple of maps here so you can refer 
to those as you need.
    More than 50 percent of the oil and gas estate within the 
Montana portion of the Powder River Basin with high or moderate 
potential for development of coalbed methane is federally-
owned. Furthermore, approximately 60 percent of the Federal oil 
and gas estate in this portion of the Powder River Basin is 
already leased.
    Recognizing that environmentally responsible development of 
coalbed methane resources can be an important element of our 
national energy strategy, I believe that we should have the 
following three guiding principles: First, we need to set 
resource protection standards and make sure those standards are 
met. Second, industry should be responsible for the costs of 
developing the resources, not the neighboring landowners or the 
taxpayers. And third, companies must clean up after themselves 
and restore the land when their activities cease.
    Before we can make permanent decisions that respond to the 
new and greatly expanded interest in coalbed methane 
development we need to have an up-to-date analysis of its 
potential impacts. To make this analysis of both conventional 
oil and gas and expanded coalbed methane development, BLM and 
the State of Montana are preparing a joint environmental impact 
statement. A memorandum of understanding signed by the BLM and 
the Montana Department of Environmental Quality as co-leads is 
now being amended to include the Montana Board of Oil and Gas 
Conservation.
    A memorandum of understanding has also been signed with the 
Bureau of Indian Affairs as a cooperating agency for the 
environmental statement. In addition, agreements are being 
developed that would add the Crow and Northern Cheyenne Tribes 
and the Environmental Protection Agency as cooperators.
    BLM's part of the environmental statement will focus on 
amending our Billings and Powder River resource management 
plans. And those can be seen on the map outlined in the dark 
black line around south central and southeastern Montana.
    Scoping for the environmental statement began in December 
of 2000. This past January more than 300 people attended public 
scoping meetings in Miles City, Billings, Ashland, Broadus, and 
Helena. BLM received about 200 letters during the scoping 
period. The major issues raised were related to the potential 
impacts of coalbed methane development on ground water and 
surface water resources, water quality, impacts to soil and 
land use, introduction of nonnative plants and noxious weeds, 
and air quality.
    During preparation of the environmental statement, BLM will 
process applications for permit to drill for conventional oil 
and gas wells, but for coalbed methane wells we will only be 
approving drilling permits for drilling and testing in areas 
not previously explored. Drilling and testing coalbed methane 
wells will provide needed data that can be used in the 
environmental statement. Until our environmental statement is 
completed, coalbed methane will not be produced for sale from 
any Federal wells, and any water produced from test wells will 
be contained on site in tanks or reserve pits.
    We are planning to have a draft environmental statement 
available for a 90-day public review period by the end of this 
year. Using this schedule, a final environmental impact 
statement should be ready as soon as summer of 2002, followed 
by a 30-day protest period.
    BLM has signed a contract with Arthur, Langhus & Layne to 
prepare the environmental impact statement. This contractor has 
a wide range of experience and skills, including expertise in 
hydrology, soils, wildlife, and tribal consultation. Work on 
the environmental statement between BLM and the contractor is 
progressing on schedule.
    There are a number of important issues the environmental 
statement will address. Water is vital to the development of 
coalbed methane. The coalbed methane extraction process 
involves pumping water from the coal seams to the surface in 
order to reduce the water pressure that traps the gas in the 
coal.
    BLM has met with the Montana Bureau of Mines and Geology, 
the Department of Environmental Quality, the Board of Oil and 
Gas Conservation, and our environmental statement contractor to 
discuss ways to analyze potential impacts to ground water. 
These parties agree that the analyses need to address the major 
issues at both the regional and local level. We will attempt to 
identify areas that could experience the greatest impact.
    Finally, we want to include a level of detail to show what 
could be expected at a local level and provide landowners with 
information for negotiating water well mitigation agreements.
    Managing the water produced with methane is a challenge to 
the oil and gas industry, as well as Federal and State 
regulators. We all need to work together to find the solutions 
and innovations to address the surface water issues and 
potentials. All water disposal options would be handled in 
accordance with applicable laws and regulations, and could 
include water injection, infiltration, treatment prior to 
discharge, discharge into waterways, and beneficial uses such 
as dust abatement, stock watering, creation of wildlife 
watering areas, and establishment of fisheries.
    Monitoring wells will be used to assess the impacts to 
ground water, comparing actual drawdown conditions to those 
that are predicted in the environmental statement. 
Additionally, water quality sampling data will be obtained from 
other sites for this same purpose.
    BLM Montana and Wyoming are presently discussing the 
appropriate model to use to assess the impacts to air quality 
in Montana. BLM in both States is committed to sharing all 
resource data in the northern portion of the Powder River Basin 
that straddles the States in order to better analyze cumulative 
impacts resulting from coalbed methane development in both 
States.
    A major step in completing the environmental statement is 
determining how much future development is reasonable to 
expect. In the fall of 2000, the oil and gas industry predicted 
approximately 10,000 wells to be drilled in the northern Powder 
River Basin in Montana. Although BLM's review is still in the 
preliminary stage, we believe that number could be considerably 
higher.
    Public involvement is another important aspect of our 
environmental statement, and the public has many opportunities, 
through this process, to participate.

                           PREPARED STATEMENT

    We also have the coalbed methane coordination group, 
consisting of Federal, State, and tribal agencies, landowners, 
industry and environmental groups. And we intend to keep that 
in place and use that for our deliberations.
    This concludes my statement. I would be pleased to answer 
any questions that members may have.
    [The statement follows:]
                  Prepared Statement of Mat Millenbach
    Mr. Chairman and members of the Subcommittee, I appreciate the 
opportunity to appear here today to discuss the development of the 
coalbed methane resources of the Powder River Basin in Montana.
                 coalbed methane development in montana
    As you know, the Powder River Basin contains large coal deposits 
that have methane gas trapped in the coal seams. Recently, there has 
been a significant increase in coalbed methane (CBM) production within 
the Basin--particularly in Wyoming, where over 8,500 private, state and 
federal CBM wells have been drilled, and it is estimated that roughly 
50 percent of them are now producing. Currently in Montana, there are 
about 215 producing CBM wells. All of these wells are non-federal 
wells. With rising natural gas prices, industry is interested in 
coalbed methane development in southeastern and south central Montana. 
More than 50 percent of the oil and gas estate within the Montana 
portion of the Powder River Basin with high or moderate potential for 
development of CBM is Federally-owned. Furthermore, approximately 60 
percent of the Federal oil and gas estate in this portion of the Powder 
River Basin is already leased.
    Recognizing that the environmentally responsible development of CBM 
resources can be an important element of our national energy strategy, 
I believe we should have the following three guiding principles:
    (1) We need to set resource protection standards and make sure 
those standards are met;
    (2) Industry should be responsible for the costs of developing the 
resource--not the neighboring landowners or taxpayers; and
    (3) Companies must clean up after themselves and restore the land 
when their activities cease.
    Before we can make permitting decisions that respond to the new and 
greatly expanded interest in CBM development, we need to have an up-to-
date analysis of its potential impacts. To make this analysis of both 
conventional oil and gas and expanded coalbed methane development, BLM 
and the State of Montana are preparing a joint environmental impact 
statement (EIS). We began analyzing a 1998 industry proposal--by 
Redstone Gas Partners--to pursue limited CBM exploration and 
development in the Powder River Basin through an environmental 
assessment (EA). However, work on the EA was halted when our analysis 
showed that potential impacts were sufficiently significant to justify 
preparation of an EIS. The current EIS will include the Redstone area, 
and it will provide the foundation for oil and gas decisions made by 
each agency involved in this process.
    For the State of Montana, the planning area (or scope) of the EIS 
is statewide with emphasis on the BLM planning area in southeast and 
south central Montana, and three areas in Blaine, Park and Gallatin 
Counties. A Memorandum of Understanding (MOU) signed by BLM and the 
Montana Department of Environmental Quality (DEQ) as co-leads is now 
being amended at the Governor's direction to include the Montana Board 
of Oil and Gas Conservation. An MOU also has been signed with Bureau of 
Indian Affairs (BIA) as a cooperating agency for preparation of the 
EIS. In addition, MOUs are being developed that would add the Crow and 
Northern Cheyenne Indian Tribes and the Environmental Protection Agency 
(EPA) as cooperators in the EIS. The MOUs outline the roles and 
responsibilities of each agency and provide guidance through the EIS 
process.
    At this time, it seems likely that the scope for BLM's part of the 
EIS will focus on amending our Billings and Powder River Resource 
Management Plans (RMPs). We will make a final decision on the 
geographic scope after the contractor has completed an analysis of the 
public comments received during scoping. The Powder River RMP area 
encompasses 2,522,950 acres of BLM-administered mineral estate, 
including oil and gas, in southeast Montana. The Billings RMP area 
encompasses the south central portion of Montana consisting of 662,066 
acres of BLM-administered oil and gas mineral estate. These plans were 
written in the 1980s and were amended in 1994. At the time of the 1994 
amendment, large-scale CBM development was not a major interest of 
industry. Our amendment reflected then-current and foreseeable needs 
and analyzed conventional oil and gas development and limited CBM 
exploration and production. The new EIS will include a reasonably 
foreseeable development scenario for both CBM and conventional oil and 
gas.
    Scoping for the EIS began in December 2000. This past January, more 
than 300 people attended public scoping meetings in Miles City, 
Billings, Ashland, Broadus and Helena. The scoping period for the EIS 
ended January 31, 2001. BLM received about 200 letters during the 
scoping period. The major issues raised were related to the potential 
impacts of CBM development on groundwater and surface water resources, 
water quality, impacts to soil and land use, introduction of non-native 
plants and noxious weeds, and air quality.
    During preparation of the EIS, BLM will process Applications for 
Permit to Drill (APDs) for conventional oil and gas wells, but for CBM 
wells we will only approve APDs for drilling and testing in areas not 
previously explored. Drilling and testing CBM wells will provide needed 
data concerning coal, gas and water that can be used for analysis in 
the EIS. Until our EIS is completed, CBM will not be produced for sale 
from any Federal wells, and any water produced from test wells will be 
contained on site in tanks or reserve pits.
    Currently, CBM production only occurs from wells on private and 
State leases within the CX Field, which is located in Big Horn County. 
The State can approve up to 200 permits for drilling and testing CBM 
wells outside of the CX Field in Big Horn County in accordance with a 
settlement agreement with the Northern Plains Resource Council (NPRC). 
The State can continue to approve permits for conventional oil and gas 
wells during preparation of the EIS.
    Industry has expressed interest in exploring for CBM in areas 
adjacent to the CX Field, as well as portions of Big Horn, Powder 
River, Carbon, Rosebud, Stillwater, Gallatin, Park and Blaine Counties. 
In response to this interest, these are among the areas that are likely 
to be evaluated in the EIS.
    The NPRC also has served a Notice of Intent to file a lawsuit 
against BLM alleging that the Bureau approved APDs for conventional oil 
and gas and CBM wells in violation of the Clean Water Act. Although we 
believe we are in compliance with requirements of the Act, we are 
consulting with DEQ about each agency's roles and responsibilities 
under the Act. After completing the consultation, BLM will send a 
written response to the NPRC and also request a meeting to discuss the 
matter.
    Presently, the EIS contractor is analyzing the public comments 
received during the scoping process to identify issues and alternatives 
for the draft EIS. The contractor is also collecting existing resource 
data that will be used to analyze impacts. We continue to consult and 
exchange information with State, Federal, and tribal agencies, as well 
as other interested parties. A newsletter detailing the status of the 
EIS will be available by June 2001.
    We are planning to have a draft EIS available for a 90-day public 
review by the end of this year. Using this schedule, a final EIS could 
be ready as soon as the summer of 2002, which would be followed by a 
30-day protest period.
    BLM has signed a contract with Arthur, Langhus & Layne (ALL) to 
prepare the EIS. A subcontractor will assist ALL in the preparation of 
the EIS. Both companies have a wide range of experience and skills--
including expertise in hydrology, soils, wildlife, and tribal 
consultation--that is needed to address oil and gas operations and to 
analyze their potential impacts. Work on the EIS between BLM and the 
contractor is progressing on schedule.
                    IMPORTANT ISSUES TO BE ADDRESSED
Water issues
    Water is vital in the development of CBM. The CBM extraction 
process involves pumping water from the coal seams to the surface in 
order to reduce the water pressure that traps the gas in the coal. 
Coalbed methane wells are drilled into the coal seam with the casing 
sealed above the coal. A standard water pump is used to deliver water 
to the surface. The combined effect of many wells pumping 
simultaneously reduces the water level in the coal in the vicinity of 
the wells that are pumping. This lowers the water pressure and allows 
the methane to migrate up the well. Among other things, the public is 
concerned about potential cumulative effects to groundwater, how long 
it will take to recharge aquifers, and any potential harm to private 
water wells and springs.
    BLM has met with the Montana Bureau of Mines and Geology (MBMG), 
the Department of Environmental Quality, the Board of Oil and Gas 
Conservation, and our EIS contractor to discuss ways to analyze 
potential impacts to groundwater. In order to complete the EIS, these 
parties agreed that the analyses need to address the major issues at 
both a regional and local level. We will attempt to identify areas that 
could experience the greatest impacts. Finally, we want to include a 
level of detail to show what could be expected at a local level to 
provide landowners with information for negotiating water well 
mitigation agreements. The approach agreed upon to address this 
analysis will result in a groundwater resources technical report. Part 
of this report will include 2-D Draw-down Models according to site-
specific conditions representing 3 or 4 different groundwater 
situations and CBM development scenarios. The MBMG will actively 
participate by providing existing groundwater data and aquifer 
characteristics to the contractor and reviewing work products. After 
the Technical Report is completed, the groundwater analyses group, 
including the MBMG, the EPA and the other cooperators, will determine 
if the analyses' goals were achieved or if further analyses and more 
intensive modeling is necessary.
    Managing the water produced with methane is a challenge to the oil 
and gas industry, as well as Federal and State regulators. We all need 
to work together to find the solutions and innovations to address the 
surface water issues and potential impacts to the entire land and water 
system, including soil, vegetation, and land use. All water disposal 
options would be handled in accordance with applicable laws and 
regulations and could include water reinjection, infiltration, 
treatment prior to discharge, discharge into waterways, and beneficial 
uses such as dust abatement, stock watering, creation of wildlife 
watering areas, and establishment of fisheries. The State of Montana, 
the BLM and the EPA are genuinely concerned with these water issues and 
will work to find the best options available. We will consider these 
water disposal options as we develop alternatives to analyze in the 
EIS. Our joint leadership in the EIS process, we believe, is the best 
course of action to achieve proactive solutions that will ensure any 
CBM development is conducted in an environmentally sound manner.
    Monitoring wells will be used to assess the impacts to groundwater 
comparing actual drawdown conditions to those that are predicted in the 
EIS. Gauging stations have been installed to assess the impacts to 
surface waters from the discharge of produced water associated with 
methane production. Additionally, water quality sampling data will be 
obtained from other sites for this same purpose. Water quality samples 
are also required by the State of Montana's discharge permitting 
process to assess and maintain the quality of the receiving waters such 
that nondegradation standards are met.
Air issues
    BLM Montana and Wyoming are presently discussing the appropriate 
model to use to assess the impacts to air quality in Montana. BLM in 
both states is committed to sharing all resource data in the northern 
portion of the Powder River Basin that straddles the state line, such 
as soil, water, air, vegetation, wildlife, cultural, economic, etc., in 
order to better analyze cumulative impacts resulting from CBM 
development in both states.
Reasonably foreseeable development
    A major step in completing the EIS is determining how much future 
development is reasonable to expect. In the fall of 2000, the oil and 
gas industry predicted approximately 10,000 wells could be drilled in 
the northern Powder River Basin in Montana. Although BLM's review is 
still in the preliminary stage, we believe the number of CBM wells 
drilled in the area could be considerably higher than this estimate. 
Industry's analysis only took into consideration the upper Ft. Union 
sub-bituminous coals within the Powder River Basin in Montana and 
excluded the Ashland District of the Custer National Forest and Crow 
and Northern Cheyenne Tribal lands and bituminous coals. In addition to 
the areas included in the industry analysis, the BLM and State of 
Montana compilation of a reasonably foreseeable development scenario 
will include all mineral ownerships in the Powder River and Big Horn 
Basins in Montana, and several other areas of the state that contain 
coal resources. Because our analysis will be predicting CBM wells from 
the sub-bituminous and bituminous coals, it will cover many other areas 
besides the Powder River Basin.
Subsurface gas drainage
    No subsurface drainage of CBM from Federal or Indian lands in 
Montana has been identified to this point. Because of well spacing, 
mineral ownership patterns, and the relatively low number of existing 
wells, we do not expect drainage to be an issue in the short term. 
However, this is an issue that definitely will have to be considered 
over the long term.
                           PUBLIC INVOLVEMENT
    Public involvement is another important aspect of the EIS process. 
The process is inherently open--as dictated by law, policy, and our 
desire to continually inform the public. As part of our outreach 
program for the EIS, we will continue to schedule meetings with the CBM 
Coordination Group. BLM was instrumental in the formation of this group 
that is composed of Federal, State and tribal agencies, landowners, 
industry, and environmental groups. The group was formed to discuss 
issues and share information related to the EIS. In addition, we will 
meet with other members of the public as often as needed or requested. 
Finally, BLM will provide information needed to keep the public fully 
informed on the EIS process.
    This concludes my prepared statement. I would be pleased to answer 
any questions that members of the Committee may have.

    Senator Burns. Thank you very much, Mat. We appreciate 
that.
STATEMENT OF H. WILLIAM HOCHHEISER, MANAGER, OIL AND 
            GAS ENVIRONMENTAL RESEARCH, OFFICE OF 
            FOSSIL ENERGY, U.S. DEPARTMENT OF ENERGY
    Senator Burns. William Hochheiser, who is the environmental 
program manager, Office of Natural Gas and Petroleum, 
Department of Energy. Thank you and welcome to Billings, 
Montana.
    Mr. Hochheiser. Thank you, Mr. Chairman, Senator Baucus. I 
appreciate the opportunity to be here today to talk about DOE's 
environmental research program for oil and gas.
    I was asked to describe the program and specifically to 
give examples of where the Department of Energy has worked with 
government agencies and industry to address environmental 
programs and come up with solutions through research and 
analysis.

                         ENVIRONMENTAL RESEARCH

    Our environmental research program mission is to promote 
cost-effective environmental protection and enhance 
environmental performance to encourage maximum recovery of U.S. 
oil and gas resources. I note that this mission emphasizes both 
recovery and environmental protection, goals that we believe 
are quite compatible.
    We do this through technology development, risk analysis, 
and regulatory streamlining. And we are strong advocates of 
risk-based regulation and decision making. We conduct a variety 
of risk assessment studies to provide the scientific basis for 
such decisions.
    We cover a spectrum of environmental issues, including air 
emissions, produced water treatment and disposal, solid waste 
management and disposal, underground injection, naturally 
occurring radioactive materials, or NORM, data management, 
remediation, and operations on public lands.
    And while DOE is the principal Federal agency charged with 
the responsibility for the development of a national energy 
policy, it cannot effectively carry out that responsibility 
without close coordination with other Federal agencies. We also 
recognize that oil and gas exploration and production is 
primarily regulated by the States, so we pursue cooperative 
efforts with State agencies and organizations also.

                        INTERAGENCY COOPERATION

    A few examples of our intergovernmental activities include 
being a member of the core team of the Federal Leadership 
Forum, which is an interagency group that is working to 
streamline the National Energy Policy Act process for oil and 
gas development in the Rocky Mountain Region.
    We have formed an oil and gas Federal lands technology 
partnership with BLM, in which we conduct research aimed at 
improving access to Federal lands. And in 3 years we funded 10 
projects under this partnership.
    We are also participating in a multi-stakeholder research 
and monitoring team that is looking at the impacts of oil 
exploration and development at the National Petroleum Reserve 
in Alaska.
    And we have a longstanding and close working relationship 
with the Interstate Oil and Gas Compact Commission, an 
organization of governors of the producing States.

                    GROUND WATER PROTECTION COUNCIL

    We also work closely with the Ground Water Protection 
Council (GWPC), and we fund research through that organization 
on underground injection and other water-related issues. One of 
our biggest successes with GWPC is the risk-based database 
management system, which Tom mentioned. I'll describe that a 
little bit more in a minute.

                            COALBED METHANE

    On the subject of coalbed methane in Montana, we have just 
announced this project, which Tom mentioned, with Arthur 
Langhus Layne to help the Montana board complete their coalbed 
methane environmental impact statement more effectively and 
efficiently. Arthur Langhus Layne in conjunction with the board 
and BLM and other agencies, will examine current environmental 
concerns of coalbed methane production practices in Montana and 
investigate how recent advances in geographic information 
system technology can be applied as mitigation aids. DOE is 
providing $396,000 in total to support this project.
    Through our Federal Lands Technology Partnership with BLM 
we are co-funding two projects on monitoring the impacts of 
coalbed methane production on ground water. One is in the San 
Juan Basin of Colorado; the other is the Wyoming portion of the 
Powder River Basin. These projects will help Federal and State 
agencies and industry understand the ground water impacts of 
coalbed methane development and whether current safeguards are 
adequate or if additional measures are needed.

                     ENVIRONMENTAL PROGRAM SOLVING

    Now I would like to describe a few examples of where we 
have been asked by our stakeholders to help with environmental 
problems. In each case we have either provided a solution or we 
are working on providing the science needed to address the 
problem.
    For example, California oil and gas producers and a State 
agency asked us to come up with a way to measure what happens 
to the emissions from oil field steam generators under 
stagnant, foggy conditions where airplanes and helicopters 
cannot fly. Our answer was to develop a small, helium-filled, 
remotely piloted airship with advanced instrumentation and 
tracer technology. And this winter, what we call Clean Airship 
I has demonstrated a successful collection of emissions plume 
data during stagnant weather events.
    Also in California, we were asked whether emissions from 
tanks of heavy oil needed to be controlled. The State was 
concerned about this. We funded a national laboratory study to 
measure these emissions, and the result was that expensive 
vapor recovery systems will not be required.

                   RISK-BASED DATA MANAGEMENT SYSTEM

    Now, oil and gas-producing States have need for data 
management--a data management system that would allow them to 
manage their data and use it to better do their jobs. In answer 
to this need we worked with the GWPC to develop the Risk-Based 
Data Management System (RBDMS). With this system, State 
agencies can analyze well performance and field-specific 
problems, issue notices of required tests and reports, track 
permits and inspections, generate letters to producers, and 
reports to EPA, and much more.
    Now, at least 14 States and 2 EPA regional offices are 
using all or part of RBDMS. GWPC estimates that States have 
saved over $2 million with this system. And if I may brag a 
little bit, RBDMS was recently given an Energy 100 Award, 
designating it as one of the 100 most notable scientific and 
technological advances during the Department of Energy's 23-
year history. A lot of credit goes to the States for helping 
with that development.

                             METHANE LEAKS

    Another topic, methane leaks, are an economic, 
environmental, and safety concern. DOE, in conjunction with the 
Gas Technology Institute, has taken advantage of national 
laboratory technology to develop a video camera that actually 
sees methane and other hydrocarbon gases. We tested a van-
mounted version of this system last year at an oil refinery, 
and it performed favorably compared to conventional technology. 
Next month we will test a portable, shoulder-mounted unit in 
another refinery. And if this technology is approved by EPA for 
use in refineries, a typical refinery could save $1 million a 
year.

                              AIR QUALITY

    I wanted to talk about here in the Rocky Mountain Region, 
the question of reduced visibility in pristine areas. It is a 
very sensitive and complicated one, and the oil and gas 
industry in this region asked DOE to bring its scientific 
expertise to bear on this problem.
    DOE is helping industry and Federal and State agencies 
understand the true contribution of oil and gas development on 
air quality. We do this through research on air quality models, 
atmospheric chemistry, emissions inventories, air quality 
monitoring, uncertainty analysis, and on the science of 
visibility. And this is an ongoing effort requiring multiagency 
cooperation.
    Now, we also help our stakeholders do analysis and other 
efforts that may not require as many dollars as applied 
research projects, but can have just as large an impact. 
Sometimes it is our sweat equity that makes the difference. 
Several States have asked for a more sound scientific basis for 
their naturally occuring radioactive material (NORM), 
requirements, one that takes into account the risk to human 
health and the environment. We funded a series of risk 
assessments for various NORM disposal options, and this was 
used by a DOE-supported committee of the Interstate Oil and Gas 
Compact Commission to develop model NORM regulations that can 
be adopted by the States with confidence that they are 
scientifically supported. The IOGCC also hosts a lab--a 
national lab-developed NORM website.
    EPA's toxic inventory release--toxic release inventory 
program requires manufacturers and other companies to report 
their releases of certain chemicals to the environment. The EPA 
was considering adding oil and gas production to their program. 
The problem is that oil and gas production not a good fit for 
that program. It would have imposed considerable costs on 
producers.
    Industry and the States asked DOE to help establish a 
dialog with EPA, which we did. And as a result, there is a 
deferral for oil and gas production industry from the TRI 
program.
    At the request of the oil industry in Alaska, we sponsored 
a workshop on established exploration and production practices 
on the North Slope last April. The proceedings will serve as a 
database for new companies who want to work in that region, as 
a baseline for their development.
    These are just some of the examples of areas where DOE has 
addressed specific environmental issues and problems brought to 
us by our stakeholders.

                           PREPARED STATEMENT

    In conclusion, DOE promotes the safe, efficient, cost-
effective recovery of our nation's oil and gas resources. Our 
oil and gas environmental research program can often help 
address environmental problems by contributing good science and 
sound analysis to effective risk-based regulation and decision 
making.
    Thank you.
    [The statement follows:]

              Prepared Statement of H. William Hochheiser

    Mr. Chairman, thank you for the opportunity to be here today to 
describe the Department of Energy's (DOE's) Oil and Gas Environmental 
Research Program.
    I will give a brief overview of the program, discuss some of the 
cooperative efforts we have with other Federal agencies regarding oil 
and gas development on Federal lands, and then describe some examples 
of efforts in which we helped government agencies and industry to 
address environmental problems through research and analysis projects.
    DOE believes that our domestic oil and natural gas resources are 
needed for economic growth, environmental improvement, and energy 
security. These vital and strategic resources can be recovered in an 
environmentally safe manner using improved technology and best 
practices.
    The Oil and Gas Environmental Research Program is part of DOE's 
broader oil and natural gas research program which supports research 
and policy analysis to enhance the efficiency and environmental quality 
of domestic oil and natural gas exploration, recovery, processing, 
transport, and storage. It encompasses a wide variety of research and 
analysis activities on seismic imaging, drilling, completion and 
stimulation, enhanced production, storage, processing, and 
infrastructure reliability, as well as environmental issues and 
technologies. We work with a variety of stakeholders, including oil and 
gas producers and service companies, Federal and state agencies, 
tribes, environmental interest groups, universities, national 
laboratories and other research organizations, associations, and 
consumers.
    The mission of the environmental research program is to promote 
cost-effective environmental protection and enhance environmental 
performance to encourage maximum recovery of U.S. oil and gas 
resources. Note that this mission emphasizes both recovery and 
environmental protection, goals that we believe are quite compatible.
    We accomplish this mission through several types of work. The 
program sponsors technology development aimed at reducing the cost of 
complying with existing environmental regulations while improving 
environmental performance. We also work with Federal and state agencies 
and regulators to ensure that new regulations are based on sound 
science and are structured to avoid unnecessary costs while providing 
appropriate environmental protection. We are strong advocates of risk-
based regulation and decision making and conduct a variety of risk 
assessment studies to provide the scientific basis for such decisions. 
Finally, we conduct regulatory streamlining efforts in partnership with 
Federal and state agencies to reduce costs for both government and 
industry.
    Our efforts cover the spectrum of environmental issues, including 
air emissions, produced water treatment and disposal, solid waste 
management and disposal, underground injection, naturally occurring 
radioactive materials (NORM), data management, remediation, and 
operations on public lands. We set our priorities in these areas by 
proactively seeking out the opinions of our stakeholders and balancing 
that input with the appropriate Federal role.
                        INTERAGENCY COOPERATION
    While DOE is the principal Federal agency charged with 
responsibility for the development of national energy policy, it cannot 
effectively carry out that responsibility without close coordination 
with other Federal and state agencies. Over half of the estimated 
undiscovered resource in this country is located under Federal land, 
onshore and offshore, so we must work with the Federal land management 
agencies. Also, oil and gas exploration and production is primarily 
regulated by the states, so we pursue cooperative efforts with state 
agencies and organizations. The following are examples of our inter-
governmental activities.
  --DOE is a member of the Core Team of the Federal Leadership Forum, 
        an interagency group that is working to streamline the NEPA 
        process for oil and gas development in the Rocky Mountain 
        region and enhance interagency cooperation. DOE brings an 
        energy policy perspective to the Forum, as well as expertise on 
        technology and oil and gas resources.
  --DOE has formed an Oil and Gas Federal Lands Technology Partnership 
        with the Bureau of Land Management (BLM) to conduct research 
        aimed at improving access to Federal lands. BLM identifies 
        research needs which we jointly prioritize. DOE provides 
        funding and BLM contributes land management expertise and helps 
        to monitor the projects. In three years, ten projects have been 
        funded under this partnership, ranging from analyzing 
        compressor noise impacts to predicting the occurrence of 
        archaeological sites to piloting web-based resource management 
        planning.
  --The Department is participating in a multi-stakeholder Research and 
        Monitoring Team that is looking at the impacts of oil 
        exploration and development in the National Petroleum Reserve 
        in Alaska (NPR-A). An important part of this effort will be to 
        assess the effectiveness and necessity of the many leasing 
        stipulations in the NPR-A, and the effectiveness of technology 
        in addressing those stipulations.
  --We have a long-standing, close working relationship with the 
        Interstate Oil and Gas Compact Commission (IOGCC), an 
        organization of the governors of the oil and gas producing 
        states. Our environmental research program funds a variety of 
        activities with the Commission to increase communication and 
        dialogue, streamline regulation, and generally encourage 
        environmentally safe oil and gas recovery. For example, we have 
        funded projects to assess the nation's idle and abandoned well 
        population and develop strategies for dealing with such wells, 
        to develop model state regulations for naturally occurring 
        radioactive materials (NORM) based on scientific risk analysis, 
        and to develop and give training on a variety of topics, such 
        as waste minimization, NORM, and hydrogen sulfide safety, to 
        state personnel. I serve as the Department's official 
        representative to the IOGCC.
  --DOE works closely with the Ground Water Protection Council (GWPC) 
        and funds research through that state-industry organization on 
        underground injection and other water-related issues. One of 
        our biggest successes, the Risk Based Data Management System, 
        which I will describe below, has been developed and implemented 
        through the GWPC. DOE also supports GWPC to conduct projects 
        that promote innovative, cost-effective methods to protect 
        underground sources of drinking water. Examples include 
        assisting the State of Florida to assess and demonstrate their 
        capabilities to assume regulatory primacy for Class II (oil and 
        gas related) wells under EPA's Underground Injection Control 
        Program, and helping obtain an exemption for an aquifer that is 
        not at risk in Michigan.
    On the subject of this hearing, coalbed methane (CBM) in Montana, 
we have just announced a new project that will help the Montana Board 
of Oil and Gas Conservation (MBOGC) complete their CBM environmental 
impact statement more effectively and efficiently. Arthur Langhus 
Layne--LLC, in conjunction with the MBOGC, the U. S. Bureau of Land 
Management and other governmental agencies, will examine current 
environmental concerns and coalbed methane production practices in the 
Montana portion of the Powder River Basin, and investigate how recent 
advances in Geographic Information Systems technologies can be applied 
as mitigation aids. DOE is providing nearly $400,000 to support this 
project.
    Through our Federal Lands Technology Partnership with BLM, DOE is 
co-funding two projects on monitoring the impacts of CBM production on 
ground water. One is in the San Juan Basin of Colorado and the other is 
in the Wyoming portion of the Powder River Basin. These projects will 
help the Federal and State agencies and industry understand the ground 
water impacts of CBM development, and assist regulatory agencies in 
determining whether current safeguards are adequate or if additional 
measures are needed.
                ENVIRONMENTAL PROBLEM SOLVING: RESEARCH
    Now I would like to describe some examples where DOE has been asked 
by our government and industry stakeholders to help with an 
environmental problem through R&D or analysis. In each of these 
examples, we have developed a solution to the problem or are in the 
process of providing the science needed to address the problem. The 
following are examples of research projects that have addressed such 
problems:
  --California's air quality problems are well-known and the 
        contribution of oil and gas operations to those problems has 
        been an issue for some time. The California oil and gas 
        producers and the California Air Resources Board asked DOE to 
        come up with a way to measure what happens to the emissions 
        from oil field steam generators under stagnant, foggy 
        conditions when airplanes and helicopters cannot fly. These are 
        the episodes of greatest concern. Our answer was to develop a 
        small helium-filled, remotely piloted air ship with advanced 
        instrumentation and tracer technology. This winter, ``Clean Air 
        Ship I'' has demonstrated the successful collection of 
        emissions plume data during stagnant weather events. This data 
        will be immensely useful to modelers and analysts who are 
        trying to understand the transport of oil field emissions in 
        this region.
  --Another issue in California was whether emissions from tanks of 
        heavy oil needed to be controlled. DOE funded Lawrence Berkeley 
        National Laboratory to measure these emissions and work with 
        the state regulatory agency. LBNL developed a low cost sampling 
        device, lowering the cost to $20 from the previous standard 
        $500 device, and showed that emissions from heavy oil are much 
        lower than was being assumed by the agency. Thus, expensive 
        vapor recovery systems will not be required.
  --One of the big challenges in implementing risk based regulation and 
        decision making is in collecting, storing, managing, and 
        analyzing the data that is needed for those decisions. The oil 
        and gas producing states had a need for a data management 
        system that would allow them to manage their data and use it to 
        do their jobs better. In answer to this need, DOE worked with 
        the GWPC to develop the Risk Based Data Management System 
        (RBDMS). A PC-based, fully relational data base with a user-
        friendly interface, RBDMS started as a system for underground 
        injection information, but its success created a demand to 
        expand its application to production, waste tracking, 
        permitting, surface facilities, and other uses. With this 
        system, state agencies can analyze well performance and field-
        specific problems, issue notices of required tests and reports, 
        track permits and inspections, generate letters to producers 
        and reports to EPA, and much more. A web access module allows 
        producers to access and analyze the state information on their 
        operations. The states themselves formed a users group that 
        guided development. Within this users group, states that have 
        the system assist with implementation in other states. With DOE 
        funding, the users group developed a ``generic version'' of 
        RBDMS that could be customized and installed in any state for 
        about $20,000, compared to the half a million dollars that each 
        of the initial installations cost. Now, at least 17 states and 
        two EPA regional offices are using all or part of RBDMS. GWPC 
        estimates that states have saved over $2 million by using this 
        system. RBDMS was given an Energy 100 Award, designating it as 
        one of the 100 most notable scientific and technological 
        achievements during the Department of Energy's 23-year history.
  --Methane is a powerful greenhouse gas as well as a valuable 
        commodity. Methane leaks from pipelines and equipment are an 
        economic, environmental, and safety concern. DOE, in 
        conjunction with the Gas Technology Institute (formerly the Gas 
        Research Institute), has taken advantage of technology from 
        Sandia National Laboratory to develop a video camera with a 
        tuneable laser that ``sees'' methane and other hydrocarbon 
        gases. A van-mounted version of this ``backscatter absorption 
        gas imaging'' (BAGI) system was tested last year at an oil 
        refinery and performed favorably compared with conventional 
        ``sniffers'' currently used for EPA--mandated leak detection 
        and repair programs. Next month, we will test a portable unit 
        in another refinery. If this technology is approved by EPA for 
        use in these inspections, a typical refinery could save up to 
        $1 million per year. The technology is also being developed to 
        detect leaks in natural gas distribution systems.
  --The permitting of an underground injection well for enhanced 
        recovery or produced water disposal requires an ``area of 
        review'' (AOR) to be conducted. In general, conducting an AOR 
        is an important procedure in assuring that the injected water 
        does not contaminate aquifers or the surface. However, there 
        are some situations when contamination is almost impossible, 
        yet the AOR is still required. Four states, along with oil and 
        gas producers, asked DOE to help them develop a system for 
        granting variances, or exemptions, where downhole pressures are 
        so low, or other geologic conditions exist, that injected water 
        would never reach drinking water aquifers. Using a combination 
        of RBDMS and appropriate data collection and analysis, DOE 
        helped Texas, Oklahoma, Kansas, and California develop such 
        systems. In Texas, a variance for a single field, the East 
        Texas Field, saved producers an estimated $86 million.
  --The Texas Railroad Commission handles more than 2 million pieces of 
        paper each year. They asked DOE to help them develop an 
        electronic permitting system that would eliminate much of that 
        paper. Last year, Texas issued its first electronic permit with 
        DOE's assistance and more electronic forms are being added each 
        year. In a parallel effort, California also used DOE money 
        along with other funds to develop an electronic permitting 
        system.
  --Here in the Rocky Mountains, visibility issues threaten to curtail 
        oil and gas development. The question of how much oil and gas 
        operations contribute to reduced visibility in pristine areas 
        such as national parks and forests is a sensitive and 
        complicated one. The oil and gas industry in this region asked 
        DOE to bring its scientific expertise to bear on the problem. 
        At Lawrence Berkeley National Laboratory we have some of the 
        nation's premiere experts on air quality related research. They 
        are helping industry and Federal and state agencies understand 
        the true contribution of oil and gas development of air quality 
        through research on air quality models, atmospheric chemistry, 
        emissions inventories, air quality monitoring, uncertainty 
        analysis, and the science of visibility. This is an ongoing 
        effort requiring multi-agency cooperation.
  --Michigan regulators and an oil field service company needed help 
        with how to safely and economically clean up NORM contaminated 
        soils at a petroleum pipe yard. Using technology originally 
        developed by DOE to clean up Cold War defense sites, Argonne 
        National Laboratory demonstrated an on-site soil sampling and 
        testing method called the Adaptive Sampling and Analysis 
        Program (ASAP). ASAP combines sophisticated, real-time sampling 
        and testing with decision support software to dramatically cut 
        costs, reduce the amount of soil that must be excavated, and 
        shorten the time required to bring a site into environmental 
        compliance. At this one Michigan site, ASAP cut the cost of 
        clean up by 90 percent, reduced the amount of soil that had to 
        be removed and disposed of by over 97 percent and saved the 
        pipe yard owner at least $36,000 in disposal costs alone. Clean 
        up was completed in four days, rather than the several weeks it 
        would have normally taken and regulators were more confident 
        that the result met their requirements.
                ENVIRONMENTAL PROBLEM SOLVING: ANALYSIS
    DOE also helps our stakeholders through analyses and other efforts 
that may not require as many dollars as applied research projects, but 
that can have just as large an impact. Sometimes it is our ``sweat 
equity'' that makes the difference. Here are some examples.
  --Various states have interest in promulgating regulations for 
        management of oilfield NORM. Several have put such regulations 
        in place. But they expressed a need to have a more sound 
        scientific basis for these requirements--one that takes into 
        account the risk to human health and the environment. DOE 
        funded Argonne National Laboratory to undertake a series of 
        risk assessments for various NORM disposal options, such as 
        underground injection and landfill disposal. These assessments 
        were then used by a DOE-supported committee of the IOGCC to 
        develop model NORM regulations that can be adopted by the 
        states with confidence that they are scientifically supported. 
        Individual states have also used the Argonne reports in their 
        regulatory development. The IOGCC also hosts an Argonne-
        developed web site that contains a searchable data base of 
        state NORM regulations and guidelines as well as information on 
        commercial NORM-related services.
  --Abandoned salt caverns can be an economical option for disposal of 
        oil field wastes. But the risks of such disposal were 
        uncertain. So Texas and other states asked DOE to investigate 
        the risks, costs, and benefits of this disposal option. DOE 
        formed a partnership that includes Argonne National Laboratory, 
        Sandia National Laboratory, the University of Texas and the 
        Solution Mining Research Institute to do a series of studies on 
        salt cavern disposal, including the legal and economic 
        feasibility, the risks of disposal of non-hazardous oil field 
        wastes and NORM wastes, the engineering of salt caverns for 
        long-term disposal, and the geology of salt cavern occurrence. 
        DOE's National Petroleum Technology Office hosts a web site 
        with salt cavern information. This site received over 10,000 
        hits in January.
  --EPA's Toxic Release Inventory (TRI) Program requires manufacturers 
        and other companies to report their releases of certain 
        chemicals to the environment. EPA has been considering adding 
        the oil and gas production industry to their program. The 
        problem is that oil and gas production is not a good fit for 
        that program. Reporting under its rules would give an 
        inaccurate and inconsistent picture of releases from oil and 
        gas fields. In addition, most fields are far removed from the 
        population centers the program is meant to protect. Finally, 
        the data that TRI would attempt to collect are already 
        available from state oil and gas agencies, yet TRI would impose 
        considerable costs on producers. Industry and the states asked 
        DOE to help establish a dialogue with EPA. We funded IOGCC to 
        develop a report on the data on releases and other 
        environmental information that is currently collected by the 
        states and to meet with EPA on this issue. This helped result 
        in a deferral for oil and gas production industry from the TRI 
        program.
  --Synthetic drilling muds are environmentally superior and 
        technically preferred for many offshore drilling applications, 
        especially in very deep water. However, EPA's offshore 
        discharge regulations did not take this new technology into 
        account and so it could not be used in many instances. At the 
        request of industry, DOE facilitated an industry--EPA dialogue 
        that educated both sides and resulted in an ``expedited 
        rulemaking'' that allows the offshore discharge of drilling 
        wastes using synthetic muds.
  --At the request of the oil industry in Alaska, DOE sponsored a 
        workshop on established exploration and production practices on 
        the North Slope in April 2000. This workshop served to bring 
        together information on a wide variety of issues facing North 
        Slope production and educated industry and federal and state 
        agency personnel on current practices. The proceedings will 
        serve as a data base for new companies that want to work in 
        that region and as a baseline for future development.
                        PRODUCED WATER RESEARCH
    These are just some examples of areas where DOE has addressed 
specific environmental issues and problems brought to us by our 
stakeholders. In addition, the environmental program conducts research 
on a variety of environmental technologies to reduce costs and improve 
environmental performance. One area of interest for coalbed methane 
production is produced water treatment and disposal. Our research on 
produced water includes such technologies as reverse osmosis, ozone 
treatment, microbial processes, ``freeze-thaw evaporation'', and 
downhole separators. These are in various stages of development and may 
be of interest to coalbed methane producers as they reach 
commercialization.
                               CONCLUSION
    In conclusion, DOE promotes the safe, efficient, cost-effective 
recovery of our nation's oil and gas resources. Our oil and gas 
environmental research program can often help address environmental 
problems by contributing good science and sound analysis to effective 
risk-based regulation and decision making.
    Thank you.

    Senator Burns. Thank you.
    And I will just start with a question to you, Mr. 
Hochheiser because I think it is very important. Over 95 
percent of the new power generation plants that is on the 
drawing board now in this country will be powered by natural 
gas. And so that makes this discussion very, very important to 
our energy needs, not only to California, but across the 
nation. And we have the pipelines for distribution, where we 
can get them to the plants.
    I guess what I want to hear from the Department of Energy 
and what I would--should we be concerned about the industry 
investing too much in new technologies, such as in water--maybe 
in the water treatment filtration example, and then worry about 
these new technologies returning anything when gas prices do 
stabilize. And we know from the industry what goes up must come 
down someday.
    Should we be worrying about that? And also, the amount of 
dedication the Department of Energy has in fulfilling their 
obligation to make it work? I will give you the rest of the day 
to answer that.
    Mr. Hochheiser. When we are developing new technology we 
have the goal in mind of cost-effective technology. We are 
trying to reduce the cost of compliance. Even with new 
technologies, they are generally more effective and can both 
reduce the cost of operation as well as increase the 
environmental performance.
    So I think while the recent high prices may not be 
maintained, as they stabilize to a level that I have seen 
predicted for the next decade, I think they will continue to be 
economic. And I think we should be investing in them, 
demonstrating them, and adopting them, yes.
    Senator Burns. And as we move forward on this, what do you 
hear in your department to the degree of commitment to fossil 
fuels and the use of fossil fuels?
    Mr. Hochheiser. We are very much committed to that, I 
think. The Energy Information Administration projects that in 
10 years we will--well, currently we have 63, 64 percent of our 
energy comes from oil and gas. In 10 years we are going to have 
about the same proportion, about 65 percent. That is not going 
away.
    We need our resources and technology to find them, to 
develop them, while protecting the environment in doing so.
    Senator Burns. Now, the kickr, does OMB agree with you?
    Mr. Hochheiser. We will have to wait until the President 
announces the details of his budget.
    Senator Burns. By the way, for you folks, that is the folks 
that hold the purse strings over there.
    Mr. Millenbach, I am interested in your EIS. And right now 
we have invested about, oh, a little over $4 million. Just last 
year, $1.3 million in the EIS. Give me an idea on your time 
line, and are you satisfied with the way the work is 
progressing? It seems we spend a lot of money on environmental 
impact statements.
    Mr. Millenbach. Yes, sir, that is correct. Our time line is 
such that we are on schedule with the schedule I laid out in my 
testimony. We expect something, wrapped up for public review by 
the end of the year, and then coming up this following summer, 
the summer of 2002, we should see the final one and go into the 
decisions that will be made.
    As Mr. Hochheiser says, we are not in a position to talk 
about the details of funding for next year, for fiscal year 
2002, because the President has not announced the budget until 
next month. But I can tell you that the level of activity that 
we have got going out with the environmental statement, the air 
quality and water quality studies that were currently underway 
will be going on into next year, and we anticipate that the 
same level of activity we are doing this year will be carried 
out into fiscal year 2002.
    Senator Burns. I have some more questions. And by the way, 
we will probably go over some questions that will take up way 
too much time. We may submit some questions in writing to you. 
If you could respond to those to the committee, I would 
certainly appreciate that.
    Senator Baucus.
    Senator Baucus. Thank you, Conrad.
    The question I have is the EIS. There are a lot of 
questions revolving around the EIS. There are a lot of people 
that think that the EIS procedure is too complicated, it is too 
lengthy, too much paperwork, it takes too long, it is a great 
cottage industry for consultants. And I would just like your 
thoughts about all that, Mat. And when you are answering that 
question, if you could kind of also bring in the point that 
Senator Conrad made about costs. Do you think you have enough 
to get the job done?
    Of course, the answer to that is no, we want more money. 
But if you could kind of give us a sense of all of that, that 
would be helpful. And comment on the complexity.
    This is not an easy question to answer, clearly. I noticed 
in the very good coverage of the Gazette of this question of--I 
think it was the Gazette, quoting Stillwater. Maybe it was 
testimony that I read last night of one of the witnesses, that 
the operator of the Stillwater Mine, just up the road here, 
said that the EIS was good, that the process was good, it 
helped them.
    And from my perspective, I think Stillwater has done a 
great job, that is, from an environmental perspective. You 
know, they have done it right. And it is clear--at least it is 
my impression from reading the testimony of Mike Caskey from 
Redstone, that they, too, want to do it right.
    So do you hear from companies that the EIS process is way 
too lengthy and we should speed it up? I glanced at the 
testimony of Steve Gilbert of Northern Plains Resource Council, 
and he says it is the opposite, that it ought to take longer 
time because you are not developing sufficient baseline data to 
determine what the referred EIS should be. What do you think 
about all of that?
    Mr. Millenbach. Well, there are a lot of views on that. The 
Federal environmental process has been in place for over 30 
years now. And, over that period of time we have developed the 
techniques and the cost savings and time-saving things I think 
can be done.
    It is a long process. And the reason for that is because if 
you want to do a good, adequate job of bringing together all 
the available information and putting that into a document that 
people can understand and make some sense out of, it does take 
a fair amount of thought and work.
    The other part of it that takes a lot of time when people 
talk to us about trying to cut back is that there is a lot of 
public involvement in it. There are these various scoping 
meetings, reviews of the draft, public hearings. There is an 
opportunity to maybe participate in the final analysis as well.
    So when you start building in those--the work, the public 
involvement, more work, more public involvement, that all adds 
up. And that is why it does take the time it does.
    As to the funding for this past year, we are in good shape. 
We have the funds for the environmental statement. And we are 
anticipating that will be the case next year.
    As to the baseline studies and that kind of thing, we agree 
that one of the things that needs to be done ultimately is to--
once we have got the important issues identified--get 
monitoring studies and that kind of thing put in place so we 
can keep track of it as we go through the development of this 
resource, and what the impacts to the environment are so that 
we can make adjustments as we go forward.
    Senator Baucus. I think that is important. Many years ago, 
when I was in the House Appropriations Committee, there was a 
lot of potential development up in the Flathead Basin, north in 
Canada, the big coal mines, et cetera. And people were 
concerned because of all the environmental adverse effects 
would flow south with the air and water and Canada would get 
the benefit. And people came to me with the idea of a multiyear 
baseline data analysis, and I thought it was a good idea, so 
that when projects came along, we had the baseline data in 
order to determine what the effects of it may or may not be.
    Of course, we cannot know everything about everything. 
There comes a limit, diminishing returns, et cetera. But could 
you tell us a little on this whole process of EIS, what parts 
do you feel good about, what parts are going to cause problems, 
whether it is water quality or quantity? If you could just give 
us a sense of that. Maybe the other two panelists might be--to 
the agree that they are involved in EIS, because I guess you 
are too. Let us know what you think about that.
    What do you feel comfortable with and what have we got to 
come to? Maybe focus on--because the more this is out in the 
public, the more people can bring some technical expertise to 
it and kind of help you solve that one.
    Mr. Richmond. Well, first of all, Senator Baucus, I feel 
very comfortable that the program manager that the BLM has 
appointed to this process, she seems to be very much interested 
in keeping it on track.
    Senator Baucus. Who is that?
    Mr. Richmond. Her name is Mary Bloom, and she works in 
Miles City. And she is, I think, a real asset to the process.
    I can assure you that I have learned more about BLM's 
planning process than I ever wanted to know, but there are 
advantages to us going along with this process on the Federal/
State partnership even though there are things being done that 
we would not necessarily have to do under our program that BLM 
has to do. But it is important to us to stay in lockstep so 
that when this process is done, it is done for all of us and 
there are not pieces left hanging out.
    So I am comfortable with the process and comfortable that 
when we get done with the product it will be comprehensive and 
it will address all of our needs. We will have input into it, 
and I think we will get there.
    Senator Burns. The Senator--on that question, how--you 
know, we are going to go through this whole expense. It is 
going to cost, what, $6 million when it is all over? And I will 
have something to do with that. How many companies--
realistically, how many companies are interested in doing 
business and developing this resource?
    Mr. Richmond. That is really kind of hard to come up with, 
but I think at this time we can identify at least 10 companies 
that would be interested--that have expressed an interest at 
this time in coalbed methane in Montana.
    Senator Burns. And where do you see the major stumbling 
block that could slow down the whole thing?
    Mr. Richmond. I think we need to resolve the water issues. 
I think that has been identified as the principal issue we are 
talking about here. We need to reassure people that they are 
not to dry up and blow away or that we are going to trade their 
prosperity for someone else's. And if we can answer that issue 
to the satisfaction of the people that live there, I think we 
will be finished.
    Now, there are always other issues. And that is part of the 
process of EIS, is that you address a lot of issues that people 
may not be real interested in, but you have to focus on ones 
that deal with all of us.
    Senator Burns. We will get a lot of paperwork that people 
are not too interested in.
    Mr. Richmond. Unfortunately, that is true.
    Senator Baucus. One more question.
    Senator Burns. Go ahead.
    Senator Baucus. I think it struck me that--I read your 
testimony last night, Mat--on page 2 he said there are three 
standards here. One is we need to set the resource protection 
standards; make sure they are met. Second, industry should be 
responsible for the costs of developing the resource, not the 
neighbors or the taxpayers. And third, the companies must clean 
up after themselves and restore the land when their activities 
cease. I found those to be pretty strong but fairly reasonable 
principles. I am wondering the degree to which you think that 
that--are you comfortable that is what is going to happen?
    Mr. Millenbach. I am. These are my principles. They are the 
ones that I convinced the administration to adopt for this 
hearing, and they are the ones that I have been telling my 
staff and people I meet with that I think this is what ought to 
be done.
    And so, when we go ahead and approve APDs and approve this 
program, these are the standards that I have set for myself and 
for the Bureau of Land Management here in Montana. I think they 
are reasonable, too.
    Senator Baucus. One thing that struck me is--and I commend 
you for that. But there is no assessment here of what the 
economic benefits really might be. And I think they could 
potentially be huge. And I just--you guys, it is not really 
your job to make those determinations, but I am wondering if 
you have seen some data or seen some analysis, you know.
    Wyoming, we know what they are in Wyoming because Wyoming 
has a little history here, more than we do in Montana. I am 
just curious what your estimates--what your sense of that is.
    Mr. Millenbach. That will be part of the environmental 
statement, but maybe Al could talk about their experience in 
Wyoming.
    Senator Baucus. Would you, Al?
    Mr. Pierson. Mr. Chairman, I do not have those numbers 
available to me. I could get them if you would like for the 
last year. But it is huge. As you well know, the State receives 
half of the Federal royalties, half of the bonus bids on lease 
sales. And so it is--as you correctly stated--a much different 
economic situation for the State legislature in Wyoming this 
year than perhaps yours. And it is huge.
    Senator Baucus. At some point I think that is going to have 
to be factored in.
    Mr. Richmond. I believe you have a witness on the next 
panel that will address----
    Senator Baucus. I am sure we will.
    Senator Burns. That is it?
    Senator Baucus. Well, I have one other question. Deep 
injection, what about it? Is that a good idea or not?
    Mr. Millenbach. Well, that is part of the environmental 
statement that we are going to be taking a look at. And I think 
some of the witnesses on the next panel will be able to address 
that in more detail.
    Senator Baucus. Well, good luck on your EIS. It is a very 
important effort that you are undertaking. And I know I can 
speak for the chairman in saying that we want to help you do it 
the right way, because I know that is what you want to do.
    Thank you.
    Senator Burns. Thank you and you are excused.
    The next panel will make their way up here. And it is made 
up Mike Caskey, president of Redstone Energy; and sitting in 
today for the director of mining and minerals for the Crow 
Tribe will be Mort Dreamer; Geri Small, president of the 
Northern Cheyenne Tribe; and Wayne Kelley, president of Omega 
Oil Company. If you folks would make your way up here, why, we 
will hear your testimony. Thank you for coming today.
    Ms. Old Elk. I'm Neta Old Elk. Mr. Birdinground had to 
leave. I'll be providing testimony.
STATEMENT OF MICHAEL C. CASKEY, VICE PRESIDENT, 
            REDSTONE GAS PARTNERS, LLC
    Senator Burns. We are going to call on Mike Caskey, 
president, Redstone Energy. And, Mike, thank you for coming 
today. And I know you folks have as much experience down there 
with this matter as just about anybody. So we are looking 
forward to your testimony.
    Mr. Caskey. Thank you, Senator. I need to correct one 
thing. I am not quite the president yet. He is standing in the 
back of the room, but that is close enough.
    Senator Burns. Are you working on it?
    Mr. Caskey. Yeah, I am working on it. Sneaking up on him.
    Senator Baucus. That is a good correction to make.
    Mr. Caskey. It is good to be here this morning. I want to 
welcome the Senators back to their home State here. I wanted to 
give you some oversight and overview into what we are doing 
down there as the only producer of coalbed methane in the State 
of Montana. We are fortunate enough to be one of the--or the 
only company that actually produces commercial quanties of 
coalbed methane on both sides of the State line. So we play in 
the Wyoming venue as well as the Montana venue.
    We are proud of our operations. We would like to invite the 
Senators and their staffs, or whoever else wants to come along, 
and see what we do as a coalbed methane, coalbed natural gas 
operator. We feel that we have a very light footprint. And we 
do--as you said earlier, Senator Baucus, we try to do it right.
    I want to commend Senator Burns for his ongoing efforts 
with this committee to fund various of the NEPA/MEPA 
documentation that is going on. And I would also like to thank 
Senator Baucus for his efforts to continue the development in 
Montana. And most particularly, Senator, I listened to NPR the 
other day, and I heard a quote you made. I know that is kind of 
a dangerous thing to start with here.
    Senator Baucus. It sure is.
    Mr. Caskey. I enjoyed your comment on the Chinese character 
for change. We feel that the ability of this new technology and 
this new resource can do both things that you talked about. It 
can help cure the crisis we are involved in, as well as a very 
prosperous opportunity for the State of Montana. And we would 
like to proceed with that effort to develop the resource.
    As we are aware, the crisis side of this is a national 
crisis. Gas is in high demand. Electricity is in short supply. 
Heating of homes and generation of electricity, what, with the 
Net and all of the appliances we each have in our homes is a 
very strong priority in the nation. The growing dependence on 
natural gas is getting ever stronger. We are 95 percent of the 
effort right now for generation of electricity. Any new 
electricity will be generated with the utilization of coalbed--
or with natural gas, coalbed methane being a large piece of 
that potential.
    We think that coalbed natural gas represents a real 
opportunity for the State. We feel that it is very applicable 
in the area where we are developing as a resource. We think 
that the prosperity for the area, which is one of the poorest 
areas of the State, can be enhanced with this development and 
should be done in the right manner, an environmentally-friendly 
manner.
    I might mention that Representative Keith Bales is in the 
audience today. And he has told me that if you have questions 
of him as a Representative for the Otter area of southeast 
Montana, he would be glad answer any questions you might have.
    Statistically I think it is important that I bring the 
Senators up to speed, as well as the public here, relative to 
where we stand with our project. It truly is a start-up 
operation. We are producing commercial quanties of coalbed 
methane. And that level of productivity right now is about 20 
million cubic feet of gas per day. That would handle about, oh, 
on a cold winter day, the needs for a town--about four towns 
the size of Sheridan, Wyoming. So that gives you some sort of 
visual on what kind of productivity level that we have.
    Thus far we have drilled 17 wells that have been abandoned; 
in other words, they were unsuccessful wells or exploratory 
wells. We have drilled 10 wells that are drilled and shut in 
outside of our producing are. Those would certainly be 
exploratory wells, but they will be gas--or data-gathering 
wells. We have 66 wells that are currently shut in, waiting on 
completion, waiting to be set up for completion and ultimate 
production.
    We are producing from 162 wells currently. Those wells in 
January produced 985 gallons of water per minute that was 
pumped into the Tongue River under our MPDES discharge permit. 
Those same wells in February 2001 had declined and produced 907 
gallons a minute into the Tongue River. Again, that is a--to 
give you an example of what that magnitude would be, one 
center-pivot irrigation system, the sprinkler system, generally 
uses about 1,000 gallons a minute. So that is what our 
equivalency is.
    The average per well for each of the those 162 wells on the 
produced water issue is 7.3 gallons per minute. And that is 
down from an initial production rate of somewhere between 12 
and 15 gallons a minute per well, down to that 7.3 gallons per 
minute in February. The average for the 12 months--the past 12 
months in our operation for gallons-per-minute produced of 
produced water is 9.4 gallons per minute.
    The water we have--or the water we produce actually meets 
all drinking water standards and is safe for the use of 
livestock. It is high in sodium. We don't argue that fact.
    In 2000, another fact that we have, we talked about 
prosperity in the area that we are operating in. During the 
year of fiscal year 2000, calendar year 2000, Redstone paid 
$550,000 in production taxes. Now, that does not sound like a 
lot, but you have got to consider that that is really the first 
year of operational intensity that we have. It is also during a 
year when we are trying to figure out what this type project 
does and how it works. So we are in our infancy, but it is 
still producing a significant tax base for the State and the 
level that we are operating--in the area we are operating in.
    Senator Baucus, you mentioned that Wyoming, which currently 
has a surplus of somewhere around $700 million, is ahead of the 
game on Montana. We recognize that, and we feel that being 
ahead of the game we can catch up. We can make the difference 
for Montana and, with a viable and environmentally-friendly 
approach, produce the gas that will help Montana handle its 
budget. While Wyoming is enjoying a surplus, we are still 
having trouble trying to figure out how Montana is going to pay 
for its valued education system for its children. We think we 
can have a dramatic impact on this by productions of this 
clean-burning fuel.
    Water in this area, as we all know, and we have heard this 
morning from all of the previous testimony, is the issue. 
Redstone is trying to do it right. We have had some exceedences 
on our MPDES permits. Frankly, those were oversights on our 
part. We were testing. We had been monitoring. And we have put 
in place operational safeguards to prevent any of those 
exceedences from happening again.
    The exceedences were actually stemmed from reworking 
operations we did within some of our wells, which stirred up 
some of the sediment that was in the wells. And we did not 
realize that that was--it really was not one of our focuses at 
that point. We did not realize that was happening until we saw 
the analysis come back. And we immediately rang the bell on 
ourselves and explained it to the DEQ, as well as the public. 
That trend and that approach to doing business is what we want 
to do for the State of Montana, to make sure that we are, in 
fact, doing it right.
    I see that my time is about up. As most of the audience 
here can testify, I could go on for hours and hours about this 
and have at times. But I would like to thank you again for the 
opportunity to address this group and bring the public up to 
speed.
    If there are any questions or if you want a tour of our 
operation--again, we are proud of what we do--we would love to 
have you out there touring the area.

                           PREPARED STATEMENT

    Unquestionably, the laws of Montana are strong. The 
environmental laws are in place. We work within those laws and 
with those laws. We think the EIS system is a good system if it 
is timely-applied. There are rules that allow for the 
timeliness of the EIS documentation, and we are all for that. 
We are working within those rules and regulations and actually 
commend the BLM at this point in time for their efforts to stay 
timely with their activities.
    Thank you very much. I'll be here for questions.
    [The statement follows:]
                Prepared Statement of Michael C. Caskey
    Good Morning Senators Burns and Baucus. I am Mike Caskey, Vice 
President--Land of Fidelity Exploration and Production Company and the 
managing partner of Redstone Gas Partners, LLC (``Redstone''), the only 
company producing coalbed natural gas in Montana. I want to, first, 
thank you for holding this Senate field hearing today in Billings, to 
discuss the development of clean-burning natural gas in Montana. I 
particularly want to thank Senator Burns for his instrumental role in 
obtaining the funding for the BLM's preparation of an EIS on coalbed 
natural gas in the Montana portion of the Powder River Basin and 
Senator Baucus for his sustained focus on economic development in 
Montana.
              WHY DEVELOP COALBED NATURAL GAS IN MONTANA?
    The discussion today could not be more timely, as the West faces 
rapidly rising energy prices due, in part, to a growing dependence on 
natural gas. We strongly believe that Montana can play a critical role 
in helping to meet that demand and can do so in a way that will 
sustain, rather than harm, Montana's environment and agricultural 
economy. We think coalbed natural gas presents a real opportunity for a 
win-win scenario in southeastern Montana--the development of a natural 
resource in a manner that will help sustain a struggling agricultural 
economy in the poorest region of the State.
    I know each of you are very familiar with the statistics that rank 
Montana's per capita income of less than $22,000 at anywhere between 
46-48th for the lowest per capita income in the nation. Recently, State 
Representative Keith Bales of Otter, testified to the Montana House 
Natural Resources Committee about the potential of coalbed natural gas. 
He began by contrasting the economic fates of southeastern Montana and 
northeastern Wyoming over the last 30 years. He noted that while 
Montana and Wyoming had similar per capita income in 1970, by 1999 
northeastern Wyoming per capita income had shot up to $24,280, while 
parts of southeastern Montana had sunk well-below even Montana's 
average per capita income to $15,842. While northeastern Wyoming's 
population has grown over those thirty years, the population of 
southeastern Montana has flattened into a decline. Unemployment in the 
area averages 8 percent and 22 percent of the area families are living 
below the poverty line. The situation is worse on the area's two 
reservations where unemployment is double--16 percent. The situation 
for southeastern Montana is summed up in one stark statistic--in 10 
years the value of a mill in Powder River County had gone from $78,000 
to $4,400.
    While the 2001 Montana Legislature struggles with its budget to 
meet the basic necessities of education and mental health care, the 
2001 Wyoming Legislature, by contrast, enjoys a $695 million surplus--
largely as a result of coalbed natural gas development. Representative 
Bales believes that the development of coalbed natural gas in Montana 
can turn around the disheartening trends in southeastern Montana by 
providing jobs, much-needed tax revenue and additional income and water 
to agricultural landowners. We agree with Representative Bales.
                              WHO ARE WE?
    Redstone is a wholly-owned subsidiary of MDU Resources Group, Inc., 
a name familiar to Montana homeowners. MDU Resources Group, Inc. 
includes an electric and natural gas utility, natural gas pipeline and 
an oil and natural gas production company serving Montana, North and 
South Dakota and Wyoming. The Company's ties to Montana are strong; its 
Chairman and CEO, Martin White, is a Butte native. Redstone has been 
engaged in the development of coalbed natural gas in Montana since 
1997, and began producing coalbed natural gas in late 1999. As a result 
of litigation filed by the Northern Plains Resource Council (NPRC) 
against the Montana Board of Oil and Gas Conservation (``Board''), we 
are the only producer of coalbed natural gas in Montana. Northern 
Plains Resource Council v. Montana Board of Oil and Gas Conservation, 
CDV 2000-177 (First Jud. Dist. Lewis & Clark). Redstone's limited 
Tongue River Pilot Project in the CX Field near Decker is the sole 
exception to the moratorium on development imposed by this litigation 
and the BLM's decision to prepare an EIS before allowing development of 
any coalbed natural gas in Montana.
    Under the terms of the settlement, Redstone is allowed to drill 325 
wells to reach a total of 250 producing wells. Redstone has 
approximately 164 wells producing 21 million cubic feet of gas per day. 
In the year 2000, during which Redstone averaged 120 producing wells, 
Redstone paid the State of Montana, $554,000 in production taxes.
                         HOW REDSTONE OPERATES
    Redstone believes that if coalbed methane development is done 
correctly, it is an environmentally sound way to provide a new source 
of clean energy. We, like other member companies of the Montana Coalbed 
Natural Gas Alliance, are committed to the development of coalbed 
natural gas in a scientifically sound, socially responsible and 
environmentally sensitive manner. In short, ``Doing it Right.'' These 
are our principles:
    1. To ensure that Montana's coalbed natural gas resource is 
developed in a prudent and orderly manner.
    2. To ensure that such development complies with all applicable 
state and federal regulations.
    3. To ensure that a balanced EIS is prepared before additional 
development occurs. Projects underway may proceed, under the 
established environmental and permitting review and regulations.
    4. To ensure that Montana's agricultural economy, water quality, 
air quality, wildlife, soils, hydrologic regimes, cultural and historic 
resources, and local communities are protected. We strive not only to 
protect these values and resources, but to enhance them, as well.
    Thus, Redstone fully supports the joint BLM and Montana EIS on 
coalbed natural gas and worked to see that the EIS is produced in a 
timely fashion.
    As I will explain, Redstone operates in a manner that endeavors to 
be ``light on the land.'' We avoid unnecessary roads or duplication of 
sites. We clean up after ourselves. Redstone and our employees are 
committed to working with area landowners to construct our sites and 
operate our wells in a manner that least interferes with existing 
agricultural operations.
    When we fail to live up to our environmental commitments, as we did 
in late February, Redstone will be straight with agency regulators and 
the Montana public and will promptly fix the problem. On February 27, 
2001, we reported to the DEQ and the Montana public that our monitoring 
had disclosed that we had discharged more sediment into the Tongue 
River than our MPDES permit allows. DEQ's initial determination was 
that there was no environmental damage done by this exceedence. 
Although the environmental impact of this exceedence may have been 
minor, we promptly investigated the cause of the problem and put into 
place measures to ensure that it would not occur again. We will 
continue to work with Montana DEQ to investigate and resolve the 
circumstances that led to this exceedence. Samples taken after the 
problem was detected indicate the level of sediment has dropped back to 
well-below the permitted level. Redstone is operating a pilot project 
in Montana and the pilot project is doing what it should do, providing 
us and regulators with valuable data and experience on a small scale to 
help direct future development on a larger scale.
    Redstone released this information to the public because we are 
committed to being a good steward of Montana's environment and we want 
to gain the respect and trust of the public on our commitment to be an 
environmentally responsible producer.
                      WHAT IS COALBED NATURAL GAS?
    What is coalbed natural gas (CBNG) or coalbed methane (CBM)? It is 
a natural gas found in coalbeds and formed as a result of biogenic 
processes--bacteria working on ancient peat beds. These fossilized peat 
beds form the coal in the Powder River Basin in Wyoming and Montana. 
Methane can be described as having a Dr. Jekyll and Mr. Hyde 
personality. In its natural, fugitive state CBNG is a once-deadly gas 
that threatened the lives of underground coal miners and is now 
considered to be among the most potent of the greenhouse gases--20 
times more potent than carbon dioxide. Yet when we safely capture it 
and use it as a source of energy, it is one of the cleanest burning 
fossil fuels, and among the most benign to produce. Indeed, EPA, as 
well as the U.S. Department of Energy have recognized the benefit of 
reducing the potential for greenhouse gas while simultaneously 
producing energy and have programs in place to encourage the ``capture 
and utilization of coalbed methane.'' See e.g., coalbed>.
    Coalbed natural gas is adsorbed in the coal pores and coal cleats 
and is held in place by water pressure. CBNG is developed by lowering 
the water pressure in order to release the gas. Although water pressure 
is lowered the coal seams are not dewatered. Research in Wyoming has 
demonstrated that once production of CBNG stops, 80 percent of the 
water in the coalbed returns within weeks or months. The balance of the 
water will take longer to return, over a period of years.
                           PRODUCTION OF GAS
    Coalbed gas wells in the Powder River Basin generally range from 
400 to 1500 feet and extract gas from coal seams in the Wasatch and 
Fort Union formations. This is in contrast to conventional gas wells 
which are typically 4,000 to 12,000 feet deep in the Powder River 
Basin. Conventional gas wells initially produce large volumes of gas 
and very little water. Over time, gas production declines and water 
production may increase. In contrast, coalbed natural gas wells 
initially produce large amounts of water and small gas quantities. Gas 
production increases during the initial water pressure reduction phase 
and then levels off and start to decline. During this time the water 
production will decline.
    Again, compared to conventional gas wells, the impact of CBNG wells 
on the land is minimal. Wells are drilled using truck-mounted water-
well drilling equipment. In many cases, this avoids the need to 
construct roads. The pad for a coalbed methane well is much smaller 
than that for a conventional well; about 100 feet x 100 feet. 
Typically, very little construction is required at the well site and 
the only earthwork required is to dig a pit to hold drill cuttings, 
water and mud for the drilling. Normally one pit serves three wells. 
The well-site is visually low-impact--the wells are covered by a 4 foot 
tall beige box that blends well into the surrounding landscape.
    For well construction, steel casing is run into the top of the coal 
and is cemented back to the surface. The casing and cement provide a 
complete hydraulic isolation or seal between the coal formation, where 
the gas is found, and any shale, sand or other water-bearing formation 
penetrated by the well. This seal prevents any fluids from migrating 
between formations--either from water flowing down into the coal or gas 
migrating up to a shallower aquifer. This protects landowners who 
depend on these shallow aquifers for water supplies.
    A submersible pump is used to lower the water pressure. Production 
is begun by pumping water from the coal to the surface and through flow 
lines to the water discharge point. The water and gas exit out of 
separate pipes. Gas produced from the coalbed migrates up the inside of 
the casing to a separate flow line and is transported to a metering 
station, and then to a compressor or series of compressors to bring the 
pressure up to sales line pressure. The water is either stored to be 
used as stockwater or for other permitted uses or is discharged into 
surface water pursuant to a state-issued MPDES discharge permit.
                            WATER MANAGEMENT
    The key environmental issue to be addressed in the development of 
CBNG is water. Each CBNG well will initially produce an average of 
about 12 gpm per well or 17,208 gallons per day per well or 516,240 
gallons per month. This will decline to an average of 5 gpm per well 
over time. This volume of produced water raises two issues unique to 
CBNG development--the impact to water quality and to groundwater 
quantity.
                             WATER QUALITY
    In the Montana portion of the Powder River Basin, the unaltered 
ground water is comparatively good, but of lesser quality than the 
Tongue River. The produced water is potable--it meets all Safe Drinking 
Water Act standards for human use and is suitable for domestic 
consumption, livestock and wildlife. However, it contains high levels 
of sodium bicarbonate which make it unsuitable for irrigation without 
special handling. The level of sodium, identified as the SAR (sodium 
adsorbtion ratio), in the produced water can harm vegetation and the 
soils upon which plant growth depends if special handling or treatment 
is not used.
    Irrigators and NPRC have raised concerns over the impact that the 
discharge of this volume of CBNG produced water into the Tongue River 
could have on their ability to irrigate from the Tongue River. They 
argue that if all of the CBNG produced water is discharged into the 
Tongue River, that it would alter the quality of the Tongue making it 
unsuitable for irrigation. We agree that if all CBNG water were to be 
discharged into the Tongue that the Tongue River would not meet water 
quality standards designed to protect irrigation. However, we contend 
that existing Montana and federal regulations simply will not allow 
this scenario. Montana water quality standards already protect the 
beneficial use of Montana's waters, which in the case of the Tongue 
River includes irrigation. These water quality standards also include a 
nondegradation policy that does not allow existing water quality to be 
lowered. Thus, existing law would prohibit the discharge of all CBNG 
produced water into the Tongue River and would protect Montana farmers 
from the scenario described by NPRC.
    For example, in the case of Redstone's pilot project, Montana DEQ 
limited Redstone's Tongue River Pilot Project MPDES permits in several 
ways to protect Montana water quality. First, Redstone was not allowed 
a permit to discharge into Squirrel Creek because the discharge could 
not meet the State's nondegradation policy for fluoride.
    Second, the volume of water to be discharged into the Tongue River 
was lowered from 4000 gpm, which would have met all Montana water 
quality standards, to 1600 gpm in order to meet nondegradation 
requirements. Thus, Redstone's Tongue River Pilot Project was limited 
to a total of 1600 gpm for its projected 250 producing wells. DEQ 
determined that these permit limits would fully protect the beneficial 
uses of the Tongue River. This same analysis would have to occur for 
any future development and alternatives to discharge into surface 
water, as described below, would have to be developed.
    In addition, the Montana DEQ and Wyoming DEQ are jointly addressing 
the potential impact that Wyoming CBNG development could have on the 
Tongue and Powder River as the BLM EIS process and State-moratorium 
hold Montana CBNG development static for 18 months. Montana and Wyoming 
DEQs are involved in negotiations to develop a ``total maximum daily 
load'' (TMDL) for CBNG discharges into the Tongue and Powder River 
drainages. That is, the states are developing the maximum load of CBNG 
parameters of concern that these rivers can assimilate and still meet 
water quality standards and protect beneficial uses. This load or TMDL 
will be allocated between the states so that both states have the 
opportunity to develop coalbed natural gas. This TMDL development 
process is predicted to take two years. In the meantime, the Wyoming 
DEQ has agreed to ``no measurable increase in concentration, for 
parameters of concern, at the state boundary'' as a result of any 
Wyoming permits issued after January 3, 2001. (See attached Wyoming DEQ 
letter of January 26, 2001.) In addition, the information developed in 
this TMDL process will be incorporated into the on-going EIS, as 
appropriate. (See attached Montana DEQ letter of February 28, 2001.)
    Unquestionably, there are strong laws, regulations and processes in 
place to protect Montana's water quality. We are committed to meeting 
those requirements--not because they are laws on the books, but because 
we want to be a good neighbor. We're determined to do it right.
                          GROUNDWATER QUANTITY
    Landowners have expressed concerns that CBNG production could 
impact existing water rights. Again, existing legal mechanisms are in 
place to address this issue.
    First, as described above, the steel and concrete well casing 
protects shallow aquifers from being adversely impacted by the CBNG 
drilling and pumping process. Second, the Montana Department of Natural 
Resources and Conservation and the Montana Board of Oil & Gas worked 
together under State law to establish the Powder River Basin Controlled 
Groundwater Area for coalbed methane development. This provides the 
following:
  --Applies to all coalbed methane gas producing areas of the Fort 
        Union Formation, including portions of Treasure, Big Horn, 
        Rosebud, Powder River and Custer counties.
  --Requires each coalbed methane well to receive a permit, before 
        drilling, from the Board of Oil and Gas.
  --Before a permit may be issued, the coalbed methane developer must 
        provide an inventory and hydrologic assessment of existing 
        wells, springs and streamflow and a proposed means to mitigate 
        water resource impacts.
  --Coalbed methane developers must offer water mitigation contracts to 
        all owners of water wells or natural springs within one-half 
        mile of a coalbed methane gas field. This area will be 
        automatically extended one-half mile beyond any well adversely 
        affected.
  --The mitigation agreement must require the coalbed methane developer 
        to promptly supplement or replace water from any natural spring 
        or water well adversely affected by the coalbed methane 
        project. The ``burden of proof'' is on the operator and not the 
        landowner. This protection for water rights impacted by CBNG 
        production is greater than water rights holders enjoy under the 
        Montana Water Use Act for interference by a water well.
  --Written notice must be provided by operators of proposed wells to 
        all water rights holders within one-half mile of the coalbed 
        methane well.
  --Finally, the order establishing the Controlled Groundwater Area 
        establishes a Technical Advisory Committee made up of State and 
        federal technical people to characterize the hydrologic 
        conditions in the targeted coal beds prior to development, and 
        to continue monitoring groundwater levels both within and 
        outside of the production field during development. See Board 
        Order 99-99.
    Thus, existing law provides strong protection for Montana water 
rights holders from loss of water quantity for coalbed natural gas 
development.
                       ALTERNATIVES TO DISCHARGE
    The most significant environmental challenge to be addressed in the 
development of coalbed natural gas is how to handle the water produced 
in a manner that both protects existing environmental values and also 
enhances them. Montana is a state that places a high value on water, 
works to protect water quality and to prevent the waste of this 
valuable resource. Although the water produced from coalbed natural gas 
development contains salts that make it unsuitable for irrigation, 
without special handling or treatment, its overall quality is 
relatively high and can support livestock, wildlife and human use. How 
you protect water quality and, yet avoid the unnecessary waste of water 
is the issue. The most common means of handling CBNG include:
  --Underground injection pursuant to an Underground Injection Control 
        (``UIC'') permit under the Safe Drinking Water Act. In the case 
        of Montana, EPA Region VIII issues these permits. Redstone has 
        been attempting to obtain Class V injection permits in a timely 
        manner in order to obtain information useful to the CBNG EIS 
        alternatives analysis. We have been told by Region VIII, that 
        unlike Wyoming, which issues these permits in two weeks, it 
        will take at least 6 months, most likely longer to issue these 
        permits. We hope that EPA can reorganize its priorities so that 
        these permits can be issued sooner for use in the 2001 field 
        season. Deep-well injection is the alternative NPRC has already 
        decided is its preferred alternative, while we do not agree 
        with this conclusion, it is important that the EIS analyze the 
        pros and cons of deep-well injection. The most significant 
        ``con'' of this approach is that while it may protect the 
        environment, it does not enhance the environment or the 
        ranching community that views additional water as a benefit. 
        This approach takes relatively good water and injects it into 
        water of much worse quality and stores it at a level where it 
        is not available for use. Other injection alternatives include 
        injection into the same aquifer from which the water was 
        produced, in order to make it available for use.
  --Discharge to surface water authorized by a Montana Pollution 
        Discharge Elimination System (``MPDES'') permit under the 
        federal Clean Water Act and Montana Water Quality Act. As 
        discussed above, Montana law will limit the amount of water 
        that can be discharged to surface waters to protect existing 
        water quality.
  --Storage ponds for livestock and wildlife use pursuant to either a 
        Montana Water Quality Act general permit or Montana Board of 
        Oil & Gas-issued permit. Many landowners will welcome the 
        opportunities that additional water supplies will provide for 
        their livestock and hunting operations, particularly during 
        droughts like the years Montana has recently experienced. CBNG 
        water can support more efficient use of pastures, increase herd 
        size and attract water fowl and wildlife. Again, there will be 
        a natural limit to the number of ponds, reservoirs and stock-
        watering facilities that can be constructed.
  --Treatment potential-reverse osmosis or filtration. Treatment 
        alternatives are being actively examined, but the relatively 
        good quality of the water and its volume present significant, 
        technical and economic issues. The upside of treated water is 
        its potential for use for irrigation in a water-poor area. 
        Again, there will be some economic and technical limitations to 
        wide-spread use of water treatment, but it is an important 
        alternative.
    The industry position is to maintain a menu of options that will 
allow us to work with affected landowners to best meet their needs. 
Like State Representative Keith Bales, we would like to find a win-win 
solution--develop CBNG and also provide good quality water to a water-
poor area. This could involve some treatment of water for irrigation 
purposes; some water for wildlife and livestock use; some use for coal 
mine dust suppression; some re-injection and limited discharge to 
surface water. No one option is the best or only answer for all 
circumstances.
                               CONCLUSION
    Redstone believes that coalbed natural gas development--done 
right--can be good news for an area of Montana sorely lacking in 
economic opportunity. This area of Montana is aging and depopulating as 
its children leave for western Montana or other states to find economic 
opportunity. Agriculture alone cannot be expected to support the county 
institutions necessary for a healthy community. We believe the tax and 
royalty income from coalbed natural gas development will give this area 
a shot in the arm for at least 20 years. No, CBNG will not last 
forever, but it can provide this area with a bridge to the future. And, 
in the short-term, if done right, CBNG development will provide jobs, 
taxes, a new source of energy and water that will sustain the area's 
agricultural community. Redstone is committed to working with 
regulators and the Montana public to find solutions to the 
environmental issues presented by coalbed natural gas development--to 
``do it right.''

    Senator Burns. Thank you. And I might want to remind the 
folks, sitting behind us is staff people that--two of them, 
Ryan Thomas and Bruce Evans, is off the Senate appropriations 
staff, and, of course, Sharon Peterson, here with Senator 
Baucus.
    Also, Congressman Rehberg has a staffer here too. Where is 
she? Right down there. Stand up. And she is listening, and 
those--and, of course, this will be passed on to the 
Congressman as we go along.
    Ms. Old Elk.
STATEMENT OF NETA OLD ELK, DIRECTOR, CROW TRIBAL MINING 
            AND MINERALS
    Ms. Old Elk. Thank you. I am Neta Old Elk, director, Crow 
tribal mining and minerals. I am honored to provide the 
following testimony on behalf of the Crow Tribe.
    The Crow Tribe has one of the largest known coal reserves 
in the nation. Currently the Crow Tribe has approximately 5 
billion tons of known coal reserves within its exterior 
boundaries. These reserves remain largely untapped. The Crow 
Tribe lost opportunities to reap the benefits of the coal boom 
of past decades due to the State of Montana's attempted 
imposition of its coal severance tax. The prospect of double 
taxation discouraged development and resulted in the shutout of 
Crow coal from the market.
    Along with the untapped coal reserves on the Crow 
Reservation, geologic data indicates the coal reserves are rich 
with coalbed methane gas. With the nation's current energy 
crisis, coalbed methane gas at Crow has become an attractive 
prospect for immediate development.
    The Crow Tribe greatly treasures the abundance of pure 
water, wildlife, and vegetation on the reservation. Further, 
the Crow Tribe has great respect and tradition connected to its 
homeland. However, the Crow Reservation does suffer from 70 
percent unemployment, substandard housing, and a depressed 
economy. The Crow Tribe must explore all opportunities to 
improve reservation life for Crow people.
    The Crow Tribe is anxious to participate in coalbed methane 
production in a reasonable and environmentally-protected 
manner. The tribe is concerned that a lengthy delay in 
development of the trapped coalbed methane gas may result in 
drainage of our gas due to our close reservation--due to our 
close neighbors off the reservation which are currently 
harvesting methane gas. We are motivated to establish mineral 
boundaries to prevent migration of our natural gas off the 
reservation.
    Currently the Crow Tribal Minerals and Mining Office is 
conducting a geologic survey of the development area in the 
southeastern corner of the Crow Reservation, bordering Wyoming 
and eastern Montana. The coal data, ownership data, and land 
status are being examined very carefully by tribal engineers 
and technicians along with anticipated barriers to development, 
such as pipelines, leases, fee minerals, and environmental 
concerns. Based on the information gathered, the Crow Tribe 
will implement an exploration program to determine more 
accurately the Crow Tribe's coalbed methane reserve estimates.
    The Crow Tribe has made a decision to aggressively explore 
its coalbed methane resources with a goal of reasonable 
development. This includes forming working alliances with 
numerous Federal agencies involved and strict compliance with 
all applicable Federal regulations. Further, the Crow Tribe, 
while fully intending to exercise its sovereign right to 
develop its natural resources, will attempt to acknowledge any 
concerns of its neighbors.
    One of the biggest concerns to landowners and tribal 
members regarding coalbed methane development is the water 
associated with producing methane wells. Powder River Basin 
coal is full of water. In order to extract the gas, most coal 
seams require dewatering. The policy in Wyoming has been to 
discharge water, treat the water, and use it for agriculture, 
or an experiment in Gillette, Wyoming, where they are treating 
the water and using it in their city water system.
    The Crow Tribe is in the process of looking at several 
options with regard to the water concerns, one of which is 
reinjection, the other, of course, is ponding on clinker beds 
for natural absorption. However, the Crow Tribe at this time is 
examining all possible scenarios.
    The biggest barrier facing the Crow Tribe today is funding 
for these activities. Assessment and exploration is very 
expensive. Between $2 to $3 million is needed for a full 
assessment and exploration. BIA currently has an RFP out for 
mineral assessment, and the Crow Tribe does meet all 
requirements to receive this grant. However, the maximum amount 
is $80,000. This will cover administrative costs associated 
with development--or with assessment, but several million more 
is needed.
    The Bureau of Indian Affairs has been very helpful in 
assisting the Crow Tribe with information and data needed, 
specifically the BIA in Lakewood, Colorado. The Bureau of Land 
Management, along with the Montana State Department of 
Environmental Quality, are in the middle of a statewide 
environmental impact statement which specifically excludes the 
Crow reservation. BLM did send a draft MOU inviting the Crow 
Tribe to participate in the EIS. However, the MOU was not 
acceptable, and the Crow Tribe is in the process of revising it 
and sending it back for BLM review.

                           PREPARED STATEMENT

    The Crow Tribe is currently looking at potential benefits 
from coalbed methane revenues. We are predicting 70 to 150 
full-time jobs, which include well maintenance, roads, 
pipelines, geology, and engineering. We are looking at 
scholarship programs, health and prevention programs, 
retirement plans for elderly, homes, land acquisitions, and 
tribal infrastructure. We realize that the revenues are great 
and can greatly improve the tribe's economic base.
    I will be happy to answer any of your questions on behalf 
of the Crow Tribe, and thank you for the opportunity.
    [The statement follows:]
                   Prepared Statement of Neta Old Elk
    Honorable Committee members, I am Neta Old Elk, Director of the 
Crow Tribal Minerals and Mining Office. I am honored to provide the 
following testimony on behalf of the Crow Tribe.
    The Crow Tribe has one of the largest known coal reserves in the 
Nation. Currently the Crow Tribe has approximately 5 billion tons of 
known coal reserves within its exterior boundaries. These reserves 
remain largely untapped. The Crow Tribe lost opportunities to reap the 
benefits of the coal boom of past decades due to the State of Montana's 
attempted imposition of its coal severance tax. The prospect of double 
taxation discouraged developers and resulted in a shut out of Crow coal 
from the market.
    Along with the untapped coal reserves on the Crow reservation, 
geologic data indicates the coal reserves are rich with coal bed 
methane gas. With the Nation's current energy crisis, the coal bed 
methane gas at Crow had become an attractive prospect for immediate 
development.
    The Crow Tribe greatly treasures the abundance of pure water, 
wildlife, and vegetation on the Crow Reservation. Further, the Tribe 
has a great respect and traditional connection to our homeland. 
However, the Crow Indian Reservation suffers from 70 percent 
unemployment, substandard housing and a depressed economy. The Crow 
Tribe must explore all opportunities to improve reservation life for 
the Crow people.
    The Crow Tribe is anxious to participate in coal bed methane 
production in a responsible, environmentally protective manner. The 
Tribe is concerned that a lengthy delay in development of Tribe's coal 
bed methane gas may result in a drainage of gas to our close off 
reservation neighbors who are presently actively harvesting methane 
gas. We are motivated to establish mineral boundaries to prevent 
migration of our natural gas off the reservation.
    Currently, the Crow Tribal Minerals and Mining office is conducting 
a geologic survey of the development area located in the southeastern 
corner of the Crow Reservation bordering Wyoming and eastern Montana. 
The coal data, ownership date and land status are being examined very 
carefully by tribal engineers and technicians along with anticipated 
barriers to development such as pipelines, leases, fee minerals and 
environmental concerns. Based on the information gathered, the Crow 
Tribe will implement an exploration program to determine more 
accurately the Crow Tribe's coal bed methane reserve estimates.
    The Crow Tribe has made a decision to aggressively explore its coal 
bed methane resources with a goal of responsible development. This 
includes forming working alliances with the numerous federal agencies 
involved and strict compliance with all applicable federal regulations. 
Further, the Crow Tribe, while fully intending to exercise its 
sovereign rights to develop its natural resources, will attempt to 
acknowledge any concerns of its neighbors.
    One of the biggest concerns to landowners and Tribal members 
regarding coal bed methane development is the water associated with 
producing methane wells. Powder River Basin coal is full of water, in 
order to extract the gas, most coal seams require de-watering. The 
policy in Wyoming has been to discharge the water, treat the water and 
use it for agriculture, or some places such as Gillette, Wyoming are 
treating the water and using it in their city water system. The Crow 
Tribe is in the process of looking at several options with the water 
concerns; one of which is re-injection, once the seams are de-watered, 
the water is then pumped several miles down the road and re-injected 
back into the ground anywhere from 1000 feet to 3500 feet, well below 
any producing aquifers. Another option is to pond the water on Clinker 
beds for natural absorption back into the earth. The Crow Tribe is 
examining all possible scenarios.
    The biggest barrier facing the Crow Tribe today is funding for 
these activities. Assessment and Exploration is very expensive. 2 to 3 
million dollars is needed for full assessment and exploration. BIA has 
put out an RFP for Minerals Assessment and the Crow Tribe does meet all 
the requirements to receive this grant, however, the maximum about is 
$80,000. The will cover administrative costs associated with 
Assessment, but several million more is needed. The Bureau of Indian 
Affairs has been very helpful in assisting the Crow Tribe with 
information and data needed, especially the BIA in Lakewood, Colorado. 
The Bureau of Land Management along with the Montana State Department 
of Environmental Quality are in the middle of a State wide 
Environmental Impact Statement which specifically excludes the Crow 
Reservation. BLM did send a draft MOU inviting the Crow Tribe to 
participate in the EIS, however, the MOU was not acceptable and the 
Crow Tribe is in the process of revising it and sending it back for BLM 
review.
    Potential benefits to the Crow Tribe from Coal Bed Methane 
revenues:
  --70 to 150 full time jobs (well maintenance, roads, pipelines, 
        geology, engineering)
  --Scholarship programs
  --Health and prevention programs
  --Retirement plan for elderly
  --Homes
  --Land acquisition
  --Tribal infrastructure

    Senator Burns. Thank you, Neta. We appreciate that very 
much.
    Now we have Geri Small, and congratulations to her, 
president of the Northern Cheyenne Tribe.
STATEMENT OF GERI SMALL, PRESIDENT, NORTHERN CHEYENNE 
            TRIBE
    Ms. Small. Thank you and good morning, Senator Burns and 
Senator Baucus.
    I am Geri Small, president of the Northern Cheyenne Tribe. 
After a substantial background in tribal government I was 
elected president by a 72-percent vote on November 7, 2000. I 
will serve a 4-year term. I greatly appreciate the opportunity 
to present the concerns of the tribe with respect to coalbed 
methane, CBM development in areas surrounding our reservation.
    Our unique vulnerabilities. Our 450,000-acre reservation 
lies in the heart of Montana's coal and CBM country. Among all 
communities in the region, ours is the most vulnerable to the 
downside of coal-related development and the least privy to its 
financial benefit. For decades we have experienced major 
negative impacts and scant benefits from coal mining and power 
plant projects to the north and south of us.
    I have requested to Congress to--has trust responsibilities 
to the Northern Cheyenne Tribe. We are requesting approximately 
$8 million over the next 5 years to assist our tribal 
government's efforts to establish baseline data and implement a 
monitoring program for coalbed methane impacts to our 
reservation. As a tribal government, we need to--we need a 
Congressional appropriation to meet the expenses associated 
with the environmental review process. I am requesting for your 
immediate consideration to our appropriation request NEPA 
process because of the fast track.
    Socioeconomic conditions on our reservation are much worse 
than those off-the-reservation communities. Our public services 
and facilities are grossly deficient. We receive no share of 
the vast royalties or taxes generated by the development 
surrounding us. There is no tax base on the reservation to 
generate funds to address our needs.
    When left to their own devices, off-reservation mines and 
power plants do not employ Northern Cheyennes, even though we 
are the largest and most needy community in the region. The 
most readily available work force hovers around 70 percent. 
Despite longstanding and diverse efforts, we have been unable 
to generate appreciable economic developments on the 
reservation. As development proceeds around us, the gross 
disparity and quality of life between us and our off-
reservation neighbors grows larger.
    Physical and cultural conditions. In addition, we are 
uniquely vulnerable to the physical impacts of surrounding 
coal-related development because of our traditional beliefs and 
values. Our culture is entirely different from that of our 
neighbors. We believe that all living things are sacred. Our 
connection with our land and culture is of major importance. 
Those traditional values extend beyond the technical boundaries 
of our reservation, to lands to the north and south and to our 
original lands in the Tongue River Valley.
    The depth of our commitment to our traditional values is 
manifest from our internal reluctance to exploit the abundant 
coal resources underlying on our reservation. In an act of 
extraordinary self-denial, we have thus far refrained from 
developing those resources for commercial gain because of our 
reverence to our homeland.
    CBM impacts surrounding the reservation will magnify the 
entire range of socioeconomic, physical, and culture impacts we 
have suffered from encircling coal and power plant development. 
Moreover, those impacts will be augmented by the following new 
impacts:
    Reservation ground water and subsidence: drawdowns and 
deterioration of water quality in reservation wells, dewatering 
of the reservation aquifer overlying the coal seams, impairment 
of vested ground water rights on the reservation surface lands 
due to dewatering of the subsurface.
    Reservation surface water: pollution of tribal water in the 
Tongue River Reservoir and the Tongue River; noncompliance with 
tribal water quality standards; impairment of water rights 
secured to us in our water settlement with the United States 
and the State; impairment of on-reservation irrigation 
projects, including those secured to us by part of our water 
settlement.
    Migration of CBM water: migration onto the reservation of 
CBM water discharges from off-reservation CBM wells; resultant 
damage to the reservation agriculture, land, fish, and wildlife 
and their habitats.
    Reservation mineral resources: siphoning of reservation CBM 
reserves; siphoning of water from reservation coalbeds, which 
may damage our coal by compression or other means; on-
reservation coal-seam fires.
    Noise: CBM venting; noise from compressor stations and 
vehicles adversely affecting reservation residents, spiritual 
values, and fish and wildlife; hazardous CBM migration onto the 
reservation homes and water wells.
    Air pollution and visibility impairment from CBM venting, 
coal-seam fires, carbon dioxide, dust, and other emissions, in 
violation of the reservation's Class I air quality standards.
    Our socioeconomic concerns: increased traffic; increased 
stress on already inadequate on-reservation public services and 
facilities; increased law and order problems, especially in the 
light of reservation jurisdictional uncertainties among tribal, 
Federal, or State jurisdictions; inclusion of the tribe from 
development-related State and local tax revenues and Federal 
royalties that will accrue to State and local governments, 
exacerbating the gross disparities on-reservation and off-
reservation public services and facilities; exclusion of tribal 
members from job opportunities available to others in off-
reservation CBM projects, unless special measures are adopted 
to compel opportunities for the Northern Cheyenne.
    Culture concerns: damage to the sacred wildlife and plants 
found on or near the reservation; damage to the sacred sites on 
and near the reservation; damage to the water spirits in the 
Tongue River and at the reservation springs.
    Lessons from the 1982 Powder River coal sale: the Northern 
Cheyenne do not want the current initiative for regional energy 
development to be a reenactment of the failed 1982 Powder River 
coal sale. In studying and fashioning that 1982 sale, the 
United States did not identify, analyze, and require mitigation 
of reservation impacts. Before the 1982 sale we made a major 
effort to bring these failures to the attention of local, 
regional, and national and industry officials, to no avail.
    Left with no other recourse, the tribe brought suit against 
the United States, and we prevailed. The Court held the United 
States had committed a massive breach of trust responsibility 
to the tribe and violated the NEPA and other statutory and 
regulatory requirements. Judgment was entered, cancelling 
issued coal leases and holding the United States liable for the 
tribe's very substantial litigation costs and expenses.
    We would hope that in considering and fashioning any 
proposed regional CBM development, Federal officials will not 
repeat the mistakes of the past. Specifically, to meet its 
trust responsibilities to the tribe, the United States must 
assure that the impacts described above will be carefully 
assessed and the appropriate mitigation will be adopted in 
light of the uniquely vulnerable and disadvantaged status of 
the Northern Cheyenne within the region.
    Otter Creek tracts: finally, I must briefly address the 
proposed transfer of the Otter Creek tracts to the State. The 
legislation directing this was developed without even the 
slightest consultation with the Northern Cheyenne Tribe. It was 
fashioned without any consideration of the damaging impacts 
that implementation of the transfer would inflict on the Tribe.
    Under section 503, massive amounts of Federal coal in areas 
adjoining the eastern boundary of our reservation will be 
transferred to the State. Well before the enactment of section 
503 it was well-known to the United States that the adverse 
impacts of expanding coal development in the Tongue River 
Valley would fall heaviest on our reservation community and 
that our community would be uniquely excluded from the benefits 
of such development.
    Again, development of the Otter Creek tracts will generate 
very large public revenues in the form of royalties and State 
and local taxes. Those revenues will enable off-reservation 
jurisdictions to cope with the impacts of Otter Creek 
development. None of those revenues will be available to the 
Northern Cheyenne to address the existing defects on the 
reservation public services and facilities or increased effects 
that the development will create. Also, the jobs and economic 
opportunities that would flow from Otter Creek development will 
not reach the Northern Cheyenne.
    Well before enactment of section 503 it had been 
established in the Powder River coal sale litigation that the 
United States' trust responsibility to the Tribe requires that 
these adverse impacts to the--be identified and mitigated in 
the Federal coal leasing and the NEPA processes. But in 
complete disregard of the trust responsibilities, members of 
the Montana delegation engineered the unilateral transfer of 
these massive Federal coal resources to the State and thereby 
stripped the Tribe of the essential protections of the Federal 
coal leasing and NEPA processes.
    Upon such transfer, the coal will be developed in 
accordance with the State processes, which, according to the 
State, provide no legal authority, under MEPA or strip-mining 
permitting act, to require operators to adopt mitigation 
measures to address impacts inflicted on the reservation. If we 
had been consulted about the legislation proposal in advance, 
we would have sought explicit inclusion of appropriate measures 
to remedy this fundamental defect.
    Notwithstanding these failures, it remains our position to 
the Secretary of the Interior, as the Tribe's trustee, must 
consider and mitigate these impacts before transferring the 
Otter Creek tracts to the State. In advance of any transfer, 
the Secretary must identify and analyze these impacts and 
mitigate them via insertion of protective stipulations in any 
patents transferring to the Otter Creek tracts to the State.
    Finally, it is also clear that a condition precedent to the 
transfer of the tracts has not been satisfied. The requirement 
of Sections 503 (a)(1) and (b) that the Secretary and the 
Governor first endeavor to negotiate and agree to transfer of 
the 10 million in Federal mineral rights to the State.

                           PREPARED STATEMENT

    It is only after the failure of such good-faith negotiation 
that the Otter Creek tracts are to be transferred. As we 
understand it, the Governor flatly refused to enter into any 
such negotiations and, therefore, we believe, violated Section 
503. By its conduct, the State is, therefore, not presently 
entitled to the Otter Creek tracts.
    Thank you for your opportunity to present the concerns of 
the Northern Cheyenne Tribe.
    [The statement follows:]
                    Prepared Statement of Geri Small
    I am Geri Small, President of the Northern Cheyenne Tribe. After a 
substantial background in Tribal government, I was elected President by 
72 percent of the vote on November 7, 2000, and will serve a four-year 
term. I greatly appreciate the opportunity to present the concerns of 
the Tribe with respect to coalbed methane (``CBM'') development in 
areas surrounding our Reservation.
Our unique vulnerabilities
    Our 450,000 acre Reservation lies at the heart of Montana's coal 
and CBM country. Among all communities in the region, our's is the most 
vulnerable to the downside of coal-related development and the least 
privy to its financial benefits. For decades we have experienced major 
negative impacts, and scant benefits, from coal mining and power plant 
projects to the north and south of us.
            Socio-economic conditions
    Socio-economic conditions on our Reservation are much worse than 
those in off-Reservation communities:
  --Our public services and facilities are grossly deficient.
  --We receive no share of the vast royalties and taxes generated by 
        the development surrounding us.
  --There is no tax base on the Reservation to generate funds to 
        address our needs.
  --When left to their own devices, off-Reservation mines and power 
        plants do not employ Northern Cheyennes, even though we are the 
        largest and most needy community in the region, with the most 
        readily available workforce (our unemployment rate currently 
        hovers around 70 percent).
  --Despite long-standing and diverse efforts, we have been unable to 
        generate appreciable economic development on the Reservation.
  --As development proceeds around us, the gross disparity in quality 
        of life between us and our off-Reservation neighbors grows 
        larger.
            Physical and cultural conditions
    In addition, we are uniquely vulnerable to the physical impacts of 
surrounding coal-related development because of our traditional beliefs 
and values. Our culture is entirely different from that of our 
neighbors. We believe that all living things are sacred. Our connection 
with our land and culture is of transcendent importance. These 
traditional values extend beyond the technical boundaries of our 
Reservation, to lands to the north and south and to our original lands 
in the Tongue River Valley. The depth of our commitment to our 
traditional values is manifest from our internal reluctance to exploit 
the abundant coal resources underlying our Reservation. In an act of 
extraordinary self-denial, we have thus far refrained from developing 
those resources for commercial gain, because of our reverence for our 
Reservation.
CBM impacts
    CBM development surrounding the Reservation would exacerbate the 
entire range of socio-economic, physical and cultural impacts we have 
suffered from encircling coal and power plant development. Moreover, 
those impacts will be augmented by pernicious new impacts:
            Reservation groundwater and subsidence
    Drawdowns and deterioration of water quality in Reservation wells.
    De-watering of the Reservation aquifer overlying the coal seams.
    Impairment of vested groundwater rights on the Reservation.
    Subsidence of Reservation surface lands due to de-watering of the 
subsurface.
            Reservation surface water
    Pollution of Tribal water in the Tongue River Reservoir and the 
Tongue River.
    Non-compliance with Tribal water quality standards.
    Impairment of water rights secured to us in our water settlement 
with the United States and the State.
    Impairment of on-Reservation irrigation projects, including those 
to be secured to us as part of our water settlement.
            Migration of CBM water
    Migration onto the Reservation of CBM water discharged from off-
Reservation CBM wells.
    Resultant damage to Reservation agricultural lands, fish and 
wildlife, and their habitats.
            Reservation mineral resources
    Siphoning of Reservation CBM reserves.
    Siphoning of water from Reservation coalbeds, which may damage our 
coal by compression or other means.
    On-Reservation coal seam fires.
            Noise; CBM venting
    Noise from compressor stations and vehicles adversely affecting 
Reservation residents, spiritual values and fish and wildlife.
    Hazardous CBM migration into Reservation homes and water wells.
            Air pollution
    Air pollution and visibility impairment from CBM venting, coal seam 
fires, carbon dioxide, Nox from compressor stations and vehicles, dust 
and other emissions, in violation of the Reservation's Class I Air 
Quality standard.
            Socio-economic concerns
    Increased traffic.
    Increased stress on already inadequate on-Reservation public 
services and facilities.
    Increased law and order problems, especially in light of 
Reservation jurisdictional uncertainties among Tribal, federal and 
State jurisdictions.
    Exclusion of the Tribe from development-related State and local tax 
revenues and federal royalties that will accrue to State and local 
governments, exacerbating the gross disparities between on-Reservation 
and off-Reservation public services and facilities.
    Exclusion of Tribal Members from job opportunities available to 
others in off-Reservation CBM projects, unless special measures are 
adopted to compel opportunities for the Northern Cheyenne.
            Cultural concerns
    Damage to sacred wildlife and plants found on and near the 
Reservation.
    Damage to sacred sites on and near the Reservation.
    Damage to water spirits in the Tongue River and at Reservation 
springs.
Lessons from the 1982 Powder River Coal Sale
    The Northern Cheyenne do not want the current initiative for 
regional energy development to be a re-enactment of the failed 1982 
Powder River Coal Sale. In studying and fashioning that 1982 sale, the 
United States did not identify, analyze and require mitigation of 
Reservation impacts. Before the 1982 sale, we made a major effort to 
bring these failures to the attention of local, regional, national and 
industry officials, to no avail.
    Left with no other recourse, the Tribe brought suit against the 
United States and thoroughly prevailed. The court held the United 
States had committed a massive breach of its trust responsibility to 
the Tribe, and violated NEPA and other statutory and regulatory 
requirements. Judgment was entered canceling issued coal leases and 
holding the United States liable for the Tribe's very substantial 
litigation costs and expenses.
    We would hope that in considering and fashioning any proposed 
regional CBM development, federal officials will not repeat the 
mistakes of the past. Specifically, to meet its trust responsibilities 
to the Tribe, the United States must assure that the impacts described 
above will be carefully assessed and that appropriate mitigation will 
be adopted in light of the uniquely vulnerable and disadvantaged status 
of the Cheyenne within the region.
Otter Creek tracts
    Finally, I must briefly address the proposed transfer of the Otter 
Creek coal tracts to the State. The legislation directing this was 
developed without even the slightest consultation with the Northern 
Cheyenne Tribe. It was fashioned without any consideration of the 
damaging impacts that implementation of the transfer would inflict on 
the Tribe.
    Under section 503, massive amounts of federal coal in areas 
adjoining the eastern boundary of our Reservation will be transferred 
to the State. Well before enactment of section 503, it was well known 
to the United States that the adverse impacts of expanded coal 
development in the Tongue River Valley would fall heaviest on our 
Reservation community, and that our community would be uniquely 
excluded from the benefits of such development.
    Again, development of the Otter Creek tracts will generate very 
large public revenues, in the form of royalties and State and local 
taxes. Those revenues will enable off-Reservation jurisdictions to cope 
with the impacts of Otter Creek development. None of those revenues 
will be available to the Northern Cheyenne to address the existing 
deficits in Reservation public services and facilities or the increased 
deficits that the development will create. Also, the jobs and economic 
opportunities that would flow from Otter Creek development will not 
reach the Northern Cheyenne.
    Well before enactment of section 503, it had been established in 
the Powder River Coal Sale litigation, that the United States' trust 
responsibility to the Tribe requires that these adverse impacts be 
identified and mitigated in the federal coal leasing and NEPA 
processes. But, in complete disregard of this trust responsibility, 
members of the Montana delegation engineered the unilateral transfer of 
these massive federal coal resources to the State, and thereby stripped 
the Tribe of the essential protections of the federal coal leasing and 
NEPA processes. Upon such transfer, the coal will be developed in 
accordance with State processes, which, according to the State, provide 
no legal authority (under MEPA or the strip-mine permitting Act) to 
require operators to adopt mitigation measures to address impacts 
inflicted on the Reservation. If we had been consulted about this 
legislative proposal in advance, we would have sought explicit 
inclusion of appropriate measures to remedy this fundamental defect.
    Notwithstanding these failures, it remains our position that the 
Secretary of the Interior, as the Tribe's trustee, must consider and 
mitigate these impacts before transferring the Otter Creek tracts to 
the State. In advance of any transfer, the Secretary must identify and 
analyze these impacts, and mitigate them via insertion of protective 
stipulations in any patents transferring the Otter Creek tracts to the 
State.
    Finally, it is also clear that a condition precedent to the 
transfer of the tracts has not been satisfied--the requirement in 
sections 503 (a) (1) and (b) that the Secretary and the Governor first 
endeavor to negotiate and agree on the transfer of $10 million in 
federal mineral rights to the State. It is only after the failure of 
such a good faith negotiation, that the Otter Creek tracts are to be 
transferred. As we understand it, the Governor flatly refused to enter 
into such negotiations and therefore, we believe, violated section 503. 
By its conduct, the State is therefore not presently entitled to the 
Otter Creek tracts.
    Thank you for the opportunity to present the concerns of the 
Northern Cheyenne Tribe.

    Senator Burns. Thank you.
    And now we hear from Wayne Kelley, president, Omega Oil 
Company.
    Wayne, thank you for coming today. You want to pull your 
microphone over there.
STATEMENT OF WAYNE L. KELLEY, PRESIDENT, OMEGA OIL CO.
    Mr. Kelley. Coalbed methane is a near-term opportunity to 
solve much of the country's current energy crisis. However, the 
development of that methane needs to satisfy three fundamental 
criteria. As the custodians of our resources, we need to ensure 
that those resources are developed efficiently and that they 
are also developed in an economic manner. And as the trustees 
for our environment, we need to also make sure that that 
development is an environmentally satisfactory fashion.
    I have brought some charts, which I think you have copies 
of, Senators. And I want to give a very brief overview of the 
production of oil and gas and what Omega offers that is new to 
try to satisfy these concerns.
    The mechanical premise under which oil and gas is produced 
really has its history back in the 1860s, with Drake's well, 
and those mechanics remain unchanged as the state-of-the-art 
today. Those mechanics are dependent upon the migration of oil 
or gas or fluids associated with gas, through a permeable 
membrane to a well bore, and then they are lifted by a 
mechanical means to a surface-located wellhead.
    In the 1970s concepts were developed whereby lateral or 
horizontal segments of those vertical wells could be drilled, 
the premise being that by mitigating the distance that the 
fluids or the gas have to migrate, that you get a more 
effective recovery. And I want to represent that a vertical 
well in most cases in this country recovery only about 9 to 12 
percent of the original oil in place under primary recovery, 
and that this advance using horizontal drilling increases that 
recovery factor by maybe 50 percent, resulting in, on an 
average, 15-percent recovery of the original oil or gas in 
place.
    Now, this horizontal technology has become rather 
widespread during the 1980s, but it is not really applicable to 
coalbed methane, the reason being that these types of wells are 
expensive to complete and they also require a fair amount of 
distance below the earth's surface in order to get the drill 
pipe turned to make this 90-degree turn.
    The Omega technology, which we represent may solve some of 
the problems in the production of coalbed methane, relies on a 
very different mechanical premise. The mechanical premise being 
that the wellhead is actually located below the reservoir in a 
mine.
    The chart that you see here, the well bore that is going 
down through the earth's surface is approximately 10 feet in 
diameter. The area where the wellheads are are approximately 90 
feet in diameter. But this allows the effective placement of up 
to 144 well heads at one single location.
    What this does in terms of the efficiency or the 
effectiveness of the recovery is that the recovery of the 
resource is, on average, 200 percent greater than the 
mechanical recovery from conventional surface-located 
wellheads. The cost of putting in a facility like this, because 
of the amount of acreage that is covered by this type of 
facility, is roughly equivalent of developing surface-located 
wells, but obviously you get a much better economy because you 
are recovering more than twice the amount of the initial 
resource.
    This also has no considerable environmental consequences, 
and it has some considerable application to coalbed methane. By 
the location of the wellhead below the reservoir, you are able 
to produce simultaneously all of the coal seams, all the gas 
from all the coal seams, whereas a conventional-located well on 
the surface only allows the production of one coal seam at a 
time. This results in, you know, more efficient and a faster 
rate of recovery, and it also results in a much more effective 
rate of recovery.
    We have some charts here that kind of show the benefits of 
coalbed methane of this type of production.
    Senator Baucus. They are in here, too, right?
    Mr. Kelley. They are in here, too, that is correct.
    Now, this also has a benefit in terms of the water, because 
by the production of up to, say, 8,000, 8,500 acres of one 
central location, it allows all that water that is produced to 
be brought to one central location for treatment and 
disposition.
    And the next diagram I would like to show is what a 
conventional series of well pads would like for the production 
of 8,500 acres. You'll see that it requires 220 well sites to 
produce 8,500 acres. And those well sites all need electricity. 
They all need a pipeline to get the gas to a central collection 
point. They all need access for servicing, whereas the 
technology we have developed requires but one well site.
    Now, how does this relate in terms of the water? The water, 
of course, is all drawn to one location. And by the volume of 
water that is produced at this one location, this permits the 
effective and economic use of wetlands filtration. We are 
proposing to use for wetlands filtration a process that was 
jointly developed by the United States Department of Energy and 
Texaco. And I have some photographs of that development which 
are in Wyoming. They are the--or at Naval Petroleum Reserve No. 
3.
    What you are looking at here is wetlands filtration. These 
are an aquatic species of plant. And what they do is they 
attach the sodium or heavy metals or any number of contaminants 
in the water to the roots of the plants. The plants can then be 
harvested and disposed of as either agricultural feed or for 
several other uses. This is the water movement between cells in 
the wetlands treatment area. And this shows another one of the 
cells of the wetlands treatment. This is an organic method of 
treatment. It is highly effective and it allows for extremely 
clean water that can be used either as potable water or it can 
be used for agricultural use.

                           PREPARED STATEMENT

    Again, we think that this method of production is good 
stewardship of the environment. It satisfies many of the key 
issues of treating water. It obviously gets greater recovery of 
gas, and results in a considerable reduction of the 
environmental disturbance.
    Thank you.
    [The statement follows:]
                 Prepared Statement of Wayne L. Kelley
    No opportunity to solve America's energy crisis is more promising 
than developing a method to extract the huge methane gas reserves in 
the Powder River Basin and across the United States efficiently, 
inexpensively, and in an environmentally benign fashion. Omega Oil 
Company, Inc. proposes just such a method.
    That method solves three distinct problems: the treatment of the 
large quantities of water brought to the surface with coal bed methane, 
the considerable surface disturbance caused by the large number of 
closely spaced wells required when drilled vertically, and the large 
quantity of gas stranded or left behind by conventional drilling 
methods. Let's deal with each of these questions in turn.
                           WATER PURIFICATION
    The initially high volume of water associated with coal bed methane 
production, though it declines over the life of any project, brings to 
the surface undesirable salts and minerals. Mechanical methods of 
removal are feasible but involve significant quantities of energy and 
create visual pollution.
    Wetlands filtration removes the minerals from produced water by 
absorption into aquatic plants. These plants, with their low levels of 
minerals, are then harvested and disposed of. The treated water is then 
essentially mineral free and may be reintroduced into the aquifer, used 
for domestic or agricultural application or simply be disposed of by 
surface drainage without risk of loading mineral concentrations at the 
point of discharge.
    Omega proposes the use of an organic alternative wetlands 
filtration process developed by Texaco and demonstrated with success 
jointly with the United States
    Department of Energy at the department's Rocky Mountain Oilfield 
Testing Center near Casper, Wyoming (Fig. 1).
                          SURFACE DISTURBANCE
    Coal bed methane reservoirs by nature have poor internal 
communication, meaning that the gas is not able to migrate more than a 
few hundred to two thousand feet at most from its original location to 
the well bore. Hence, coal bed methane wells must be closely spaced 
and, when drilled vertically in a conventional fashion from the surface 
(Fig. 2), create considerable surface disturbance. Omega's development 
method concentrates all of the wellheads at a centralized location that 
is not only below the surface; but below the gas reservoir as well and 
likely to be below any locally exploited freshwater aquifer. Long 
horizontal wells are drilled out from that central location by state-
of-the-art coiled tubing drilling methods by which all fluid and gas 
collection is at a centralized location. This centralization greatly 
reduces surface disturbance (Fig. 3) and makes for more efficient 
production facilities.
                         PRODUCTION EFFICIENCY
    We are the custodians of earth's limited resources. Therefore, we 
are responsible to ensure efficient exploitation of those resources 
when we choose to utilize them. The Omega production method has the 
capacity to recover a greater portion of the original gas (or oil) in 
place for a variety of reasons:
    1. Geologic variances or discontinuities often impede oil or gas 
migration. The high concentration of closely spaced horizontal well 
borings in the Omega method cross many barriers to migration that 
result in stranded or left behind resources when exploited by 
conventional methods.
    2. The Omega well bore configuration makes for a more favorable 
rate of production because fluid (the water in the de-watering phase in 
CBM production) migrates naturally in a downward direction toward the 
underground control location that is below the gas or oil reservoir.
    3. The low operating cost of Omega configured wells allows economic 
operations at production volumes lower than conventional wells, thereby 
extending the decline curve and improving the recovery factor.
    4. Conventional coal bed methane wells can produce from only one 
coal seam at a time. The Omega wells can produce multiple seams 
simultaneously.
    Depending upon the unique reservoir characteristics of any given 
field we believe the Omega production method, when employed in oil and 
gas production, on average will improve primary recovery factors by as 
much as 200 percent and total recovery rates by as much as 100 percent. 
The prospect of greater rates and factors of recovery is not only a 
question of operating efficiency, but reduces significantly the number 
of oil or gas fields required to be in active production at any one 
moment. Hence, a greater ratio of gas to water is achieved over the 
life of a project by utilizing the Omega technology.
    The combined effect of wetlands filtration and Omega's below the 
reservoir production technology is greater than the sum of its parts. 
Water treatment by wetlands filtration can be achieved at a single 
location without any requirement to transmit produced water from a 
remote well location. This advantage further reduces surface 
disturbance by reducing the number and distribution of wetlands sites, 
pipelines, treaters and right-of-ways for transporting water to a 
central wetlands.
    Although our production concept is new to coal bed methane 
production we believe that we can demonstrate in the laboratory the 
effectiveness of wetlands filtration at a specific Powder River project 
location and accurately forecast the surface disturbance savings, the 
exact development footprint, subsurface configuration and production 
forecast before the implementation of any on site development. The 
steps to commercial implementation of coal bed methane production 
utilizing wetlands filtration and Omega's below the reservoir 
production technology are:
    1. Laboratory demonstration of wetlands filtration and production 
site design for technical and economic evaluation.
    2. Proof of concept at commercial scale.
                                SUMMARY
    Methane gas production can be a vital source of fuel for electric 
power production and for clean burning fuel cell driven transportation. 
It is therefore a major element toward energy reliability and 
independence.
    Omega's method of production of coal bed methane and its treatment 
of the water it produces by wetland filtration offers a near-term 
tangible advance in the production of much needed, clean burning energy 
and a quantum improvement in the environmental consequences of gas 
production.

    Senator Baucus. We do not have that one.
    Mr. Kelley. We will get it to you.
    Senator Burns. Can you imagine they only left one page out.
    Mr. Kelley. We did not want to bore you with all the 
engineering.
    Senator Burns. Let us take that a little further. If--and 
it seems like as we hear the dialogue on developing this 
resource, Mr. Kelley, that water management is at the center of 
the discussion. Tell me about, in your experimentation and the 
work that you have done in the national petroleum part of that 
thing, how much has that added to your costs?
    Mr. Kelley. Senator, it is a very nominal increase in the 
cost. The treatment of this water compared to the cost per 
barrel of oil is in the pennies. And it has been very, very 
effective, from what I understand, at Naval Petroleum Reserve 
No. 3. And we think that the--because of the consolidation and 
the ability to do this on a large scale and it is a centrally-
located facility, that the cost would be insignificant. It 
would be cheaper than any type of mechanical means of 
treatment.
    Senator Burns. See, the reason I ask that question is 
because when the price finally stabilizes and maybe goes down a 
little bit, do we risk environmental damage to cut corners to 
keep the wells in production? That is what I am saying is how 
much this adds to the cost, the final cost of the product 
before you even transport it.
    Also, Ms. Old Elk, I am interested in the tribe's area. How 
far along are you in your process of increasing your production 
on the reservation?
    Ms. Old Elk. We currently have no production on the 
reservation. We are in the middle of getting a reserve estimate 
of our gas potential, of our resource. We first are doing a 
geologic survey and running economics on coalbed methane 
development. The next step, of course, is exploration and 
getting a few holes drilled for exploration, some coring done. 
Of course, that takes money and time.
    The geologic assessment I suspect we will have done by May, 
and then at that point move forward into exploration and a 
pilot project. But I think as a tribe, with 5 billion tons of 
coal, we first need to get a reservoir estimate of our gas 
potential.
    Senator Burns. Have you made contacts of energy companies 
or engineering firms to do that work for you?
    Ms. Old Elk. Actually, we have been contacted by energy 
companies since this administration took office in July. 
Approximately 30 to 40 different gas companies have approached 
the tribe for development.
    Senator Burns. Ms. Small, you registered a pretty strong 
opposition to this moving forward. Is that the consensus of the 
Cheyenne Tribe, that they do not want to participate in this or 
are opposed to the development in and around the reservation.
    Ms. Small. It is a very controversial issue, so right now 
we have not really--any of that yet.
    Senator Burns. Okay, Max.
    Senator Baucus. Thank you, Conrad.
    One of the interesting sort or technical questions I have--
perhaps Mr. Caskey or Mr. Kelley can answer it--is how much 
drawdown or flow or leakage is there when, say, there is 
development on private land right next to BLM land? And BLM and 
I know that the tribes--I know that the Crow, for example, 
maybe Northern Cheyenne as well, are both concerned oh, my 
gosh. First of all, Wyoming, it is all kind of flowing south to 
Wyoming underground. Second, it is at the expense of not only 
private landowners, the expense of BLM land, the expense of 
tribal land. I know it is a difficult concept to generalize, 
but just how serious is that from a geological perspective?
    Mr. Caskey. I will take a crack at it, Senator. Both the 
Oil and Gas Conservation Commission in Wyoming and the Board of 
Oil and Gas in Montana have rules and regulations that require 
certain spacings for development of wells. Those spacings try 
to do a couple of things. They try to prevent drainage and 
waste of the resource, and they also try to prevent drilling of 
unnecessary wells. So with proper engineering and development 
oversight, what they pass is the----
    Senator Baucus. I appreciate that. That is really not the 
question I asked. I probably did not make myself very clear. I 
just read testimony of the State's, a couple of the tribes, BLM 
too, thinking we got to get going here because this stuff is 
leaking over to private lands, leaking over to Wyoming. We 
better get moving so we can get some for us too. It is that 
question I am trying to address.
    Mr. Kelley. Mr. Baucus.
    Senator Baucus. Yeah.
    Mr. Kelley. The migration of fluids in the permeable 
membrane are dictated by Darcy's law.
    Senator Baucus. Darcy's law?
    Mr. Kelley. Darcy's law.
    Senator Baucus. Will you explain Darcy's law to us.
    Senator Burns. Is it anything like Murphy's?
    Mr. Kelley. Darcy's law is a universally accepted engineer 
law that dictates the behavior of fluids and gases in permeable 
membranes. And it is dictated by the viscosity of the fluid. It 
is dictated by the pressure and by the porosity, the 
permeability of the membrane.
    The long and the short of it is that a 5- or 6-mile impact 
would be a tremendous distance, based upon the types of 
pressures, the types of membrane that you are dealing with, the 
depths, the volumes of the fluids.
    Senator Baucus. Five would be great. Half of that could be 
significant? Two and a half miles?
    Mr. Kelley. Obviously, the impact becomes less and less as 
you go out further from the radius. But a 5- or 6-mile 
measurable distance is--from the data we have seen, about five 
or six miles is normally what you see as far as impact.
    Senator Burns. Wayne, the frequency, you know, when they 
locate these wells, if you look at them, they are all fairly 
close together. So that would tell me that the migration 
distance is not as great as one would suspect.
    Senator Baucus. So people should not be that concerned 
about migration to Wyoming, to private----
    Mr. Kelley. No, it is not going to migrate that far. There 
are geological barriers as well as the issue of just how far 
can you get it to migrate assuming it were all homogeneous.
    Senator Baucus. Again, Mr. Caskey and Kelley, perhaps you 
can address this. Mr. Caskey, you mentioned that the Montana 
laws are basically sufficient, if I have a sense of your 
testimony.
    Mr. Caskey. That is true.
    Senator Baucus. Could you kind of be a little more 
explicit, like which--particularly with water, because I think 
that is the greatest concern here. And as I recall, there has 
been a lot of controversy in the State on where it is right now 
and about nondegradation. And obviously, it depends upon, you 
know, who is located where and what water is--perhaps with the 
Tongue River, where and when and how much. But could you just 
give us a little flavor and try to expand on that, please.
    Mr. Caskey. We feel, or it is our opinion, that the current 
laws that are in effect, that are in place right now in Montana 
are sufficient. It is application of those laws by the 
regulators that either makes us available for an economic 
operation or slows us down. The things that are in place to 
help protect the quantity of the water being produced, which we 
fully supported once we understood what it was supposed to do, 
is the controlled ground water area that was established by the 
DNRC. That oversees the amount of water that is being produced 
from the aquifers, including the coals.
    There is also the MPDES system that has to be accomplished 
prior to any discharge into a--for instance, the Tongue River. 
Those permits have to be acquired. And if they are not acquired 
or they cannot be acquired, you are not allowed to discharge 
into the rivers and streams of the State.
    Therefore, there is an oversight readily available to the 
State to control the amount and quality of the discharges that 
might be available for the rivers and streams.
    Senator Baucus. Is it fair to say that Montana statutes, 
our environmental statutes that are applicable here are 
stronger and tighter than those in Wyoming?
    Mr. Caskey. We certainly feel so. We think that the laws 
are much more finite and more stringent than what we see in 
Wyoming. It is also more--excuse me?
    Senator Baucus. Is that an impediment to development?
    Mr. Caskey. It is kind of a loaded question, but the----
    Senator Burns. It is better than a loaded gun.
    Senator Baucus. I mean, if I am a businessman, it is a 
question I have got to ask myself.
    Mr. Caskey. It does--I mean, it is obvious. We have had--
there is a lot more development in Wyoming. Now, granted, it 
started in Wyoming, so you would expect a certain degree of 
that.
    It is more difficult to do business in Montana because of 
the regulatory hurdles you have to step over.
    Senator Baucus. Now, is it too much more difficult? You 
know, that is a tough question to answer. But I mean, as a 
businessman you are looking at Wyoming, you are looking at 
Montana. You look at Montana statutes and then you hear the 
concerns of people. And yet, you see the opportunities, the 
economic opportunities here. As a businessman, is it too 
strong, too stringent? Can you live with it? Can you not live 
with it?
    Mr. Caskey. Certainly I see where your drift is. As a 
businessman, we have been fighting with this for 3 years, 
trying to get the right mix of regulatory issues and 
information established. I think it is workable. I think the 
application of the law should become more consistent. We need 
to streamline some things. But I think it is workable.
    I think right now we have an historic issue for an 
industry, particularly extracting mineral industries, whereby 
Montana has not been very friendly in the past. And I think a 
lot of that still enters into people's decisions to invest in 
Montana.
    Senator Baucus. Now, this question, though, with respect to 
coalbed methane, where does Montana have to be more friendly? 
Where are the biggest impediments, more precisely? You started 
to talk about the need for streamlining. Are there other areas?
    Mr. Caskey. I think that there are--the voice of the 
environmental community--granted, the environmental community 
plays a huge piece of the activities of the State of Montana, 
as well as Wyoming. But I think the credibility issue and the 
issues associated with is the development of the State's 
resources--as you said earlier, there is a give and take. It 
does not happen as a free lunch. There will be impacts. To 
address them as only concerns and not try to seek solutions is 
very difficult. That is probably the most single difficult 
hurdle we have in investing in the State, frankly.
    Senator Baucus. That is the perception that too many people 
are not trying to find solutions, but are----
    Mr. Caskey. Too many cooks.
    Senator Baucus [continuing]. Trying to create barriers and 
not trying to find solutions?
    Mr. Caskey. Correct. Too many cooks with concerns, not 
enough people making the sauce. I mean, that is kind of how I 
would equate it.
    Senator Baucus. I do not disagree with that. There is a bit 
too much of that, I agree. And I think it is in lots and lots 
of areas and probably occurs here.
    But I think you have an opportunity, by addressing the 
science and technology in the various ways of dealing with 
water, because I think the more people are less concerned and 
less worried the more they can find some--the more they can see 
some solutions to this. I know you agree that if you were a 
rancher, you know, you would be kind of concerned yourself. And 
I am sure the rancher would agree that, hey, these guys have 
come up with something, and it is--you know, it is not perfect, 
but it is--you know, I can work with it. So you have a real 
opportunity to develop the science and the technology to make 
that happen, it seems to me.
    Do you want to say something, Ms. Old Elk?
    Ms. Old Elk. No.
    Senator Baucus. I have got lots of questions, but we do not 
have a lot of time.
    Senator Burns. That is kind of like my checkbook. I always 
end up with a lot of checks and no money.
    I have got a couple of questions with regard to water and 
the amount of water you are bringing up and its relation to the 
amount of gas that you are getting. Is there a point of 
diminishing returns there?
    Mr. Caskey. Diminishing returns, the life of these wells in 
the field, generally a well life will be 10 to 12 years, we 
think. Now, it is still a fledgling industry, and the longest 
CBM we have got is 12 years down in Wyoming. Probably a field 
life is 20 to 25 years, somewhere in there, depending on the 
developer and the development.
    Water production, as I alluded to earlier, starts out 
relatively high. And as the--there is two lines. As your gas 
production comes on, it tends to replace, we think, some of the 
water production. In other words, water production declines; 
gas production goes up. You can see in the areas down in 
Wyoming at this point in time where early on wells were 
producing 15, 20 gallons a minute. Now those same wells may be 
producing a gallon or two a minute.
    In our scenario, or in the Tongue River area, we are not to 
the point yet to where we have seen the decline stopped on the 
water side, nor the increase in gas stop. We are currently 
producing an average of about 124,000 cubic feet of gas per day 
from each of our 162 wells.
    Senator Burns. What was that number again?
    Mr. Caskey. 124,000 cubic feet of gas per day.
    That is economic. Those are little wells, but there is a 
lot of them. And it combines to be a fairly significant stream 
of productivity.
    Senator Burns. Well, I have some more questions, but I will 
get them to you in writing. And we are going to--this is all I 
have for this----
    Senator Baucus. I cannot resist one more.
    I was stunned, Mr. Kelley, with your charts. I mean, it is 
amazing. You do good charts. But I mean, it is this one here 
compared to that one there. And is this a technology that is 
becoming readily available throughout the industry? Because if 
it is and if it works, just off the top of my head, knowing not 
as much as I would like to know yet about this problem, this 
is--you are on the way to some solutions.
    Mr. Kelley. Yes, it is available. Thus far, Texaco, Gulf, 
Phillips, Marathon, and Penneco, several other oil companies 
have licensed it from us. We are partners with them. We invest 
in the projects.
    And when you are saying it is stunning, that is why around 
our house we buy Omega stock.
    Senator Burns. That is a pretty good recommendation. But, 
you know, with that, though, this allows them, on the treatment 
of that water, to do it pretty----
    Mr. Kelley. More efficiently.
    Senator Baucus. Mr. Caskey, are you utilizing this? Are you 
looking at utilizing this technology?
    Mr. Caskey. I just met Mr. Kelley this morning. I will be 
looking at it.
    Senator Baucus. We may have put something together here.
    Mr. Caskey. There is definitely an opportunity to look at 
it. We have already set that up.
    Senator Baucus. Good. Thank you.
    Senator Burns. Thank you. Thank you kindly. We appreciate 
that very much.
    Our last panel today is made up of Mike Nicklin, President, 
Nicklin Earth & Water; Steve Gilbert, who represents the board 
members of the Northern Plains Resource Council; and David 
Heinz, district manager, CMS Oil and Gas Company. We appreciate 
you folks coming today and looking forward to your testimony. 
Gentlemen, thank you very much for coming today.
    Could we have order in the room, please. Could we have 
order in the meeting room, please. The testimony that these 
folks will offer is very important to us and to the American 
people, and we try to provide everybody with an environment in 
which they can make their case.
    Mr. Nicklin, president, Nicklin Earth & Water. Thank you 
for coming today. Pull the microphone up. You have got to drown 
out the talkers.
STATEMENT OF MICHAEL E. NICKLIN, Ph.D., PE, PRESIDENT, 
            NICKLIN EARTH & WATER
    Mr. Nicklin. Thank you, Senator Burns and Senator Baucus. I 
appreciate the opportunity to come before you today to testify 
about the important subject of coalbed methane development.
    From my perspective, the two most significant water 
resource issues related to CBM development are CBM well water 
discharge and the sodicity salinity of that water. These issues 
are intertwined as we need to know how much water and what the 
quality of this water will be in order to define proper water 
management schemes. The focus of my testimony is on the water 
discharged from coal aquifers. In other words, how much water 
are we going to get.
    I have found that by carefully examining available data one 
can generally use that information to predict with reasonable 
accuracy how an aquifer will respond when it is tapped or used 
for whatever reason. For instance, I have used computer models 
to represent coalbed aquifers. Some of the examples include two 
different ground water modeling efforts in the Colstrip area in 
Montana. And I have also done ground water modeling for 
different coalbed methane projects in Campbell and Sheridan 
Counties, Wyoming.
    Each individual coalbed aquifer, as in the case of any 
aquifer, possesses a finite water-bearing capacity. This water-
bearing capacity is a function of the following parameters: 
formation of hydraulic conductivity, which is measure of the 
ease at which water flows through the aquifer. It also depends 
upon coalbed thickness. In general, all other factors being 
equal, the thicker the coal, the more water that coalbed will 
produce.
    Aquifer hydrostatic pressure, which is essentially the 
height that water will rise in a well tapping the coal, the 
greater the pressure, the more water will be produced. There 
are other technical factors as well, but those are the key ones 
for today.
    The following are typical events and observations that 
arise as a coalbed methane field is developed. During early 
phases only a few wells have been completed and are operating. 
At that time water discharge rates per well will be at their 
highest. With time, the formation water levels will be drawn 
down and some reduction in average flow rates will occur. When 
operations expand and as more wells are added to the project, 
less discharge per well is required to maintain water level 
drawdowns. Hence, individual or average well water flow rates 
become smaller. The more wells we add, then the smaller the 
individual well discharge rates become. In addition, we have 
two phase flow or the preferential flow of methane gas in the 
formation.
    Now, these concepts seem simple and logical. Yet, I have 
seen various documents and press reports stating that discharge 
rates from CBM development will somehow center or stabilize at 
individual flow rates typically averaging about 10 to 20 
gallons per minute. This flow range likely grossly overprojects 
the average CBM well discharges which will arise with 
development in the Powder River Basin of Montana.
    There are at least two reasons that some believe flows 
between 10 and 20 gallons per minute are reasonable. These are 
the following: rates have been defined on the basis of early 
phases of CBM development. As I stated before, it is in the 
early phases of CBM project development that rates are at their 
highest. Those rates are probably based in part upon reported 
flows from more southern portions of the Powder River Basin, 
where coals tend to be thicker than what they are in Montana.
    The coals in the Montana portion of the Powder River Basin 
do not possess the hydraulic characteristics which will allow 
wells on an average to sustain flows in excess of 10 gallons 
per minute for most CBM projects where development is 
significant. Moreover, my recent discussions with the Bureau of 
Land Management confirm there is evidence that the flow 
estimates in southern portions of the Powder River Basin have 
been inflated over actual flow rates. There is a database 
lesson to be learned here for the people doing the EIS. In 
essence, it is likely that average well flows in even the 
southern portion of the Powder River Basin are less than 10 
gallons per minute.
    Let me discuss closely a case history involving a CBM 
project in Wyoming. It is in the LX Bar Creek watershed in 
northern Wyoming, and it is near Montana. One of the operations 
there has been kind enough to provide me data on well flow 
rates from metered flow rates. And in that particular operation 
they are producing from two coals, one about 300 feet below 
ground surface and one about 700 feet below ground surface, 
each about 30 to 35 feet thick.
    They have 56 producing wells. As of the latest average flow 
rates, they are at 3.1 gallons per minute, which is far below 
the 10- to 20-gallons-per-minute rate that has been presupposed 
by some. I went ahead and used some of my computer model 
techniques and compared the model parameters that I needed to 
get those discharges with those coals in Montana. The purpose 
was to determine if these coals possessed water-bearing 
characteristics similar to the coals of the Montana portion of 
Powder River Basin.
    Indeed, the results were very similar, very similar 
hydraulic characteristics, and, in fact, reading the Montana 
Bureau of Mines and Geology literature, found that those 
parameters were also consistent with what I have seen there. In 
other words, we are not going to be seeing, on average, 10-
gallons-per-minute or more in most projects.
    In summary, it is obvious to me that the projected flows, 
which will arise with time, as CBM projects evolve on the 
Montana side of the Powder River Basin, have been greatly 
overestimated. In fact, we are much more likely to see average 
flows in the range to 1- to 10-gallons-per-minute as CBM 
development proceeds and matures.

                           PREPARED STATEMENT

    In any event, I believe that using systematic approaches 
will allow us to provide reasonable protection of flow rates as 
CBM development progresses. Developing more realistic 
projections of produced water quantities makes the water 
management planning process more meaningful. The implications 
of overall lower average flow rates are obvious. Lower flows 
also provides for a much greater flexibility in defining water 
management control schemes which will eventually be employed to 
address environmental concerns associated with CBM development.
    Thank you.
    [The statement follows:]
                Prepared Statement of Michael E. Nicklin
           COAL-BED METHANE WELL WATER DISCHARGE PROJECTIONS
Introduction
    I appreciate the opportunity to come before you today to testify 
about the important subject of Coal-Bed Methane development. I am 
Michael Nicklin, President of Nicklin Earth & Water, Inc. which is a 
Bozeman, Montana based consulting firm specializing in ground-water and 
surface water resource problem solving. I personally have about 27 
years of experience working both as a hydrogeologist and as a civil 
engineer. I have worked as an academician and as a consultant. For the 
last 14 years I have been a consultant assisting clients, ranging from 
the U.S. government to industry, in solving environmental and water 
resource related problems.
    The two most significant water resource issues related to CBM 
development are CBM well water discharge and the Sodium Adsorption 
Ratio (SAR) of that water. These issues are intertwined as we need to 
know how much of this high SAR water must be dealt with in order to 
define proper water management schemes. The focus of my testimony is on 
the water discharge issue.
    I will be using the term aquifer frequently. For those of you who 
are not familiar with the term aquifer, an aquifer is a geologic unit 
which transmits water which may be tapped and used for a variety of 
purposes. Nearly all my life's work has centered around aquifers and 
their interaction with surface waters. Coal-bed aquifers are my primary 
subject today.
    I have found that by carefully examining available data, one can 
generally use that information to predict with reasonable accuracy how 
an aquifer will respond when it is tapped or used for whatever reason. 
In some situations, there are sufficient data available to develop and 
utilize mathematical tools, such as computer models, to predict how an 
aquifer will respond when it is used. For instance, I have used 
computer models to represent coal-bed aquifers. Two representative 
examples are the following:
  --I developed two separate ground-water models to evaluate coal-bed 
        aquifers in the vicinity of Colstrip, Montana. The focus was to 
        evaluate historic, current and projected impacts to aquifers in 
        response to coal-bed strip mining. I performed this work for 
        Western Energy Company.
  --I utilized ground-water modeling tools as part of a Water 
        Management Study addressing CBM well water discharge for a 
        project in Campbell and Sheridan Counties, Wyoming. The study 
        area is located at the east flank of the northern Powder River 
        Basin and is just south of the Wyoming/Montana border. This 
        work was performed under the auspices of the Geosolutions 
        Group, LLC. This work was requested by and was performed for a 
        consortium of CBM energy firms. One of the key questions that 
        must be answered in any Water Management Study related to CBM 
        activity is ``How much water will be produced from each coal-
        bed formation as it is developed?''
Coal-bed aquifer water bearing capacity
    Each individual coal-bed aquifer, as in the case of any aquifer, 
possesses a finite water bearing capacity. This water bearing capacity 
is a function of the following parameters:
  --Formation hydraulic conductivity. This is a measure of the ease at 
        which water flows through the aquifer. All other factors being 
        equal, the higher the hydraulic conductivity the more easily 
        water flows through the coal.
  --Coal-bed thickness. In general, all other factors being equal, the 
        thicker the coal the more water that coal-bed will produce.
  --Aquifer hydrostatic pressure. This is essentially the height that 
        water will rise in a well tapping the given coal. The greater 
        the pressure (or water level height) the more water will be 
        produced.
    The following are typical events and observations that arise as a 
coal-bed methane field is developed:
  --During early phases of development only a few wells have been 
        completed and are operating. At that time, when well numbers 
        are small, water discharge rates per well will be at their 
        highest. With time the formation water levels will be drawn 
        down and some reduction in average flow rates will occur.
  --When operations expand and as more wells are added to the project, 
        less discharge per well is required to maintain water level 
        draw downs. Hence, individual or average well water flow rates 
        become smaller. The more wells that are added to the project 
        the smaller the individual well discharge rates become.
    These concepts seem simple and logical. Yet, I have seen various 
documents and press reports stating that discharge rates from CBM 
development will somehow center or stabilize at individual flow rates 
typically averaging about 10 to 20 gallons per minute (gpm). This flow 
range likely grossly over projects the average CBM well discharges 
which will arise with development in the Powder River Basin of Montana.
    There are probably at least two reasons that some believe flows 
between 10 and 20 gpm are reasonable. These are the following:
  --Rates have been defined on the basis of early phases of CBM 
        development. As I stated before, it is in the early phases of a 
        CBM project development that rates are at their highest.
  --Those rates are probably based in part upon reported flows from 
        more southern portions of the Powder River Basin where coals 
        tend to be thicker there than what they are in Montana.
    The coals in the northern portion of the Powder River Basin do not 
possess the hydraulic characteristics which will allow wells on an 
average to sustain flows in excess of 10 gpm for most CBM projects 
where development is significant. Moreover, my recent discussions with 
the Bureau of Land Management (BLM) confirm there is evidence that the 
flow estimates in the southern portions of the Powder River Basin have 
been inflated over actual flow rates. In essence, it is likely that 
average well flows in even the southern portion of the Powder River 
Basin are less than 10 gpm.
Approach
            Representative case history
    Let us examine more closely the case history involving the CBM 
project I described to you before. That project includes the LX Bar 
Creek watershed in northern Wyoming. I have chosen this project as it 
is in the Powder River Basin and it is near Montana.
    There are two coals which are currently being produced in this 
watershed by Petroleum Development Corporation (PEDCO) and they are the 
Anderson Coal and the Canyon Coal. Each of these coals is about 30 to 
35 feet thick in the immediate vicinity of the PEDCO operation. The 
Anderson Coal is about 300 feet below ground surface. The Canyon Coal 
is about 700 feet below ground surface. PEDCO's operation in LX Bar 
Creek has been in place slightly less than one year and there are a 
total of 56 CBM producing wells.
    These PEDCO wells were measured beginning with the latter part of 
the Summer of 2000 and we have obtained the discharge data from these 
wells. The respective average discharge rates by coal are tabulated 
below:

------------------------------------------------------------------------
                                                   Anderson     Canyon
                     Month                        Coal Wells  Coal Wells
                                                    (gpm)        (gpm)
------------------------------------------------------------------------
August, 2000...................................         1.80        7.80
September, 2000................................         1.60        5.30
November, 2000.................................         1.60        5.80
December, 2000.................................         1.00        5.30
January, 2001..................................         0.74        5.40
------------------------------------------------------------------------

    The January, 2001 average flow rates for all 56 wells is currently 
at 3.1 gpm. This is far below the 10 to 20 gpm rate that has been 
presupposed by some.
            Comparing water bearing hydraulic characteristics of coal
    I developed computer model representations indicative of the PEDCO 
operations in the LX Bar drainage in order to back-calculate the 
formation parameters of these coals. The purpose was to determine if 
these coals possess water bearing characteristics similar to the coals 
of the Montana portion of the Powder River Basin. For instance, are 
they similar to the coals near Colstrip, Montana where I have developed 
and applied ground-water models?
    The results of the computer model simulations demonstrate that the 
coals beneath the LX Bar Creek drainage possess hydraulic 
characteristics consistent with the coals of the Colstrip area of 
Montana. Further evaluation reveals they possess characteristics 
similar to data summarized in Memoir 62 completed by the Montana Bureau 
of Mines and Geology (MBMG). Coupled with the Colstrip data and the 
MBMG data, we have data to demonstrate that actual CBM well-water 
production rates in the Powder River Basin of Montana will likely 
average substantially less than 10 gpm.
Summary and implications
    In summary, it is obvious to me that the projected flows which will 
arise with time as CBM projects evolve in the Montana side of the 
Powder River Basin have been greatly over estimated. Rather, it is more 
likely that average CBM flows for a project in excess of 10 gpm will be 
the exception rather than the rule. In fact, we are much more likely to 
see average well flows in the range of 1 to 10 gpm per well as CBM 
development proceeds and matures.
    In any event, I believe that using systematic approaches will allow 
us to provide reasonable projection of flow rates as CBM development 
progresses. Flow rates will vary considerably depending upon the 
situation. For instance, we will need to know the depth of that coal, 
the hydrostatic pressure in that coal and its thickness. If we know 
these coal-bed attributes, we can project flow rates that are much more 
reliable than presupposing flow rates that have been suggested by some.
    Developing more realistic projections of produced water quantities 
makes the water management planning process more meaningful. The 
implications of overall lower average flow rates are obvious. Lower 
flows also provides for much greater flexibility in defining water 
management/control schemes which will eventually be employed to address 
environmental concerns associated with CBM development.

    Senator Burns. Great timing. Great timing.
    With us today, Steve Gilbert, who is a board member and 
representing the Northern Plains Resource Council. Thank you 
for coming today.
STATEMENT OF STEVE GILBERT, BOARD MEMBER, NORTHERN 
            PLAINS RESOURCE COUNCIL
    Mr. Gilbert. Senator Burns, Senator Baucus. Good morning. I 
am Steve Gilbert, consulting biologist from Helena. I am a 
board member and a coalbed methane committee member of the 
Northern Plains Resource Council. I am not a farmer or rancher, 
but other members of the committee are in the middle of calving 
and asked me to represent their interests.
    The roughly 3,000 members, about half of whom are farmers 
or ranchers, are protective stewards of thousands of acres of 
Montana's rich prairies, river bottoms, and the social and 
cultural fabrics that tie Montanans to the land. The council 
states that its mission is committed to land stewardship and 
social justice principles that ensure future generations a 
healthy quality homeland. It also believes that rural, urban, 
and tribal communities in the region can prosper without 
destroying the land.
    Our goal is to ensure that Montana's CBM resource is 
developed in a prudent, orderly manner, that the existing 
agricultural economy, water quality, air quality, fisheries, 
wildlife, soils, hydrologic regimes, cultural and historic 
resources, and local communities are maintained in a condition 
as good or better than prior to development, that such 
development complies with all applicable State and Federal 
regulations, and that a meaningful EIS is prepared before any 
additional development occurs.
    An EIS is being prepared, so why should we continue to have 
very grave concerns that the process is not quite right? Here 
are some of the things that concern us right now. To quote the 
BLM's work plan on this EIS, the total planning area total 
exceeds 3 million square miles. The plan for preparing the EIS/
RMP amendment is based on the need to minimize the schedule, 
maximize the efficiency of production and review, and produce a 
document that is consistent in its style and easily understood 
by the public.
    I applaud the final statement about making the document 
easily understood. To inform the public is clearly one of the 
specific tasks of NEPA. I am, however, deeply concerned by the 
industry-sounding language that says the NEPA process is on the 
very fast track.
    I spent 25 years working with NEPA, gathering baseline 
data, writing technical reports and the biological portions of 
EISs. An EIS without enough baseline data to back up its 
assumptions does not go very far as a planning document, as a 
mitigative tool, or as an information source for the public.
    I see this particular fast-track EIS as one that will have 
the thinnest, bare-bones database. There is no time allocated 
to gathering new water quality, fisheries, wildlife, social, or 
cultural data related to an extractive, short-term development 
process that will potentially be the largest ever of any kind 
in Montana in terms of total affected surface acres and effects 
on surface and ground water.
    Jan Sensibaugh, director of Montana DEQ, which is co-lead 
on the EIS for Montana, said to NPRC in a recent meeting that 
there is no intent by any of the EIS team to gather data past 
March of this year. I have heard that the 3 million acres this 
EIS focus on are in the data-rich area. I do not believe this, 
since over 70 percent of the surface ownership potentially 
affected by CBM development is in private ownership. Private 
property where any data has been gathered in this area in the 
past 20 to 30 years is primarily an existing permitted mine 
property and on data from the CX Ranch field, which has already 
been deemed inadequate by the BLM.
    I know what some of the surface and wildlife impacts from 
this type of development will be. I toured the CX Ranch CBM 
field last June with Redstone employees. That does not 
necessarily say much. But I think what may something--may say 
something is that I worked a week a month for 7 years on the CX 
Ranch doing wildlife, fisheries, aquatic, and vegetation 
surveys for Consolidated Coal Company's mine permit from 1979 
through 1986. I am intimately familiar with what this property 
looked like then from a biological perspective, and I was 
stunned at the impacts I saw from less than 2 years of activity 
and 160 or fewer wells in action.
    Picture 9,500 wells over the next 10 years spread across 
the southern tier of Montana. Picture the effect of pumping 
enough water from the aquifers to fill 3 billion oil field 
barrels, enough to cover 56 townships three inches deep. That's 
1,290,000 acres 3 inches deep of sour vegetation and soil-
killing water. As a biologist, I cannot and do not want to 
picture the magnitude of these potential surface impacts, much 
less the impacts to the surface and ground waters of Montana.
    Economy and growth are the buzzwords this year, and the 
message is being urgently sent to industry that Montana is open 
for business. Again, the words being used are we need 
streamline, minimize the schedule, maximize efficiency. I have 
seen no suggestion anywhere to date that this industry will 
have the enormous negative effects that it most certainly will. 
I have seen only the positive benefits mentioned.
    To quote a draft DEQ economic issue statement from February 
of this year, past CBM studies, including at least two EISs, 
have tended to focus on economic benefits only, without 
acknowledging that significant economic costs may also exist 
from the methane extraction process. In these cases, CBM always 
passes the economic test without a consideration of costs.
    The same paper goes on to say CBM development over its 
lifetime will likely result in costs that potentially include 
environmental degradation, social division, and the typical 
economic consequences from short-term, boom-and-bust extraction 
development.
    What will it cost Montana to lose thousands of acres of 
irrigated cropland forever because the soil is soured by higher 
SAR water? What will it cost a farmer or a rancher in Montana 
to lose ground water for domestic and livestock use? What will 
it cost Montana to sacrifice one of our only sustainable 
industries for short-term gain, one that has been here for over 
120 years and could be here for as long as Montana is on the 
map?
    What will it cost to reclaim the tens of thousands of acres 
of surface disturbed by CBM development? How much will it cost 
to eliminate or even control noxious weeds in areas that 
presently have minimal weed problems? What will the cost to 
Montanans be in terms of lost fisheries and wildlife resources? 
Have we forgotten the costs in perpetuity to Montana from Butte 
miners, from Pegasus Gold at Zortmen-Landusky? Who pays for 
this? Montanans, of course.
    How will this EIS address these issues if it is on a time 
line to be in draft form by September? It will not. It will be 
meaningless sham, essentially putting spurs to the CBM horse.
    If the CBM industry plans to be a stakeholder in more than 
short-term gain, if Montana wants to guarantee that short-term 
gain does not mean lack of foresight and understanding of long-
term impacts, then show us by demonstrating a sincere interest 
in future generations of Montanans. Do this by taking this 
important planning tool off the fast track, slow the NEPA 
process down, and gather the data and make informed decisions 
and do it right.
    Coalbed methane has been in the ground for millions of 
years. It is estimated there is only enough CBM in Montana's 
coal seams to provide the needs of the United States for about 
20 months. We do not need to risk the future of millions of 
acres of Montana in a rush to get it out of the ground now.

                           PREPARED STATEMENT

    Please do not just tell us not to worry, that you are 
making sure that CBM development will be done without damaging 
precious resources that will sustain us for generations. Show 
us you mean this. Slow the process. Gather the baseline data. 
Analyze it carefully. Provide us with all--all with 
intelligent, informed, up-to-date information that will allow 
this industry to be responsible to Montanans and our long-term 
needs.
    The Northern Plains Resource Council thanks your for this 
opportunity to comment.
    [The statement follows:]
                  Prepared Statement of Steve Gilbert
    Good morning. I'm Steve Gilbert, a consulting biologist from 
Helena. I'm a Board member and coal bed methane committee member of 
Northern Plains Resource Council. I am not a farmer or rancher, but 
other members of the committee are in the middle of calving and asked 
me to represent their interests.
                         WHO, OR WHAT IS NPRC?
    The roughly 3,000 members (about half of whom are farmers or 
ranchers) are protective stewards of thousands of acres of Montana's 
rich prairies, river bottoms and the social and cultural fabrics that 
tie Montanans to the land. The Council states that its mission is 
``committed to land stewardship and social justice principles that 
ensure future generations a healthy, quality homeland.'' It also 
believes that rural, urban and tribal communities in the region can 
prosper without destroying the land.
            WHAT IS NPRC'S GOAL RELATIVE TO CBM DEVELOPMENT?
    Our goal is to ensure that Montana's CBM resource is developed in a 
prudent, orderly manner; that the existing agricultural economy, water 
quality, air quality, fisheries, wildlife, soils, hydrologic regimes, 
cultural and historic resources and local communities are maintained in 
a condition as good or better than prior to development; that such 
development complies with all applicable state and federal regulations 
and that a meaningful EIS is prepared before any additional development 
occurs.
    An EIS is being prepared, so why should we continue to have very 
grave concerns that the process is not quite right? Here are some of 
the things that concern us right now.
    To quote the BLM's Work Plan on the EIS, ``the total planning area 
exceeds 3 million square miles.'' ``The plan for preparing the EIS/RMP 
Amendment is based on the need to minimize the schedule, maximize 
efficiency of production and review, and produce a document that is 
consistent in its style and easily understood by the public.'' I 
applaud the final statement about making the document easily 
understood. To inform the public is clearly one of the specific tasks 
of NEPA. I am, however, deeply concerned by the industry-sounding 
language that says the NEPA process is on the very fast track.
    I spent 25 years working with NEPA, gathering baseline data, 
writing technical reports and the biological portions of EISs. An EIS 
without enough baseline data to back up its assumptions does not go 
very far as a planning document, as a mitigative tool, or as an 
information source for the public. I see this particular fast-track EIS 
as one that will have the thinnest, bare bones data base. There is no 
time allocated to gathering new water quality, fisheries, wildlife, 
social, or cultural data related to an extractive, short-term 
development process that will potentially be the largest ever of any 
kind in Montana in terms of total affected surface acres and effects on 
surface and ground water.
    Jan Sensibaugh, Director of Montana DEQ, which is co-lead on the 
EIS for Montana said to NPRC in a recent meeting that there is no 
intent by any of the EIS team to gather data past March of this year. 
I've heard that the 3 million acres this EIS focus on are in a data-
rich area. I don't believe this since over 70 percent of the surface 
ownership potentially affected by CBM development is in private 
ownership. Private property where any data has been gathered in this 
area in the past 20-30 years is only on existing permitted mine 
property and on data from the CX Ranch field already deemed inadequate 
by the BLM.
    I know what some of the surface and wildlife impacts from this type 
of development will be. I toured the CX Ranch CBM field last June with 
Redstone employees. That doesn't necessarily say much, but I think what 
may say something is that I worked a week a month for 7 years on the CX 
Ranch doing wildlife, fisheries, aquatic and vegetation surveys for 
Consolidation Coal Company's mine permit from 1979-1986. I am 
intimately familiar with what this property looked like then from a 
biological perspective and I was stunned at the impacts I saw from 2 
years of activity and fewer than 150 wells in action.
    Picture 9,500 wells over the next 10 years spread across the 
southern tier of Montana. Picture the effect of pumping enough water 
from the aquifers to fill 3 billion oil field barrels, enough to cover 
56 townships 3 inches deep. That's 1 million, 290 thousand acres 3" 
deep with sour, vegetation and soil-killing water. As a biologist, I 
can't and don't want to picture the magnitude of these potential 
surface impacts, much less the impacts to the surface and ground waters 
of Montana.
    Economy and growth are the buzz words this year and the message is 
being urgently sent to industry that Montana is open for business. 
Again, the words being used are we need to streamline, ``minimize the 
schedule, maximize efficiency.'' I've seen no suggestion anywhere to 
date that this industry will have the enormous negative effects that it 
most certainly will. I've seen only the positive benefits mentioned. 
But to quote a draft DEQ economic issue statement from February of this 
year, ``Past CBM studies (including at least two EISs) have tended to 
focus on economic benefits only without acknowledging that significant 
economic costs may also exist from the methane extraction process. In 
these cases, CBM always passes the economic test without a 
consideration of costs.'' The same paper goes on to say ``CBM 
development over its lifetime will likely result in costs that 
potentially include environmental degradation, social division and the 
typical economic consequences from short-term, boom and bust extraction 
development.''
    What will it cost Montana to lose thousands of acres of irrigated 
cropland forever because the soil is soured by high SAR water? What 
will it cost a farmer or rancher and Montana to lose groundwater for 
domestic and livestock use? What will it cost Montana to sacrifice one 
of our only sustainable industries for short-term gain, one that has 
been here for over 120 years and could be here for as long as Montana 
is on the map?
    What will it cost to reclaim the tens of thousands of acres of 
surface disturbed by CBM development? How much will it cost to 
eliminate or even control noxious weeds in areas that presently have 
minimal weed problems? What will the costs to Montanans be in terms of 
lost fisheries and wildlife resources? Have we forgotten the costs in 
perpetuity to Montana from Butte miners, from Pegasus Gold at Zortman-
Landusky? Who pays for this? Montanans, of course.
    How will this EIS address these issues if it is on a time-line to 
be in Draft form by September? It won't. It will be a meaningless sham 
essentially putting spurs to the CBM horse.
    If the CBM industry plans to be a stakeholder in more than short-
term gain, if Montana wants to guarantee that short-term gain doesn't 
mean lack of foresight and an understanding of long-term impacts, then 
show us by demonstrating a sincere interest in future generations of 
Montanans. Do this by taking this important planning tool off the fast-
track. Slow the NEPA process down, gather the data, make informed 
decisions and do it right.
    Coal bed methane has been in the ground for millions of years. It 
is estimated there is only enough CBM in Montana's coal seams to 
provide the needs of the U.S. for about 20 months. We don't need to 
risk the future of millions of acres of Montana in a rush to get it out 
of the ground now. Please don't just tell us not to worry, that you are 
making sure that CBM development will be done without damaging precious 
resources that will sustain us for generations. Show us you mean this. 
Slow the process, gather the baseline data, analyze it carefully, 
provide us all with intelligent, informed, up-to-date information that 
will allow this industry to be responsible to Montanans and our long-
term needs.
    Northern Plains Resource Council thanks you for this opportunity to 
comment. 

    Senator Burns. Thank you. I appreciate that.
    David Heinz, district manager, CMS Oil and Gas. Thank you 
for coming today.
STATEMENT OF DAVID R. HEINZ, MANAGER OF BUSINESS 
            DEVELOPMENT, CMS OIL AND GAS CO.
    Mr. Heinz. Thank you, Senator.
    I am here today to discuss the nation's need for natural 
gas, how CBM development in Montana, and in particular the 
Powder River Basin of southeastern Montana, can play a role in 
supplying natural gas and what the economic benefit could be to 
the citizens of Montana.
    Natural gas currently supplies 24 percent of the nation's 
total energy needs. We as a nation consume approximately 22 
trillion cubic feet of natural gas per year. Our yearly 
consumption on natural gas is projected to increase to 30 
trillion cubic feet by the year 2020. The majority of this 
increased consumption will go toward the generation of 
electricity.
    The nation has very little excess electric generation 
capacity. Over 90 percent of the new generation currently under 
construction or under consideration will utilize natural gas. 
This is due to a number of factors: our need to reduce carbon 
dioxide and nitrogen oxide emissions, ease of permitting 
natural gas versus coal and nuclear and the size of the plants 
and the ease of placing them closer to the market.
    The nation's ability to meet this growing natural gas 
demand depends on numerous factors: advances in technology, 
development of the deep water Gulf of Mexico, access to Federal 
lands, the development of so-called unconventional resources. 
Coalbed methane falls into the category of an unconventional 
gas.
    The development of coalbed methane is not new. For years 
the coal mines would de-gas coal seams prior to mining for 
reasons of mine safety. It has only been within the last 20 
years that we have tried to capture this resource and extend 
its development out away from the mined areas. Coalbed methane 
development is taking place in Alabama, Virginia, New Mexico, 
Colorado, Utah, and, of course, here in the Powder River Basin 
of Wyoming and Montana.
    CMS Oil and Gas and its partner, Marathon Oil, control 
approximately 200,000 gross acres within the Powder River Basin 
of Montana. Therefore, we are very interested in seeing the 
development of this resource. During the course of several 
meetings with the coalbed methane coordination group held last 
summer it became very apparent that CBM development was coming 
to Montana and that numerous issues needed to be addressed.
    For example, the State of Montana is required to update it 
programmatic EIS, and the Bureau of Land Management preferred a 
basinwide EIS as opposed to smaller, site-specific 
environmental assessments. It was also apparent that the 
general public's perception about the magnitude of development 
was much larger than the natural gas industry was predicting.
    The area or extent of southern Montana's portion of the 
Powder River Basin encompasses over 10,000 square miles. 
However, only one quarter of this area is prospected for 
coalbed methane development. And it is believed that only three 
areas in this region of Montana--Colstrip, Ashland, and Decker 
coalfields--will see any substantial development. CMS polled 
the active oil and gas companies in these areas, asking them 
what their development plans would be given perfect development 
conditions.
    For example, a proven resource--favorable economics, no 
permitting or land access problems, et cetera--the industry 
came back with approximately 10,000 coalbed methane wells. Over 
50 percent of these are projected to be drilled on Federal 
mineral acreage. Based on CMS's experience in northern Wyoming, 
we estimated the economic productive life for these wells could 
be on the order of 20 years. Given technological advancement, 
the gas industry's experience in the past, the productive life 
of these could be much greater.
    Also based on our production history, we attempted to 
project what the economic benefit to the State of Montana and 
the United States could be from royalty and production tax 
payments. Given a typical CBM well, the number of wells planned 
by industry, and the natural gas price of $3.50 over the life 
of this project, it is estimated that the State of Montana 
would receive royalty payments of $450 million. In addition, 
the State could see production tax payments of $440 million, 
and the Federal Government could receive royalty payments on 
the order of $190 million from those wells drilled on Federal 
minerals.
    None of these take into account the capital expenditures 
that would be necessary to drill, complete, and produce these 
wells. I estimate it could take about $1.6 billion to develop 
and produce this resource into the market.

                           PREPARED STATEMENT

    In conclusion, CMS believes that there are very legitimate 
concerns that need to be addressed before any large-scale 
development of coalbed methane can take place in Montana. The 
environmental impact statement under discussion here today will 
address those concerns. Furthermore, we support and encourage 
the public comment. And I thank you.
    [The statement follows:]
                  Prepared Statement of David R. Heinz
    My name is David R. Heinz; I'm Manager of Business Development for 
CMS Oil and Gas Company. CMS Oil & Gas is actively engaged in the 
development of Coalbed Methane (CBM) in Wyoming. I'm here today to 
discuss the nations need for natural gas. How CBM development in 
Montana and in particular within the Powder River basin of southeastern 
Montana can play a role in supplying natural gas. And what the economic 
benefit could be to the citizens of Montana.
    Natural gas currently supplies twenty four percent (24 percent) of 
the nations total energy needs. We as a nation current consume 
approximately 22 trillion cubic feet of natural gas per year. Our 
yearly consumption of natural gas is projected to increase to 30 TCF by 
the year 2020. The majority of this increased consumption will go 
toward the generation of electricity. As we have all become aware over 
the last several months with the electric crisis in California the 
nation has very little excess electricity generation capacity. Over 90 
percent of the new electrical generation currently under construction 
or under consideration will utilize natural gas. This is due to a 
number of factors: the nations need to reduce carbon dioxide 
(CO2) and nitrous oxide (NO) emissions, ease of permitting 
natural gas fire plants versus coal fired and nuclear powered, the size 
of the plants and ease of placing them closer to the market.
    The nations ability to meet this growing natural gas demand depends 
of numerous factors:
    (1) Advances in technology;
    (2) Development of the deep water Gulf of Mexico;
    (3) Access to Federal lands; and
    (4) Development of so called ``unconventional resources.''
    Coal bed methane falls into the category of ``unconventional gas.''
    The development of coal bed methane is not new. For years coalmines 
have degassed coal seams prior to mining for reasons of mine safety. It 
has only been within the last twenty years that we have tried to 
capture this resource and extend its development out away from the coal 
mine areas. CBM developed is taking place in Alabama, Virginia, New 
Mexico, Colorado, Utah and of course here in the Powder River basin of 
Wyoming and Montana.
    CMS Oil and Gas Company and its partner Marathon Oil control 
approximately 200,000 gross acres within the Powder River basin of 
Montana. Therefore we are very interested in seeing the development of 
this resource. During the course of several meetings of ``The Coalbed 
Methane Coordination Group'' held last summer, it become very apparent 
that CBM development was coming to Montana and that numerous issues 
needed to be addressed. For example, the State of Montana is required 
by statue to update its programmatic EIS and that the Bureau of Land 
Management (BLM) preferred a basinwide EIS as opposed to smaller site 
specific ``Environmental Assessments'' (EA's). And that the general 
public's perception about the magnitude of development was much larger 
then the natural gas industry was predicting.
    The aerial extent of southern Montana's portion of the Powder River 
basin encompasses over 10,000 square miles, however, only one quarter 
of this area is prospective for CBM development. And it is believed 
that only three areas in this region of Montana, the Colstrip, Ashland, 
and Decker Coalfields will see any substantial development.
    CMS Oil and Gas polled active oil and gas companies is these areas, 
asking them what their development plans would be given perfect 
development conditions. For example, proven resource potential, 
favorable economics, no permitting or land access problems, etc.
    Industry came back with approximately 10,000 CBM wells. Over fifty 
percent (50 percent) of these are projected to be drilled on federal 
mineral acreage.
    Based on CMS's experience in northern Wyoming we estimated that the 
economic productive life of these wells could be on the order of twenty 
years. Given technological advancements, and the gas industries 
experience in the past, the productive life of these was could be much 
greater.
    Also based on our production history we attempted to project what 
the economic benefit to the State of Montana and United States could be 
form royalty and production tax payments.
    Given a typical CBM well, the number of wells planned by industry 
and a gas price of $3.50/MCF over the life of the project, it is 
estimated that the State of Montana could see royalty payments of 
$450,000,000 over the course of a twenty-year period. In addition the 
State could see production tax payments of $440,000,000. The Federal 
government could see royalty payments of $190,000,000 from wells 
drilled on federal mineral acreage.
    None of these estimates take into account the capital expenditures 
that will be necessary to drill, complete and produce these wells. I 
would estimated that it will take one billion six hundred million 
dollars ($1,600,000,000) to develop and produce this resource into the 
market.
    In conclusion CMS understands that there are very legitimate 
concerns that need to be addressed before any large-scale development 
on CBM can take place in Montana. The Environment Impact Statement 
under discussion here today will address these concerns. We support and 
encourage public comment.

    Senator Burns. Mr. Heinz, let us just pick up on your 
testimony. You say the estimates have been. Do you think the 
estimates, to your knowledge--and we have got only you folks 
that are in the business to rely on. Do you think those 
estimates are in the--align themselves with the expectations?
    Mr. Heinz. I think so, yes, sir.
    Senator Burns. Do you think that there is that much?
    Mr. Heinz. I do, otherwise we would not be here. We have 
invested an awful lot of money in this State, as far as acreage 
acquisitions and stuff, and we believe the resource is there. 
Yes, sir.
    Senator Burns. Mr. Nicklin, you based most of your 
testimony on water and water discharge and the amount of water. 
You have taken a look at Omega and Mr. Kelley and his testimony 
on dealing with that and new technologies dealing with that 
water. Do you think that this is feasible?
    Mr. Nicklin. I think that water management is very 
feasible. We will have to keep in mind there is lots of options 
we should--we should work with. That is my answer.
    Senator Burns. Mr. Gilbert, in short-water years, not only 
do we try to take a resource, participate in the--in solving 
some of the problems that the nation has energywise, and if we 
can manage our water and make it suitable--in other words, 
removing some of the sodium--and making it potable and usable 
on our streams, why is that not--why should we not be taking 
advantage of that resource?
    Mr. Gilbert. Senator Burns, I agree that this resource is 
probably one that we should take advantage of for all the 
reasons that have been mentioned. Our concerns relative to 
water are twofold. One, we do not want to see long-term 
agricultural operations compromised by maybe lack of foresight 
and proper use of water--you know, reinjection, whatever it is. 
To date, there are not enough answers, and there are still more 
questions.
    We are concerned about loss of springs and seeps to 
wildlife and stock-watering opportunities. We are concerned 
about quality of irrigation water. We do not have enough 
answers yet.
    Senator Burns. You are the only--the only solution that you 
have really--that you recommend is reinjection; is that 
correct?
    Mr. Gilbert. We do not have enough information, you know, 
right now on reinjection. We are concerned that we reinject in 
such a way that it is accessible to those landowners who need 
the water. We are concerned about its water quality. To date, 
there are no answers there. Northern Plains has, however, hired 
an expert on reinjection, and we are looking into that.
    Senator Burns. Listening--and I do not know whether you 
have had access to the information from the Omega Oil Company 
and their suggestion on the technology to deal with that water. 
Would that live up to your expectations if they could do 
everything that they did say here?
    Mr. Gilbert. Senator Burns, I believe that was a big 
``if.''
    Senator Burns. That is all we deal in around here is 
``ifs.''
    Mr. Gilbert. I appreciate the proposal that Mr. Kelley 
made. I think that it is a valuable one and that it is one of 
the many options that we need to look at. I think it has a lot 
of potential. I have, as a biologist, been involved with some 
processes to take acid mine drainage from coal fields and run 
them through wetlands to extract the egregious acid-bearing 
materials.
    It has not proven to be something that can be used 
everywhere and also leaves you with--you know, there was one 
little thing that Mr. Kelley mentioned, which was disposal of 
the vegetative material. I do not believe that if this filled 
up with salts we are going to be able to feed this to 
livestock. This material does not disappear. It is taken up by 
the vegetation. There are some other good options that we need 
to look at, though.
    Senator Burns. Senator Baucus.
    Senator Baucus. Thank you, Conrad.
    You know, as I listen to all of this it seems to me that 
basically people are coming together, and it is just a matter 
of a lot of work ahead of us to figure out how to do this the 
right way.
    I commend you, Mr. Gilbert, for saying that you believe we 
should take advantage of this resource. I believe you said 
that, but you also said to make sure we do it right. And Mr. 
Caskey of Redstone has said basically the same thing, that they 
want to do it right, they want to do it the right way. And we 
have a process, the EIS process, which I think, if done right, 
I think will help us come together and figure out the way to 
get this done in a way that is balanced.
    Now, I think it is important for us to remember that the 
EIS also has to be done right. I can think of a lot of times 
when the EISs were not done right and there was a lawsuit. And 
the lawsuits prevail, and the agency had to go back to the 
drawing board and do it all over again. You know, the law is 
the law. And if a judge says that the EIS is not done 
appropriately, well, then, that is pretty much where it is.
    So I think it is incumbent upon all of us, particularly 
people from the business prospective, as well as those in the 
environmental prospective, to make sure that this is done right 
the first time, because if it is done right the first time, 
then we are going to be able to develop this resource earlier 
rather than later, avoid a lawsuit. And we are also going to be 
assured, as well as we possibly can, that the potential adverse 
environmental impacts are essentially addressed.
    It is my sense that we--that this is such a big deal that 
people are going to work pretty hard, maybe harder than usual, 
to try to figure how to do all of that. And I see the BLM guys 
sitting in the front row here, and I am looking at them when I 
say to all of us that we make sure we get this done the right 
way to avoid a lawsuit that is going to slow things down. It is 
going to make it even more delayed than might otherwise meet 
the eye.
    A second point that really has not been addressed much yet, 
and this is this sodium absorption rate. I am not going to get 
into that in great detail now, but that is--it just looks to me 
that that is something we are going to have to look at pretty 
closely. We have got a lot of ideas here in how to do all of 
this. Clearly, we want to develop this resource. It is there. 
It is needed. It is going to help in a lot of ways.
    But clearly, we want to make sure that we do it in an 
appropriate way because now--it has not been developed. And now 
that we are focusing on it, we have a much better chance to 
develop it the correct way and not with the consequences of, 
you know, other resource developments where the cost has been 
passed on to taxpayers and Montanans after the benefits have 
left and gone somewhere else. We have an opportunity here to 
make sure this is done the right way.
    And I just urge all of us to do that. Because if we do not, 
we are going to pay the price in lots of ways. One is going to 
be delay. One is going to be less development, and another 
consequence will be environmental degradation potentially. It 
is kind of exciting actually. And it is my thought that we 
should--Mr. Chairman, we should have follow-up hearings on this 
subject just to kind of see how it is going along, see what new 
technology is involved, new ideas involved and so forth. So 
this is just a good, solid way.
    Senator Burns. Well, there will be another hearing. It 
might be in Washington, D.C., when we start down this road of 
appropriating money.
    Senator Baucus. Would not be a bad idea to have one here, 
too, I think, in some capacity, in some way, because I think 
that will be helpful.
    Senator Burns. We will look into that. We will see if we 
got money to do it. The chief deputy says we have to cut back.
    That is just about all the questions. I want to invite the 
press that has been here today to--they can visit with the 
individuals. And there will be some more questions, and I will 
guarantee you, from the rest of the committee. And they will 
probably come in the mail. If you would respond to both me and 
the committee members, why, we will make sure that this--this 
testimony will be made part of the committee record and as we 
move forward.
    But I will tell you that I was struck in Las Vegas about a 
month ago--I was there when I spoke to the consumer electronics 
folks. I picked up a Los Angeles Times and a headline on the 
front page on Sunday morning out of the Los Angeles Times says 
Californians do not believe that we have an energy shortage. 
And I just thought--I just thought somebody has got a 
credibility problem. And we know that the crisis is real, and 
yet we have those folks who want to keep on limiting our 
methods of producing energy.
    We still have people who are--who want to breach dams. We 
have people who want to continue to block our way to process 
high-level nuclear waste so that we can get on with powering 
our ships and our national defense and, yes, our--in some 
cases, our nuclear situation in producing power.
    As you know, California--you may not know this. California 
has one--I think it is a 1,200 megawatt plant that has never 
cranked out one spark of electricity and was shut down by the 
vote of the people, by referendum. And yet, they come to us and 
say, well, we want to use your power out of the Northwest 
because we are running out of power in California.
    So the crisis is real. There is a shortage. And we must use 
every resource we have, which includes solar and wind. And 
there can be nothing left out of the energy mix to produce the 
amount of energy it takes to power what I believe is an 
empowering economy.
    So thank you for--we want to thank all of the witnesses for 
coming today. I want to thank Senator Baucus for stopping by 
and adding his insight to this, as his committees and 
especially EPW. He sits on that committee also. It will be 
very, very important under other forms of industry.
    So this has been a good hearing. And I appreciate everybody 
making the effort to get here.

                     Additional committee questions

    Thank you very much. There will be some additional 
questions which will be submitted for your response in the 
record.
    [The following questions were not asked at the hearing, but 
were submitted to the Department of Energy for response 
subsequent to the hearing:]

              Questions Submitted by Senator Conrad Burns

           minimizing environment impact from coalbed methane
    Question. Mr. Hochheiser, thank you for joining us today to learn 
more about the potential for development in the Power River Region and 
some of the challenges we face. Can you assure me that the Department 
of Energy will be willing to help us look for ways to minimize the 
environmental impacts from coalbed methane development?
    Answer. Yes, the Department of Energy (DOE) is willing to help with 
research and analysis within the constraints of the program budget. 
DOE's office of Fossil Energy is already working in this area. We have 
recently awarded a contract to Arthur Langhus Lane to examine current 
environmental concerns and coalbed methane (CBM) production practices 
in the Montana portion of the Powder River Basin, and to investigate 
how recent advances in geographic information systems technology can be 
applied as mitigation aids. As part of this project, they will define 
best management practices and mitigation strategies for specific state 
regions and environmental settings. DOE is also funding two CBM ground 
water monitoring projects with the Bureau of Land Management in 
Colorado and Wyoming. In addition, our research on a variety of 
produced water treatment and disposal technologies may be useful in 
minimizing the environmental impacts of CBM development.
                         TECHNOLOGY INVESTMENTS
    Question. From your position in the Department of Energy, you have 
a clear understanding of natural gas needs in this country. Currently, 
gas prices are at an record high in much of the country, but it is 
expected they will rest at a more reasonable level. What words of 
caution might you be able to offer regarding investing too heavily in 
new technology during boom periods? Should we be concerned with 
industry investing too much on some technologies, water filtration for 
example, that may not pay off when gas prices stabilize?
    Answer. Industry should be able to invest in the necessary 
technologies and still make a profit once gas prices stabilize at 
levels currently projected by the Energy Information Administration and 
others. Industry participants can also avail themselves of financial 
instruments to hedge their exposure to price changes, and thus reduce 
their risk. Industry will have to comply with Federal and state 
regulatory requirements in disposing of their waste streams. Companies 
will have to make the necessary investment, but they have a variety of 
treatment and disposal options. DOE can help. DOE's Oil and Gas 
Environmental Research Program helps develop compliance technologies 
that are more cost-effective while improving environmental performance. 
The program can also help analyze options to find the lowest-cost 
compliance method for a given situation. The Arthur Langhus Lane 
project will provide data and tools for this kind of analysis.

                         CONCLUSION OF HEARING

    Senator Burns. Thank you all very much for being here, that 
concludes our hearing. The subcommittee will stand in recess 
subject to the call of the Chair.
    [Whereupon, at 12:18 p.m., Saturday, March 10, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

                                   -
```