[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
 OVERSIGHT HEARING ON THE PRESIDENT'S FISCAL YEAR 1999 BUDGET REQUEST 
                              FOR AGENCIES

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

                           OVERSIGHT HEARING

                               before the

                         SUBCOMMITTEE ON ENERGY
                         AND MINERAL RESOURCES

                                 of the

                         COMMITTEE ON RESOURCES
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                                   on

THE PRESIDENT'S FISCAL YEAR 1999 BUDGET REQUEST FOR AGENCIES WITHIN THE 
    DEPARTMENT OF THE INTERIOR: OFFICE OF SURFACE MINING, MINERALS 
MANAGEMENT SERVICE, AND THE ENERGY & MINERALS PROGRAMS OF THE BUREAU OF 
                            LAND MANAGEMENT

                               __________

                   FEBRUARY 26, 1998, WASHINGTON, DC

                               __________

                           Serial No. 105-74

                               __________

           Printed for the use of the Committee on Resources

                               -----------

                    U.S. GOVERNMENT PRINTING OFFICE
47-602 cc                   WASHINGTON : 1998





                         COMMITTEE ON RESOURCES

                      DON YOUNG, Alaska, Chairman
W.J. (BILLY) TAUZIN, Louisiana       GEORGE MILLER, California
JAMES V. HANSEN, Utah                EDWARD J. MARKEY, Massachusetts
JIM SAXTON, New Jersey               NICK J. RAHALL II, West Virginia
ELTON GALLEGLY, California           BRUCE F. VENTO, Minnesota
JOHN J. DUNCAN, Jr., Tennessee       DALE E. KILDEE, Michigan
JOEL HEFLEY, Colorado                PETER A. DeFAZIO, Oregon
JOHN T. DOOLITTLE, California        ENI F.H. FALEOMAVAEGA, American 
WAYNE T. GILCHREST, Maryland             Samoa
KEN CALVERT, California              NEIL ABERCROMBIE, Hawaii
RICHARD W. POMBO, California         SOLOMON P. ORTIZ, Texas
BARBARA CUBIN, Wyoming               OWEN B. PICKETT, Virginia
HELEN CHENOWETH, Idaho               FRANK PALLONE, Jr., New Jersey
LINDA SMITH, Washington              CALVIN M. DOOLEY, California
GEORGE P. RADANOVICH, California     CARLOS A. ROMERO-BARCELO, Puerto 
WALTER B. JONES, Jr., North              Rico
    Carolina                         MAURICE D. HINCHEY, New York
WILLIAM M. (MAC) THORNBERRY, Texas   ROBERT A. UNDERWOOD, Guam
JOHN SHADEGG, Arizona                SAM FARR, California
JOHN E. ENSIGN, Nevada               PATRICK J. KENNEDY, Rhode Island
ROBERT F. SMITH, Oregon              ADAM SMITH, Washington
CHRIS CANNON, Utah                   WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   CHRIS JOHN, Louisiana
JOHN PETERSON, Pennsylvania          DONNA CHRISTIAN-GREEN, Virgin 
RICK HILL, Montana                       Islands
BOB SCHAFFER, Colorado               RON KIND, Wisconsin
JIM GIBBONS, Nevada                  LLOYD DOGGETT, Texas
MICHAEL D. CRAPO, Idaho

                     Lloyd A. Jones, Chief of Staff
                   Elizabeth Megginson, Chief Counsel
              Christine Kennedy, Chief Clerk/Administrator
                John Lawrence, Democratic Staff Director
                                 ------                                

              Subcommittee on Energy and Mineral Resources

                    BARBARA CUBIN, Wyoming, Chairman
W.J. (BILLY) TAUZIN, Louisiana       CARLOS ROMERO-BARCELO, Puerto Rico
JOHN L. DUNCAN, Jr., Tennessee       NICK J. RAHALL II, West Virginia
KEN CALVERT, California              SOLOMON P. ORTIZ, Texas
WILLIAM M. (MAC) THORNBERRY, Texas   CALVIN M. DOOLEY, California
CHRIS CANNON, Utah                   CHRIS JOHN, Louisiana
KEVIN BRADY, Texas                   DONNA CHRISTIAN-GREEN, Virgin 
JIM GIBBONS, Nevada                      Islands
                                     ------ ------
                      Bill Condit, Staff Director
                   Michael Henry, Professional Staff
                  Deborah Lanzone, Professional Staff
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held February 26, 1998...................................     1

Statements of Members:
    Cubin, Hon. Barbara, a Representative in Congress from the 
      State of Wyoming...........................................     1
    Romero-Barcelo, Hon. Carlos A., a Delegate in Congress from 
      the State of Peurto Rico, prepared statement of............     3

Statements of witnesses:
    Fry, Tom, Director, Bureau of Land Management, U.S. 
      Department of the Interior.................................    11
        Prepared statement of....................................    20
    Karpan, Kathy, Director, Office of Surface Mining and 
      Reclamation and Enforcement, U.S. Department of Interior...     7
        Prepared statement of....................................    22
    Quarterman, Cynthia, Director, Minerals Management Service, 
      U.S. Department of the Interior............................     8
        Prepared statement of....................................    31

Additional material supplied:
    OCS Report, MMS98-0013, Gulf of Mexico Outer Continental 
      Shelf......................................................    52


 OVERSIGHT HEARING ON THE PRESIDENT'S FISCAL YEAR 1999 BUDGET REQUEST 
 FOR AGENCIES WITHIN THE DEPARTMENT OF THE INTERIOR: OFFICE OF SURFACE 
MINING, MINERALS MANAGEMENT SERVICE, AND THE ENERGY & MINERALS PROGRAMS 
                    OF THE BUREAU OF LAND MANAGEMENT

                              ----------                              


                      THURSDAY, FEBRUARY 26, 1998

        House of Representatives, Subcommittee on Energy 
            and Mineral Resources, Committee on Resources, 
            Washington, DC.
    The Subcommittee met, pursuant to notice, at 2 p.m., in 
room 1334, Longworth House Office Building, Hon. Barbara Cubin 
(Chairman of the Subcommittee) presiding.
    Members present: Representatives Calvert, Romero-Barcelo, 
Rahall, and Christian-Green.

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

    Mrs. Cubin. [presiding] The Subcommittee on Mineral 
Resources will come to order.
    The Subcommittee is meeting today to hear testimony on the 
administration's fiscal year 1999 budget request for three 
Interior Department agencies within our jurisdiction. These are 
the Minerals Management Service, the Bureau of Land 
Management's Energy & Minerals programs, and the Office of 
Surface Mining, Reclamation & Enforcement. Under rule 4(g) of 
the Committee rules, any oral opening statements are limited to 
the Chairman and the Ranking Minority Member. I mean like I'm 
worried that all these people that are here are going to take--
[Laughter.]--a lot of time. This will allow us to hear from our 
witnesses sooner and help members to keep their schedules.
    The bureaus before us today serve primarily in a regulatory 
role, overseeing environmentally sound exploration of and 
development of federally owned mineral rights and ensuring the 
revenues therefrom are collected and distributed properly. 
Unique among the Subcommittee's purview is the Office of 
Surface Mining, which administers the Surface Mining Control 
and Reclamation Act of 1997--excuse me, 1977--governing the 
manner in which all coal deposits are mined in this country, 
public or private, from the standpoint of surface impacts of 
strip mining or underground mining.
    Today, I am pleased to have before us Ms. Kathy Karpan, of 
Rock Springs, Wyoming, who was confirmed by the Senate last 
September as the Director of OSM. This is the first opportunity 
that Ms. Karpan has had to testify before the Subcommittee, 
and, being a fellow cowgirl or cowboy from the ``Cowboy 
State,'' I really welcome you. I'm glad you're here, and I 
really look forward to working with you. I think we'll have a 
long and workable and beneficial relationship. So, welcome.
    Ms. Karpan. Thank you.
    Mrs. Cubin. You want to tell a little bit more about you?
    [Laughter.]
    Ms. Karpan. Well, it depends.
    Mrs. Cubin. It's nice.
    [Laughter.]
    Ms. Karpan is the daughter of a Wyoming coal miner, and so 
I think it's really appropriate that she should be in this job. 
I think that as she--will have some insight into coal mining 
that maybe other people wouldn't have, having lived in the 
circumstances that surround coal mining most all of her life.
    Under her, guidance--oh, by the way, Ms. Karpan has 
received praise from all sides of all the issues in the 5 
months that she has been here. I have heard compliments on her 
management skills and her skills just in general.
    Under her guidance, OSM is making good faith efforts to 
involve the States, industry, and coal field residents alike in 
seeking solutions to issues that have spawned tons of 
litigation in the past. And that, in itself, is truly wonderful 
and quite remarkable. Thank you, Director Karpan, for these 
efforts, and I know that you'll keep up the good work.
    Ms. Karpan. Thank you, Madam Chair.
    Mrs. Cubin. The Minerals Management Service administers 
Federal leases for energy and mineral resources on the outer 
continental shelf of the United States, and collects mineral 
royalty payments for onshore Federal and Indian leases as well 
as offshore. It's an important job collecting $6 billion of 
mineral revenues each year, as well as managing booming 
development in the Gulf of Mexico, which generates a large 
fraction of those moneys for the treasury. Ms. Cynthia 
Quarterman--and I just called her Emily because there was a 
reporter on the Casper Star Tribune staff that was called Emily 
Quarterman, and so excuse me for just calling you Emily. I knew 
you were Cynthia.
    Ms. Cynthia Quarterman, Director of MMS, will testify today 
as to her agency's budget needs.
    The Bureau of Land Management Energy and Minerals programs 
also fall under our Subcommittee's oversight. The BLM, among 
other jobs, administers the laws governing the disposition of 
energy and mineral resources from our public domain lands and 
reserved Federal mineral estates, including the Mineral Leasing 
Act of 1920 and the Mining Law of 1872.
    In my State and in much of the West, the BLM manages vast 
tracts of public land and the subsurface of split-estates. If 
you want to explore for and develop oil, gas, coal, trona, or 
uranium or other hard rock minerals, you simply have to deal 
with the BLM. It's an agency from which there is no escape. Mr. 
Tom Fry, Deputy Director----
    [Laughter.]
    Mrs. Cubin. I know. That's a good one, isn't it?
    Mr. Tom Fry, Deputy Director of BLM, will testify as to his 
program's needs for the coming fiscal year.
    I welcome both Ms. Quarterman and Mr. Fry, neither of whom 
is a Wyoming native to my knowledge, but who, I trust, are 
prepared to work with this Subcommittee nonetheless.
    Now the Chair will recognize Mr. Rahall for any statement 
that he might have.
    Ms. Rahall. Thank you, Madam Chair. I do ask unanimous 
consent that the Ranking Minority Member, Mr. Romero-Barcelo's 
comments be made part of the record.
    Mrs. Cubin. Without objection.
    [The statement of Mr. Romero-Barcelo follows:]

 Statement of Hon. Carlos Romero-Barcelo, a Representative in Congress 
                   from the Territory of Puerto Rico

    Madame Chair, I am pleased to join you in welcoming our 
three witnesses from the Department of the Interior to discuss 
the Administration's requests for fiscal year 1999 funding for 
the Bureau of Land Management's energy and minerals program, 
the Minerals Management Service, and the Office of Surface 
Mining.
    President Clinton has proposed a balanced budget for 1999, 
3 years earlier than agreed to in last year's Bipartisan Budget 
Agreement. Within the framework of a balanced budget, the 
Administration has protected the basic operating programs for 
the programs for which we have oversight duties. The OSM 
request is $277 million; the MMS request is approximately 
$222.5 million, and the BLM energy and minerals request is 
approximately $72 million, including the Alaska minerals 
account.
    Underlying these requests are several key policy matters 
that this Subcommittee has a duty to consider.
    The Outer Continental Shelf oil and gas leasing program 
raises a great deal of revenue--on average, about $4 billion 
each year--and I note that this program raised $6.2 billion 
last year, largely due to increased activity in the Gulf of 
Mexico. In fact, MMS is requesting a $7.5 million supplemental 
appropriation to accommodate this increased activity which I 
believe we should support.
    It is worth noting that of the royalties collected, MMS 
distributed more than $617 million to 36 states during 1997, 
more than in any previous year. This amount is $89 million more 
than in 1996, and $144 million more than in 1995. The money 
represents the states' cumulative share of revenues collected 
for mineral production on Federal lands located within their 
borders and from Federal offshore oil and gas tracts adjacent 
to their shores.
    The MMS request is about $13.9 million above the 1998 
enacted level. This request is modest compared to the revenue 
return MMS will generate.
    As part of its request, BLM proposes permanent extension of 
the $100 holding fee currently charged basis individuals who 
stake and hold Federal land under the 1872 Mining Law. These 
funds are used to offset the costs of running the mining law 
program. The authority for the fee is scheduled to expire in 
1998. We should support the President's proposal to permanently 
extend the $100 holding fee and $25 recordation fee.
    As part of its budget request, OSM is requesting an 
additional $2 million for its Clean Streams Initiative and 
$100,000 for its Western Lands Initiative as part of the 
President's Clean Water Initiative. These funds, raised through 
fees on coal mining, will be used along with an additional 
$168.6 million--with $143.3 million going directly to coalfield 
States--to clean up abandoned mine sites. Our colleague, 
Congressman Rahall believes additional funds should be made 
available for this purpose. I ask unanimous consent that his 
letter to Appropriations Subcommittee Chairman Regula be 
included in today's hearing record.
    All in all, these budgets appear to be reasonable. I look 
forward to hearing the testimony of our witnesses.

    Mr. Rahall. Thank you.
    While I recognize that all of the budgets that are under 
consideration during today's hearings are important, I would 
like to focus my comments on one particular aspect of today's 
hearings.
    Like many Americans, I'm growing increasingly concerned 
with the failure of our Federal Government to keep the faith 
with taxpayers when it comes to the trust funds we've 
established on the books of the Treasury. And before I proceed, 
I'll be glad to yield to the Ranking Minority Member if he 
wishes to make his statement himself.
    OK.
    What I'm referring to, Madam Chair and my colleagues, is 
when people go to the gas pumps and they fill up their 
vehicles, when those dials continue to spin in front of us, 
we're paying taxes into the Highway Trust Fund. And we expect 
that money to be returned in the form of improved bridges and 
highways. Yet, today over $24 billion is being held hostage in 
the Highway Trust Fund.
    And we have a very similar situation when the coal industry 
pays a fee on every ton of mined coal into the Abandoned Mine 
Reclamation Fund. Coalfield citizens expect that money to be 
returned to than in the form of environmental restoration work. 
Yet today, there's about $1.5 billion sitting idle here in 
Washington in that fund, and it's used by the OMB and 
congressional budgeteers to mask the true size our Federal 
deficit.
    Meanwhile, throughout the coalfields of the United States, 
there's an unfunded inventory of over $2.4 billion worth of 
high-priority threats to the health, safety, and general 
welfare of our coalfield citizens. Annually, we receive about 
$266 million from reclamation fee collections. Yet, during the 
1990's, appropriations for the AML State Grants program have 
averaged only about $140 million a year.
    Both Republican and Democratic administrations have failed 
to keep faith with the promise that we made in 1977 when we 
enacted SMCRA, which established the AML program.
    I believe it is incumbent upon us, as Members of Congress, 
to rectify this situation. In this regard, I am pleased to note 
that the Associated General Contractors of America have joined 
with such groups as the United Mine Workers and the Citizens 
Coal Council in support of my ``Coal Field Jobs Environmental 
Justice and Trust'' campaign. What we are seeking is a minimum 
$200 million State AML grant appropriation.
    We're doing so because every $1 million spent under this 
program creates jobs, jobs, jobs--to the tune of 17 direct 
construction jobs, 14 off-site, and 28 ancillary jobs in areas 
where unemployment levels often exceed the national average. 
We're doing so because of the pressing need for environmental 
justice in our coalfields, to address the pressing threats to 
the health, safety, and welfare of the citizens caused by 
abandoned mine sites.
    And we're doing so to restore trust--trust--to the 
Abandoned Mine Reclamation Fund so that we can better fulfill 
the promise that we made to our coalfield citizens with the 
enactment of SMCRA more than 20 years ago.
    So, in conclusion, perhaps one day some administration will 
see the error of its ways. Perhaps some day, some 
administration will conclude that allowing millions of dollars 
worth of interest to accrue to unappropriated trust fund 
balances is not a physically responsible way of doing business. 
Rather, I hope some day, some administration will realize that 
spending those moneys for their intended purposes would much 
better meet the public good.
    The administration, as reflected by its budget 
recommendations for AML, has failed to come to this 
realization. So, I conclude by saying: set these trust funds 
free.
    Thank you, Madam Chair.
    Mrs. Cubin. Certainly. Mr. Barcelo did you want to give 
your remarks orally?
    Mr. Romero-Barcelo. Thank you. Thank you, Madam Chair.
    And Madam Chair, I am pleased to join you in welcoming our 
three witnesses from the Department of the Interior to discuss 
the administration's request for the fiscal year 1999 funding 
for the Bureau of Land Management Energy and Mineral Program, 
and the Minerals Management Service, and the Office of Surface 
Mining.
    President Clinton has proposed a balanced budget for 1999, 
and 3 years earlier than agreed in last year's bipartisan 
budget agreement. And within the framework of a balanced 
budget, the administration has protected the basic operating 
programs for the programs for which we have oversight duties. 
And the OSM request is $277 million; the MMS request is 
approximately $222.5 million; and the BLM Energy and Mineral 
request is approximately $72 million, including the Alaska 
minerals account.
    Underlying these requests are several--policy--key policy 
matters that this Subcommittee has a duty to consider. The 
Outer Continental Shelf and Oil and Gas Leasing program raises 
a great deal of revenue, on average about $4 billion each year, 
and I note that this program raised $6.2 billion last year, 
largely due to the increased activity in the Gulf of Mexico. In 
fact, the MLS is requesting a $7.5 million supplemental 
appropriation to accommodate this increased activity, which I 
believe we should support. And it is worth noting that of the 
royalties collected, MLS has distributed more than $617 million 
to 36 states during 1997, more than in any previous year. The 
amount is $89 million more than in 1996 and $144 million more 
than in 1995. And the money represents the States' cumulative 
share of revenues collected for mineral production on Federal 
lands located within their borders and from Federal offshore 
oil and gas tracts adjacent to their shores.
    The MMS request is about $13.9 million above the 1998 
enacted level, and this request is modest compared to the 
revenue return MMS schools generate. And as part of this 
request, BLM proposes permanent extension of the $100 holding 
fee requested currently charged basis individuals who stake and 
hold Federal land under the 1872 mining law. And these funds 
are used to offset the costs of running the mining law program, 
and the authority for the fee is scheduled to expire in 1998.
    We should support the President's proposals to permanently 
extend the $100 holding fee and the $25 recordation fee. And as 
part of its budget request, OSM is requesting an additional $2 
million for its clean streams initiative and $100,000 for its 
western land initiative, as part of the President's clean water 
initiative.
    These funds, raised through fees on coal mining, will be 
used along with an additional $168.6 million, with $143.3 
million going directly to coal fields States to clean up 
abandoned mine sites. And our colleague, Congressman Rahall, 
believes additional funds should be made available for this 
purpose. And I ask unanimous consent that this letter to 
Appropriations Subcommittee Chairman Regula be included in 
today's hearing record. And I point out that these budgets 
appear to be reasonable, and I look forward to hearing the 
testimony of our witnesses.
    Thank you, Madam Chair. I would like to submit for the 
record.
    Mrs. Cubin. Thank you, Mr. Barcelo.
    Now, I would ask, before you begin your testimony--that--
ask the witnesses to stand and raise your right hand to be 
sworn. We do this routinely on this Subcommittee; it is 
absolutely nothing personal.
    [Witnesses sworn.]
    Mrs. Cubin. Thank you.
    Welcome to the hearing, Mrs. Green. Did you have an opening 
statement or would you like submit something for the record. Or 
whatever you'd like----
    Ms. Christian-Green. I do have a brief opening statement.
    Mrs. Cubin. Go right ahead.
    Ms. Christian-Green. Thank you, Madam Chairman, and good 
afternoon. Welcome to the panelists and my colleagues on the 
Subcommittee. I am pleased to be here at this the first meeting 
of the Subcommittee for 1998--and--to discuss the 
administration's fiscal year 1999 budget request.
    While I am pleased to welcome all the witnesses who are 
here today, I am especially pleased to welcome back Ms. 
Quarterman, who I believe is making her third appearance before 
us. It's good to see you again.
    Based on the statements that you have submitted to us, it 
appears that there are quite a lot of good things going on at 
the various agencies. I notice that the Mineral Management 
Services is requesting $14 million more than was appropriated 
last year, and the Office of Surface Mining is asking for a 
$3.9 million increase. These, I might add, are modest increases 
when compared to the level of revenue that all or your agencies 
generate for the Federal Government. In fact, I almost wished 
that, when I read that most of the money appropriated to us is 
passed to the States and tribes in the form of grants, if we 
had a few mines in my district in the Virgin Islands--
[Laughter.]--and go home and look for some.
    I am also pleased to see, though, that even as the 
President was able to submit a balanced budget to Congress this 
year, the funding levels for your various important programs 
were protected. And so, I look forward to hearing your 
testimony today and working with you to ensure that you are 
given the resources that you need to complete your various 
missions.
    Thanks. Thank you, Madam Chair.
    Mrs. Cubin. Thank you.
    Let me remind the witnesses that, under our Committee 
rules--I think in the letter it said we would give you 10 
minutes for your testimony, and so we'll ask you to stick to 
that if you can. And so the Chair now recognizes Ms. Karpan.

 STATEMENT OF KATHY KARPAN, DIRECTOR, OFFICE OF SURFACE MINING 
  AND RECLAMATION AND ENFORCEMENT, U.S. DEPARTMENT OF INTERIOR

    Ms. Karpan. Thank you very much, Chairman Cubin.
    I'll try not to even consume half that in the interest of 
attracting some questions. As Yogi Berra used to say, ``this is 
deja vu all over again,'' since in a former life for both of us 
I, from time to time, worked with then State representative 
Cubin, when I was Secretary of State in Wyoming. And I enjoyed 
that working relationship, and I think some very good laws came 
out of it. And I have respected and admired you, and I'm 
delighted that we can be working together. And I thank you for 
the nice reception you've given me and the kind comments you've 
passed along, and in being generous in not passing along those 
that might not be kind.
    Yes, I am the daughter of a coal miner. In fact, the--
minority--Ranking Minority Member might be interested to know 
that my grandparents emigrated to this country from what was 
then the Austro-Hungarian Empire and came here to mine coal--
both my grandfathers: one to Iowa and one to Wyoming. And my 
father moved from Iowa to Wyoming in 1938 to work in the old 
Dale Clark mine, which was a huge mine for the Union Pacific. 
And I, in fact, grew up in a neighborhood that was called No. 
4, for No. 4 mine of the Union Pacific. And it was a 
neighborhood that was filled with immigrants and filled with 
hard work and high hopes. And when people turned 40, the women 
all started wearing clothes that were black. And when their 
hair got gray, the men and women alike, we all thought spoke a 
different language because, in our neighborhood, none of the 
older people spoke English. So, I grew up in a community where 
coal meant so much, and I've appreciated ever since then the 
tremendous contribution that industry makes to our national 
security and to our economy.
    But I also grew up in a community that has struggled with 
the subsidence problem for 20 years. And it was my good fortune 
for then-Congressman Teno Roncaglio, one of your distinguished 
predecessors, Madam Chairman, and worked 6 years in this 
building, including a few years while he was struggling with 
the language in SMCRA. I wasn't here at the time it was passed, 
but I recall the circumstances that led to its enactment. And, 
as irony would have it, it was 26 years ago today that the 
Buffalo Creek disaster destroyed the lives of 125 people and 
helped provide the impetus for the enactment of the law.
    By coincidence, too, I just missed being sworn in on the 
20th anniversary of SMCRA. I was sworn in on August 1, and so I 
bring the zeal of someone who's new to the job, and even a 
little bit of sentimentality.
    I that time, I have traveled to every one of our regions--
visited a lot of field offices. I've been to the coal fields, 
met with citizen groups. And while I can appreciate some of the 
difficulties our agency went through in the last few years, I 
think I can report to the Subcommittee confidently that this is 
a stronger and better agency today. We are on a very stable 
course now. As a member observed, we are only seeking under a 
$4 million increase, so we are staying at a fairly constant 
level. And we're working to improve every area of our work, 
noting in particular, Madam Chair, the relationship with the 
States. I think I bring to this position, as a former elected 
State official, a particular sensitivity to the importance of 
our working hand in hand with the regulatory authorities who 
have primacy under the statute.
    So, I thank you for this opportunity. I believe our budget 
is pretty straightforward, but I know that we have many 
activities we engage in that might interest you, so I would 
welcome your questions and comments. And if I can't answer 
them, we'll be sure to provide a written answer. I would ask 
that the letter that I submitted be included as part of the 
record.
    And with that, I would thank the Chair.
    [The prepared statement of Ms. Karpan may be found at end 
of hearing.]
    Mrs. Cubin. Thank you for your testimony. The Chair now 
recognizes Ms. Quarterman.

STATEMENT OF CYNTHIA QUARTERMAN, DIRECTOR, MINERALS MANAGEMENT 
            SERVICE, U.S. DEPARTMENT OF THE INTERIOR

    Ms. Quarterman. Madam Chairwoman and members of the 
Subcommittee, I appreciate the opportunity to come to speak 
with you today and discuss the Minerals Management Service 
fiscal year 1999 budget request. I'll limit my opening remarks 
to an overview of our budget request. However, my written 
testimony provides substantially more detail on our activities 
and the reasons we are asking for this request.
    As you have no doubt heard me say before, MMS is an agency 
that's constantly changing and evolving, due, in part, to many 
external forces, but also due to our desire to do our job 
better. I believe that we have made significant strides, and my 
testimony before this Subcommittee over the years has 
highlighted our progress on many fronts. However, there are 
still substantial challenges that we must meet if we are to 
continue to successfully accomplish our mission.
    Our budget requests for fiscal year 1999 reflects that 
fact. For example, in our Offshore Minerals Management program 
we are addressing a range of issues associated with the huge 
resurgence in oil and gas interest in the Gulf of Mexico, 
particularly the deep water gulf, including critical 
technological, safety, and environmental issues. We are 
continuing to focus our efforts on appropriately managing oil 
and gas activities offshore California and Alaska. We are also 
attempting to address the dramatic increase in State interest 
in using OCS sand and gravel resources and requests from other 
nations to assist them on mineral leasing regulation and 
revenue collection. And we're looking at ways to streamline the 
offshore program.
    Within the Royalty Management program, we are reengineering 
our current processes and systems to develop the most cost 
effective operations, to ensure that revenues are paid on time 
and accurately. We are revising our evaluation regulations to 
respond flexibly to market conditions while ensuring a fair 
return on the public's resources. And we are looking to 
alternatives to taking royalties and value and are planning to 
conduct pilots to determine the best way to take oil in-kind.
    With those remarks as an introduction, I will now highlight 
our fiscal year 1999 request.
    Overall, in 1999, MMS is asking for $222.5 million to carry 
out its responsibilities. That amount is $13.9 million more 
than our current fiscal year 1998 enacted level. It is 
predicated on receiving a supplemental increase in fiscal year 
1998 of $6.7 million, and reflects significant investments in 
both the offshore and royalty programs. It is important to note 
that our request for appropriated dollars is actually 
decreasing. Our fiscal year 1996 request is about $15.1 million 
less than our fiscal year 1998 enacted level, and that is due 
to programmatic reductions of almost $4 million and an 
expansion of our authority to retain a portion of OCS rental 
receipts, from $65 million to $94 million. In short, our 
proposed fiscal year 1999 increase is more than offset by 
raising the cap on these collections.
    The investments that we are proposing in fiscal year 1999 
will be directed to two primary areas. One is supporting 
workload increases in the Gulf of Mexico, and the other to 
reengineering the Royalty Management program.
    I will summarize our planned investments to this point, but 
I would like to submit for the record two white papers that we 
have developed which detail the rationale for these proposed 
increases.
    With respect to the offshore program, the administration 
recently sent a fiscal year 1998 supplemental budget request to 
Congress. In it, we are asking for an additional $6.7 million 
to carry out our significantly increased responsibilities in 
the deep water Gulf of Mexico. This is the first time that we 
have come to the Committee with a proposed supplemental budget 
request to handle our ongoing workload. Surging activities in 
the Gulf have surpassed even our most bullish predictions at 
the time we formulated our fiscal year 1998 budget request, and 
now they threaten our ability to perform our regulatory 
responsibilities. Without the staff and resources to support 
and oversee increased activity, the benefits of more 
domestically produced energy resources, royalty revenues, and 
employment opportunities--may be--may not be realized.
    I just want to illustrate for you some of the things that 
have happened in the past year in the Gulf of Mexico.
    In 1996 and 1997, we had four record Gulf of Mexico sales 
in a row. Bonuses totaled $2.4 billion. That's three times more 
than we received in the previous 4 years. In less than 3 years, 
existing leases have increased from 5,000 to over 7,600. Almost 
half of those are in greater than a thousand feet of water. 
This past year, for the first time, the majority of tracts that 
we leased were in more than 2,400 feet of water. Last year, we 
received a record 11 deep water discoveries--were announced. 
And this year, we expect a record nine projects in deep water 
to go online. Last year, there were four deep water world 
records set in the Gulf of Mexico.
    In 1997, the Gulf Regional office received 849 plans to 
process. That's a 95 percent increase from the past 4 years. I 
could go on and on.
    This increased production is estimated to bring in an 
additional $700 million on royalties to the treasury. These 
statistics underscore why our workload has increased so quickly 
and dramatically and why we critically need the additional 
moneys. If we cannot continue to perform our responsibilities 
in a timely manner, then at the very least the Federal 
Government will not receive the significant revenues that have 
been generated from OCS activity in a timely manner; and 
industry will incur expensive downtime. It's also very critical 
that we ensure that industry maintains an excellent safety and 
environmental record. A serious accident in the Gulf of Mexico 
would undermine the public's confidence in the entire program 
and jeopardize all of these benefits.
    I firmly believe that the $6.7 million we are requesting in 
supplemental funding will be an excellent investment in the 
nation's energy and economic future.
    Now as the to Royalty Management program: MMS's top 
priority in the new millennium is to reengineer its royalty 
management program. We are requesting $5 million to begin this 
effort. The first question, you may ask, is, ``in particularly 
in these tight budget times, why is this initiative 
necessary.'' The answer is straightforward.
    First, the current software required to support the myriad 
Royalty Management program functions is based on programs that 
are over 15 years old, and had exceeded their--life 
acceptance--life cycle standard. These systems, if not 
upgraded, present a major risk for MMS and its customers.
    Second, implementing the Royalty Simplification and 
Fairness Act has been particularly difficult for us. State 
delegation provisions of the Act will not be able to 
effectively be accommodated with our current royalty systems.
    Finally, there are numerous other factors that are 
influential in pursuing this initiative, including changing 
energy markets, meeting customer demands, the recommendations 
of our Royalty Policy Committee, best practices that we've 
observed in State programs, inspector general reports calling 
for greater operational efficiency, and Federal downsizing, to 
name only a few.
    Given all of these things, we concluded that the status quo 
which, as you know, includes significant improvements on the 
margin was not acceptable strategy for the future. Our 
reengineering effort will rethink our current operations by 
focusing on royalty management from a process rather than a 
functional perspective. And it's goal is to provide better 
service at less cost.
    In developing our new core business processes, we have been 
guided by two goals. The first is to ensure compliance with all 
relevant laws for all leases in the shortest time possible, but 
no longer than 3 years from the due date. That's less than half 
the current time. And providing revenue recipients with access 
to their money in 24 hours rather than 30 days, as is the 
current standard. These are lofty goals, but ones that we think 
that we can achieve.
    While the reengineering effort will require an up front 
cost, we expect that the moneys expended will be a good 
investment, with a return in no more than 2 years. At the end 
of the process, we will have a program that is highly 
integrated, process centered, focused on outcomes, less costly, 
and viewed by our customers and others as the best in the 
business.
    Madam Chairwoman, that concludes my opening remarks.
    [The prepared statement of Ms. Quarterman may be found at 
end of hearing.]
    Mrs. Cubin. Thank you very much.
    Mr. Fry is recognized.

STATEMENT OF TOM FRY, DIRECTOR, BUREAU OF LAND MANAGEMENT, U.S. 
                   DEPARTMENT OF THE INTERIOR

    Mr. Fry. Thank you, Madam Chairman.
    It's a pleasure to be here to participate with this 
distinguished panel before this Subcommittee.
    Madam Chairman, let me say that I have been to Wyoming, and 
I've never had to escape from Wyoming, nor from Puerto Rico or 
the Virgin Islands or California.
    [Laughter.]
    Mr. Fry. So, so far, my history is pretty good.
    It is a pleasure to be here with you today and talk to you 
about some of the programs--the MM, excuse me--the Bureau of 
Land Management is involved in.
    The President's fiscal budget for fiscal year 1999 has a 
request for approximately $1.2 billion for the BLM. This level 
of funding includes moneys for operation of the bureau, payment 
in lieu of taxes, firefighting activities, and the central 
hazardous materials management for the Department of the 
Interior.
    Of that total budget, approximately $71 million is for 
energy and mineral activity, and $33 million is intended as a 
one-time appropriation for mining law administration. As this 
Committee is undoubtedly aware, the public lands produce about 
33 percent of the nation's coal, 10 percent of its natural gas, 
and 5 percent of its oil. At the end of 1997, more than 46,000 
leases existed on Federal lands covering about 37,000,000 
acres. And about 20,000 of those leases were in producing 
status, with more than 63,000 producing wells on public land. 
This figure is up nearly 30 percent since 1985, while natural 
gas production has increased over 60 percent in the last 10 
years. We expect in 1998 for royalties from the Federal lands 
to exceed $785 million.
    There are couple of initiatives that I would just like to 
point out to you that are very important to our new director 
who was confirmed this year with director Karpan. Pat Shea has 
said that he has a couple of things that he was to make sure 
happen. One of those things is the implementation of our 
Automated Land Management Record System, which has a great deal 
of interest in the oil and gas and mineral community, because 
it would allow us to link land descriptions, geographic 
coordinates, land and mineral ownership and resource data into 
a single data base. And he is committed to having the first 
phase of that up and running in this year. First, we've gotten 
started turning on the system in New Mexico, and we are adding 
some other States shortly.
    Another initiative of his is the renewed emphasis on 
production verification, which we may have an opportunity to 
talk about a little later.
    Four other initiatives that I would like to briefly bring 
the--Committee up to date on--the Subcommittee up to date on.
    One is the REGO II efforts, or Reorganization of Government 
efforts, which has been an ongoing project between the bureau 
and the IOGCC. The States, through the IOGCC, have indicated 
that they do not have an interest in delegation authority, 
which would be allowed by the Federal Oil and Gas--Management--
Royalty Management Act. However, we have been able to enter 
into a number of MOUs with a number of States, and are willing 
to continue to work with the IOGCC and other States to share 
responsibilities.
    Another area that we have been involved in is stripper well 
rate reduction. Earlier this month, the BLM announced that it 
would extend its royalty rate reduction for Federal stripper 
wells which produce an average less than 15 barrels a day on 
oil properties. While working closely with industry, we did 
similar look at marginal gas wells and found that that would 
not be revenue neutral. However, given the recent, dramatic 
downturn in oil prices, continuing this royalty rate reduction 
for oil will keep many stripper oil wells producing that might 
otherwise be shut in. What this means is that under certain 
conditions, the royalty rate can be reduced substantially from 
the normal 12.5 percent.
    Concerning mining law administration--this year's budget 
contains a one-time appropriation to support a legislative 
proposal to permanently authorize collecting of mining claims, 
maintenance and location fees. Since 1993, the BLM has 
collected a mining claim maintenance fee of $100 and a claim 
location fee of $25 to offset the costs of the mining law 
program. The authority to collect these fees expires in 
September 1998. This budget proposal would permanently extend 
the collection of the mining claim fees and the location fees.
    Lastly, let me mention the 3809 regulations, or the Surface 
Management Regulations. In 1997, the Secretary directed that 
the BLM renew its regulatory efforts that they had begun in 
1991 to revise the 3809 regulations. The task force held a 
number of well-attended meetings throughout the West and in 
Washington, DC, and received over 1,800 written comments. The 
task force will continue to consider changes to this rule, and 
will continue to consult with States as a part of that 
initiative. For example, representatives of this task force 
will meet with State and State Governors, representatives next 
week, March 3, in Denver, Colorado, to discuss proposed changes 
to these rules. I am sure there will be many other things that 
the Subcommittee would like to talk about, but I will like to 
submit my written remarks for the record.
    [The prepared statement of Mr. Fry may be found at end of 
hearing.]
    Mrs. Cubin. Thank you, Mr. Fry.
    I will start the questioning. We'll have 5 minutes. OK. 
Then if the members want further questioning, we'll go a second 
round.
    I'll start my questioning with Mr. Fry. You reported that 
the--IOG--or that the States and IOGCC didn't want State 
delegation, that that's their position. Now, the way I--as I 
understand it, in fact, as I know, they actually want 
legislation to be introduced which we're looking at. I think it 
isn't perfect, and so that's sort of contradictory. So, would 
it be accurate for me to say that they don't want delegation 
under the terms that the BLM has presented to them?
    Mr. Fry. I think there's two things we're talking about 
here, Madam Chairman. We have delegation, which they've 
indicated they don't want, which would mean that the primary 
responsibility would still be with the Federal Government, and 
then we would delegate the responsibility to carry out those 
functions to the States. What some of the States seem to be 
interested in is not a delegation but a transfer of all of that 
authority and responsibility to the States and have the Federal 
Government out of the picture altogether. So that is the 
distinction that I'm trying to make here, where, under REGO II, 
the discussion was centered around a delegation. And we've come 
the conclusion that at least, from a blanket standpoint, the 
IOGCC has indicated to me that they did not want to have a 
delegation; that they were interested in a transfer function. 
And I think that is what the bills that have floated around 
indicate.
    Mrs. Cubin. Thank you. In March, 1995, President Gore 
proposed that oil and gas inspection and enforcement on Federal 
lands be transferred to the States. Since then, I know the BLM 
has had countless meetings with many people. This Subcommittee 
has held hearings on the proposal, and I myself, or I find 
myself in the unusual position of being on the same side as the 
Vice President, working hard, wanting to see that accomplished. 
Is BLM committed to transferring certain functions to the 
States?
    Mr. Fry. Let me assure you that I'm on the same side as the 
Vice President, too.
    [Laughter.]
    Mrs. Cubin. Always a wise place to be in your position.
    Mr. Fry. The difficulty--and I have not been a part of 
those discussions until recently. But my understanding the 
difficulty has been this whole question of delegation that we 
spoke about a moment ago. The I and E function that we're 
talking about certainly could be delegated, and the BLM is more 
than willing to work on delegation of the I and E function. But 
there's been a reluctance, from my understanding, on behalf of 
the IOGCC and the States to take delegation of the I and E 
function. They would rather take over the entire program, which 
would take legislation.
    Mrs. Cubin. Well, last February, the States and BLM met in 
Phoenix to compare their oil and gas regulatory programs. And 
at that meeting, it was concluded that both the Federal and the 
State Governments share the same goals, although may wish to 
accomplish those objectives in different ways. Given those 
shared objectives, there was discussion, including by this 
Subcommittee, that the BLM and the States should get together 
to, at a very minimum, establish uniform standards. Has the BLM 
initiated any discussions with the States? Or are you 
interested in undertaking that project?
    Mr. Fry. Absolutely. I'm not sure whether specific 
discussions that you're talking about occurred or did not 
occur. I've had discussions about the whole question of uniform 
standards. My concern, I think, is the same one that the 
Chairman expresses. What I don't like is the situation where 
you have two pickup trucks show at an oil well. One has BLM on 
the side, and one has the State of Wyoming on the side; and 
both are doing the same inspection. And that is not good 
government, and that's not what I want to see happen. We have 
seen work in a number of situations where we've allowed the 
people locally to work together, rather than on some sort of 
national cram down program. For people who have worked locally 
together we have divided those responsibilities, but we don't 
have two pickup trucks showing up because we do have the same 
shared interest in protecting not only the land, but the 
resources under the land. So, that is certainly, as you 
suggest, something that we would like to see and want to 
continue to work on.
    I'm afraid that this issue is one that has--gotten--become 
politicized, and we haven't allowed the people on the ground to 
work it out. We have a number of arrangements in States where 
it has worked out. We have success stories in California; we 
have success stories in Colorado. We have MOUs working in other 
States, and I'm hopeful that we can allow our local managers 
and local States to work together to try to resolve these 
issues locally on things that they can decide make sense for 
them locally, rather than us try to decide that in Washington.
    Mrs. Cubin. You know I completely agree with you. As a 
general rule in all the work that I've done, I find on the 
ground the land managers and the decisionmakers who are there 
dealing with the resource at the point do a good job. They're 
committed to that. But wouldn't you agree with me that there 
really is a long way to go; that while there are some 
successes, we really good improve on this duplication but not 
quite a lot.
    Mrs. Fry. We absolutely can improve.
    Mrs. Cubin. Thank you.
    Ms. Green, would you like to question the panel?
    Ms. Christian-Green. No questions. Thanks.
    Mrs. Cubin. Mr. Calvert.
    Mr. Calvert. Thank you, Madam Chairman.
    Ms. Quarterman, I was interested in your testimony. You 
know, it just seems like yesterday we were here talking about 
deep water, and I remember some of our colleagues, primarily on 
the other side, were saying that we were--this was a terrible 
thing to do when we were putting through the deep water 
legislation to promote drilling in the Gulf and that we were 
going to lose all this revenue. Can you explain to us, again, 
what is happening in the Gulf?
    Ms. Quarterman. It's booming.
    [Laughter.]
    Mr. Calvert. Have we lost any revenue because of the Deep 
Water Royalty Fairness legislation we put together?
    Ms. Quarterman. Not that I'm aware of. As you recall, the 
President signed it, the administration supported the bill, and 
things are going very, very well.
    Mr. Calvert. And again, how much additional money has come 
in this year partly because of that legislation?
    Ms. Quarterman. Well, in the past four sales--and those are 
all sales since the Deep Water Royalty Relief Act as passed--
there was about--$2.7 billion--$2.4 billion as compared to the 
last four sales before, where there was only $0.7 billion 
coming in.
    Mr. Calvert. That's quite a difference, isn't it? So you 
would say that that legislation was a successful piece of 
legislative art, wouldn't you?
    Ms. Quarterman I would have to say it's a success.
    Mr. Calvert. I think it is. But let's move on to how we're 
doing on transferring some of the obligations over the States 
as far as collecting royalties. How is that moving along?
    Ms. Quarterman. Well, I think that's going along well, as 
well. If you'll recall in the Royalty Simplification and 
Fairness Act, the Committee put a 1-year timeframe around 
coming out with a final rule, which is somewhat unheard of 
these days in terms of actually having that happen. It was 
signed in August 1996, which means that we had to have a final 
rule in August 1997. We got it passed one day early. The final 
rule passed. We have not, so far, had a State come forward and 
ask for delegation, but we are ready, willing, and able to 
comply if they were to ask.
    Mr. Calvert. I ran into a colleague of mine from one of the 
larger oil-producing states here in the lower 48, and he 
mentioned to me, and I'm going to follow through on this, that 
his State has asked and that they have been going through some 
difficult periods in trying to get this transition together. 
You never heard any problems with Oklahoma?
    Ms. Quarterman. None whatsoever. I have not heard from 
Oklahoma at all.
    Mr. Calvert. OK. I'll follow through on that.
    Ms. Quarterman. So will I.
    Mr. Calvert. OK.
    Thank you.
------------
    To the best of our knowledge, the State of Oklahoma has not 
contacted the Minerals Management Service (MMS) about assuming 
royalty functions that can be delegated pursuant to the 
``Royalty Simplification and Fairness Act.'' In 1996 and 1997, 
when MMS was developing the regulations to implement the 
delegation provision, the agency held outreach sessions with 
interested states, and Oklahoma was represented at those 
meetings. Mr. Mike Smith, Secretary of Energy for the State of 
Oklahoma attended a meeting which discussed the framework for 
the regulation in December 1996; he also attended a meeting in 
April 1997 to discuss the proposed regulation. He indicated 
that his plan was to return to the state and determine what 
interest, if any, it had in delegated activities. However, he 
has never contacted us, nor has MMS heard from other officials 
in the state government of Oklahoma.

    Mrs. Cubin. Well, I think I'll just start a second round.
    Mr. Calvert. Go ahead.
    Mrs. Cubin. For director Karpan. My Subcommittee colleague 
from West Virginia, Mr. Rahall, and I sparred last Congress 
over my legislative effort to amend SMCRA with respect to 
Federal enforcement in primacy States. But with respect to the 
AML side of your agency, I think that we are and always have 
been pretty agreeable in principle at least that insufficient 
moneys are being appropriated back out of the trust fund for 
State reclamation grants. Your testimony noted that the acreage 
and national inventory of abandoned sites and has an estimated 
cost for cleanup.
    My question is, how committed is OSM and the Department to 
making a concerted effort in the fiscal year 2000 budget to 
convince OMB and the President to back this program more 
aggressively?
    Mr. Fry. Well, I think that I can represent to the 
Committee that our agency considers the AML program one of the 
most successful reclamation programs in the history of the 
world, and we are well aware of the outstanding need. In fact, 
in some respects, as soon as we reclaim an area, we seem to 
find other problem areas. So it's a growing problem in some 
respects.
    The requests that we have made, of course, have been made 
by my predecessors, but I would say they've had to be made 
within the context of competing considerations in a rather 
discouraging at times fiscal picture. And I think that any 
interpretation of what our requests have meant must take that 
into account.
    I can say to you that I know that there is strong support 
around the country for more spending. Congressman Rahall isn't 
here to hear me say this, but I know that he has shown 
leadership in organizing the groups he's mentioned, and I hear 
everywhere across the country of the need for it. The States 
have indicated that they can spend the money wisely, that they 
have their priority 1 and 2 projects in mind. We think they can 
put that money to good use.
    I can't make a commitment in advance of how well I can do, 
Madam Chairman, but I can tell you, speaking personally, that 
to the extent that I can as a Director help our agency make the 
case for AML funding, given all these competing considerations, 
I will make the case. And I say that as someone who grew up in 
Rock Springs, Wyoming, who has benefited from $70 million worth 
of investment to take care of those subsidence problems. So 
I'll do the best I can.
    Mrs. Cubin. I'm sure that you will, and I realize the 
constraints of your job, but it is difficult. As last year, I 
am most likely this year going to push for additional AML 
funds, but it is difficult, when the President's request is 
lower, to really get the Appropriations Committee to take us 
very seriously on this, and certainly the AML trust fund isn't 
the only trust fund that is in the situation that we have here: 
social security, highway. It's up to us to work that out, and I 
certainly hope that we can. I know we can; I hope we will.
    You mentioned, Ms. Karpan, the Clean Streams Initiative as 
an example of leveraging AML moneys--this was in your written 
testimony--for watershed improvements. And I see the budget 
requests statutory authority to fund both clean streams and 
western mineland partnership from only the cumulative interest 
earned on the AML fund, which I support. We in the West are 
always a little wary when the Department of Interior comes to 
the western Governors and says, ``We're from the Federal 
Government. We've come to help.''
    [Laughter.]
    Mrs. Cubin. But I trust the $100,000 you seek for the 
beginning of the latter initiative is for joint study purposes 
with the WGA; is that correct?
    Ms. Karpan. Yes, Madam Chair. In fact, really this is not 
so much at our own instance as a response to two different 
initiatives. One is from the western Governors and NMA. We're 
aware of their discussions about reclamation needs, and then we 
have our own Federal Government team with western Governors 
talking about the Federal land initiative. As part of that, 
there's been the identification of some private in-holdings in 
Federal lands that might require reclamation.
    What I would like to say--and I probably as keenly as 
anyone at this table understand the view in the West about the 
Federal Government's role. So I'd hasten to make a couple of 
points. The first is, our interest is in reclamation, and not 
regulation--reclamation, not regulation; that we see this 
$100,000 as serving several functions. One, it's an expression 
of support and encouragement to the western Governors to deal 
with the problem. We feel that we have some benefits of 
experience that we might be able to share with them. We have 
technical assistance, our TIPS program; for example, that 
wonderful software we could make available to them for free.
    What we basically see is this being money to supplement a 
project that would either be ongoing or is contemplated so that 
someone else is driving that decision. Like clean streams, 
we're just helping make it happen.
    Mrs. Cubin. Thank you.
    Mr. Calvert, did you have any followup questions?
    Mr. Calvert. I have no further questions.
    Mrs. Cubin. Then it's my turn again.
    [Laughter.]
    Mrs. Cubin. These questions are for Ms. Quarterman. And you 
are aware of my strong feelings in finding ways to efficiently 
collect royalties that are owed. Again, I want to make it clear 
that I think we should collect every cent that is legitimately 
owed, and that the producers should pay every cent that is 
legitimately owed to the Federal treasury and obviously the 
States, too.
    I promise that we are going to have the opportunity to 
discuss legislative language for royalty in-kind, but since you 
brought that up--and we're not going to get into it in detail 
today at all, but there were a couple of things that I wanted 
to touch on, based on the budget request.
    Your request for $5 million to increase--or the $5 million 
increase for the royalty management program's computer system, 
it seems to me to beg the question of what sort of 
modernization needs will be appropriate next year or just a few 
years down the road, since we--well, even say, for example, the 
proposed crude oil valuation rule were to become final rule 
later this year. Wouldn't you need to modify that system to 
track the different benchmarks, and so on? I mean, won't there 
have to be a lot of changes in that, which will be expensive?
    Ms. Quarterman. The re-engineering that we're performing in 
the royalty management program is more than just a computer 
system. We have, in terms of hardware, up-to-date hardware for 
our computer system. What we're speaking about now is the 
software program and the processes upon which the software 
relies. We have over the past year begun to, and have met, all 
of the processes within the royalty management program in terms 
of how things work and/or don't work, and have begun to 
completely reform that.
    One of the considerations that we have is the ability not 
only to take royalty in-value, but to take it in-kind. We have 
to have a system that is able to adapt to any sort of valuation 
system going forward. All of those things are part of our 
equation in the new system and process that we will put in 
place. It is not merely something that can't be changed.
    Mrs. Cubin. Does the fiscal year 1999 request factor the 
royalty in-value regulation changes that might occur without 
knowing how the comments might affect the proposal?
    Ms. Quarterman. Yes. Again, we're talking about really the 
process of the way we collect royalties, not so much the value. 
The re-engineering will be able to----
    Mrs. Cubin. Would you tell me what you mean by process----
    Ms. Quarterman. OK.
    Mrs. Cubin. [continuing] because I'm sure you're being 
clear. I'm just not catching it exactly.
    Ms. Quarterman. Over the past 15 years, the royalty 
management program has been really created and recreated due to 
changes in the marketplace, customer demands. We started out 
with a software system about 16 years ago that was put into 
place that is really a functional-based system. It's almost 
like an assembly line, if you can imagine one transaction 
coming in on lease and one person working with it, then handing 
it off to the next person, and a series of people along the 
lines; maybe five or six different parts of the organization 
deal with the same transaction.
    The re-engineer process that we're looking at now will be 
one that is completely process-centered. So you would look at a 
piece of land, a particular lease, and follow that transaction; 
the same group of people would follow the transaction from 
beginning to end, so that you won't have continual contacts 
along the way. That requires us to change the way our software 
runs. Right now we have a large mainframe that's operated by 
contractors that requires 24-hour people on duty. In order to 
change one little thing, it takes a week to do in terms of 
changing the software. Because it's so cumbersome, we have 
probably 100 different, what we call, workarounds or PC 
software programs that feed back into the main program. It's, 
frankly, given the amount of money that we collect, not as good 
as it should be. That's why we see a need for reform. Even if 
we would go into a royalty in-kind program, we would still have 
a number of things remaining on the table that would have to be 
collected--all Indian tribes, all solid minerals, any remaining 
oil and gas that were collected in value.
    Mrs. Cubin. That clarifies it very well. Thank you.
    I know my time's up, but I'm sure that Mr. Calvert doesn't 
mind if I just take a couple more minutes.
    MMS currently receives considerable royalties in-kind as 
part of a special setaside program for eligible small refiners. 
In 1996, some 38 percent of total oil royalties were paid in 
kind. It seems that MMS already has considerable experience 
with collecting royalties in-kind. So I wonder, while I 
appreciate the offer of the royalty in-kind pilot program for 
Wyoming, I wonder why our additional pilot programs need it, 
considering the extent of experience that you already have in 
that?
    Ms. Quarterman. The royalty in-kind program that is 
currently operating is entirely different from the kind of 
royalty in-kind program that we are considering. The small 
refiner royalty in-kind program, as we call it, is meant to 
assist those small, independent refiners who cannot receive oil 
from another place. The Federal Government in legislation has 
determined that it's appropriate to--it's a governmental 
benefit to help those folks have oil available to them at 
reasonable prices. That is entirely different from the royalty 
in-kind pilots that we are considering, in which case the 
Federal Government would try to market the oil or gas itself to 
receive the same amount in value.
    Mrs. Cubin. Could I interrupt for just one second? How is 
it different, No. 1, and then, No. 2, while the Federal 
Government certainly could be the marketer, I think under all 
the proposals that I've seen the government would or the 
Secretary would be able to identify or hire other professional 
marketers. So would you respond to that?
    Ms. Quarterman. When I say ``market it,'' I was speaking 
more broadly in terms of not only the government perhaps itself 
marketing, but hiring someone to market on their behalf.
    Mrs. Cubin. OK, could you just, then, tell me, as 
specifically as you can, how the royalty in-kind program that 
you have, that we have with the small refiners, is so different 
or is different from what is being proposed? Because, as I 
said, 38 percent in, I think, 1996, 38 percent of the royalties 
paid were from royalty in-kind. So what are the specific 
differences?
    Ms. Quarterman. Well, perhaps if I give you a comparison of 
our 1995 pilot, we took 8 percent of the Federal Government's 
share of gas in-kind offshore. In that pilot, we hired a 
marketer or a series of marketers, in that we accepted gas in-
kind, and then we put it up for bid for marketers to purchase 
it. They, at that point, gave us plus or minus an index price 
for the gas. In the proposed pilots that we have planned for 
the next few years, in the gas marketing example, we would 
propose to hire a marketer who would work on our own behalf, 
and perhaps instead of just selling at the lease, could take 
the gas and market it upstream to a power company or something 
like that. In the royalty in-king oil program, as I said, the 
oil producers accept the oil and use it in their own refinery.
    Mrs. Cubin. And I do understand the program. I really don't 
understand--I really can't see that there's all that much 
difference, but, yes, we'll do that another day.
    Ms. Quarterman. OK.
    [Laughter.]
    Mrs. Cubin. I do have other questions, but I'm not going to 
hold everyone here to do that. So I would ask, if we submit our 
questions in writing to you, if you would respond to them in a 
reasonable amount of time; we would appreciate that very much.
    [The information referred to may be found at end of 
hearing.]
    Mrs. Cubin. And I would like to thank the witnesses for 
being here. It truly is beneficial and helps with 
understanding.
    Please feel free any time to contact Committee staff, me, 
my staff, whatever.
    Thank you very much for being here today.
    [Whereupon, at 3:03 p.m., the Subcommittee adjourned 
subject to the call of the Chair.]
    [Additional material submitted for the record follows.]
    Statement of Tom Fry, Deputy Director, Bureau of Land Management

    Madam Chairman, members the Subcommittee, I appreciate the 
opportunity to appear before you today to provide an overview 
of the Bureau of Land Management's (BLM's) budget priorities 
for its minerals programs. Our projects and initiatives reflect 
our commitment to a collaborative approach to managing our 
public lands.

Budget Overview

    The President's fiscal year 1999 budget proposes 
$1,233,659,000 for the BLM. This level of funding includes 
moneys for operation of the Bureau, Payments in Lieu of Taxes 
(PILT), and firefighting activities and central hazardous 
materials management for the entire Department. Of the 
$660,310,000 requested for management of lands and resources, 
$71,646,000 is for energy and minerals activities and 
$33,272,000 is intended as a one-time appropriation for mining 
law administration. Of the amount requested for energy and 
minerals, $53,470,000 is for oil and gas management, $7,151,000 
is for coal management, $8,943,000 is for management of other 
minerals such as geothermal, potassium, phosphate, and sodium, 
sand, gravel, and building stone, and $2,082,000 is for Alaska 
minerals.
    Energy and mineral resources generate the highest 
commercial economic production values of uses of the public 
lands. Of the total $1.2 billion in revenues generated on BLM 
lands in 1997, energy and mineral development on public lands 
accounted for nearly $1 billion through royalties, rents, 
bonuses, sales and fees.
    The public lands produce 33 percent of the Nation's coal, 
10 percent of its natural gas, and 5 percent of its oil. At the 
end of 1997, more than 46,000 leases existed on Federal lands 
covering about 37 million acres. About 20,000 of those leases 
were in producing status with more than 63,000 producing wells 
on public lands. This figure is up nearly 30 percent since 
1985, while natural gas production has increased by 60 percent 
over the past 10 years. The BLM is also responsible for 
operational management oversight of about 3,750 producing 
leases on Indian lands, supervision of drilling on non-
producing leases, and advising BIA, Indian tribes, and 
allottees on leasing matters.
    The onshore oil and gas program is one of the major mineral 
leasing programs in the Department of the Interior. It 
generates receipts from filing fees, bonuses, rents, and 
royalty payments. In 1998, we expect such royalties to exceed 
$785,000,000. All receipts, except for filing fees, are shared 
with the State in which the leasing occurs. These oil and gas 
revenues play an important role in the economies of many 
western States and communities.
    Our leasing program will continue to be focused in those 
areas where the prospect for discovery is highest. A 
significant aspect of the BLM's strategic plan is to provide 
opportunities for commercial production from public lands, 
especially energy and minerals, in an environmentally sound and 
responsible manner. The BLM will continue to focus on programs 
and activities that best serve the public interest while 
maintaining a balanced approach to the management of the public 
lands. These areas include:

Renewed Emphasis on Production Verification

    Production verification is one of the BLM's top goals. As a 
part of this effort, we will rely on our existing records to 
improve our verification of production for fluid and solid 
minerals. This will not be an intrusive initiative, but an 
internal housekeeping matter and will increase the return of 
revenues to the Treasury through additional emphasis on record 
and field inspections. As with our coal verification program, 
we will work to improve our other minerals programs to better 
serve industry and meet our responsibility to the taxpayer.

Automated Land and Mineral Resources System (ALMRS)

    Completing Release 1 of our ALMRS deployment remains one of 
the highest priorities for the BLM. ALMRS will link legal land 
descriptions, geographic coordinates, land and mineral 
ownership, and resource data in a single data base to provide a 
complete picture of current use of the public lands and 
availability for future use. We anticipate a direct benefit to 
our lessees and permittees because it will provide mineral and 
realty operators with immediate access to information that 
affects their businesses.

Status of REGO II I&E

    As I am sure you are aware, the Federal Oil and Gas Royalty 
Management Act (FOGRMA) provides that states may submit 
proposals at any time to assume responsibility for Federal 
inspection and enforcement (I & E) activities. We will continue 
to work with States that may have an interest in taking on 
these functions in the future. The REGO II initiative helped 
the BLM to identify ways we could work with the States more 
closely to achieve greater efficiency and realize cost savings. 
For example, we have established MOUs under the Federal Land 
Policy and Management Act with states such as California and 
Colorado to perform various oil and gas functions. Further, the 
BLM continues to hold discussions with the Interstate Oil and 
Gas Compact Commission to determine the feasibility of any 
further transfer efforts.

Ecoroyalty Relief

    Under the Green River Basin Advisory Committee's (GRBAC's) 
ecoroyalty relief proposal, the nominal 12.5 percent royalty 
would be reduced by 1-2 percent in return for extra efforts by 
operators to improve the environment. Department of the 
Interior Solicitor John Leshy has testified before this 
Subcommittee that the Secretary of the Interior has no 
authority under current law to grant ecoroyalty relief under 
the circumstances proposed by the GRBAC. However, the BLM is 
pursuing other options to provide incentives for operators to 
ensure their production activities are as environmentally 
responsible as possible. We will continue our work with 
industry and other interested parties to explore alternatives 
which will benefit operators as well as the Federal Government.

Stripper Well Royalty Rate Reduction

    Earlier this month, the BLM announced that it would extend 
its royalty rate reduction for Federal ``stripper'' (wells 
which produce an average of less than 15 barrels of oil per 
day) oil properties.
    The royalty rate reduction has proven itself since 1992, 
when the agency put the rule into effect. Given the recent 
dramatic downturn in oil prices, continuing this royalty rate 
reduction will keep many stripper oil wells producing that 
might otherwise be shut in. The rule establishes the conditions 
under which an operator or owner of Federal stripper oil 
property can obtain a reduction from the normal royalty rate of 
12.5 percent. The regulations provide an incentive for 
operators to maintain or restart production of marginal or 
uneconomic wells. The goal is to increase recoverable reserves. 
After conducting a review of the rule's impact the Department 
and the BLM have concluded that the lower royalty rate for 
stripper properties is working as intended.

Mining Law Administration

    This year's budget includes a one-time appropriation to 
support a legislative proposal to permanently authorize 
collection of mining claim maintenance and location fees. Since 
1993, the BLM has collected a mining claim maintenance fee of 
$100 and a claim location fee of $25 to offset the cost of the 
mining law program. Authority to collect these fees expires in 
September, 1998. The budget proposal would permanently extend 
the collection of the mining claim maintenance and location 
fees and will periodically adjust these fees for inflation. In 
1999, collection of the mining claim maintenance fee is set at 
$116 and the location fee at $29. The fees would then be 
available to the BLM in 2000 to manage the mining law program. 
As previously mentioned, this requires a one-time appropriation 
of $33,272,000 to manage the program in 1999.

3809 Regulations

    In January 1997, the Secretary directed the BLM to renew a 
regulatory effort begun in 1991 to revise the Surface 
Management regulations (43 CFR 3809) for 1872 Mining Law 
activities on public lands. The task force held a number of 
well-attended scoping meetings throughout the West and in 
Washington, DC. In addition, BLM received over 1,800 written 
comments. The BLM has consulted with the state governments on 
this matter and, in accordance with the 1998 Interior 
Appropriations Act, the proposed rules will be published after 
November 15, 1998. The 3809 Task Force is continuing to 
consider changes to the rule and will continue to consult with 
the States as part of that initiative. For example, 
representatives of the Task Force will meet with State and 
Governors' representatives on March 3, 1998, in Denver, 
Colorado to discuss proposed changes to the rules.
    We will continue to work with members of the Subcommittee, 
the public, and industry to improve the BLM's minerals 
programs. This concludes my statement and I am pleased to 
respond to any questions you may have.

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