[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
HEARING ON H.R. 3972, H.R. 3878, AND H.R. 1467
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY
AND MINERAL RESOURCES
of the
COMMITTEE ON RESOURCES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
on
H.R. 3972, TO AMEND THE OUTER CONTINENTAL SHELF LANDS ACT TO PROHIBIT
THE SECRETARY OF THE INTERIOR FROM CHARGING STATE AND LOCAL GOVERNMENT
AGENCIES FOR CERTAIN USES OF THE SAND, GRAVEL, AND SHELL RESOURCES OF
THE OUTER CONTINENTAL SHELF
H.R. 3878, TO SUBJECT CERTAIN RESERVED MINERAL INTERESTS OF THE
OPERATION OF THE MINERAL LEASING ACT, AND FOR OTHER PURPOSES
H.R. 1467, TO PROVIDE FOR THE CONTINUANCE OF OIL AND GAS OPERATIONS
PURSUANT TO CERTAIN EXISTING LEASES IN THE WAYNE NATIONAL FOREST
__________
JULY 21, 1998, WASHINGTON, DC
__________
Serial No. 105-101
__________
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/house
or
Committee address: http://www.house.gov/resources
U.S. GOVERNMENT PRINTING OFFICE
49-994 CC WASHINGTON : 1998
------------------------------------------------------------------------------
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
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
Mike Henry, Professional Staff
Deborah Lanzone, Professsional Staff
C O N T E N T S
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Page
Hearing held July 21, 1998....................................... 1
Statements of Members:
Pickett, Hon. Owen, a Representative in Congress from the
State of Virginia.......................................... 4
Prepared statement of.................................... 5
Romero-Barcelo, Hon. Carlos A., a Delegate in Congress from
the Commonwealth of Puerto Rico............................ 2
Prepared statement of.................................... 3
Statements of witnesses:
Culp, Carson W., Assistant Director, Minerals, Realty and
Resource Protection, Bureau of Land Management, U.S.
Department of the Interior................................. 12
Prepared statement of.................................... 20
Hartgen, Carol, Chief, Office of International Activities and
Marine Minerals, Minerals Management Service, Department of
the Interior............................................... 7
Prepared statement of.................................... 17
Oberndorf, Hon. Meyera E., City of Virginia Beach, Virginia.. 5
Prepared statement of.................................... 16
Additional material supplied:
``MMS Policy and Guidelines,'' Minerals and Management
Service, Dept. of the Interior, October 1997............... 30
Text of H.R. 3972............................................ 24
Text of H.R. 3878............................................ 25
Text of H.R. 1467............................................ 28
HEARINGS ON H.R. 3972, TO AMEND THE OUTER CONTINENTAL SHELF LANDS ACT
TO PROHIBIT THE SECRETARY OF THE INTERIOR FROM CHARGING STATE AND LOCAL
GOVERNMENT AGENCIES FOR CERTAIN USES OF THE SAND, GRAVEL, AND SHELL
RESOURCES OF THE OUTER CONTINENTAL SHELF; H.R. 3878, TO SUBJECT CERTAIN
RESERVED MINERAL INTERESTS OF THE OPERATION OF THE MINERAL LEASING ACT,
AND FOR OTHER PURPOSES; AND H.R. 1467, TO PROVIDE FOR THE CONTINUANCE
OF OIL AND GAS OPERATIONS PURSUANT TO CERTAIN EXISTING LEASES IN THE
WAYNE NATIONAL FOREST
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TUESDAY, JULY 21, 1998
House of Representatives,
Subcommittee on Energy and Mineral Resources,
Committee on Resources,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:07 p.m. in
room 1324, Longworth House Office Building, Hon. Barbara Cubin
[chairman of the Subcommittee] presiding.
Mrs. Cubin. The Subcommittee on Energy and Mineral
Resources will come to order.
The Subcommittee is meeting today to hear testimony on
three small bills, big bills to the people who they affect, but
Bill thought it was small, so he put that word in here.
First is H.R. 3972, introduced by our Full Committee
Colleague, Mr. Pickett of Virginia, to address the issue of
payments for Outer Continental Shelf sand resources used for
beach reclamation projects. Mr. Pickett's bill would put State
and local governments on such projects on the same footing as
the Federal Government; that is, the sand resources would be
made available without charge to State and local governments,
not unlike the situation for communities in the West, which
procure sand and gravel without charge from Federal lands for
public works projects under the 1947 Minerals Sales Act.
[The information may be found at end of hearing.]
Mrs. Cubin. Second is H.R. 3878, which I introduced, to
lift Federal leasing restrictions on two tracts of lands in
Sublette County, Wyoming, which are prospectively valuable for
natural gas.
Several decades ago, when the Federal Government patented
the surface estate but reserved the mineral estate, but
withdrew its minerals from leasing under the terms of the 1964
Act authorizing such sales, the lands in question remained
rangeland and were never developed for commercial uses, which
was the thought that might have happened, which was a thought
they took into consideration at that time. They thought that
oil and gas exploration or development might be in conflict
with that use. So that was why it was done in the first place,
but the land is still grazing land, and so we would like to
rescind that and withdraw those regulations.
[The information referred to may be found at end of
hearing.]
Mrs. Cubin. Third is H.R. 1467, introduced by Mr. Ney of
Ohio, to address concerns by small oil producers on the Wayne
National Forest who find themselves in a unique situation.
Certain operators there are lessees of the United States
because they owned wells on formerly reserved private minerals,
now Federal, since the expiration of 50-year reservations.
A compromise bill was drafted by the Department of the
Interior and is agreed with by the operators affected and the
Ohio Department of Natural Resources, the State agency which
currently holds financial guarantees for the plugging and
abandonment of existing wells of these operators.
The substitute will recognize such bonds as adequate
protection to the environment for existing wells only. Any new
development on these Federal leases must be bonded under BLM
rules in force at the time the permits are sought.
[The information referred to may be found at end of
hearing.]
Mrs. Cubin. Under rule 6(f) of the Committee rules, any
opening statements at hearings are limited to the chairman and
the Ranking Minority Member, but since we do not have any other
members here, we do not have to worry about that.
I now yield to Mr. Romero-Barcelo for an opening statement.
STATEMENT OF HON. CARLOS A. ROMERO-BARCELO, A DELEGATE IN
CONGRESS FROM THE COMMONWEALTH OF PUERTO RICO
Mr. Romero-Barcelo. Thank you, Madam Chair. It is a
pleasure to be here. The three bills that are before us today
appear to be noncontroversial. We see no impediment whatsoever
to the prompt consideration of these bills.
On H.R. 1467, which would allow expired leases in the Wayne
National Forest to resume production without compliance with
the existing law, the administration opposes this legislation.
The bill is the concern of a small group of oil and gas
producers in the Wayne National Forest in Ohio who, on average,
produce less than 15 barrels of oil a day, a very small amount.
Congress addressed their concerns in 1992 and believed we had
resolved their problems with lapsed production and royalty
payments by allowing them the opportunity to regain their
leases. However, it appears that additional legislation is
required, and we urge the administration to work with the
Subcommittee to resolve this issue once and for all.
H.R. 3878 would open two tracts of withdrawn land in
Sublette County, Wyoming, to oil and gas leasing. The
Administration supports enactment of this bill. We would, too,
particularly since it is our chairperson's bill. We see no
difficulty in moving the bill expeditiously.
H.R. 3972, introduced by Representative Owens Pickett, who
is here with us today, our colleague, would direct the
Department of the Interior to waive the required fees for sand,
gravel and shell resources from the Outer Continental Shelf to
State and local governments who need such resources for beach
replenishment and other related public purposes.
The administration opposes this bill, apparently due to
cost recovery concerns. The minority, however, supports our
colleague's efforts to ensure that State and local governments
may acquire free of charge sand and gravel resources from the
federally controlled Outer Continental Shelf.
Thank you.
Mrs. Cubin. Thank you.
[The prepared statement of Mr. Romero-Barcelo follows:]
Statement of Hon. Carlos Romero-Barcelo, a Delegate in Congress from
the State of Puerto Rico
Madame Chair, the three mineral bills before us today
appear to be non-controversial. We see no impediment to prompt
consideration of these bills.
H.R 1467 would allow expired leases in the Wayne National
Forest to resume production without compliance with existing
law. The Administration opposes this legislation. The bill is
the concern of a small group of oil and gas producers in the
Wayne National Forest, in Ohio, who, on average, produce less
than 15 barrels of oil a day--a very small amount. Congress
addressed their concerns in 1992, and believed we had resolved
their problems with lapsed production and royalty payments, by
allowing them the opportunity to regain their leases. However,
it appears that additional legislation is required. We urge the
Administration to work with the Subcommittee to resolve this
issue once and for all.
H.R. 3878 would open two tracts of withdrawn land in
Sublette County, Wyoming, to oil and gas leasing. The
Administration supports enactment of this bill. And, we, too,
see no difficulty in moving the bill expeditiously.
H.R 3972, introduced by Rep. Owen Pickett, would direct the
Department of the Interior to waive the required fees for sand,
gravel and shell resources from the Outer Continental Shelf to
State and local governments who need such resources for beach
replenishment and other related public purposes. The
Administration opposes this bill apparently due to cost-
recovery concerns. The Minority, however, supports our
colleague's efforts to ensure that State and Local governments
may acquire, free-of- charge, sand and gravel resources from
the federally controlled outer continental shelf.
Mrs. Cubin. I will now introduce our panel of witnesses for
the bill, H.R. 3972: The Honorable Owen Pickett, Representative
of the Second District of Virginia, it is nice to have you
today; Mayor Meyera Oberndorf, from the city of Virginia Beach,
Virginia; and Ms. Carol Hartgen, Chief, Office of International
Activities and Marine Minerals at the Minerals Management
Service, Department of the Interior.
I thank all of you for being here.
Let me remind the witnesses that under our Committee rules,
they must limit their oral statements to 5 minutes, but their
statement will appear in the Record, and we will also have the
entire panel testify before questioning, if there are any
questions by the Committee. But since we are so small, maybe
there won't even be.
I would like to first of all recognize our Colleague, Mr.
Pickett.
STATEMENT OF HON. OWEN PICKETT, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF VIRGINIA
Mr. Pickett. Thank you, Madam Chair. I appreciate the
opportunity to offer remarks before the Committee today
regarding H.R. 3972, that amends the Minerals Management
Service policy of assessing a tax against State and local
governments for the use of the Outer Continental Shelf sand and
gravel.
I might pause here a moment, Madam Chairman, and say this
is becoming increasingly important because of the
administration's policy of shifting more of the cost of these
projects to State and local governments and away from the
Federal Government. So it is having a compound effect on local
governments to impose this tax for the sand and gravel.
During the 103d Congress, Public Law 103-426 was enacted to
remove procedural obstacles and allow government agencies to
negotiate and obtain OCS sand and gravel. This law exempted the
Federal Government from being assessed a tax but, of course,
imposed a tax on State and local governments.
In October, 1997, the Minerals Management Service
formalized its guidelines regarding the tax for OCS sand,
gravel, and shell resources when used in shore protection and
beach erosion projects by State and local governments. In the
new policy, MMS decided to assess State and local governments a
tax for OCS sand and gravel used in shore protection projects,
even in those cases where the projects are authorized by
Federal law.
I do not believe it was Congress' intent to impose an
additional tax on State and local governments for costly yet
necessary shore protection projects. Although the costs
involved for OCS sand and gravel may not appear significant
when compared to the overall cost of a shore protection or
beach restoration project, it is considerable enough to make
such projects less attractive and more costly when undertaken
by State and local governments. So this begs the question of
why should we impose a cost on State and local governments that
the Federal Government does not pay itself when it is
performing a similar kind of a project.
Even worse, in the case of the city of Virginia Beach,
which is in my congressional district, we recently had the case
where the Minerals Management Service assessed a fee of some
$200,000 for sand and gravel for use on a project that had
already been planned, approved, and financed. Because this was
assessed after the project in effect had been funded, the only
option for the local government was to decrease the amount of
sand that was going to be put on the beach to make up for this
money that had to be paid to the Federal Government. Now, as a
result of that, this project is going to have a shorter useful
life and is going to require the local government to replace
the project earlier than planned at a much higher cost.
So I think it is a compelling reason, Madam Chair, that
this law be amended, so that we treat State and local
governments at least as well as we treat the Federal
Government, which is to say, do not assess them this tax for
the sand and gravel they need for the beach restoration and
protection projects.
Thank you very much for the time. I will be happy to
respond to any questions.
Mrs. Cubin. Thank you very much.
[The prepared statement of Mr. Pickett follows:]
Statement of Hon. Owen B. Pickett, a Representative in Congress from
the State of Virginia
Thank you for the opportunity to offer remarks before this
Committee today regarding the Minerals Management Service's
(MMS) policy of assessing a tax against state and local
governments for the use of Outer Continental Shelf (OCS) sand
and gravel. During the 103rd Congress, Public Law 103-426 was
enacted to remove procedural obstacles and allow government
agencies to negotiate and obtain OCS sand and gravel. This law
exempted the Federal Government from being assessed a tax for
OCS sand, gravel, and shell resources. In October 1997, MMS
formalized its guidelines regarding the tax for OCS sand,
gravel, and shell resources when used in shore protection and
beach restoration projects by state and local governments. In
this new policy, MMS decided to assess state and local
governments a tax for OCS sand and gravel used in shore
protection projects, even in those cases where the projects are
authorized by Federal law. I do not believe it was Congress'
intent to impose an additional tax on state and local
governments for costly, yet necessary shore protection
projects.
In 1947, Congress passed the Minerals Materials Sales Act.
This law allows localities to borrow mineral resources from
public lands for public works projects, such as road
construction, without the fear of having a tax assessed on them
by MMS. Although localities must pay money into an account to
reclaim the land from which the sand and gravel was taken,
there is no analogous law for coastal states that use offshore
mineral resources for shore protection projects. In this case,
sand and gravel mined from the OCS is naturally reclaimed
through hydrodynamic processes.
Although the costs involved for OCS sand and gravel may not
be significant when compared to the overall cost of a shore
protection or beach restoration project, it is considerable
enough to make such projects less attractive and more costly
when undertaken by state and local governments. Even worse, the
City of Virginia Beach, which is located in my Congressional
District, recently paid MMS approximately $200,000 for 1.1
million cubic yards of OCS sand for a federally authorized
project that had already been planned, approved, and funded.
Due to this increase in the project cost for the fee to MMS,
the only option for the local government was to reduce, by
400,000 cubic yards, the quantity of 1.5 million cubic yards of
sand required by the engineers in the original plans and
specifications for this project. This project will now have a
shorter useful life and will require the local government to
replace the project earlier than planned at a much higher cost.
As the Administration seeks to change the nation's shore
protection policy, the costs incurred by state and local
governments for OCS sand and gravel will continue to rise
dramatically unless this ill-advised tax law is changed.
Historically, the Federal Government has entered into 65/35
cost share agreements with local governments for federally
authorized shore protection projects. A recent proposal by the
Administration, if adopted, will reverse this cost share ratio
upon completion of the initial construction with the local
sponsor paying almost double the share of the project
maintenance. The typical MMS tax to the local government
sponsor for OCS sand and gravel will also double as a result of
this policy change. This excessive and inequitable tax will
become a serious and insurmountable burden for struggling local
governments. It is clearly another unfunded mandate on state
and local government, and it should be eliminated here and now.
I strongly urge the Committee to adopt the amendment,
restore equity among Federal, state, and local governments, and
eliminate this unfair tax.
Mrs. Cubin. Next we will call on Mayor Oberndorf.
STATEMENT OF HON. MEYERA E. OBERNDORF, CITY OF VIRGINIA BEACH,
VIRGINIA
Ms. Oberndorf. Good afternoon, Madam Chairman and
gentlemen. It is good to be here and have an opportunity to
talk to you about the city of Virginia Beach's recent dealings
with the Mineral Management Service, or MMS, under the
Department of the Interior. We are very grateful to our
Congressman, Mr. Owen Pickett, for introducing the legislation,
H.R. 3972, which we believe will help others from suffering the
unfair treatment we feel we have had.
As you probably know, Virginia Beach is a beautiful resort
city located only a few hours' ride from the Nation's Capitol,
and it is the largest city in the Commonwealth. Having served
as mayor for 10 years, I know firsthand how the well-being of
our beaches is crucial to the City's economy.
The City has over six miles of commercial beach, from which
the critical livelihood of many Virginia Beach citizens is
earned. The City's financial health from tourism is critical
because they are one of our largest employers. Over 2.5 million
out-of-town visitors arrive in Virginia Beach each year. These
visitors spend approximately $500 million in the City and
created about 11,000 jobs.
Obviously, sandy beaches are an integral part of the City's
coastal infrastructure, provide the first line of defense
against storm waves, and form the basis for our continued
economic vitality. For the past 25 years, the City, in
conjunction with the Corps of Engineers, has been working on
two of the region's highest priorities, the Resort Area Beach
and Sandbridge Beach Erosion Control and Hurricane Protection
Projects.
The Virginia Beach Resort Area project will protect and
enhance six miles of commercial and residential beachfront,
consisting of over $1 billion in flood-insured development,
against a direct hit from a hurricane. The project protects
hundreds of million dollars of City infrastructure, our tourism
industry, and more than a thousand commercial and residential
properties along the shore.
Once we have completed the construction of this erosion
control and hurricane protection project, the authorization
includes the periodic renourishment of the project beach for a
50-year period. The very basis for the project's performance
estimates is founded on the premise that sand in the beach and
the dune system and the seawall will act together to provide
the protection that we so sorely need. Beach replenishment is a
crucial component for this and the Sandbridge Beach project.
However, a contentious and outrageous issue has developed
during an emergency beach restoration of Sandbridge Beach. This
spring, the situation at Sandbridge has grown increasingly
worse as the Nor'easters that have struck the East Coast have
literally demolished the beach. We have lost 40 homes to the
storms and more than 300,000 cubic yards of protected beach
sand. As a result, the need to replenish the beach has become
even more critical. This nourishment is currently under way,
and the city of Virginia Beach is spending $8.1 million of its
own money for the initial nourishment allowed under the
congressionally authorized project.
The Department of the Interior became involved because the
location of the site the Corps has dedicated to mine the sand
to nourish the beach is beyond the 3-mile limit. The amended
Outer Continental Shelf Lands Act authorized the Department of
the Interior to assess fees for the extraction of minerals from
the Continental Shelf.
Under law, a noncompetitive lease agreement must be signed
between the City and the Minerals Management Service before the
project can begin. This program is managed by the MMS, which in
late 1997 finalized its policies regarding fee assessment.
In short, its policy would exempt federally funded beach
replenishment projects from fees for sand minerals mined from
the Shelf for such projects. However, under the new
interpretation, locally funded beach replenishment projects are
not exempt, regardless of Federal authorization or Federal
participation.
As a result of this recent policy development, the city of
Virginia Beach was assessed by MMS a fee for mining the sand
used to construct the Federal project at Sandbridge solely
because the City, not the Federal Government, fronted the cost
of the construction. This was in spite of the fact that the
Corps used approximately $2 million of its Federal dollars to
design the project, acted as construction manager, and would
consider this as the initial nourishment of this project
authorized by the 1992 WRDA.
This was the first such assessment anywhere in the Nation;
and we are hoping that, with the law that Congressman Pickett
is seeking to have passed, that other shore communities will be
relieved of this burden and will be able to replenish their
beaches in order to keep not only a healthy City and State but
also a Nation.
Thank you.
Mrs. Cubin. Thank you very much.
[The prepared statement of Ms. Oberndorf may be found at
end of hearing.]
Mrs. Cubin. Ms. Hartgen.
STATEMENT OF CAROL HARTGEN, CHIEF, OFFICE OF INTERNATIONAL
ACTIVITIES AND MARINE MINERALS, MINERALS MANAGEMENT SERVICE,
DEPARTMENT OF THE INTERIOR
Ms. Hartgen. Thank you, Madam Chairman.
Madam Chairman and members of the Subcommittee, thank you
for the opportunity to testify on H.R. 3972. I am representing
the Minerals Management Service and am Chief of the
International Activities and Marine Minerals Division of MMS,
which develops policy and guidance for the exploration and
development of OCS marine hard minerals, including sand and
gravel.
A copy of my written testimony has been submitted for the
Record. I would also like to submit for the Record a copy of
MMS' policy and guidelines for assessing fees for OCS resources
used in shore protection and restoration projects.
[The information referred to may be found at end of
hearing.]
Ms. Hartgen. I would like to highlight the activities of
the MMS sand and gravel program and discuss our authority under
Public Law 103-426 to negotiate agreements with State and local
governments for access to OCS sand, gravel, and shell, and
assess a fee for use of these resources.
I would also like to discuss the reasons why we believe
that reasonable fees should continue to be assessed for the use
of OCS resources pursuant to the OCS Lands Act, Section
8(k)(2)(B).
MMS is primarily known as the agency that leases and
regulates OCS oil and gas activities, but we also have a
vibrant nonenergy minerals program that is currently focused on
sand and gravel along the East Coast and the Gulf of Mexico.
MMS has cooperative partnerships with nine States along the
Atlantic and Gulf of Mexico coast: New Jersey, Maryland,
Delaware, Virginia, North Carolina, South Carolina, Florida,
Alabama, and Louisiana. Federal funds and matching
contributions from the States in either moneys or in-kind
services have and continue to identify OCS sand deposits for
potential use in beach nourishment projects.
Environmental information is also being collected by
private contract, providing the information base to make
decisions on the potential use of the sand. These cooperative
partnerships, with and at the request of these States, provide
an excellent example of Federal and State agencies working
together to gather information on marine mineral resources for
which there is a growing need. It is these OCS sites being
identified in this cooperative manner that are the subject of
negotiated lease agreements with local governments.
Public Law 103-426, passed by Congress in 1994, authorized
a negotiated agreement process in lieu of competitive bidding
to facilitate the way in which OCS sand, gravel, and shell
could be made available when these resources were needed for
certain publicly beneficial projects like beach nourishment and
wetlands restoration projects undertaken by Federal, State, or
local government agencies.
In passing the amendment, Congress recognized that the
competitive bidding process was impractical when OCS resources
were needed for certain public works uses. Congress did not
want governmental construction costs to become prohibitive as a
result of bidding competition for the resources, nor did they
want a government project sponsor or its contractor needing OCS
resources to be unable to access OCS sand as a result of being
outbid at a sale.
Congress also provided that the Secretary may assess a fee
based on the value of the resources and the public interest
served by developing the resources, except that no fee would be
assessed against a Federal agency.
A negotiated agreement process provided the impetus for
government project planners to consider the OCS as an
alternative supply source.
Since 1995, MMS has completed one negotiated agreement with
the Navy and three negotiated lease agreements with local
governments in Florida, South Carolina and Virginia, conveying
rights to approximately 4 million cubic yards of OCS sand and
to support publicly beneficial shore protection projects.
In the most recent negotiated agreement with the city of
Virginia Beach in Congressman Pickett's district, MMS assessed
a fee of 18 cents a cubic yard, totaling $198,000 for 1.1
million cubic yards of sand. The fee was discounted 65 percent
off the estimated value of the sand to reflect the public
interest served by the project. We worked closely with the
Norfolk District of the U.S. Army Corps of Engineers and the
city of Virginia Beach officials on this project. This is the
first agreement for which a fee for the use of OCS sand was
collected and deposited in the United States Treasury. Use of
OCS sand is now being planned for upcoming projects in
Maryland, New Jersey, and Louisiana.
MMS prepared internal guidelines on how fees would be
determined at the time of each negotiation. A special
subcommittee of the Department's OCS policy committee reviewed
and assisted MMS with the guidelines and found the approach for
determining fees acceptable and consistent with the OCS lands
Act. The guidelines were shared with State and local
governments, as well as Federal project sponsors, to help them
with project planning and funding decisions. The MMS
methodology for determining sand values is based on a balancing
test, weighing the value of resources and the public interest.
Sand values are based on references to market values and
provide for discounts to reflect public interest, reducing
value by the same percentage amount, typically 65 percent, as
the Federal share of project construction costs.
H.R. 3972 changes part of the 1994 amendment in 8(k)(2)(B)
and would prohibit the Secretary of the Interior from charging
fees to State and local government agencies. In short, it would
eliminate entirely the Secretary's authority to assess fees
under paragraph B, because authorization to negotiate
agreements pertains only to governmental use of sand. Private
or commercial requests are still addressed through the
competitive bidding process.
The Department of the Interior believes that the Secretary
should continue to be allowed to assess fees to States and
local governments for the use of OCS sand and gravel and shell
and that there are good reasons for doing so. Therefore, we do
not support H.R. 3972, and the Office of Management and Budget
advises that the bill has pay-go implications.
The legislative history of the 1994 amendments contains
clear indications that Congress considered the issue of fees.
In passing the amendment, Congress provided an alternative
process for conveying rights to State and local entities but
did not intend that the resources be given away.
The Department thought then, and continues to think now,
that it makes sound economic and public policy to realize a
financial return to the Treasury, both for private and
government use of the resource. OCS sand, gravel, and shell are
part of the Nation's endowment of valuable mineral resources.
In conclusion, we believe it is important to continue to
provide the Secretary with the authority to assess fees. The
fee will only be a small fraction of total project costs.
However, it represents the government's commitment to provide a
fair return to the public for the use of its public resources.
Thank you very much.
Mrs. Cubin. Thank you very much.
[The prepared statement of Ms. Hartgen may be found at end
of hearing.]
Mrs. Cubin. I will start the questioning.
Mr. Pickett, I was not a Member of Congress when Mr. Ortiz'
bill to address OCS sand resources became law in 1994, but is
it your understanding that the 103d Congress intended MMS to
charge royalties or fees to State and local governments that
seek to replenish beaches using this?
Mr. Pickett. Madam Chair, it was not my understanding that
this fee would be assessed to local governments and
particularly would not be assessed in those cases where a
project is an authorized Federal project that has been
established as an authorized project by Federal law.
I think, in my mind, that it is counterproductive to
extract this--they may call it a fee, but it is nothing more
than a tax--from State and local governments when this is
material that is placed on public property for use of all the
citizens.
Mrs. Cubin. It seems to me that it would be fair to refer
to the fee as a rental, rather than a royalty, because the sand
that is dredged from the OCS and placed on the beaches will
ultimately go back to the shoals, anyway.
Mr. Pickett. That is true. It is migrates all around. You
might pay for some of it twice.
Mrs. Cubin. I think you are correct in your understanding
that communities in the West that are surrounded by public
lands that are administered by the BLM and Forest Service can
get free use permits for sand and gravel for public projects
like road building and things like that.
Wyoming has not had a beach replenishment project for some
60 million years, and so I cannot relate to your problem there,
but certainly I do understand that there should be equitable
treatment for the coastal States, as public land States. We
make that plea and cry many times when we are on the short end
of what we consider to be policies that are not helpful to us,
so certainly I think we need to grant that to you.
I do not really have any other questions for you, other
than I do want you to know that I am supportive, and would ask
you if you would like to join, unless either member has
questions, to join the panel, if you would like to.
Mr. Pickett. Madam Chairman, I really appreciate your
support. I appreciate your being gracious and having me here
today to speak in support of this bill.
I am on a conference committee on the defense authorization
bill and we do have a meeting coming up in just a few moments,
so I will ask if you will excuse me. It is not because of a
lack of interest. I do want to be present for the conference
committee meeting.
Mrs. Cubin. Absolutely.
Mr. Pickett. Thank you very much.
Mr. Romero-Barcelo. Madam Chairman, I would just like to
make a couple of comments.
In the first place, coming from New York, I am very much
aware for the need for beach replenishment and the need to have
access to the minerals and the resources on the bottom of the
ocean.
But in Puerto Rico, as well as Texas and the west coast of
Florida, we are in an advantageous position because we have the
crown lands, and the crown lands gave us a 3-mile league
jurisdiction, which is 10.35 miles. So I am sure the Federal
Government cannot be charging Texas or the west coast of
Florida for sand extracted up to 10.35 miles from the shore,
because that belongs to the State of Texas and the State of
Florida.
That is another inequitable situation where the States have
ocean lands. I just wanted to add that fact for those of you
who might not be aware of it. So that is another argument to
support your request.
Mr. Pickett. I was not aware of that, and I appreciate you
very much pointing that out.
Mrs. Cubin. Thank you for being here. Please do good work
on that conference committee. I know you will.
Mayor Oberndorf, I simply want you to know that I
sympathize with your City's plight in having to deal on this
issue with the Department of the Interior.
One thing that I see has happened since I have been here in
Congress is that we find that the States, public land States,
coastal States, have a lot more in common than we realized that
we did. So learning about one another's issues and being
sympathetic--Mr. Pickett has certainly always been very open to
listen to the problems that we face in the West with having
half of my State, for example, owned by the Federal Government,
and there are problems.
I do not mean to sound like I think the land management
agencies are all bad. They are not. But it is just trying to
define what the roles should be and what the policies should be
that sometimes we find ourselves in conflict on.
As I said earlier, I am very willing to work with Mr.
Pickett to eliminate what I consider the new tax for State and
local government projects. But I do want you to know that the
much larger cost issue of the U.S. Corps of Engineers' funding
for the actual dredging and other work is outside the
jurisdiction of this Committee.
I have given my OK for the Pickett language to be included
in the Water Resources Development Act reauthorization bill,
which is pending in front of the Transportation Committee, so
that will help move it along faster, rather than continuing to
go through all the steps through this Committee.
Thank you for being here, and thank you for your testimony.
Ms. Oberndorf. Thank you.
Mrs. Cubin. I did just have a couple of questions for Ms.
Hartgen of MMS.
Your testimony quotes former Member Gerry Studds' statement
on the Ortiz bill, but I do not see a conflict with the Pickett
bill and Mr. Studds' intent if MMS simply values State and
local projects as fully in the public interest like you view
Federal projects to be in the public interest. To me, I see it
the same.
In other words, is beach replenishment on Padre Island
National Seashore anymore in the public interest than the city
of Virginia Beach's project? Just because the former Padre
Island is Federal only, I cannot see why that is more in the
public interest than the replenishment of the beach at Virginia
Beach. I am guessing that far more of the public of the country
visit Virginia Beach than they do Padre Island.
I just wonder if you could explain to me how that is fair
or what the Minerals Management Service considers--what is the
difference?
Ms. Hartgen. Madam Chairman, I agree that both reflect the
public interest. The issue of the fees for sand, because of the
sand's location on the Outer Continental Shelf, involves--in
line with the amendments to the Lands Act--an assessment of the
fee.
The way the public interest is taken into consideration and
is reflected in our fee guidelines, is through discontinuing
the fee. The fee reflects the type of cost-sharing that the
Federal Government engages in--in this case, the Army Corps of
Engineers, on public interest projects where there is a Federal
and State cost-sharing for projects being conducted in the
public interest. That is the reason, for example, that we
discounted the Virginia Beach fee 65 percent.
Mrs. Cubin. But the sand and gravel on Padre Island was
zero percent. You can understand, I think there is a legitimate
side here, but public interest is public interest. That is why
we are here, to straighten that out. I understand your position
on that.
You said, I think it was very near the end of your
testimony, that this legislation had fatal implications. I
think those were the two words that you used. I wonder if you
could explain that to me a little more.
All right, it had pay-go implications, which could be
fatal. That is right.
All right. I don't have any further questions, but I do
thank you for your testimony.
Mr. Romero-Barcelo?
Mr. Romero-Barcelo. No.
Mrs. Cubin. Are there further questions?
Thank you very much for being here, and we will dismiss
this panel.
I call on Mr. Culp, the Assistant Director of Minerals,
Realty, and Resource Protection, the BLM.
Thank you for being here to testify on bills H.R. 3878 and
H.R. 1467.
STATEMENT OF CARSON W. CULP, ASSISTANT DIRECTOR, MINERALS,
REALTY AND RESOURCE PROTECTION, BUREAU OF LAND MANAGEMENT, U.S.
DEPARTMENT OF THE INTERIOR
Mr. Culp. Thank you, Madam Chairman and members of the
Committee. We appreciate this opportunity to testify today on
H.R. 3878, a bill that would subject certain reserve mineral
interests in Wyoming to the operation of the Mineral Leasing
Act, and H.R. 1467, which would allow oil and gas operators in
the Wayne National Forest to continue operations under their
preexisting private leases, even after the mineral estate
reverts to the United States.
We have worked closely with the Subcommittee, your staff,
and stakeholders on both bills to reach consensus language in
order to assist the industry and create win-win situations for
all involved. We support H.R. 3878 and, while we oppose H.R.
1467 as introduced, we are still working with your staff and
the Ohio Oil and Gas Association to find a compromise that will
work for everyone. I am hopeful that the bill will be amended,
as you discussed in your opening statement, so that we will not
have to object to its passage.
To briefly address H.R. 3878, the bill would open two
tracts of lands in Sublette County, Wyoming, to oil and gas
leasing under the Mineral Leasing Act. It would provide that
any party requiring a lease on the lands could also exercise
the right reserved to the United States to enter these lands
and occupy as much of the surface as is reasonably required for
oil and gas exploration, development, and production.
H.R. 3878 would protect the surface owner against damage to
crops or tangible improvements and the loss of surface uses as
a result of oil and gas operational activities.
As you indicated, the bill also validates an existing lease
that was mistakenly issued on one of these tracts. Without this
legislation, the BLM would be forced to cancel the lease. The
two tracts were transferred through the Public Land Sale Act of
1964. Under this Act, the mineral rights were reserved to the
United States but withdrawn from the mineral leasing laws.
The BLM does not object to opening these tracts to leasing
under the Mineral Leasing Act. Furthermore, recognizing that
there is no objection from the patentee, we support the efforts
to validate the lease we mistakenly issued in 1997.
Turning to H.R. 1467, we have been working with the State
of Ohio and with the Committee to reach a workable solution for
oil and gas operators in the Wayne National Forest. We believe
that we can find an acceptable way to assist the operators, and
we are continuing our discussions with them, the State, and the
other stakeholders.
For instance, we would not oppose legislation that would
authorize BLM to issue to these operators noncompetitive oil
and gas production and reclamation contracts, basically subject
to the same laws and regulations as applied to their private
leases. However, unlike H.R. 1467, certain conditions would
have to be spelled out in any legislation authorizing this
action.
First, the legislation would have to prohibit the
contractors from authorizing new and deeper completions for
additional drillings. In addition, the legislation would have
to assure the complete and timely reclamation of the former
lease tract, in accordance with the regulations of BLM and the
U.S. Forest Service. To provide this assurance, the operator
would have to provide a Federal oil and gas bond.
However, I should mention that we were also discussing
other possible ways to assure the full and timely reclamation.
Our cooperative efforts with the Ohio Department of Natural
Resources' Division of Oil and Gas have led us to consider
another option to ensure full and timely reclamation of the
lease tract. This option has three elements and would be void
unless all three were met.
First, the Secretary would accept, in lieu of the bond, the
assurance of the Ohio Department of Natural Resources' Division
of Oil and Gas that the contractor has duly satisfied the
bonding requirements of the State and, following inspection,
the State does not oppose the waiver.
Second, the U.S. would be entitled to apply for and receive
funding under the provisions of Section 1509.071 of the Ohio
Revised Code so as to properly plug and restore oil and gas
sites and lease tracts as necessary.
And, finally, for the last 2 years, no less than 20 percent
of the severance tax revenue would have to be allocated to the
States' Orphan Well Fund, and I understand that is the way it
works currently.
As we stated, we are having serious discussions with the
State, and I believe we are very close to reaching agreement.
In fact, just before the hearing we saw letters from the State
and the State oil and gas association to that effect. We will
continue this process to try to reach an acceptable solution
for the operators in the Wayne National Forest, and I am
confident that, as is the case with H.R. 3878, we can find a
win-win situation here as well.
That concludes my oral testimony. I will ask that my full
written statement be entered in the record and will be happy to
answer any questions.
Mrs. Cubin. Thank you very much. Certainly your full
written statement will be entered in the Record.
[The prepared statement of Mr. Culp may be found at end of
hearing.]
Mrs. Cubin. I also thank you for bringing us the good news
today that BLM and I agree on this issue, and I know as time
passes we are going to agree on even more and more issues that
are related to oil and gas.
With respect to the Sublette County, Wyoming, withdrawal
from mineral leasing issues, I am happy to know that the folks
from the Bureau at the district, State, and headquarters level
agree that allowing competitive bidding for oil and gas leases
on the subject tracts makes good sense. It truly does.
Just last week the State of Wyoming announced that some of
its severance taxes collected on various minerals in the last
fiscal year, while our coal mining counties and oil producing
counties suffered declines from depressed prices, Sublette
County is still enjoying a boom from development of abundant
natural gas resources. So I think H.R. 3878 should be a win-win
story for the county, the State, and the Federal Treasury.
So I hope that as soon as this bill passes that the area
will go up for bid, and then we and MMS can argue over how to
collect royalties from that. This goes on and on. I appreciate
your support of this.
As to Mr. Ney's bill, I am glad also that an apparent
compromise has been fashioned suitable--that is suitable to the
Bureau and the Ohio Department of Natural Resources. As you
know, this Subcommittee has really tried to get your agency in
many cases to work with the States, led by the Interstate Oil
and Gas Compact Commission, to find economies in the post oil
and gas lease issuance of the public lands minerals management.
I do not want to make too much of the draft language that
the agency has negotiated, but I do consider it a step toward
acknowledging the role for State regulatory agencies in making
the oil patch work for all concerned.
And, yes, the operators on the Wayne National Forest are a
unique lot, and I mean that in a most favorable way, such that
normal BLM rules concerning financial guarantees for plugging
and abandonment of oil wells is more than the lessees can
handle. But the Ohio program has demonstrated to BLM's
satisfaction, and must continue to do so do remain valid, that
the existing wells pose little or no threat for improper
abandonment.
Now if we can work together to find acceptable solutions to
less unique circumstances, the operators in Wyoming and other
public domain, we really will have made progress.
At this time, I ask unanimous consent to place into the
Record letters from the Acting Chief of the Division of Oil and
Gas for the Ohio Department of Natural Resources and from the
Ohio Oil and Gas Association, each of whom support the
negotiated agreement of the DOI-drafted language, which I will
offer as a substitute to H.R. 1467 at subsequent markup.
I think that will satisfy the reservations that it is my
understanding you have with the legislation as it is drafted,
is that correct?
Mr. Culp. Yes. The substitute language would still have to
go through the regular clearance process, of course.
Mrs. Cubin. Exactly, right. Then that certainly would be
our intention.
I ask unanimous consent to enter these into the Record.
[The information referred to may be found at end of
hearing.]
Mrs. Cubin. Are there any questions by any of the other
Members?
Mr. Romero-Barcelo. No.
Mrs. Cubin. It certainly is nice to move hearing on three
bills in such an expeditious manner. I do thank you, Mr. Culp,
for your testimony and your cooperation in being here with us
today.
The hearing record will be kept open for 10 days, and as I
said earlier, your full testimony will be entered into the
Record. Thank you very much.
Mr. Culp. Thank you, Madam Chairman.
Mrs. Cubin. If there is no further business, I want to
thank the members of the Subcommittee for being here, and the
Subcommittee stands adjourned.
[Whereupon, at 2:50 p.m., the Subcommittee was adjourned.]
[Additional material submitted for the record follows.]
Statement of Hon. Meyera E. Oberndorf, City of Virginia Beach
Good morning Mr. Chairman and members of the Subcommittee.
My name is Meyera Oberndorf, and I am the Mayor of the City of
Virginia Beach. I appreciate this opportunity to testify before
the Subcommittee to discuss the City's recent dealings with the
Mineral Management Service (MMS) under the Department of the
Interior. We are very appreciative of our local representative,
Owen Pickett, a member of this Committee who has introduced
H.R. 3972. We believe this legislation will help others from
suffering unfairly as the City of Virginia Beach has in the
hands of the MMS.
As you probably know, Virginia Beach is a beautiful resort
city located only a few hours drive from the nation's capitol,
and it is the largest City in the Commonwealth. Having served
as Mayor for 10 years, I know first-hand how the well-being of
our beaches is crucial to the City's economy. The City has over
6 miles of commercial beach front which is critical to the
livelihood of many Virginia Beach residents and the City's
financial health since tourism is our largest employer.
Over five million out-of-town visitors arrived in Virginia
Beach last year. These visitors spent approximately $500
million in the City, and directly created about 11,000 jobs. In
addition to our visitors, the second biggest employer for
Virginia Beach is the U.S. Navy as the Naval Air Station (NAS)
Oceana and three other military installations support the
Norfolk naval complex. After three rounds of Base Realignment
and Closure (BRAC), expansion of this megaport continues with
an increase of as many as 6,000 sailors and family members in
the next year with the transfer of F/A 18s from Cecil Field in
Florida to Oceana. Our City's economic health directly impacts
the quality of life enjoyed by the thousands of Naval personnel
in Virginia Beach.
Sandy beaches are an integral part of the City's coastal
infrastructure and provide the first line of defense against
storm waves and form the basis for our continued economic
vitality. For the past 25 years, the City, in conjunction with
the Corps of Engineers, has been working to finish two of the
region's highest priorities, the Resort Area Beach and the
Sandbridge Beach Erosion Control and Hurricane Protection
Projects.
The Virginia Beach Resort Area project will protect and
enhance six miles of commercial and residential beachfront,
consisting of over a billion dollars in flood insured
development, against a direct hit from a hurricane. The project
protects hundreds of millions of dollars of City
infrastructure, our tourism industry and more than a thousand
commercial and residential properties along the shore.
Once construction of this Beach Erosion Control and
Hurricane Protection project is complete, the authorization
includes the periodic renourishment of the project beach for a
50-year period. The very basis for the project's performance
estimates is founded on the premise that the sand in the beach
and dune system and the seawall will act together to provide
the protection benefits. Beach replenishment is a crucial
component for this and the Sandbridge project.
However, a contentious and outrageous issue has developed
during an emergency beach restoration of Sandbridge Beach. This
Spring, the situation at Sandbridge has grown increasingly
worse as the Nor'easter's that have struck the east coast have
literally demolished the beach. We have lost 40 homes to the
storms, and more than 300,000 cubic yards of protective beach
sand. As a result, the need to replenish the beach has become
even more critical. This nourishment is currently underway, and
the City of Virginia Beach is spending $8.1 million of its own
money for the initial nourishment allowed under the
Congressionally authorized project.
The Department of Interior became involved because the
location of the site the Corps has designated to mine the sand
for nourishing the beach is beyond the three mile limit. The
amended Outer Continental Shelf Lands Act authorized the
Department of the Interior to assess fees for the extraction of
minerals from the continental shelf. Under law, a non-
competitive lease agreement must be signed between the City and
the Minerals Management Service (MMS) before the project can
begin. This program is managed by the MMS, which in late 1997
finalized its policies regarding fee assessment.
In short, its policy would exempt federally funded beach
replenishment projects from fees for sand minerals mined from
the Shelf for such projects. However, under the new
interpretation, locally funded beach replenishment projects are
NOT exempt, regardless of Federal authorization or Federal
participation.
As a result of this recent policy development, the City of
Virginia Beach was assessed a fee by MMS for mining the sand
used to construct the Federal project at Sandbridge solely
because the City, not the Federal Government fronted the cost
of the construction. This was in spite of the fact that the
Corps used approximately $2 million of its Federal dollars to
design the project, acted as construction manager, and would
consider this as the initial nourishment of this project
authorized by the 1992 WRDA. This was the first such assessment
anywhere in the nation. The purpose for establishing fees for
mineral extraction from the continental shelf was to assure
that the citizens were compensated for allowing the use of
public resources by profit seeking endeavors. Clearly Congress
did not intend for the Department of the Interior to assess
fees to local governments who would use the mineral for a
purely public purpose--flood protection.
In our case, a fee of $0.18 per cubic yard was assessed,
and we were compelled to enter into a lease agreement with MMS
before our emergency beach erosion project could go forward.
Including this fee in our project finances limited us to
contracting for only cubic yards of sand, paying the Department
of Interior $198,000 in mineral fees to construct the Federal
project. That fee accounts for an additional 40,000 cubic yards
of sand that could have been placed on the beach at Sandbridge!
In this time when the Administration is proposing to rely more
heavily on local sponsors for the funding and execution of
Federal flood protection projects, clearly the
counterproductive nature of assessing these fees to local
sponsors should be eliminated. The Department of the Interior
has clearly overstepped its authority by assessing fees to
local governments for mining beach replenishment sand in the
furtherance of projects authorized by this Committee. We
believe Mr. Pickett's bill will end this abusive policy for any
other communities in the future who will mine in the Outer
Continental Shelf to complete projects authorized by the WRDA.
In that the City of Virginia Beach is the only locality in the
country to have ever been compelled to pay the mining fee, we
would hope that additional directive language be added to the
bill for reimbursement to the City out of the MMS account, for
the $198,000 that the City was forced to pay.
Mr. Chairman, I want to thank you again for the opportunity
to speak with you today on beach protection and replenishment
issues. We urge the adoption of H.R. 3972. Also, I would love
to have you visit my city to look at the Federal-City
partnership in action.
------
Statement of Carol Hartgen, Chief, Office of International Activities
and Marine Minerals, Minerals Management Service, U.S. Department of
the Interior
Madam Chairwoman and Members of the Subcommittee, thank you
for the opportunity to testify on the Minerals Management
Service's (MMS) sand and gravel program and on H.R. 3972, a
bill to amend section 8(k)(2)(B) of the Outer Continental Shelf
Lands Act (OCSLA) to prohibit the Secretary of the Interior
from charging fees to State and local government agencies for
certain uses of sand, gravel, and shell from the OCS.
THE MMS SAND AND GRAVEL PROGRAM
Although MMS is primarily known as the agency within the
Federal Government that leases and regulates OCS oil and
natural gas activities, the agency also has a vibrant non-
energy minerals program. Currently, the program's major focus
is on OCS sand and gravel, and MMS has cooperative partnerships
with the States of New Jersey, Maryland, Delaware, Virginia,
North and South Carolina, Florida, Alabama, and Louisiana to
identify sand deposits in Federal waters suitable for beach
nourishment. Environmental information on potential OCS sand
borrow sites also is being collected by private contract,
providing both the MMS, States, and localities with the
information base necessary to make decisions on the possible
use of these sand resources. These partnerships are a key
strategy in ensuring environmental protection, safe operations,
and issue resolution in marine mineral resource development and
are an excellent example of Federal/State cooperation.
As you may be aware, the OCS contains abundant quantities
of sand that could be used on projects in coastal States to
forestall beach erosion, protect shoreline development, provide
improved recreation and protect valuable wetlands resources. In
1994, Congress amended the OCS Lands Act (OCSLA) to help
facilitate the use of OCS resources on these projects. The
amendment, Public Law 103-426, authorized the use of non-
competitive negotiated agreements for gaining access to the OCS
sand, gravel, and shell resources when these resources are
needed for certain public projects like beach and wetlands
protection and restoration undertaken by Federal, or State, or
local government agencies. Most requests for negotiated
agreements have been/are expected to be for OCS sand, so even
though the authority includes gravel and shell as well, the
discussion below will in many cases simply reference sand.
Historically, sources of sand for projects has been the
nearby State submerged lands. In some coastal areas, submerged
State lands and onshore lands are becoming depleted or
otherwise unsuitable. Access to OCS sand can provide suitable
sand and a significant cost savings for States and local
communities when compared to the price of sand from onshore
sources. Additionally, removing sand from offshore and in
particular from the OCS--may be the more environmentally
preferable because of the limited physical impacts to the local
environments. Using OCS sand can take some pressure off other
alternative sources located on valuable and fragile beach,
wetland or dune systems. Also, development of sand sources
farther from the shore, (i.e., from the OCS) may also avoid
adverse impacts from the creation of pits and burrows near the
shore which can cause erosion by altering the local current and
wave regimes.
When Congress amended section 8(k) of the OCS Lands Act in
1994, it provided the necessary impetus for Federal, State and
local government project planners to consider the OCS as an
alternative sand supply source. Since the new law was enacted,
many coastal States, local governments, and other Federal
agencies have approached MMS and asked how they can get access
to OCS sand.
To date, MMS has completed one MOU agreement with the Navy
and three negotiated agreements with local governments (in
Florida, South Carolina, and Virginia), conveying rights to
approximately 4 million cubic yards of OCS sand to support
publicly-beneficial shore protection projects. For the most-
recent project, MMS negotiated a non-competitive lease with the
City of Virginia Beach, and assessed a fee of $0.18 per cubic
yard (totaling $198,000 for 1.1 million cubic yards of sand).
This fee was discounted 65 percent off the estimate of value to
reflect the public interest served by the project. We worked
closely with the Norfolk District of the U.S. Army Corps of
Engineers (USACE) and City of Virginia Beach officials on this
project. This is the first agreement for which a fee for use of
OCS sand was collected. Use of OCS sand is now being planned
for upcoming projects in Maryland, New Jersey, and Louisiana.
BACKGROUND ON PUBLIC LAW 103-426 AND SECTION 8(k)(2) OF THE
OCSLA
Section 8(k) of the OCSLA addresses leasing of any OCS
mineral other than oil, gas, and sulphur. The original wording
of this section required that, in all cases, the Department use
a competitive bonus bidding process for conveying the mineral
rights to those resources. In 1994, section 8(k) was amended by
Public Law 103-426. In general, the amendment authorizes the
Secretary to negotiate agreements for use of OCS sand, gravel,
and shell when these resources are requested for use in certain
public projects like beach and wetlands protection and
restoration undertaken by Federal, State, or local government
agencies.
The new authority to negotiate agreements provided an
alternative process for acquiring the rights to develop OCS
sand because Congress determined that the competitive bidding
process was impractical when OCS resources were needed for
certain public works uses. Congress did not want governmental
construction costs to become prohibitive as a result of bidding
competition for the resources, nor did they want a government
project sponsor, or its contractor, needing OCS resources to be
foreclosed from access to sand as a result of being outbid at
the sale.
The amendment also provided, in section 8(k)(2)(B), that
``the Secretary may assess a fee based on an assessment of the
value of the resources and the public interest served by
promoting development of the resources. No fee shall be
assessed directly or indirectly . . . against an an agency of
the Federal Government.'' This valuation method allows the
Secretary to determine an appropriate fee that would take into
account both the value of the Federal minerals and the public
benefits that could be realized from providing affordable
access to OCS resources to support public projects. The ``no
fee'' exemption for Federal agencies was included to prevent
the transfer of funds from one Federal agency to another and to
prevent local project sponsors from passing back to the Federal
Government (e.g., through a cost-sharing agreement with the
USACE) the expense of fees for use of the Federal sand paid
under this law.
MMS ASSESSMENT OF FEES UNDER SECTION 8(k)(2)(B):
MMS prepared internal guidelines relating to fee
assessments under section 8(k)(2)(B) of the OCSLA to use when
negotiating specific agreements pursuant to that section of the
Act. These guidelines were shared with State and local
governments, as well as Federal project sponsors, to provide
information about potential fees for sand, gravel, and shell
resources and how the fees will be determined so that sponsors
can compare alternative sources and forecast project funding
needs.
The approach for determining fees outlined in the
guidelines is based upon congressional direction that fees be
based on a balancing test weighing the value of the resources
and the public interest served. The MMS methodology provides
for determination of sand values based on references to market
values and provides for discounts to reflect public interest in
the fee assessment, reducing the market-based estimate of value
by the same percentage amount (typically 65 percent) used to
represent the congressionally-mandated Federal share of costs
of constructing the projects. This balancing of resource value
with public interest considerations provides a discount for
State and local governments, resulting in a reasonable fee for
the resource.
The Department's OCS Policy Committee (Committee) reviewed
the guidelines and found the approach for determining fees
acceptable and consistent with the OCSLA. The Committee
includes representatives from coastal States, local
governments, the environmental community and industry and
provides advice to the Secretary on a wide range of issues
associated with OCS mineral development. The Committee
recommended that the guidelines be made available to the public
to enhance the timely dissemination of information and to
assist governmental planners.
To date, each of the three local governments mentioned
earlier who requested OCS sand also requested that the fee be
waived. During the early stage of the program, MMS was able to
waive the fee for two projects for reasons of fairness and
equity. Specifically, for these cases, project planning and
budget development was well underway prior to enactment of the
1994 amendment, and MMS was concerned that imposition of a fee
could delay or prevent project construction. Since that time,
however, coastal States have been informed about the
requirements for accessing OCS sand and MMS's policy to assess
fees consistent with the 1994 amendment.
COMMENTS ON H.R. 3972
H.R. 3972 proposes to change the 1994 amendment to the OCS
Lands Act to prohibit the Secretary of the Interior from
charging fees to State and local government agencies. In short,
H.R. 3972 would eliminate entirely the Secretary's authority to
assess fees under section 8(k)(2)(B) because authorization to
negotiate agreements under this section of the law pertains
only to use of OCS sand, gravel, and shell to support Federal,
State, or local government sponsored projects. Non-governmental
(private or commercial) requests for these OCS resources are
still addressed through the competitive bidding provisions of
section 8(k)(1).
The Department believes that the Secretary should be
allowed to assess fees to States and local governments for the
use of OCS sand, gravel, and shell resources and that there are
good reasons for doing so. Therefore, we do not support H.R.
3972, and the Office of Management and Budget (OMB) advises
that the bill has Pay-as-you-Go implications.
When Congress amended section 8(k) in 1994 to authorize
negotiated agreements for governmental use of OCS resources,
the legislative history of Public Law 103-426 contains clear
indications that Congress considered the issue of fees. During
House floor consideration of the pending legislation,
Representative Gerry Studds, Chairman of the Committee on
Merchant Marine and Fisheries stated the following:
``The bill accomplishes two important things. First, it makes
OCS hard minerals available for public projects without
requiring . . . a competitive lease sale. Under current law,
these resources could only be made available to State and local
governments through such a lease sale which is too costly and
too cumbersome. However, the minerals are not to be given away
(emphasis added). The bill authorizes fees to be charged based
on the value of the resources and the public interest.''
In part, the Department supported the 1994 amendment because it was
sound economic and public policy to realize some financial return both
when Federal sand, gravel and shell resources are leased competitively
(under section 8(k)(1) for private or commercial use), or leased
through the negotiated agreement authority under section 8(k)(2) for
use in public projects. The Department is still of that opinion. In
addition--
The Department seeks to obtain ``fair value'' for the
use of all Federal minerals consistent with mineral leasing law
(onshore and offshore), and the public expects no less. OCS
sand, gravel, and shell are part of the Nation's endowment of
valuable mineral resources. Thus, sand from the OCS and the
value associated with it belong to all States--not coastal
States alone.
As is true for private projects, public projects
should accurately account for all costs--including sand value--
and benefits so that informed decisions can be made. A
reasonable fee for the resources, consistent with values seen
in the general market, will help to ensure that the timing of
investments in OCS sand recovery is market-based and that the
Nation receives a fair return for the development of these
resources.
Most coastal States have developed beach management
programs for the purpose of defining their needs and raising
funds to ensure the continued viability of this important
revenue-generating asset. For example, tourism surcharges
(e.g., hotel ``bed taxes'') have been used as a partial source
for beach management funding and is justified because those
most frequently using the beach are contributing directly to
beach repair and maintenance. Bond issues and property taxes
are also used to fund beach projects. It is reasonable to
expect that some State and local tax revenues should fund the
costs of protecting the beaches, including some payment for the
use of Federal sand for project construction.
With the fee exemption provided by H.R. 3972,
nationally-owned sand resources would be provided to coastal
States to support construction of shore protection and
restoration projects, even if Congress has not approved Federal
involvement and funding for project construction. For projects
that do include Federal participation, congressional
authorization requires sharing of the costs of construction
with State and local project sponsors (usually at least 35
percent is the non-Federal share of construction costs). Thus,
for cost-shared projects, use of OCS sand under H.R. 3972 means
that the Federal Government would be absorbing a greater
proportionate share of the project costs (through an in-kind
contribution of the sand) than the congressionally-mandated
Federal share.
Also, many publicly-sponsored beach projects can contain
design components that provide incidental sand nourishment for
privately-owned beachfront property. The USACE is prohibited
from using Federal money to protect or nourish private
property. Governmental project plans will account for any
incidental components by requiring that private beachfront
property owners provide public access or reimburse the local
sponsor for their proportionate share of project costs (and the
non-Federal cost share, including the MMS fee, would be
increased accordingly). With the changes proposed by H.R. 3972,
it would be virtually impossible for MMS to ensure that any
private property owners pay for Federal sand that it receives
as part of a government-sponsored project.
In recent years, coastal States and localities needs
for OCS sand for beach nourishment and coastal restoration have
increased. MMS believes this trend will continue and even
accelerate, as resources within State waters are depleted. Due
to Federal budget limitations, we also are seeing a trend where
State and local communities assume an increasing financial
responsibility for projects to protect their beaches and
tourism industry, and this is a trend supported by the
Administration.
CONCLUSION
In conclusion, we believe that it is important to continue to
provide the Secretary with the authority to assess a fee for OCS sand,
gravel, and shell resources that are used by a State or locality for a
beach protection or renourishment project. In most cases, this fee will
represent only a small fraction of the total cost of that project. More
importantly, however, the fee represents the Federal Government's
commitment to provide a fair return to the Nation for the use of the
public's resources.
Madam Chairwoman, this concludes my prepared remarks. However, I
will be pleased to answer any questions Members of the Subcommittee may
have.
______
Statement of Carson W. (Pete) Culp, Assistant Director, Minerals,
Realty & Resource Protection, Bureau of Land Management, U.S.
Department of the Interior
Mr. Chairman and Members of the Committee, thank you for
the opportunity to testify today on H.R. 3878, a bill that
would subject certain reserved mineral interests to the
operation of the Mineral Leasing Act, and H.R. 1467, which
would allow oil and gas operators in the Wayne National Forest
to continue operations under their preexisting private leases
upon the reversion of the mineral estate. The bills would both
provide relief to individual oil and gas operators. The Bureau
of Land Management (BLM) has worked closely with stakeholders
concerning both bills to reach consensus language, and I am
pleased to report that we have no objection to H.R. 3878.
However, while we are willing to continue to work with
stakeholders to reach a solution to the problems presented by
the unique nature of mineral ownership patterns in the Wayne
National Forest, we must oppose H.R. 1467 as currently drafted.
H.R. 3878
H.R. 3878 would open two tracts of withdrawn lands in
Sublette County, Wyoming, to oil and gas leasing under the
Mineral Leasing Act of 1920, as amended and supplemented. It
would provide that any party acquiring a lease on the lands
under this authority could also exercise the right reserved to
the United States to enter the lands and occupy as much of the
surface as is reasonably required for the conduct of oil and
gas exploration, development, and production operations. The
bill would protect the patentee against damage to crops or
tangible improvements and the loss of surface uses as a result
of oil and gas operational activities. Finally, H.R. 3878 would
validate the existing lease to one of the tracts of land issued
by the BLM in 1997.
The lands at issue were transferred through the Public Land
Sale Act of 1964, Public Law 88-608, which authorized and
directed the Secretary of the Interior to dispose of public
lands which had been classified as meeting certain specified
use categories (excluding lands chiefly valuable for grazing
and raising forage crops). Upon patenting, the mineral rights
in these lands were reserved to the United States, but were
withdrawn from appropriation under the mineral leasing laws.
The surface of the lands was sold and patented, but has
remained chiefly valuable for grazing. One of the two tracts
was offered for competitive leasing in early 1997. Enron
Corporation was the successful bidder at $165 per acre, and a
lease was issued in 1997. However, because the lands were
withdrawn from appropriation under the Mineral Leasing Act, the
BLM must cancel the lease to comply with our current statutory
mandates. H.R. 3878 will allow the lessee to keep the lease and
permit the BLM to lease the other tract of land.
The BLM has worked cooperatively with the lessee and
patentee on this issue. The patentees have stated in writing
that they do not object to enactment of H.R. 3878, and they
would permit the lands to be leased for oil and gas. We also
discussed the matter on several occasions with representatives
of the lessee, the Enron Corporation, and assisted the
corporation in its efforts to retain its lease.
H.R. 1467
As with H.R. 3878, the BLM has worked cooperatively with
the State of Ohio to reach a workable solution for oil and gas
operations in the Wayne National Forest. The affected wells in
the Wayne National Forest tend to be marginally economic and
operators face financial hardship. This makes it difficult for
them to meet the required posting of State, U.S. Forest Service
(USFS), and BLM bonds. Local producers are extremely sensitive
to any increase in operating costs, and absent some workable
solution, many operators may have to cease operations.
Unfortunately, H.R. 1467 is not a workable solution. The
bill purports to revive expired private leases issued by
private lessors whose mineral reservations, defined by a set
period of years, have expired. It would allow the drilling of
new wells without compliance with Federal regulations for the
protection of the environment and public safety and on terms
negotiated by private parties who had no reason to insist on
terms protective of the character of the forest. It would
authorize new drilling and deeper completions after the
minerals have reverted to the United States without a bond
payable to the United States to assure reclamation of the
forest. For these reasons, the BLM must oppose H.R. 1476.
However, since we do not object to the intent of the proposed
legislation, we will be happy to continue to work with the
State of Ohio and this Committee to find a solution that
addresses the concerns of the operators, the State of Ohio, and
the BLM.
Background
In many respects, the operations are a living history of
the oil and gas industry in this nation in the early days of
the 20th century. In the late 1980's, the problems associated
with mineral interests in lands containing oil and gas wells
reverting from private to public ownership became apparent and
the BLM has sought to minimize the impact of the reversions on
the producers within the limits of its authority. While the BLM
supports attempts to implement administrative or legislative
measures to address the concerns of the oil and gas producers
in the Wayne National Forest, we also have an obligation to
ensure those measures do not compromise safety, environmental
protection, production accountability, and royalty payments.
The USFS has been acquiring lands in southeastern Ohio for
the Wayne National Forest for many years. Typically, these land
purchases are subject to a reservation of the mineral estate by
the vendor for a term of 25 to 40 years. Upon expiration of the
term, the mineral rights revert to the United States. However,
until that reversion takes place, the private owner of the
mineral rights retains the authority to control mineral
development, and many of the private owners lease the oil and
gas rights to local operators who drill wells on the property
before the minerals revert. The private lessors, of course, had
no rights to lease beyond the expiration of their mineral
rights reservations and thus the mineral leases expire with the
reservation. However, the producers in the Wayne National
Forest apparently were under the mistaken impression that,
after the mineral reservations expired, they could continue
operating under existing leases and merely pay to the Federal
government the royalties previously paid the private lessors.
Had the leases been issued prior to the sale of the lands to
the Forest Service, the Forest Service would have taken title
to the minerals subject to outstanding leases, but that is not
true when the leases are issued after the lessor has already
conveyed its mineral rights, as here.
Due to the requirements of the Federal Oil and Gas Leasing
Reform Act, the BLM could not offer noncompetitive leases to
the producers after the mineral estate reverted to the United
States. By law, we were required to offer the leases
competitively. Many producers expressed concern that they could
be outbid by others, creating a situation where one party owned
the Federal lease and another party owned the well. In that
case, the lessee and well owner would have to agree on an
operating arrangement, or the well would have to be shut in.
In 1990, the BLM attempted to resolve the problem by
offering an administrative remedy that hinged on drainage
compensation agreements which allowed affected well owners to
continue operating while paying appropriate royalties to the
United States. The BLM executed seven such agreements with
producers. However, the Department's Office of the Solicitor
reviewed the agreements and determined that they violated the
competitive leasing law. As a result, the BLM discontinued
using such agreements to address the operator's concerns.
In response to the operators' concerns, Congress passed, as
part of the Comprehensive National Energy Policy Act of 1992,
authorization for the BLM to issue noncompetitive oil and gas
leases to owners of ``stripper'' wells on reverting mineral
interests. Section 2507 states:
``(3)(A) If the United States held a vested future interest in
a mineral estate that, immediately prior to becoming a vested
present interest, was subject to a lease under which oil or gas
was being produced, or had a well capable of producing . . .
the holder of the lease may elect to continue the lease as a
noncompetitive lease under subsection (C)(1).''
Most of the eligible producers applied for Federal leases; however,
they disagreed with the BLM's interpretation of the law. The producers
contended that Section 2507 actually allowed continuation of their
existing private leases, with no change in terms and conditions other
than paying royalties to the United States. The local oil and gas
association asserted that the increased costs associated with operating
a Federal lease threatened the economic survival of affected wells. In
October 1993, the Department's Office of the Solicitor affirmed the
BLM's position that Section 2507 required the producers to obtain a
noncompetitive Federal lease, and that decision was upheld by the
Interior Board of Land Appeals.
Between the years 1990 and 2010, an estimated 51 parcels of mineral
estate containing 83 wells will revert to Federal ownership in the
Wayne National Forest. Twenty-one parcels containing 41 wells have
reverted already. In the 5\1/2\ years since the Comprehensive National
Energy Policy Act of 1992 was passed, the BLM Eastern States Office has
received 19 applications for non-competitive Federal leases covering 38
wells. Of this total, 14 noncompetitive leases have been issued, while
2 applications were withdrawn, 2 were rejected, and one is still
pending. Although the numbers reflect a relatively successful
implementation of the Act, we are aware that a number of the original
well owners sold their wells to producers with greater financial
resources that were willing to accept Federal leases. They believe that
these transfers were ``involuntary'' and are still seeking a
legislative remedy.
The typical reverting interest well in the Wayne National Forest
produces, on average, about one half barrel of oil per day or 2,000
cubic feet of gas (2 MCF) per day, far below what is commonly
associated with ``stripper'' wells. Production at these volumes yields
only $125 to $400 in annual royalties to the Federal Government. While
most private leases have the standard royalty provisions of 12.5
percent for oil and gas, current Federal regulations allow for stripper
oil wells on Federal leases to receive a royalty rate reduction as an
incentive to avoid premature abandonment. Unfortunately, that has not
proven to be sufficient inducement for operators to apply for Federal
leases.
The BLM does not object to a legislative solution for the operators
in the Wayne National Forest. However, we must ensure that the
legislation does not hinder the BLM's authority to ensure that oil and
gas operations on Federal lands are carried out in an environmentally
sound fashion. Should this legislation pass, operators would not be
required to post a Federal bond. Bonds provide the incentive to pay
Federal royalties, comply with Federal operating requirements, and
properly plug and abandon the well when production ceases. Although the
State of Ohio has its own bonding requirements, the proceeds of a
forfeited bond goes into the Orphan Well Fund for use in accordance
with State priorities, rather than to assure a particular landowner the
reclaiming of its well. In order to ensure proper plugging and
abandonment of the wells will occur, the bill should stipulate that the
continuation of operations under the private lease is subject to a
State agreement to address this. This agreement should provide specific
assurances of funding for 100 percent reclamation of abandoned well
sites and the plugging of abandoned wells in the Wayne National Forest.
H.R. 1467 is also retroactive and covers those elections made prior
to enactment of this law. The BLM cannot support a provision which
requires the agency to revisit, and possibly cancel, prior lease
approvals. The clause should be removed.
The BLM will Continue to Work with the Committee and the State
Mr. Chairman, the BLM has and will continue to work with the State
of Ohio to reach a workable solution for the operators in the Wayne
National Forest. While we oppose H.R. 1467, we would not object to
legislation authorizing the PLM to enter into production and
reclamation contracts with existing operators in the Wayne National
Forest, under which production could continue in accordance with prior
lease terms, payment of royalties would be made to the United States,
and the operator would have a contractual commitment to reclaim the
sites in accordance with Ohio law. However, we could only support the
waiver of our usual lease bonds (as mandated by the Federal Oil and Gas
Leasing Reform Act) under the following conditions:
1. The State of Ohio Department of Natural Resources would screen
applicants for waiver, verify their good standing with the State both
in bonding and performance of reclamation obligations and declare that
it does not object to the waiver;
2. Where there is a waiver, the State would agree to timely fund
plugging and abandonment of wells not timely reclaimed by the operator
in accordance with the landowner grant program and reasonable risk
criteria;
3. The State would allocate no less than 20 percent of its oil and
gas severance tax revenues to the Orphan Well Fund; and
4. Recognition that the State has the right to change its
commitment of severance tax revenues and authorize the BLM to require a
Federal bond from the production and reclamation contractors.
Finally, I would like to commend the State of Ohio's bonding
program and commitment of its state tax revenues to orphan well
plugging. We would not object to reliance on that program for the
existing wells in the Wayne National Forest, provided that the
legislation gave us the option to require Federal bonds should
performance under the State program deteriorate. We believe that this
innovative approach would serve the public interest in maximizing
ultimate recovery from the wells while allowing the BLM to comply with
its statutory and regulatory mandates.
Once again, thank you for the opportunity to testify today. I will
be happy to respond to any questions.
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