[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


                               


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                                   or
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                         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

                              ----------                              
                                                                   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

                              ----------                              


                         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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