[Senate Hearing 109-727]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-727
 
                 EXAMINATION OF OIL AND GAS ACTIVITIES

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

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                            SPECIAL HEARING

                    OCTOBER 25, 2005--WASHINTON, DC

                               __________

         Printed for the use of the Committee on Appropriations


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html

                               __________


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                      COMMITTEE ON APPROPRIATIONS

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

             Subcommittee on Interior and Related Agencies

                     CONRAD BURNS, Montana Chairman
TED STEVENS, Alaska                  BYRON L. DORGAN, North Dakota
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
PETE V. DOMENICI, New Mexico         PATRICK J. LEAHY, Vermont
ROBERT F. BENNETT, Utah              HARRY REID, Nevada
JUDD GREGG, New Hampshire            DIANNE FEINSTEIN, California
LARRY CRAIG, Idaho                   BARBARA A. MIKULSKI, Maryland
WAYNE ALLARD, Colorado               HERB KOHL, Wisconsin
                           Professional Staff
                              Bruce Evans
                              Ginny James
                            Leif Fonnesbeck
                              Ryan Thomas
                              Rebecca Benn
                       Peter Kiefhaber (Minority)
                       Rachael Taylor (Minority)
                        Scott Dalzell (Minority)

                         Administrative Support

                             Michele Gordon


                            C O N T E N T S

                              ----------                              
                                                                   Page

Opening statement of Senator Conrad Burns........................     1
Statement of Senator Larry Craig.................................     3
Statement of Senator Wayne Allard................................     4
Statement of Senator Robert F. Bennett...........................     5
Statement of Hon. Kathleen Clarke, Director, Bureau of Land 
  Management, Department of the Interior.........................     6
    Prepared statement...........................................     9
Statement of Logan Magruder, president, Idependent Pertoleum 
  Association of the Mountain States.............................    17
Statement of Ford B. West, president, The Fertilized Institute...    27
    Prepared statement...........................................    29
Statement of Paul N. Cicio, Executive Director, Industrial Energy 
  Consumers of America...........................................    34
    Prepared statement...........................................    35


                 EXAMINATION OF OIL AND GAS ACTIVITIES

                              ----------                              


                       TUESDAY, OCTOBER 25, 2005

                               U.S. Senate,
     Subcommittee on Interior and Related Agencies,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Conrad Burns (chairman) presiding.
    Present: Senators Burns, Stevens, Domenici, Bennett, Craig, 
Allard, and Dorgan.


               opening statement of senator conrad burns


    Senator Burns. We will call the subcommittee to order, and 
I want to thank, first of all, our witnesses for coming today.
    This is to just kind of review the problem of production of 
natural gas and oil on our public lands.
    I want to thank the Director of BLM for coming this 
morning. Kathleen, thank you very much. We will probably just 
start the discussion at the table and hope that some facts come 
out that we can deal with and see what action maybe Congress 
could take. Working with our Federal bureaucracy that is in 
charge of this, we could cut through some redtape, maybe.
    We have with us this morning Kathleen Clarke, Director of 
the Bureau of Land Management; Logan Magruder, President of the 
Independent Petroleum Association of the Mountain States; Paul 
Cicio, Executive Director of Industrial Energy Consumers of 
America; and Ford West with The Fertilizer Institute.
    I would say that it is very important that agriculture have 
a voice here because natural gas, of course, is the feedstock 
to fertilizer, and we have seen our fertilizer prices escalate 
and I have not seen the price of wheat escalate yet. So we are 
sort of between a rock and a hard place.
    For as long as I have been in the Senate, I have been 
keenly interested in the ongoing attempt to supply our Nation 
with sufficient energy to fuel our economy. All segments of the 
economy are directly impacted by the cost of fuel to produce 
and move our output. I would tell you yesterday I bought 
gasoline for $2.35 a gallon. You folks who have not been 
shopping around, it is out there.
    Senator Craig. Do not give the address or you will empty 
the room.
    Senator Burns. There was a big enough crowd there. They do 
not need any more business, by the way. I will put it that way.
    But nonetheless, from keeping warm in our homes and moving 
our food to market, the American taxpayers face tighter budgets 
as a result of these energy costs.
    Data from the Energy Information Administration illustrate 
just how much of a burden the average American is facing. Those 
who heat with natural gas are facing a 48 percent increase, or 
$350 above last year's cost, to heat this winter. The increases 
are similar for heating with propane and, of course, with fuel 
oil. If these expectations hold true, the consumer costs for 
delivering natural gas in my home State of Montana will have 
doubled since 2002.
    The projections for gasoline and related problems are just 
as dire. Over the last 3 years, the average price of gasoline 
in Montana has also doubled, according to the data presented by 
the EIA. Clearly, we have a problem, but we see some gasoline 
coming down.
    We are not seeing any decline in diesel fuel, however, and 
that sort of concerns me because I got in a situation a couple 
of weeks ago where we ended up a couple of trucks short because 
they just parked them. There was no relaxation at all as far as 
diesel cost.
    For the past decade, Congress grappled with the passage of 
the energy bill to help address some of these problems that are 
hindering our energy production in this country. With the 
passage of the comprehensive energy bill earlier this year, 
many have held it up as a silver bullet solution to our energy 
problems. Unfortunately, as most of us know, there is no such 
thing as a silver bullet, and the bullet does not mean anything 
if you do not have any gunpowder behind it. So in our case, 
adequate funding for provisions and authorities included in the 
energy bill are the gunpowder we must find if we expect some 
relief.
    Today I expect testimony to be pretty factual as we take a 
look. I know Director Clarke spent a great deal of time trying 
to find solutions to address the slow process to approve 
applications for a permit to drill. I must note that the 
subcommittee still fields numerous complaints that the process 
continues to be unnecessarily burdensome. It is slow and 
seemingly arbitrary depending on the personal opinions and the 
workload of the local bureau employees. I look forward to the 
Director's update this morning on her efforts to rectify some 
of these problems and tell us if the sizeable backlog of APD's 
is being managed appropriately.
    More importantly, I believe the cost of the provisions 
included in the energy bill falling on BLM's shoulders needs to 
be fully explain to the members of this subcommittee. This is a 
committee on appropriations. We have primary responsibility to 
fund this program and to ensure that they have enough money to 
work on these problems. Clearly, more funding will need to be 
allocated for BLM's oil and gas efforts, and we expect 
production to increase in a sound and constructive manner.
    With estimates ranging from $100 million in the next fiscal 
year, I believe we need BLM to give us an idea on how this 
money will be spent and give us an indication of whether we can 
expect a sizeable increase in supply for American consumers. 
Will this investment really spur production and bring more 
royalty income to the Federal Government? That is an important 
part. Minerals management is probably one of the largest 
revenue streams into the Federal Government that we have in the 
Federal Government. These are some questions that we hope to 
tackle.
    Of course, we have got some folks who are very much 
interested here, both on the consumer side, on the production 
side, and of course, the responsibility we have as a Federal 
agency to make sure that we try to get as much production as we 
possibly can.
    I have got some figures I am going to pass along in a 
little bit. You know, we keep talking about 181 and offshore in 
the Outer Continental Shelf. It takes a long time to build a 
platform. It takes a long time even if you opened it up now. 
When would the first supply of gas start to flow? When we have 
trillions of cubic feet of natural gas onshore that still 
produces the lion's share of our natural gas where pipelines 
are in place, where the infrastructure is to drill and to move 
it, and this is why I am focusing here mostly today on onshore 
because I happen to think that is where the actions we take 
will have the largest impact upon the supply of natural gas in 
this country.
    So, again, I want to thank the witnesses for coming today, 
and now I will turn it over to Larry Craig, who is on the 
Energy Committee and has a great interest in this. Larry Craig.


                    STATEMENT OF SENATOR LARRY CRAIG


    Senator Craig. Well, Mr. Chairman, thank you. I will be 
brief.
    The chairman has spoken of increasing complaints of failure 
to process and stack-up in application. I would like to know 
who is asleep at the switch. For this administration to be 
criticized as being anti-environmental and to be processing 
less applications than the Clinton administration, so I am 
told--I am anxious to hear if that is true--would suggest that 
the work is not getting done. We are in an energy crisis, and I 
would be anxious to hear if the BLM is at a crisis mode. They 
ought to be. I anticipate the Director is going to speak to 
that.
    I understand and I read in here the processing of 
applications for permits to drill and offering parcels of 
Federal land for oil and gas leasing will be BLM's major 
priority. I wish it had said, is BLM's major priority, has been 
for the last 5 years, and we are operating at peak capacity. 
Yet, we hear today that on an office-to-office basis, in all 
fairness, there is a significant variance in performance 
levels.
    I am frustrated by all of that. The cost of gas is 
dislocating this economy and sending it offshore, and we ought 
to be at a racer's speed, complying with the law, but getting 
the work done in half the time. If that means reprioritizing 
budgets, reallocating resources, doing less for some and more 
for others, I know of nothing more important for our country to 
be doing than getting us back into the business of production. 
That is what I am hearing.
    So, Director Clarke, I am extremely interested in hearing 
from you this morning because if what I hear is true, then I 
would suspect we need you back here every quarter reporting to 
us on the increased performance that will come and will 
increasingly come. If you were anticipating 3,000 applications 
and you are going to get 10,000, then there ought to be a 
significant shuffling of personnel and people and talent to 
make that happen, all within the law and certainly within the 
environmental restrictions necessitated. But if there are 
problems, I would hope you would come to this committee or the 
Energy Committee and say, we cannot get there unless we have 
the following things done for us to allow us that kind of 
flexibility.
    We are shuffling madly now and I know we are behind the 
curve. The bill we passed in August that facilitates a great 
many things should have been passed 7 years ago, but there were 
many here who simply could not see the future as some of us who 
spent a lot of time on this issue did.
    I would hope that the performance record that is out there 
with our BLM and the Department of the Interior is 
significantly better than is currently being reported to me. 
That is the purpose for this hearing, amongst others. If it is 
not, then we will have to find out why it is not and ask that 
changes be made to make it happen.
    There is nothing more important for this country right now, 
whether it is the high prices in the Northeast, whether it is 
the dislocation of the chemical industry of our country and 
sending it offshore, whether it is misdirected policy--and it 
has been--to suggest that we ought to be generating electricity 
out of natural gas, as it happened during the Clinton years, 
foolish but real, that has put us where we are. I would hope 
that all of a sudden we awaken from our sleep and get at the 
business of performing at a phenomenal rate of speed to get our 
work done.
    Mr. Chairman.
    Senator Burns. Thank you, Senator Craig.
    Senator Allard.


                   STATEMENT OF SENATOR WAYNE ALLARD


    Senator Allard. Mr. Chairman, I would like to commend you 
for holding this hearing. I think one of the most important 
functions we can do as Senators is oversight. So many times we 
get ourselves involved with passing legislation and do not do 
enough oversight. So I really do appreciate it.
    I think this hearing is very timely in light of many of the 
concerns that you and Senator Craig have both raised.
    One provision that was included in the Energy Policy Act 
set policies regarding oil shale, which is a promising fuel 
source found in abundance in the Rocky Mountain region, 
primarily Colorado, Utah, and Wyoming. The oil shale in this 
region produces very light crude, suitable to fill needs for 
jet fuel and other very pure fuels. During the last several 
years, a handful of companies have worked to develop 
technologies which will allow for economically and 
environmentally feasible development of this resource.
    Some of the richest deposits of oil shale lie under Federal 
lands. This area, now under the purview of BLM, was formerly 
known as the Naval Oil Shale Reserve. I know that BLM Director 
Kathleen Clarke, who is with us today, is very familiar with 
this area and this resource. The energy legislation we passed 
allows for small-scale demonstration projects and includes 
provisions that will help lead to commercialization after the 
demonstration projects have proven themselves. These provisions 
are intended to be a proverbial light at the end of the tunnel.
    Now, western Colorado is at the center of the Intermountain 
Rockies' natural gas boom. The White River BLM field office in 
Meeker projected in 1997 that their reasonable, foreseeable 
development over the next 20 years would consist of 1,100 
wells, averaging 55 wells per year.
    Now we will just fast forward to 2005, this year, and we 
see that the White River field office is now preparing to 
undertake an environmental impact statement which is, I might 
add, largely funded by companies interested in exploring 
natural gas in this area, in order to prepare for industry 
estimates for up to 13,000 wells over the next 20 years.
    As this boom of activity continues throughout western 
Colorado, it will be imperative for BLM to communicate to this 
and to other committees what sort of needs arise throughout the 
agency. I believe the unique partnership being entered into 
with the White River field office and those companies 
interested in exploring in the Piceance Creek area is a shining 
example of out-of-the-box thinking, and I am hopeful that your 
agency will seek out similar partnerships in the future.
    While I focused on a few narrow provisions, Mr. Chairman, 
there are many parts of the Energy Policy Act that are very 
important to my State and the entire Nation. I look forward to 
the testimony of these witnesses and the answers to the 
questions that will be asked of them today.
    Senator Burns. Thank you very much, Senator Allard.
    Senator Bennett.


                 STATEMENT OF SENATOR ROBERT F. BENNETT


    Senator Bennett. Thank you, Mr. Chairman, and welcome to 
all the witnesses. If anybody does not know, Kathleen Clarke is 
a product of the State of Utah, and we are all very proud of 
her and her service and I want to welcome her particularly here 
today.
    The energy bill, I think, was a landmark experience and one 
that should act as a stimulus for this hearing. The significant 
thing about the energy bill in my view is that it talks about 
different sources of energy and power and begins to segment 
them in ways that make sense. The emphasis is on nuclear power. 
You use nuclear power to generate electricity, which means that 
natural gas can be used in another area where it is more 
efficient. ANWR, which I strongly support, is part of the 
energy bill. We get oil out of ANWR which is used for 
transportation and you begin to get some coherence in the way 
the different sources of energy are allocated.
    But I would hope in this hearing, in addition to talking 
about such things as ANWR, which is years away, and more 
drilling off of the Gulf of Mexico--we see as a result of 
Katrina how constrained and small that area was so that it 
could be damaged by a single hurricane. If we had stretched the 
drilling out along a larger shore where the energy is, we would 
not be as vulnerable to hurricanes as we are.
    But those are all long-term kinds of things. I would hope 
today we could talk about some short-term sorts of things that 
I think the Department is focusing on and could help, such 
prosaic issues as speeding up the approval of APD's, or is it 
ADP's? I am dyslexic here. Moving the paperwork faster, looking 
at the layers within the Department of the Interior where, for 
all kinds of good intentions, more and more layers of approval 
have been put on things that slow everything down. If there is 
something that could be done to clear some of that out, get 
approvals faster, we do not need to wait for ANWR to come on 
line to get the benefit of those kinds of activities.
    I have looked through the testimony of our witnesses here 
and see signs that they are very much on top of this and aware 
of this. I hope out of today's hearings we can get some 
indication from them as to what they have in mind.
    So I think with the passage of the Energy Policy Act, 
Congress has finally taken the steps that it needs to take in 
order to move things forward. I am grateful to you, Mr. 
Chairman, for calling this oversight hearing so we can see what 
the administration is doing in a similar fashion.
    Senator Burns. Thank you very much.
    It is the taxpayers' money.
    I made a rash statement a while ago where the lion's share 
of our natural gas comes from onshore. 79 percent comes from 
onshore. Yet, we get all involved in these emotional issues. We 
have a lot more out there to recover, and where we have got the 
infrastructure to do it and get it online quickly, that is 
where we should be focusing our attention.
    Thank you, Ms. Clarke, for coming this morning, and we look 
forward to your testimony.

STATEMENT OF HON. KATHLEEN CLARKE, DIRECTOR, BUREAU OF 
            LAND MANAGEMENT, DEPARTMENT OF THE INTERIOR
ACCOMPANIED BY:
        MIKE TAYLOR, ACTING BUDGET OFFICER, BUREAU OF RECLAMATION, 
            DEPARTMENT OF THE INTERIOR
        TOM LONNIE, ASSISTANT DIRECTOR FOR MINERALS, REALTY, AND 
            RESOURCE PROTECTION, BUREU OF RECLAMATION, DEPARTMENT OF 
            THE INTERIOR
    Ms. Clarke. Thank you.
    Mr. Chairman and members of the subcommittee, thank you for 
the opportunity to appear here today to answer your questions, 
as well as to discuss BLM's oil and gas program, and to 
consider our efforts to provide responsible and reasonable 
access to the public lands for energy development. I am 
accompanied by Mike Taylor, who is the Acting Budget Officer 
for BLM, and Mr. Tom Lonnie, BLM's Assistant Director for 
Minerals, Realty, and Resource Protection. I have submitted a 
written statement for the record.
    Senator Burns. While we are at this point, your complete 
statement will be made part of the record, and if you all can 
kind of condense it, keep your statements down to around 5 
minutes, we will get a lot of this done this morning before 
lunch.
    Ms. Clarke. Thank you.
    Would you like me to proceed?
    Senator Burns. Yes, please.
    Ms. Clarke. Recent natural disasters and rising gasoline 
prices have reminded Americans how dependent we are on reliable 
supplies of energy. Beyond the impact of these events, the 
United States faces an ever-widening gap between its production 
and consumption of energy, a gap that, if not closed, poses 
long-term risks to the U.S. economy and to America's national 
security.
    In response to this challenge, President Bush developed a 
national energy policy that led to congressional passage of the 
Energy Policy Act of 2005. The goal of the new law is to ensure 
a reliable supply of affordable energy for America's families 
and businesses. This is essential if the United States is to 
expand its economy, meet the needs of a growing population, 
enhance Americans' quality of life, and protect national 
security.
    Federal lands and waters, which account for about 30 
percent of America's energy production, are critical to 
addressing the Nation's energy needs. This was made clear by a 
detailed inventory of Federal lands in five key western 
geographic basins, which found that these lands contain nearly 
140 trillion cubic feet of natural gas. That is enough to heat 
more than 55 million homes for nearly 30 years.
    This same inventory, conducted by the Department of the 
Interior and Department of Energy under the Energy Policy and 
Conservation Act, estimated that Federal lands contain about 68 
percent of all undiscovered U.S. oil resources and contain 74 
percent of undiscovered natural gas resources.
    The Bureau of Land Management, as the manager of more 
public lands than any other Federal agency, clearly plays a key 
role in the development of the Nation's energy resources. In 
managing this public land, over 260 million acres of surface 
and an additional 700 million acres of subsurface acres of 
mineral estate, the BLM provides for multiple uses of the land, 
including energy development. The BLM also ensures that 
activities on the public lands are conducted in a manner that 
minimizes impacts to the environment.
    In the case of oil and gas exploration, less than 1 percent 
of the land managed by the BLM experiences surface disturbance 
from oil and gas activity.
    During the past 4 years, the BLM has worked diligently to 
improve oil and gas permitting. I have put charts over here 
that indicate what the increase is in APD processing and 
approvals. Received is in dark blue, but actual approved APD's, 
as you will notice, has nearly doubled from the year I assumed 
my position.
    We have next to that chart a chart which talks about the 
production of natural gas on BLM lands which has also 
increased.
    In 2005, the fact is we approved over 7,000 APD's, which 
is, as I said, nearly double what we did in 2002.
    The demand for APD's is going up, and we expect to receive 
about 9,200 applications for permits to drill next year.
    The establishment of the seven pilot offices, as authorized 
by the Energy Policy Act, will certainly facilitate greater 
coordination among the Federal and State agencies that are all 
involved and linked to the processing of APD's. These offices 
will serve both to expedite permit processing and, as well, to 
increase the number of permits we are able to approve. With the 
pilot offices in place, it is estimated that an additional 
3,000 APD's could be processed over the next 5 years, which is 
the life of the pilot program. This would result in increased 
production equivalent to 1,670 billion cubic feet of natural 
gas over a 15-year period, which would be enough to heat 1.5 
million homes over that period. A very significant difference 
that will come from the establishment of those offices.
    As we expand the production of energy on BLM lands, it is 
important to note that we are also increasing our commitment of 
resources for inspection, enforcement, and monitoring of the 
public lands.
    BLM has undertaken other initiatives to improve energy 
development from Federal lands. For example, beginning in 2001, 
we initiated the largest effort in our history to update land 
use plans. Most of those plans, I will say, were the first-ever 
plans that had never been updated from the enactment of FLPMA. 
The BLM, you should know, uses a community-based and highly 
collaborative approach to planning that complies with FLPMA, 
the National Environmental Policy Act, and administration 
mandates to offer cooperating agency status to State and local 
governments. We are currently reprioritizing our existing 
planning schedule to make sure that we are moving to the front 
of the line any plans that present energy potential and get 
those to the front of the line and get those done.
    As it implements the Energy Policy Act, the Bureau will 
continue to protect the land by carrying out thorough 
environmental reviews and analyses of projects. Our reviews are 
conducted in accordance with the National Environmental Policy 
Act and the BLM land use plans, which the Bureau develops and 
updates through a process that involves and engages general 
public participation. It should be kept in mind that the new 
energy law does not change the requirements of the Endangered 
Species Act, the National Historic Preservation Act, the Clean 
Water Act, or the Clean Air Act.
    To ensure an effective and orderly implementation of the 
Energy Policy Act, I have appointed a team of professionals to 
identify tasks and to track our implementation of this effort. 
There are over 29 significant tasks that BLM has as a result of 
the act, and this team has stepped way out and we are well down 
the road and moving forward with implementation.
    In fiscal year 2006 and in future years, we expect to see a 
continuation of the unprecedented high demand for energy and 
mineral leases and permits. Providing access for the 
development of oil, natural gas, oil shale, coal bed natural 
gas, coal, and renewable energy will help the Nation meet its 
goals for secure and diverse energy sources. The BLM plans to 
meet the unprecedented demand through a combination of past 
appropriations increases, new revenue sources provided by the 
Energy Act, process improvements demanded by the Energy Act, 
and a continuing program of innovation and improvement to 
increase effectiveness and reduce costs.


                           PREPARED STATEMENT


    I appreciate the support of this committee. You certainly 
have supported our energy programs in the past, and I look 
forward to a continuing dialogue to identify where we can bring 
additional improvement to our programs and additional energy to 
the American people.
    I will welcome your questions now or whenever is 
appropriate.
    Senator Burns. We thank you for coming this morning and 
taking part in this discussion.
    [The statement follows:]

               Prepared Statement of Hon. Kathleen Clarke

    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to appear here today to discuss the Oil and Gas Management 
Program administered by the Bureau of Land Management (BLM). I am 
accompanied by Mike Taylor, the BLM's Acting Budget Officer, and Tom 
Lonnie, the BLM's Assistant Director for Minerals, Realty and Resource 
Protection.
    As you know, in the past few years BLM has placed strong emphasis 
on addressing the Nation's demand for energy resources through the 
implementation of the President's National Energy Policy. For example, 
BLM has made considerable progress in addressing the increasing numbers 
of Applications for Permits to Drill (APDs) submitted by the oil and 
gas industry. Funding increases provided by Congress, along with 
substantial improvements in our approval process, have allowed BLM to 
process a record number of APDs in 2005.
    The recently enacted Energy Policy Act of 2005 has given BLM 
several important tools that help in this effort. After reviewing our 
oil and gas program in general, this testimony will review some of the 
policy changes that allow BLM to more efficiently process APDs, and how 
BLM is implementing specific sections of the Energy Policy Act of 2005.
    The BLM manages wide swaths of public land in the western United 
States, both surface and subsurface. Our mandate from Congress through 
the Federal Land Policy and Management Act of 1976 (FLPMA) is to manage 
the public lands for multiple uses and to sustain the health, diversity 
and productivity of these lands for the use and enjoyment of present 
and future generations.
    The range of activities on the public lands managed by the BLM is 
as diverse as the land itself. Commercial uses, such as oil and gas 
production, mineral development, livestock grazing, and timber harvest 
coexist with various other uses, such as recreation, and cultural and 
historic preservation. Responsible stewardship of the public lands 
means the BLM must balance multiple and potentially conflicting uses, 
including increased demands for recreation and open space and energy 
production.
    Demand for energy in this country has outstripped domestic energy 
production. Although domestic energy production has nearly doubled in 
the past 50 years, population growth, increased economic activity and 
more intensive use of energy in the residential transportation sectors, 
have resulted in significantly higher demands for energy. Today the 
United States imports close to 60 per cent of the oil used. The Energy 
Information Agency projects that number to grow to 70 percent in 20 
years. Natural gas demand will grow by 40 percent in that same time 
period.
    We must find ways to reduce our energy consumption and increase our 
energy efficiency and domestic energy production. Further, our energy 
production needs to be secure, affordable, and environmentally-sound.

              OVERVIEW OF THE ONSHORE OIL AND GAS PROGRAM

    The Mineral Leasing Act of 1920, as amended, and the Mineral 
Leasing Act for Acquired Lands of 1947, as amended, vest responsibility 
with the BLM for managing oil and gas leasing on approximately 700 
million acres of BLM, national forest, and other Federal lands, as well 
as private lands where the mineral rights have been retained by the 
Federal Government. The BLM works to ensure that development of mineral 
resources is in the best interest of the Nation.
    The BLM's Oil and Gas Management program is one of the major 
mineral leasing programs in the Federal government. The BLM administers 
over 45,000 oil and gas leases, of which 21,000 are currently 
producing. Less than one percent of the surface Federal mineral estate 
is disturbed by oil and gas production operations. The 74,000 Federal 
and Indian onshore oil and gas wells account for eleven percent of the 
Nation's natural gas and five percent of the Nation's oil, with sales 
values exceeding $15.4 billion in fiscal year 2004. Domestic production 
of natural gas has been increasing over the last three years. In fiscal 
year 2002, 2.1 trillion cubic feet (Tcf) of natural gas were produced 
from Federal (non-Indian) lands. In fiscal years 2003 and 2004, 2.2 Tcf 
and 3.1 Tcf, respectively, were produced. In addition to the Federal 
onshore leases, the BLM supervises the operational activities of 3,700 
producing Indian oil and gas leases. In fiscal year 2004, 308 million 
cubic feet (MMcf) of natural gas was produced from American Indian 
lands.
    In 2003, the Department of the Interior released an Energy Policy 
and Conservation Act (EPCA) report. This joint study by the BLM, USGS, 
DOE, and USFS examined five basins in Montana, Wyoming, Utah, Colorado, 
and New Mexico. The report found that these basins contain the largest 
on-shore resource of natural gas in the lower 48 states. These on-shore 
basins contain an estimated 139 trillion cubic feet of gas on Federal 
lands--enough to heat 55 million homes for almost 30 years.

                  RESOURCE MANAGEMENT PLAN AMENDMENTS

    Before any leasing, APD issuance or actual oil and gas production 
can occur on public land, the BLM must have a land use plan that allows 
for that use in that area. All 261 million acres of BLM lands are 
covered by one of 162 land use plans. Beginning in 2001, with the 
direction and support of Congress, the BLM initiated the largest effort 
in its history to revise or update its original plans where needed, 
based on plan evaluations. To date, the BLM has completed 33 amendments 
or revisions, with another 60 currently in various stages of 
completion. Twenty-five of these on-going plans have a significant oil 
and gas component, and approximately 25 of the 60 on-going plans will 
be complete in 2006. BLM will continue to prioritize plan efforts in 
areas with high energy potential as identified in the EPCA report.
    The BLM uses a community-based and highly collaborative approach to 
planning that complies with the FLPMA, the National Environmental 
Policy Act (NEPA), and the President's requirements for cooperating 
agency status for state and local governments. This includes 
collaboration with specific working groups that focus on resource 
management plan development. The collaborative process is one in which 
interested parties, often with widely varied interests, work together 
to seek solutions with broad support for managing public lands, 
including issues related to the development of oil and natural gas 
resources on BLM-managed lands. Resource Advisory Councils (RACs) or 
their functional equivalents are integral to public involvement and 
collaboration. The BLM recently revised its planning regulations to 
require the involvement of State, local and tribal governments as 
cooperating agencies in the development of its land use plans. 
Normally, BLM serves as the lead agency, though in some cases, other 
governmental entities serve with the BLM as joint leads.

                        LEASING PROGRAM OVERVIEW

    Public lands are available for oil and gas leasing only after they 
are evaluated through the BLM's multiple-use planning process. In areas 
where development of oil and gas resources would conflict with the 
management of other resources or public land uses, we consider the use 
of mitigating measures and in some cases we attach mitigation measures 
to leases as either stipulations requiring certain actions or as 
restrictions on surface occupancy.
    Types of Oil and Gas Leases.--The BLM issues two types of leases 
for oil and gas exploration and development on lands owned or 
controlled by the Federal Government--competitive and noncompetitive. 
The Federal Onshore Oil and Gas Leasing Reform Act of 1987 requires 
that all public lands available for oil and gas leasing be offered 
first by competitive oral auction. Noncompetitive oil and gas leases 
may be issued only after the lands have been offered competitively and 
failed to receive a bid. For a period of two years after the lease 
sale, unleased parcels may be acquired on a noncompetitive basis.
    Lease Terms and Conditions.--Leases grant the lessees the right to 
explore and drill for, extract, remove, and dispose of oil and gas 
deposits, except helium, that may be found in the leased lands. The 
leases are granted on the condition that the lessees will obtain BLM 
approval before conducting any surface-disturbing activities. The oil 
and gas lease conveys the right to develop those resources on the 
leased land. The lessee or his operator cannot build a house on the 
land, cultivate the land, or remove any minerals other than oil and gas 
from the leased land.
    Lease Expiration or Termination.--Oil and gas leases expire at the 
end of their primary term--the 10th year--unless diligent drilling 
operations are in progress on or for the benefit of the lease; the 
lease contains a well capable of producing oil or gas in paying 
quantities; or the lease is receiving or is entitled to receive an 
allocation of production under the terms of an approved communitization 
agreement or unit agreement.
    Leases without a producible well automatically terminate if the 
lessee fails to make full and timely payment of the annual rental. The 
rental must be received by the Minerals Management Service on or before 
the anniversary date of the lease. There is a short reinstatement 
period for certain situations where the rental is received late.
    The owner of a lease also may surrender the lease in whole or in 
part by filing a written relinquishment with the proper BLM State 
Office having jurisdiction over the lands. A relinquishment takes 
effect on the date it is filed. However, the lessee must plug any 
abandoned well, perform other work as may be required by the BLM to 
place a leasehold in proper condition for abandonment, and bring his 
account into good standing. If the lessee fails to perform the 
necessary work, the lessee's bond will be used to do so, and the lessee 
will be prohibited from leasing additional Federal lands.
    A nonproducing lease may be cancelled for failure to comply with 
lease terms.

         PROCESSING OF APPLICATIONS FOR PERMITS TO DRILL (APDS)

    In the past two years, the BLM has experienced a sharp increase in 
demand for natural gas drilling permits, and expects that demand to 
continue, especially in the EPCA basins: Powder River Basin in Wyoming 
and Montana, the San Juan Basin in New Mexico and Colorado, and the 
Uinta/Piceance Basins in Colorado and Utah. In addition, recent 
discoveries in the Greater Green River Basin in southwestern Wyoming 
and northwestern Colorado will result in additional demand for drilling 
permits in these areas. BLM now expects to receive 9,200 new permit 
applications in 2006, a 32 percent increase over 2004. In contrast, 
last winter when BLM prepared the 2006 President's Budget Request, we 
anticipated receiving only 6,700 new permits in 2006. BLM estimates 
that another 10,000 new permit applications will be submitted in 2007. 
This demand for drilling permits is being driven largely by natural gas 
prices, which have roughly doubled in the last twelve months.
    It has been necessary to adjust BLM's workload planning for new 
APDs to keep up with the accelerated demand for energy which has 
accompanied the increase in commodity prices. The processing of 
Applications for Permits to Drill (APDs) and offering parcels of 
Federal land for oil and gas leasing will be BLM's major priority in 
the effort to increase the production of energy from Federal lands. 
Increased funding provided by Congress and management improvements have 
enabled the BLM to make significant progress in responding to 
increasing demand. In 2006, Congress provided an additional $2.0 
million in discretionary funding. In addition, BLM has also made 
adjustments within the existing budget to address the demand for APDs. 
For example, in 2005, BLM identified and reprogrammed an additional 
$2.5 million to the oil and gas program to respond to the demand for 
APDs.
    One example of BLM management improvements over the past few years 
that have resulted in processing APDs at a lower cost is the policy of 
encouraging the industry to develop Plans of Development (PODs) for 
groups of APDs, which allows for more efficient analysis of multiple 
APDs in one area to comply with NEPA and other environmental laws. A 
July 21, 2005, Government Accountability Office report on oil and gas 
development found this and other BLM strategies to be effective, 
stating that the bundling of permit applications ``can encourage 
companies to plan their drilling operations more carefully and help BLM 
better assess the cumulative environmental impacts of drilling 
activities.'' BLM has also applied several innovations, such as the use 
of Quality Assurance Teams. These innovations and other policy changes 
have had the effect of streamlining APD processing and lowering BLM's 
average cost to process an APD in 2005 to $3,730, from a cost of $4,000 
that was estimated at the beginning of 2005.
    BLM began making these management improvements in fiscal year 2004, 
and in that year BLM approved 6,452 (on both Federal and Indian lands). 
Additional funding in fiscal year 2005 and more experience with various 
management improvements resulted in approving 7,018 APDs in fiscal year 
2005. By the end of fiscal year 2006, the BLM plans to substantially 
reduce the inventory of APDs pending for more than 60 days to 1,226, a 
reduction of 45 percent from 2004 and a reduction of 50 percent from 
the end of fiscal year 2005. The anticipated backlog at the end of 
fiscal year 2006 is larger than anticipated this past winter when BLM 
presented the fiscal year 2006 President's Budget Request, but that 
estimate was based on a lower estimate of the number of applications 
that industry would submit, and prior to the most recent increase in 
natural gas prices.
    BLM's effort to process more APDs in recent years is having a 
significant effect on the nation's natural gas production as shown in 
the chart below.



    When the final 2005 production data becomes available, BLM expects 
to see a further increase in natural gas production as a result of the 
increase in APD approvals.
    APD Processing at Pilot Offices.--Section 365 of the Energy Policy 
Act establishes a pilot program at seven offices, called the Pilot 
offices, to test new management strategies designed to further expedite 
the processing of APDs. These strategies include placing employees of 
other Federal agencies in the BLM offices to provide an increased focus 
on processing the APDs.
    The Act requires the Secretary, within 90 days of enactment, to 
enter into a Memorandum of Understanding (MOU) with the Secretary of 
Agriculture, the Administrator of EPA and the Chief of the U.S. Army 
Corps of Engineers in order to implement this improved process. We 
anticipate that this MOU will be signed within the next few days.
    The BLM is working with other regulatory agencies, and State 
partners, to develop the most effective and efficient permitting 
process for each of the seven pilot offices, where currently 70 percent 
of all APDs are processed. The Act established the BLM Permit 
Processing Improvement Fund (Fund) and provided that the Federal share 
of all mineral rental revenue would be deposited into the Fund. Monies 
in this Fund can be used to support the coordination and processing of 
oil and gas use authorizations at the Pilot Project Offices: Rawlins, 
Buffalo, Miles City, Farmington, Carlsbad, Grand Junction/Glenwood 
Springs, and Vernal.
    The estimated $19.0 million in rental revenue in 2006 will add 
capability at these offices to improve their ability to keep up with 
demand for APDs, will support the permitting processing arrangements 
with other agencies, including State partners, and will help meet the 
higher inspection and monitoring workload, which has followed the 
sustained increase in approved APDs. New Treasury accounts have been 
established so that the Pilot offices will be able to access these 
funds. BLM is also developing goals, and a process to measure and 
report on the Pilot offices' progress toward those goals.
    In order to implement this more effective and efficient permitting 
process, BLM managers, along with our partner agencies, are also 
engaged in intensive planning and recruitment efforts, which will 
ensure staff and support are in place to meet the growing demand for 
APDs at these offices. BLM recently issued a nationwide vacancy 
announcement to recruit Petroleum Engineering Technicians and Natural 
Resource Specialists in the Pilot Offices.
    I look forward to keeping you informed of our progress toward 
implementing the goals of this section of the Act and the lessons 
learned as we implement the Pilot office concept.
    APD Processing at Non-Pilot Offices.--Like the Pilot offices, the 
non-Pilot offices are experiencing a sharp and sustained demand for 
APDs. In 2006, BLM expects to receive 2,500 new applications for 
permits at these offices, a 29 percent increase over 2004. However, due 
to the language in Section 365 of the Energy Policy Act delaying the 
implementation of APD cost recovery until 2015, these offices will not 
receive any additional funds in 2006 to meet this demand. I am asking 
my staff to identify opportunities to direct base funding to process 
additional APDs at these offices. I also anticipate the need to propose 
a reprogramming of some of BLM's base funding. My staff is currently 
evaluating allocations of funding to the State Offices and will have a 
recommendation to me regarding this potential reprogramming soon.
    Summary of BLM's APD Processing in 2006.--The base funding provided 
by Congress in 2006, the mineral rental revenue provided to Pilot 
offices by the Energy Act, and the efficiencies gained from management 
improvements will enable the BLM to process an estimated 10,326 APDs in 
2006, a level that is 40 percent more than the number processed in 2004 
and 31 percent more than the 7,900 APDs that BLM estimated for 2006 
when preparing the fiscal year 2006 President's Budget Request. BLM 
expects to receive 9,200 new APDs in 2006, a 32 percent increase over 
2004. The additional funding and the management improvements will allow 
BLM to respond to this sharp increase in demand for new APDs, and allow 
the BLM to substantially reduce, by the end of fiscal year 2006, the 
inventory of APDs pending for more than 60 days to 1,226 applications. 
This is a 50 percent reduction from the number pending over 60 days at 
the end of 2005. The table below displays the 2006 estimated APDs 
compared with prior year actuals.

                            OIL AND GAS APDs
------------------------------------------------------------------------
                                       2004         2005         2006
                                      actual       actual      estimate
------------------------------------------------------------------------
Pending APDs less than 60 days             888        1,082        1,450
 old at start of year............
Pending APDs greater than 60 days        2,780        2,214        2,461
 old at start of year............
                                  --------------------------------------
      Total Pending APDs at start        3,668        3,296        3,911
       of year...................
                                  ======================================
New APDs Received................        6,979        8,351        9,186
Total APDs Processed.............        6,452        7,018          TBD
Pending APDs less than 60 days           7,351        7,736       10,326
 old at end of year..............
Pending APDs greater than 60 days        1,082        1,450        1,545
 old at end of year..............
Total Pending APDs at end of year        2,214        2,461        1,226
------------------------------------------------------------------------

                  INSPECTION AND ENFORCEMENT FUNCTIONS

    In addition to processing APDs, the BLM also inspects oil and gas 
operations. This function is critical to verifying the proper payment 
of royalties and ensuring necessary environmental protection. In 2004, 
BLM inspectors performed nearly 19,000 inspections to ensure compliance 
with permit stipulations, thereby protecting the environment and human 
health and safety, and verifying the proper accounting of production 
from Federal and Indian lands. The BLM finds that with rare exceptions, 
oil and gas operators diligently comply with lease stipulations, 
conditions or approvals, and operate effective, environmentally-sound 
exploration and development facilities.
    The Government Accountability Office recently issued a report on 
the BLM's inspection and enforcement program, concluding that BLM is 
behind in inspections due to heavy APD workloads. However, the 
Inspection and Enforcement staff continues to grow, with the budget for 
enforcement up $4.8 million during the period of 2002 to 2004. We also 
allocated an additional $1.0 million in 2005 to help with compliance 
with inspection and monitoring activities. Field managers are working 
to prioritize their workforce to meet their environmental inspection 
and enforcement obligations.

         LOOKING TO THE FUTURE: THE ALASKA NATURAL GAS PIPELINE

    In 2006, the BLM will continue leasing, exploration and development 
activities in the National Petroleum Reserve-Alaska (NPR-A), an area 
covering more than 23 million acres in the northwest corner of the 
State. Development of these oil and gas resources is an important 
component of the President's National Energy Policy. The first 
significant commercial production from the NPR-A is expected as early 
as 2008.
    The BLM will also participate in the inter-agency activities 
relating to the siting of an Alaska Natural Gas Pipeline. On October 
13, 2004, the President signed into law the Alaska Natural Gas Pipeline 
Act, (ANGPA), legislation that greatly enhances the prospects for 
construction of the Alaska Natural Gas Pipeline, which will provide 
enhanced access to the natural gas supplies on the North Slope of 
Alaska.
    There are currently two Federal rights-of-way granted for an 
Alaskan gas pipeline: (1) the Alaska Natural Gas Transportation System 
(ANGTS) project, sponsored by Trans-Canada and issued in 1980; and (2) 
the Trans-Alaska Gas System (TAGS) project, sponsored by Yukon Pacific 
Corporation and issued in 1988. Other proposed projects include one 
sponsored by the North Slope Producers (ConocoPhillips, BP, and 
ExxonMobil) and another proposed by the Alaska Gasline Port Authority 
referred to as the ``All Alaska'' project.
    In order to meet the intent and provisions of the Alaska Natural 
Gas Pipeline Act, the Federal agencies with jurisdiction have been 
meeting regularly and are developing an interagency Memorandum of 
Understanding to define roles and responsibilities in the authorization 
of the Alaska Natural Gas Pipeline.

 BLM'S OIL AND GAS MANAGEMENT PROGRAM AND THE ENERGY POLICY ACT OF 2005

    The Energy Policy Act of 2005 is a comprehensive piece of energy 
legislation addressing conservation; energy supply from oil, gas, coal 
and renewable sources (wind, biomass, geothermal and solar); 
distribution of energy; and research into future sources of energy. The 
BLM has a role to play in each of these areas. Most immediately, 
however, the Energy Policy Act of 2005 contains several provisions 
through which the BLM can work to improve the APD permit approval 
process, expand its capacity to process APDs, expedite oil and gas 
leasing on public lands, and ensure natural gas production on public 
lands occurs in an environmentally-responsible manner. The Act also 
establishes a new funding source to support these activities. BLM will 
continue its streamlining efforts in leasing and permitting through 
implementation of the Act; for example, the BLM is working with other 
regulating agencies, including State partners, to develop the most 
effective and efficient permitting process for each of the Pilot 
offices. The objective of these arrangements is to shorten the length 
of time required to issue permits for oil and gas activities to 
interested parties while ensuring that the Nation's energy resources 
are developed in an environmentally-responsible manner.
    Immediately following passage of the Act, the Director of the BLM 
designated a team to guide BLM's implementation of the Act. During the 
last several weeks, this team has been closely coordinating the 
analysis and implementation of the bill with the other Department of 
the Interior bureaus such as the Minerals Management Service, the U.S. 
Fish and Wildlife Service and the U.S. Geologic Survey. In addition, 
BLM has been meeting with other interested Federal and State agencies 
to develop the framework of agreements that are needed to move forward 
on the various provisions.
    Implementation of the Pilot Offices is discussed above in relation 
to APDs. Some of the other key sections in the Act related to BLM's Oil 
and Gas Management Program, and the actions that BLM is currently 
taking to implement each of these important provisions include:
  --Management of Federal Oil and Gas Leasing (Section 362).--Section 
        362 requires BLM to ensure timely action on leases and permits, 
        to ensure expeditious NEPA compliance, to improve consultation 
        and coordination with the States and the public, to improve the 
        management of oil and gas leasing information and to improve 
        inspection and enforcement. This applies to all BLM offices, 
        including offices that are not designated as Pilot offices in 
        Section 365 of the Energy Act. The BLM will strive to meet the 
        objectives of Section 362 by continuing ongoing efforts to 
        improve efficiencies and cost effectiveness in its Oil and Gas 
        Program and strategic management of its budget resources.
  --Deadline for Consideration of Applications for Permits (Section 
        366).--This section requires BLM to notify applicants within 
        ten days that an APD is complete or notify the applicant of any 
        additional information needed for the application to be 
        complete. The Act further requires BLM to issue the permit 
        within 30 days if NEPA requirements have been met, or to defer 
        the permit and notify the applicant of reasons for the 
        deferral. The BLM issued guidance to BLM Field Offices on 
        September 15, 2005, to implement these provisions of the Act. 
        In addition, these provisions will be included in a reissuance 
        of Oil and Gas Onshore Order Number 1.
  --Naval Petroleum Reserve Number 2 (NPR-2) (Sections 331-334).--This 
        section transferred administrative jurisdiction of NPR-2 in 
        California from the Department of Energy to the BLM. BLM 
        management of NPR-2 allows for effective development of 
        potentially significant energy reserves. The transfer 
        potentially increases access to Federal oil and gas resources 
        by placing approximately 2,500 acres of unleased Federal 
        mineral estate up for competitive lease bids. BLM has begun a 
        land use plan amendment and environmental analysis for these 
        lands, with publication of the first planning effort in the 
        Federal Register on September 26, 2005.
  --North Slope Science Initiative (NSSI) (Section 348).--To implement 
        Section 348 of the Energy Act, BLM will continue its ongoing 
        participation in the NSSI organization, and to the extent 
        possible, support high priority research, inventory and 
        monitoring projects in Alaska's North Slope identified by and 
        under the direction of the NSSI. The NSSI is an organized, 
        chartered, and jointly-funded entity that guides inventory, 
        monitoring, and research efforts at the Federal, state and 
        local levels in support of resource management on the north 
        slope. This research will greatly assist the BLM in identifying 
        environmentally sensitive, technically feasible means of 
        production. The BLM anticipates that non-Federal partners will 
        contribute substantial resources to this effort, which promises 
        to result in a solid scientific basis for land use decisions. A 
        call for nominations for members to serve on the NSSI Technical 
        Advisory Panel was published in the Federal Register on 
        September 12, 2005.
  --Orphaned, Abandoned and Idle Wells (Section 349).--BLM has an 
        ongoing program to monitor and remediate orphaned, abandoned 
        and idle wells. The Energy Policy Act provides new tools and 
        direction to manage these wells. In 2005, BLM remediated one 
        government-owned well in the National Petroleum Reserve-Alaska 
        in order to prevent a spill of contaminants into the Beaufort 
        Sea. In 2006, BLM is preparing a risk assessment of other wells 
        in the area and developing plans to further respond to 
        accelerated shoreline erosion issues in this area, and will use 
        $750,000 provided by Congress in 2006 to continue this 
        remediation effort in Alaska.
      Section 349 of the Energy Policy Act of 2005 also provides new 
        authority to contract with oil and gas lessees to complete well 
        abandonment and remediation. The Secretary is authorized to 
        issue rules that would establish this new program and to allow 
        a credit against royalty payments to offset the cost of these 
        remediations. BLM is currently analyzing the potential 
        application of this new authority to complete the necessary 
        well remediations in Alaska and other States and is identifying 
        rule revisions needed to implement this section of the Act. 
        Once regulations are in place, oil and gas operators will be 
        able to assist in remediating wells on leases they hold.
  --Gas Hydrates (Section 353).--Section 353 of the Energy Policy Act 
        of 2005 contains provisions intended to promote natural gas 
        production from natural gas hydrate resources through royalty 
        incentives. The Act requires the Secretary to review 
        opportunities to enhance production of natural gas from gas 
        hydrate resources. BLM, in cooperation with USGS, and industry 
        partners is actively engaged in this project and will continue 
        to assist with the development of the information base which 
        would be needed to prepare a gas hydrate leasing program. BLM's 
        current gas hydrate effort is located in Alaska. Non-Federal 
        partners are also providing contributions to this project.
  --Consultation Regarding Oil and Gas Leasing (Section 363).--Section 
        363 requires BLM and the Forest Service to establish two joint 
        mineral leasing systems. A database system will track 
        applications and the status of applications. A second system 
        using GIS will track surface resource values and will provide 
        information in support of processing mining plans of operations 
        and oil and gas APDs. There are a number of security and 
        operating system technical issues that must be resolved in 
        order to meet the requirements of Section 363. BLM plans to 
        implement the system over the next two years.
  --Estimates of Oil and Gas Resources Underlying Onshore Federal Land 
        (Section 364).--This section modified Section 604 of the Energy 
        Policy Act of 2000 to require BLM to evaluate post-lease 
        restrictions on development of energy resources, and to look at 
        issues that restrict the transportation of energy resources to 
        markets. BLM will issue a report on the second phase of the 
        project shortly, which will include a review of the post-lease 
        restrictions. BLM will examine transportation issues in future 
        phases of the project.
  --Energy Right-of-Way Corridors on Federal Land (Section 368).--This 
        section requires BLM to consult with Federal agencies and other 
        interested parties, and then designate corridors for oil, gas 
        and hydrogen pipelines and electricity transmission and 
        distribution facilities for western States. The Act requires 
        the BLM to complete the environmental analyses and amendments 
        to land use plans that support these corridors, within two 
        years. BLM has already begun the process to designate these 
        corridors, publishing a public notice regarding the corridor 
        planning effort in the Federal Register on September 7, 2005. 
        In addition, we will hold a series of public scoping meetings 
        in 11 locations in the western States between October 26 and 
        November 3, 2005, and we have established a web site http.//
        corridoreis.anl.gov for this project. BLM is in the process of 
        sending letters to the western governors which will explain the 
        corridor designation process and ask for their involvement. The 
        Department of Energy and the U.S. Forest Service are partners 
        in this effort.
  --Oil Shale, Tar Sands and Other Strategic Unconventional Fuels 
        (Section 369).--This section complements BLM's recent progress 
        in making oil shale resources available for research and 
        development activities, a process the BLM began in 2004. The 
        Act requires the BLM to make public lands available for the 
        conduct of oil shale research and development activities. In 
        response to its announcement of an oil shale research, 
        development, and demonstration program, the BLM has received 20 
        nominations for parcels of public land to be leased in 
        Colorado, Utah, and Wyoming. An interdisciplinary team is 
        considering the potential of each nomination to advance oil 
        shale technology and the economic viability and environmental 
        effects. The team will then make recommendations for awarding 
        leases. Representatives from the three States, the Department 
        of Energy, and the Department of Defense have been invited to 
        participate on the team, as have BLM staff members from the 
        affected States. In addition to furthering development of oil 
        shale resources, the oil shale research and development program 
        will assist the BLM in developing appropriate regulations for 
        commercial oil shale leasing, which the Energy Policy Act calls 
        for beginning in 2007.
      In addition to leasing lands for oil shale research and 
        development purposes, the Act requires BLM to complete a 
        programmatic EIS for a commercial leasing program for both oil 
        shale and tar sands resources on public lands. In 2006, BLM 
        plans to use a $1.0 million funding increase provided by 
        Congress to manage the oil shale research and development 
        leasing program and to take the initial steps leading to the 
        preparation of the oil shale and tar sands programmatic EIS.
  --NEPA Review (Section 390).--This section allows BLM to authorize 
        certain oil and gas activities under NEPA's categorical 
        exclusion provision rather than a more costly and time 
        consuming environmental analysis. The Act's statutory 
        categorical exclusions apply to five categories of oil and gas 
        exploration and development on Federal oil and gas leases. For 
        example, individual surface disturbances of less than five 
        acres are within the categorical exclusions so long as the 
        total surface disturbance on the lease is not greater than 150 
        acres and site-specific analysis in a document prepared 
        pursuant to NEPA has been previously completed. Guidance was 
        issued to BLM Field Offices on September 30, 2005, to implement 
        this provision of the Act. In addition, this provision will be 
        included in a reissuance of Oil and Gas Onshore Order Number 1.

                               CONCLUSION

    In fiscal year 2006 and in future years, we expect to see a 
continuation of the unprecedented high demand for energy and minerals 
leases and permits. Providing access for the development of oil, 
natural gas, oil shale, coal bed natural gas, coal and renewable energy 
will help the Nation meet its goals for secure and diverse energy 
sources. The BLM plans to meet this unprecedented demand, through a 
combination of past appropriations increases, new revenue sources 
provided by the Energy Act, process improvements provided by the Energy 
Policy Act and a continuing program of innovations to increase 
effectiveness and reduce costs.
    I appreciate the support this subcommittee has provided for our 
energy programs in past years and I look forward to continuing a 
dialogue with you in the months and years ahead. Thank you for the 
opportunity to testify today about the BLM's Oil and Gas Management and 
the Energy Policy Act. I would be happy to answer any questions you 
have.

    Senator Burns. Mr. Logan Magruder, President of the 
Independent Petroleum Association of the Mountain States, is 
pretty familiar with my end of the world out there. We look 
forward to your testimony. If you want to condense that a 
little bit, but your full statement will be made part of the 
record. Thank you for coming this morning.

STATEMENT OF LOGAN MAGRUDER, PRESIDENT, INDEPENDENT 
            PETROLEUM ASSOCIATION OF THE MOUNTAIN 
            STATES
    Mr. Magruder. After listening to your introductions, I do 
not feel like I really need to testify today. I think everybody 
is on point with the issues.
    But I would like to thank you for the opportunity to 
testify on behalf of IPAMS, which is a 13-State regional 
organization in the Rocky Mountain region, along with six other 
cooperating trade associations. They include the Domestic 
Petroleum Council, IPAA, U.S. Oil and Gas Association, API, 
IADC, and the Natural Gas Supply Association. All have weighed 
in on this testimony today.
    What I would like to do is just make some overarching 
comments.
    I can assure you the producing community is very much aware 
of the need and demand for natural gas. We feel that the Rocky 
Mountain region--and it is said time and time again--is unique. 
It is located in the center of the United States. The 
production level is about 22 percent of that that we use in the 
United States, and it is on par with the Gulf of Mexico. It is 
unique in that it is not concentrated, as someone mentioned 
earlier. Plus, the profile of the production stream is a long-
lived profile. So it is a very dependable source of natural 
gas, a very clean commodity that can be distributed from 
basically all corners of the United States.
    The gas that we produce from the Rocky Mountain region 
supplies about 62 million households throughout the United 
States. So it is providing fuel to a lot of consumers 
throughout the United States. It is unique also in the fact 
that it is the only geographic area in the United States that 
has shown any production growth over the past 10 years. 
Production from the Rocky Mountain region has grown 45 percent. 
This is in the wake of other more mature basins that we are 
familiar with that have shown significant declines. So it is a 
very key source of natural gas, and I can assure you the 
producing community is poised and prepared to do more.
    Adequate funding for the Government's energy development 
programs--and I am not talking just specifically BLM. 
Unfortunately, we do not have a full, diverse representation. 
We really need the Forest Service at the table and we need the 
BIA. Oil and gas are derived from all sources of lands that are 
controlled by the Federal Government. Kathleen Clarke's group 
is certainly in the sights of everyone, but you have got the 
Forest Service and you have got the BIA and I really encourage 
you to maybe host another hearing similar to this and challenge 
the Forest Service and the BIA. I will cite a couple of 
examples in just a few minutes.
    But we are talking about we desperately need to increase 
the supply from non-park, non-wilderness Intermountain West 
lands and it can be accomplished with a process improvement and 
appropriate funding.
    An analysis done for the Domestic Petroleum Council, which 
we believe to be similar to that of the Department of the 
Interior's, demonstrates that adequate funding to process 
backlogged pending applications for permits--and that is APD--
which I understand is greater than 3,000 at this time, can 
unleash about 105 billion cubic feet of gas. That is 
significant.
    Two years ago I prepared for one of your hearings and I 
recall that our consumption only increased a half a percent, a 
very, very small margin, but natural gas prices doubled. We 
were talking about natural gas prices going to $6 at that time, 
as you will recall. Today we are looking at $12 to $13. This 
105 billion cubic feet a day is about that same amount, about a 
half a percent. It can have an impact on pricing. So that is 
directly related to a Federal process and making sure that it 
has adequate funding.
    Is it wise for the Federal Government to appropriate 
sufficient funds? Someone said earlier you were going to make 
$100 million available. I do not know how that compares to what 
we did this past year, but I certainly would expect they need 
much more than what they have available to them right now. So 
maybe during the course of this hearing, I can try to 
understand the significance of the $100 million that was 
mentioned earlier. But they desperately need more.
    Many people will question whether or not you can actually 
execute with the rig availability issue, with take-away 
capacity in the Rocky Mountain region. All these things are 
excellent questions and we are prepared to answer some of those 
questions, and I will not go through those right now.
    Based on 2004 numbers, each dollar invested through the BLM 
for oil and gas management yielded $19. That is in 2004 
numbers. We have not really run the numbers in today's dollars, 
but I would imagine that there is probably twice that amount 
today. So tremendous leveraging for every dollar spent within 
this process.
    Positive results out of the Buffalo, Wyoming office, along 
with an industry hosted worker program piloted in Vernal, Utah 
this past year, are testaments to what can be accomplished with 
adequate funding. There seems to be a real disconnect at times, 
which I do not understand. For example, funding of the BIA 
office in Fort Duchesne, which processes one well for each 
three wells processed at the BLM office. Their budget is being 
cut by 10 percent. It is going to be a critical path item in 
the process. We cannot drill on Indian tribal lands without the 
BIA being in sync with the BLM. So earlier I mentioned the 
Forest Service, the BIA, the BLM. They are all attached at the 
hip and we have to have some type of consensus across the 
board. So it does not make sense to cut 10 percent out of the 
Fort Duchesne office, and the Uintah Basin is probably arguably 
the busiest BLM office in the country.
    Buffalo, Wyoming gets the credit because of the sheer 
numbers, a lot of the numbers you will see on these charts, but 
you get multiple wells approved with each APD or POD process. 
In Vernal, Utah, those gentlemen and ladies are faced with 
approving individual well permits. That could be a process 
improvement if we were able to alter that process a little bit.
    The APD backlog increased dramatically from 2004 to 2005. 
We have approximately 3,700 pending APD's in the system today. 
Ninty-eight percent of those pending APD's lie in the 
Intermountain West region. The industry is motivated to drill 
more wells but is limited by regulatory constraints.
    The decisions made by this committee can have real impacts 
on natural gas consumers across the Nation. Ensuring adequate 
funding for approval and oversight of energy projects through 
appropriations will help encourage further development to meet 
the Nation's energy demand. My company, Berry Petroleum--I can 
assure you we can do much more given leeway on the Federal 
permitting process side.
    The energy pilot program created in the energy bill. We 
have all mentioned that, and I am glad to see that that is on 
each one of your radar screens. I think if you look through our 
300 member companies within IPAMS, that is the number one 
issue. What is the deliverable out of the energy bill? What do 
we really get? It all sounds great, but we really have not seen 
anything put in motion yet. We understand a lot of things have 
been teed up and we may see some action at the field level, but 
that is really key. I would encourage you. You talk about 
quarterly oversight. Hold them accountable. Find out what 
progress we have made over the past quarter. The next quarter 
find out what progress we have made. It is very high on 
everybody's expectations list right now. That is the number one 
item in the energy bill that we were expecting to see some type 
of improvement in the overall process.
    I think the Buffalo office is a testament. Kathleen can 
tell you how much effort went into that, and it does not happen 
overnight. I personally worked through that process in early 
2000. It takes a long time to tee these things up through the 
appropriations process. But it does have measurable results, 
and that is a good pilot for you analyze.
    I think if you dip into the Vernal, Utah office and see 
what was accomplished with just the addition of five people 
this past year, it had measurable results. You really need to 
talk to those individuals to see what type of impact.
    I understand the Vernal office is in the process of hiring 
approximately 20 people. The Rock Springs office is in the 
process of hiring about 20 people. It is all in discussion. The 
I's have not been dotted and the T's have not been crossed. But 
there is a real concern that if they hire these people, they 
will not have the resources to actually function. That is in 
the way of office space, vehicles, computers, everything it 
takes to exist in today's environment. We just need to make 
sure that these offices have adequate funding. If you go back 
to the 19-to-1 leverage ratio I mentioned earlier, which I 
suspect is probably double now, it is a tremendous investment, 
and you know the benefits and we have all said it before. So 
the additional personnel and the additional supporting 
equipment is really key for these people to sustain over the 
next 5 years to handle what the industry is prepared to do.
    Increased activity adds pressure for each field office to 
monitor development taking place, and that should not be 
overlooked. We can increase supply without sacrificing 
environmental standards, and I think we have proven that time 
and time again. In my project area in Utah, we submitted over 
200 APD's, and to this day, there has not been a measurable 
change in the initial submission of the process.
    I might add early in my career, we used to be able to do 
this over telephone, essentially request permission to drill a 
well, and today it is a very large document that requires us 
going through this process. I will spare you and I will not 
drag you through that, but that is really the ideal scenario. I 
did not pad that. That is just the process starting from point 
A to point B, to drilling a well. That is what a typical 
operator has to go through right now, bring all these together. 
It is a confusing process, and we have tried to clear it up and 
condense it within our own worlds. We have these mega-
spreadsheets to make sure that we try to run these things 
concurrently. So it is a very complicated process, but we are 
able to get it done. My hat is off to those in the BLM office 
that can put up with this mine damage. So we get it done.
    In closing, I would like to say natural gas prices are not 
set by a cartel refusing to produce more natural gas. They are 
the direct result of a continuous neglect of the regulatory 
process that governs oil and gas on American soil. The 
Intermountain West offers a near-term solution that we have all 
mentioned and is also part of a longer-term solution because of 
the long-term nature of that production profile.

                           PREPARED STATEMENT

    I encourage policymakers to provide adequate resources to 
the Federal agencies--and that includes the BLM, the BIA, the 
Forest Service--to develop natural gas resources that are owned 
by Americans, produced by Americans, and consumed by Americans.
    Thank you for the opportunity to testify today, and I 
welcome any questions you may have.
    [The statement follows:]

                  Prepared Statement of Logan Magruder

    Mr. Chairman and members of the subcommittee, my name is Logan 
Magruder and I am the President of the Independent Petroleum 
Association of Mountain States (IPAMS). Today, I am testifying on 
behalf of IPAMS as well as the following cooperating trade 
associations: the Domestic Petroleum Council, Independent Petroleum 
Association of America, U.S. Oil and Gas Association, American 
Petroleum Institute, International Association of Drilling Contractors 
and the Natural Gas Supply Association. We want to thank this 
subcommittee for holding a hearing about the resource needs of the BLM 
in the upcoming year. The decisions made by this subcommittee can have 
very real impacts on natural gas consumers across the nation.
    The main points I would like to make today are that:
  --Adequately funding the government's energy development programs 
        (Bureau of Land Management (BLM), Forest Service (FS) and 
        Bureau of Indian Affairs (BIA) and improving the regulatory 
        processes can increase the development of federally owned 
        energy resources for the benefit of consumers.
  --An analysis done for the Domestic Petroleum Council--and we believe 
        a similar analysis done for the Department of the Interior that 
        may be released later this week--demonstrates that adequate 
        funding and resources to process backlogged pending 
        Applications for Permits to Drill (APDs) (estimated to be 
        greater than 3,000), can lead to as much as 105 Billion Cubic 
        Feet of additional natural gas supply in the first year alone--
        with higher additional production increases in subsequent 
        years. That's enough natural gas to supply one and a quarter 
        million additional households in that first year alone.
  --The revenues generated by additional oil and gas development will 
        more than offset the government's investment needed to ensure 
        that public land energy development receives proper compliance 
        and environmental attention, both before and after a permit--
        plus return significant additional dollars to the Treasury.
    In fiscal year 2004, oil and gas development on BLM and FS lands 
generated $1,648,896,000 in royalty revenues. This translates into 
almost $19 of revenue for every dollar spent to manage the program 
(Source: BLM). Ensuring adequate funding for approval and oversight of 
energy projects through appropriations will help encourage further 
development to meet the nation's growing energy demand. Under the 
existing regulatory structure, the backlog of permits (both 
applications for permits to drill (APDs) and rights of way) and the 
current price environment underscore the need for a comprehensive oil 
and gas program with the proper resources. The backlog of permits in 
field offices across the Intermountain West represents, most 
importantly, natural gas and oil supplies that could be helping 
consumers by making energy more affordable.




    The importance of adequate funding.--The charts above show the 
backlog of APDs in the BLM field offices that are part of the pilot 
program created by the Energy Policy Act. While it illustrates overall 
progress on the backlog, it doesn't tell the entire story. The Buffalo 
field office received focused appropriations the past and has 
successfully addressed part of its backlog. However, isolating the 
backlog at other field offices reveals the mounting backlog needing 
attention.

    As of September 17, 2005 there were more than 3,700 permits pending 
at BLM in the Intermountain West. Ninety-eight percent (98 percent) of 
BLM's pending permits are in the Intermountain West. Each permit 
represents an opportunity to increase natural gas supplies heading 
toward consumers. Approximately seventy percent (70 percent) of all 
permits waiting for approval have been pending for more than 35 days 
even though they're considered complete by the agency. In some cases, 
the FS process can take longer. While the process--including 
unnecessary and duplicative pre drilling studies and unnecessary permit 
restrictions--are the main causes of the backlog, the resource agencies 
are stretched too thin and need more people with proper training and 
that means adequately funding the agency.
    Federal natural gas resources play a significant role in supplying 
natural gas to the public. In 2004, the Intermountain West provided 22 
percent of the Nation's natural gas.\1\ The Energy Information 
Administration predicts natural gas production in the Intermountain 
West will increase 26 percent by 2025.\2\ With nearly 201 trillion 
cubic feet of natural gas beneath onshore federal lands this is the 
only region capable of providing significant near-term production 
increases.\3\ Achieving this goal requires a comprehensive effort by 
the Federal Agencies to promote natural gas development backed by 
adequate funding to ensure these resources are developed in compliance 
with the laws. Eliminating delays within the regulatory system won't 
reduce environmental protections, but it will help deliver more natural 
gas to the 62 million households that rely on natural gas. Doesn't it 
make sense that natural gas resources owned by the American public 
should be developed to benefit the American public?
---------------------------------------------------------------------------
    \1\ Source: America's Energy for America's Future, The Department 
of the Interior.
    \2\ Source: Energy Information Administration.
    \3\ Source: America's Energy for America's Future, The Department 
of the Interior.



    Looking to the future.--The Rocky Mountains are projected to be one 
of the top areas contributing to our Nation's natural gas supply. More 
than half of the production from this region currently comes from 
public lands. In the future, production from public lands will become 
more critical for our Nation's natural gas supply. Proper funding for 
BlM to eliminate the backlog and improve the process will ensure that 
---------------------------------------------------------------------------
public lands can continue supplying their share of domestic production.

    Because the government also plays such a critical role in our 
nation's energy development--through its ownership and control over 
development--it's important to ensure that the programs impacting 
consumer's energy prices are adequately funded. Hurricanes Katrina and 
Rita clearly illustrated the importance this nation places on the 
government for its energy. These hurricanes also show the nation how 
supply disruptions create real impacts for consumers. Indeed, because 
of the price environment we're experiencing now, funding these programs 
is especially critical so these supplies--owned by Americans, produced 
by Americans and consumed by Americans--can be developed for the 
consumer's benefit.
    In order to help consumers, the Federal Government must increase 
production from public lands. Today's natural gas market is tightly 
balanced with supply struggling to keep pace with demand. In such 
volatile markets, it is particularly important for all market 
participants to be attuned to, and able to react to, market signals. 
Increasing supplies from public lands requires a thorough examination 
of public land energy development to improve the existing regulatory 
processes allowing the government and industry to adapt to changes in 
the market for natural gas. It takes time to react to changes and 
operators in every basin in the Intermountain West are ready to commit 
the necessary resources to increase production. However, Congress must 
do its part through funding the agencies responsible for developing 
federal resources to address the corresponding increase in permit 
applications.
    In places like the San Juan Basin of New Mexico and Colorado, a 
robust drilling program is needed to maintain production levels. Each 
day this basin produces approximately 4 billion cubic feet of natural 
gas to meet consumer energy needs in California to the west and to a 
number of markets to the east. The drilling program needed in the Basin 
means dealing with tight supply of drilling rigs, trained people and 
pipeline infrastructure issues. Industry is willing and able to do so, 
but such action depends on acceleration of APD approvals.
    The Energy Policy Act of 2005 contains positive policy changes that 
provide an opportunity for the Bureau of Land Management to improve its 
permitting practices. This opportunity was backed up by a direct 
funding source to ensure that America's natural gas resources are 
developed for the benefit of the nation. Ensuring these dollars reach 
their intended source should be a primary consideration of this 
subcommittee in order to forestall anticipated offsets in the upcoming 
budget.
    The Energy Pilot Program created in the Energy Policy Act of 2005 
will yield benefits to consumers if BLM takes this opportunity to 
comprehensively review the process for approving permits. To estimate 
resource needs in the future for this program, BLM should examine the 
current production coming from federal lands then determine how much 
natural gas needs to come from public lands in order to supply the 
demands of the nation. After the agencies understand their role, then 
they can begin planning for that level of natural gas production in 
terms of process and manpower needed to reach this goal. The result 
should be a program ready to fulfill the permitting obligations of the 
agency.
    In the Uintah Basin of northeast Utah, the Vernal Field Office is 
now the second busiest field office in terms of permit volume. The 
field office manager in that office does a fantastic job within the 
system and manpower available. However, good management can only take 
us so far. Industry had to temporarily fund 5 hosted workers to help 
eliminate the backlog in that office. Recognizing the value of these 
workers, the Field Office Manager eventually found the resources to 
continue paying for these workers under its budget. But 5 workers still 
falls short of the staff needed to process permits and perform the 
necessary on-site inspections throughout the area.
    While emphasis is placed on applications for permits to drill 
(APDs), there also exists a large delay in receiving other approvals 
for natural gas development. Delays in processing rights of way to 
transport natural gas from the lease to the market pipeline leaves 
natural gas stranded. In some offices, natural gas producers are 
waiting to drill approved APDs because the associated right of way has 
not been approved.
    In addition, BLM needs adequate resources to monitor the 
development taking place to ensure operators are complying with 
conditions of approval and lease stipulations--and to monitor and 
adjust these as justified. An improved process would free up manpower 
for these functions which are arguably more important than the 
procedural requirements. However, increasing resources and improving 
the process will yield more benefits to consumers.
    In closing, let me remind this committee that high natural gas 
prices are not the result of a cartel refusing to produce more natural 
gas. They are the direct result of a continuous neglect of the 
regulatory process that governs oil and natural gas development on 
federal lands and of restrictions on access to key energy resources. 
The Intermountain West offers a near-term solution and is also part of 
a longer-term solution for the supply-side of the equation. However, in 
order to develop these supplies in a sustainable manner, Congress must 
provide adequate resources to the federal agencies to reach a defined 
goal--supplying the public demand with natural gas. The Federal 
Government, as owner of the largest reserves of natural gas, has the 
responsibility to ensure that adequate supplies of this domestic 
resource--owned by Americans, produced by Americans, and consumed by 
Americans--is developed for the benefit of the public. Thank you for 
the opportunity to testify and I look forward to answering any 
questions you have.

                            RECOMMENDATIONS

    Increased Funding to Improve the Process.--Funding for oil and 
natural gas programs (both BLM and FS) should be increased across the 
board. This allows the agency to use the momentum from the Energy 
Policy Act of 2005 to improve the permitting process. Top down reviews 
of the process will provide the information needed for the agency to 
improve the overall development process that has become too cumbersome.
    Prevent Offsets.--With the Administration's budget due out soon, 
this subcommittee should look for offsets of new funding sources from 
the Energy Policy Act of 2005. Offsets will set the program back by 
preventing BLM from eliminating the backlog of permits.
    Eliminate the Backlog of Rights of Ways.--Drilling the well is the 
first step, getting the product to the consumer is the next step. 
Funding should help address eliminating the mounting backlog for rights 
of way.
    Provide Resources for Follow Up Surface Compliance.--BLM needs the 
resources to ensure that operators are complying with their lease terms 
and conditions of approval.
    Encourage Concurrent Reviews of Exploration and Development 
Proposals.--E&P proposals are frequently reviewed in a consecutive 
fashion where the paper moves from one desk to the next. The process is 
cumbersome and inefficient. Where possible proposals should be 
distributed to the proper personnel for concurrent reviews.

            Attachment 1: The Impact on the Federal Treasury




    As you see here, in one project area of Wyoming alone, increased 
permitting could lead to an increase in average annual natural gas 
production of more than 11 billion cubic feet, or enough to supply 
138,000 households. That also means an additional $11 million in 
Federal royalty receipts.
                  Attachment 2: The Permitting Process




    Senator Burns. Mr. Magruder, do you have a handout with 
that schematic?
    Mr. Magruder. I am going to leave this. I brought three of 
them. It is in the testimony as well.
    Senator Burns. We have been joined by the ranking member 
here this morning, Senator Dorgan. If you have an opening 
statement, we would welcome it at this time.
    Senator Dorgan. Mr. Chairman, I am sorry for the delay, but 
I have read the testimony and appreciate your calling this 
hearing. I will wait until after you question. I will ask a 
couple of questions.
    Senator Burns. We have the President pro tempore of the 
U.S. Senate here, Senator Stevens. Do you have anything, any 
statement you want to put in the record?
    Senator Stevens. I merely want to ask Ms. Clarke one 
question, if I can, and that is the Energy Policy and 
Conservation Act directed Interior, Agriculture, and Energy to 
inventory oil and gas resources. But Interior only opened a 
study on five basins, Montana, Wyoming, Utah, Colorado, and New 
Mexico. Now, we have almost half of the public lands of the 
country. Why was Alaska not included?
    Ms. Clarke. Sir, I know that we have inventoried in 
different phases, and I know that that first phase was looking 
at the lower 48, basically the Rockies, to determine what 
opportunities existed there. The second phase was really 
looking at conditions of approval and obstacles to the 
development.
    I confess I will have to get back and find out why Alaska 
was not included in that original inventory, but I know we have 
a very good inventory of the resources in Alaska.
    [The information follows:]

                         Oil and Gas Inventory

    Alaska was included in the second phase of the EPCA assessments. 
The contract for the EPCA phase II inventory for six more basins was 
issued in 2004, maintaining BLM's planned schedule of inventories of 
technically recoverable oil and gas resources. The basins covered 
include Northern Alaska (NPRA and ANWR 1002 only), the Wyoming Thrust 
Belt, the Denver, Black Warrior and Appalachian Basins, and the Florida 
Peninsula. The Phase II inventory is scheduled for release in January 
2006.
                Alaska Applications for Permits to Drill
    The requested information on APDs in Alaska is presented in the 
table below.

                               ALASKA APDs
------------------------------------------------------------------------
                                    TOTAL APDs
                                    pending at      APDs      TOTAL APDs
           Fiscal year              beginning     received    processed
                                    of fiscal      during       during
                                       year     fiscal year  fiscal year
------------------------------------------------------------------------
1994.............................           14  ...........            1
1995.............................           13            1            3
1996.............................           11  ...........            5
1997.............................            6            1            1
1998.............................            6            2            3
1999.............................            5           14            7
2000.............................           12           11            9
2001.............................           14           23           13
2002.............................           24           12           33
2003.............................            3            6            9
2004.............................  ...........           18           15
2005.............................        \1\ 2            8            8
------------------------------------------------------------------------
\1\ One of the APDs was withdrawn in 2005.


    Senator Stevens. I think if Mr. Magruder prepared a chart 
like that for Alaska, it would take two charts.
    Ms. Clarke. I am sure it would. We have many positive 
activities going on on BLM resources in Alaska that I think are 
contributing to the well-being of the lower 48.
    Senator Stevens. Have any oil and gas applications been 
granted since the 2000 act?
    Ms. Clarke. Pardon?
    Senator Stevens. Have any applications to drill on Federal 
lands in Alaska been----
    Ms. Clarke. Yes, there have been some. The numbers are not 
as significant. There have and I will get that number for you. 
It is very small.
    Senator Stevens. I do not know of. Since 2000 I am talking 
about.
    Ms. Clarke. I was told there was a very small number and I 
will double check and get back to you on that.
    Senator Stevens. Thank you very much, Mr. Chairman.
    Senator Burns. We have been joined also by the chairman of 
the Energy Committee. Senator Domenici, do you have a statement 
you want to make?
    Senator Domenici. No. I know everybody has raised the issue 
of the pilot projects that had to be established, and I will 
inquire of those when my time comes.
    Thank you for holding the hearing.
    Senator Burns. Well, thank you.
    Mr. Ford West, who represents the ag community and The 
Fertilizer Institute. We are looking forward to your testimony 
today.

STATEMENT OF FORD B. WEST, PRESIDENT, THE FERTILIZER 
            INSTITUTE
    Mr. West. Thank you, Mr. Chairman. I appreciate the 
opportunity to be here, and I will be brief.
    Our reality is real simple. I guess the reason I am here to 
represent agriculture is we use natural gas as a feedstock to 
make nitrogen fertilizer. It takes about 33,000 cubic feet to 
make a ton of ammonia. We think natural gas is too valuable a 
feedstock to use it to make electricity, especially when we 
have a lot of coal available for that purpose.
    The use of fertilizer accounts for about 4 percent of the 
world's food production. It is a vital component of any 
nation's production agriculture, and it is a vital component of 
the Nation's food security and certainly national security.
    Fertilizer is traded worldwide, and the current rise in 
natural gas prices--and today it is around $13.50--means that 
we are not competitive in world markets. Our hard reality is 
that we have shut down 21 nitrogen fertilizer production plants 
in the United States, 16 of them permanently closed. Five 
plants are currently idle. Many plants that are remaining are 
running at about 50 percent of production, and that is just 
kind of the reality we have to deal with, looking at $14 
natural gas prices.
    That is not just us. Any chemical company that is using 
natural gas as a feedstock has to deal with those numbers. 
Seventy chemical plants have closed in the United States, 
according to the American Chemical Council, and about 40 more 
are destined to be shut down.
    Currently right now, because of these high natural gas 
prices, farmers are paying the highest prices ever recorded by 
USDA for nitrogen fertilizer.
    Imports are trying to replace our lost production, and 
wholesalers and retailers are moving as quickly as possible and 
struggling with new logistics that imports bring into the 
marketplace. But nitrogen imports now account for about 45 
percent of our use.
    Our reality is being transferred over to the farmers' 
reality because, as we finish this fall harvest season and look 
to the spring planting, there is a really big cloud of 
uncertainty hanging over American agriculture. The uncertainty 
is, is nitrogen going to be available. There is uncertainty 
over what the cost is going to be, the uncertainty of how to 
explain this to the bankers so they can get a production loan, 
the uncertainty of lease agreements, should I enter into new 
lease agreements and try to pencil out the cost of production, 
and the uncertainty of commodity prices, and the uncertainty of 
what is the Government going to do about it, if anything.
    I think all this uncertainty certainly is due to the cost 
of energy and natural gas. Certainly in the United States the 
demand for natural gas exceeds the supply, and that is creating 
this high energy crisis and the high prices. Even though 
Congress deregulated natural gas in the late 1970's, Government 
policy is certainly manipulating the price of natural gas, and 
it has created a demand that is artificially high due to 
policies like the Clean Air Act that forced the utilities into 
producing electricity from natural gas and moving away from 
coal because of the emission standards. The supply of natural 
gas is artificially low due to Federal policies that prevent 
certain moratoria in certain States and where you can drill. 
The supply/demand balance is really having an impact in our 
industry and on energy policy in the United States.
    Like I said, we use natural gas as a feedstock. We think it 
is too valuable to use it to produce electricity, especially 
when we have this abundance of coal or nuclear that we have in 
America that we could be using to produce electricity. Using 
natural gas as a feedstock, you can produce anything from 
fertilizer to face cream, and we think it is very valuable. If 
you look at some of the statistics, it is only going to get 
worse because 95 percent of all the new electric power capacity 
coming on stream is going to be using natural gas. Now, these 
plans may change because $14 gas has an impact on that 
decision.
    The hard realities that we are facing in fertilizer in ag 
is going to go on to the American consumer this winter, if you 
look at what the suggestions of what natural gas prices are 
going to do, up 60 to 90 percent.
    We have to realize that Government policy kind of got us 
into this, in our opinion. There is no silver bullet here, as 
you said, Mr. Chairman, and we are going to have to change some 
Government policy to get us out of this. Certainly we need more 
supply of natural gas. As an industry and a user of natural 
gas, we hope that increase in supply comes from onshore, 
offshore, wherever we can get LNG.
    But we understand that this is not going to be tomorrow. It 
is going to take some time, and probably the challenges that we 
have in our industry are going to stay there, and we may not 
see any action that could be taken today to bring back those 
ammonia plants that have closed.
    What we can suggest, certainly 12 percent of our natural 
gas production is still offline because of the hurricanes. 
Anything we can do to help bring that capacity on stream as 
quickly as possible, certainly looking at bringing on as many 
onshore permits as possible. We also are looking for 181 
offshore, whatever we can do there.

                           PREPARED STATMENT

    I think another thing is the energy bill created a lot of 
incentives for coal gasification that is in that legislation. 
Anything that we can do with the Department of Energy to move 
quickly to bring those loan guarantees on. We have plants that 
want to use that technology, if we can get a loan guarantee. I 
appreciate that, and look forward to your questions.
    [The statement follows:]

                   Prepared Statement of Ford B. West

                              INTRODUCTION

    Mr. Chairman and members of the subcommittee, I am Ford B. West, 
president of The Fertilizer Institute (TFI). On behalf of TFI, I 
appreciate the opportunity to testify before the Senate Appropriations 
Interior and Related Agencies Subcommittee regarding ``The High Price 
of Natural Gas and its Impact on the U.S. fertilizer industry.'' 
Furthermore, I would like to thank you Mr. Chairman for scheduling this 
important hearing and for your leadership in addressing this critical 
issue impacting the U.S. plant food industry, its many local retail 
agribusiness outlets and the farmers and livestock producers they 
serve.
    TFI is the leading voice of the nation's fertilizer industry, 
representing the public policy, communication and statistical needs of 
fertilizer producers, retailers and transporters. In addition to energy 
policy, issues of interest to TFI members include the environment, 
international trade, security, transportation and worker health and 
safety.

                         FERTILIZER AND ENERGY

    The United States needs reliable and plentiful supplies of natural 
gas to produce nitrogen and meet critical agriculture and food 
production needs. Natural gas is the fundamental feedstock ingredient 
for the production of nitrogen fertilizer and represents 70 to 90 
percent of the production cost of one ton of anhydrous ammonia--the 
building block for most other forms of commercial nitrogen plant 
nutrients. The nitrogen fertilizer industry accounts for approximately 
three percent of the total natural gas consumed in the nation.

                          THE NATIONAL IMPACT

    The current U.S. natural gas crisis is exacting a heavy toll on 
America's nitrogen fertilizer producers and the farmer customers they 
supply. The resulting negative financial impact on the North American 
fertilizer industry is unprecedented and threatens to irreversibly 
cripple the U.S. nitrogen fertilizer manufacturing industry, which 
supplies approximately one-half of U.S. farmers' nitrogen fertilizer 
needs. America's food security, and by extension, our national security 
will be jeopardized if action is not taken to address our country's 
current natural gas crisis.

                   IMPACT OF HIGH NATURAL GAS PRICES

    Due to the U.S. natural gas crisis, the cost of nitrogen fertilizer 
production has reached an all-time high forcing many U.S. plants to 
shut down. Jobs are being exported to China, Russia, the Middle East 
and the Caribbean, as U.S. farmers are becoming increasingly dependent 
on foreign sources of fertilizers.
    As a world market commodity, fertilizer prices are determined much 
like the prices of most agricultural commodities. The fact that 
fertilizer is a commodity means that supply and demand factors in major 
markets around the world impact the price U.S. farmers pay for 
fertilizer. The prices paid by farmers for the major fertilizer 
materials reached the highest level on record during the spring of 
2005.

                                NITROGEN

    Anhydrous ammonia is the source of nearly all the nitrogen 
fertilizer produced in the world. Ammonia is produced by combining 
nitrogen with hydrogen. The nitrogen is obtained from the atmosphere, 
while the hydrogen is obtained from natural gas. At today's gas prices, 
the cost of natural gas accounts for 70-90 percent of the production 
cost of ammonia. Thus, when U.S. natural gas prices increased 
significantly beginning in the year 2000, the cost of domestically 
produced ammonia also rose significantly. Average U.S. ammonia 
production costs doubled from 1999 to 2003, the latest year for which 
data are available, and are sure to have increased again in 2004 as 
natural gas prices have continued to rise.
    While fertilizer producers can try to pass along these cost 
increases, the commodity nature of the business and competition from 
producers in nitrogen exporting countries, with access to lower priced 
gas, limits this option. As a result, a rise in U.S. natural gas prices 
causes producer margins to shrink. Eventually, margins turn negative as 
gas prices continue to increase. Consequently, companies are forced to 
reduce production, temporarily idle, or even permanently close plants 
depending on the specific economic situation they face.
    As a result of the ongoing natural gas crisis in America, 21 
nitrogen fertilizer (ammonia) production facilities have closed since 
fiscal year 1998/99 (July 1998-June 1999). Sixteen of those plants have 
closed permanently, representing a 20 percent drop in total production 
capacity, while five plants remain idle. Operating rates for the U.S. 
ammonia industry have also declined significantly from historical 
levels. The permanent and temporary closures in combination with the 
drop in operating rates have resulted in a 35 percent decline in U.S. 
ammonia production from 17.85 million tons of material in fiscal year 
1998/99 to 11.70 million tons in fiscal year 2003/04. U.S. nitrogen 
imports have increased from 6.11 million tons in fiscal year 1998/99 to 
10.36 million tons in fiscal year 2003/04. As a result, U.S. ammonia 
production fell by over six million tons or 34 percent in only five 
years. Consequently, the U.S. fertilizer industry, which typically 
supplied 85 percent of its domestic needs from U.S. based production 
during the 1990s, now relies on imports for nearly 45 percent of 
nitrogen supplies.
    In the past few weeks alone, three of the largest remaining U.S. 
nitrogen fertilizer producers have announced they are again shutting in 
or idling a significant portion of their facilities and reducing 
production by as much as 50 percent or more. Last week, TFI and a 
number of its nitrogen producing member company CEOs met with U.S. 
Department of Energy Secretary Samuel W. Bodman, as well as a number of 
key farm-state senators and congressmen. After describing agriculture's 
natural gas crisis situation, in all honesty I cannot say that we left 
any of those meetings encouraged about the short or long term energy 
future for our producers, retailers, farm customers or our nation. 
Energy conservation, renewable fuels and increased imports of Liquefied 
Natural Gas (LNG), while important, will not save this nation's 
nitrogen fertilizer industry from being forced to idle remaining U.S. 
production capacity because of cost pressures from high natural gas 
prices. Increasing U.S. supplies of natural gas in a significant manner 
and as soon as possible is the only way to avoid the further decline of 
the U.S. fertilizer industry and a nationwide economic disaster in farm 
country.

             THE CURRENT CRISIS THREATENS OTHER FERTILIZERS

    Phosphate production is natural resource based and begins with the 
mining of phosphate rock. The United States is the world's largest 
producer and exporter of phosphate fertilizer. Thus increased global 
demand has been the driving factor behind the recent rise in phosphate 
fertilizer prices. However, significantly higher costs for major 
production inputs like ammonia produced with natural gas, and sulfur 
have also placed upward pressure on the prices of the major phosphate 
fertilizers. Average U.S. production costs for ammonium phosphates 
increased by 20 percent from 1999 to 2003, the latest year for which 
data are available, and are expected to have increased again in 2004 as 
ammonia prices have continued to rise.

                               CONCLUSION

    Mr. Chairman, allow me to relay recommendations, which we believe 
should be immediately included in federal energy legislation and 
policy. These recommendations include: opening additional federal lands 
and off-shore areas to oil and gas exploration and production, 
especially the lease/sale area 181 in the Gulf of Mexico and other 
coastal areas on the Outer Continental Shelf (OCS).
    Currently, 85 to 90 percent of the OCS is off-limits to natural gas 
exploration due to a combination of congressional and state moratoria. 
Industry estimates suggest that the OCS contains gas reserves large 
enough to supply all current U.S. industrial and commercial needs for 
40 years. Regarding ``Lease Sale 181,'' the U.S. Interior Department 
estimates that the 6 million acre area contains natural gas reserves of 
1.3 trillion cubic feet. TFI strongly believes that opening these areas 
to natural gas drilling is the fastest way to bring new natural gas to 
market and bring much needed relief to our industry and our nation's 
food producers.
    Also, any federal policies that can be implemented to make it 
easier to get permitting and to build new LNG terminals in the United 
States as quickly as possible are vital. We believe these federal 
policy initiatives are critically important to the energy security, 
food security and national security of this nation.
    Finally, TFI urges members of this subcommittee and all members of 
Congress concerned about the ongoing U.S. natural gas crisis, to 
contact Secretary Bodman and request the U.S. Department of Energy move 
quickly to promulgate rules and regulations for loan guarantees and 
investment tax credits for construction of coal gasification facilities 
as authorized by Congress in the recently enacted federal energy bill.
    To conclude, allow me to again thank you Mr. Chairman and members 
of the subcommittee for your leadership in addressing the critically 
important issue of the high natural gas price in this country and its 
impact on the U.S. fertilizer industry and its farmer customers. Thank 
you for the opportunity to testify today. 



    Senator Burns. Thank you very much, Mr. West.
    I am going to ask for the testimony of Mr. Cicio, and then 
after that testimony, then we will go vote and come back. Yes, 
sir?
    Senator Bennett. Mr. Chairman, just a note. Senator Frist 
notified us that he is going to be cutting the vote off at 20 
minutes. Yesterday, for the first time in recent memory, two 
Senators were denied the right to vote and they showed up 1 
minute after the cutoff. I think we better be careful, lest 
this entire subcommittee----
    Senator Burns. How much time do we have left?
    Senator Bennett. It started at 10:45.
    Senator Burns. Let us go vote and we will come back for Mr. 
Cicio. I do not want anybody to miss a vote.
    We will call the committee back to order. Sorry about the 
vote, but we made it as fast as we could make it. I do not know 
how many reporters are allowed on the Hill, but they are 
everywhere.
    How you make it through that maze is beyond me.
    Mr. Cicio, thank you for coming this morning. He is the 
Executive Director of the Industrial Energy Consumers of 
America. We look forward to your testimony.

STATEMENT OF PAUL N. CICIO, EXECUTIVE DIRECTOR, 
            INDUSTRIAL ENERGY CONSUMERS OF AMERICA
    Mr. Cicio. Thank you, Chairman Burns, members of the 
subcommittee. Good morning. I am Paul Cicio. We are the only 
cross-sector, nonprofit trade association in the country that 
is dedicated exclusively to development of sound energy and 
environmental policy whose membership is exclusively energy 
consumers.
    The natural gas crisis and the resulting record-high prices 
that are more than twice that of Europe, three times that of 
the Far East and China, are not market or hurricane induced. It 
is Government induced. There is no shortage of natural gas in 
the United States. It is an access issue and Congress and the 
administration are accountable.
    Over 5 years, the price has increased more than 400 
percent, which is far higher than crude oil or gasoline, and 
the situation continues to worsen.
    Even before hurricane Katrina, the price of U.S. natural 
gas was the highest and the most volatile in the world. Should 
we have a cold winter, prices promise to go higher.
    Almost without an exception, there has not been a single 
grassroot manufacturing facility built in this country in 5 
years. The United States is no longer an attractive place to 
invest manufacturing capital because of the comparatively high 
prices and uncertain reliability of energy. High natural gas 
prices have resulted in significant industrial demand 
destruction. According to the Energy Information 
Administration, industrial demand for natural gas has decreased 
9.1 percent in the time period of 2000 to 2004. In that time 
period, 3 million manufacturing jobs were lost.
    In October 2005, this month, IECA conducted a random survey 
of 31 large manufacturing companies from diverse sectors that 
indicates demand destruction is accelerating. The survey 
indicates that 55 percent of those surveyed would decrease 
their natural gas demand this winter anywhere from 5 to 40 
percent. If this survey is reflective of the U.S. industrial 
demand profile, natural gas demand by manufacturing is falling 
significantly, along with good jobs.
    In this regard, we believe this subcommittee could help 
increase natural gas supply. Eliminating the backlog of 
applications for permits to drill is our best near-term supply 
option over the next 1 to 2 years. We are very concerned that 
the BLM and the Forest Service are not adequately funded and 
thus lack the capacity to process the growing number of 
applications for drilling permits.
    We do know that the Bureau of Land Management has 
successfully increased the number of drilling permits it has 
processed year over year, and they are to be congratulated for 
that. However, we continue to hear from a significant number of 
natural gas producers that the backlog of unprocessed drilling 
permits continues to grow and is delaying their ability to 
produce natural gas.
    We also encourage this subcommittee to increase 
accountability of BLM by requiring quarterly progress reports 
and quarterly congressional hearings that would allow this 
committee and consumers to monitor and ensure that significant 
progress is being made until the entire drilling permit backlog 
is removed.

                           PREPARED STATEMENT

    In closing, to solve our natural gas crisis, we need access 
to areas currently off limits to natural gas production and, 
most importantly for this committee, we need increased capacity 
to process drilling permits in areas where we can produce 
today.
    Mr. Chairman, we ask for your assurances that the drilling 
permit backlog matter will be resolved very quickly.
    Thank you. We look forward to your questions.
    [The statement follows:]

                  Prepared Statement of Paul N. Cicio

    The Industrial Energy Consumers of America (IECA) is grateful for 
the opportunity to provide testimony on this important topic that 
impacts the well-being of every home owner; determines the 
competitiveness and the future of the manufacturing sector in this 
country; and is critical to ensuring national security and economic 
growth.
    IECA is a nonprofit organization created to promote the interests 
of manufacturing companies for which the availability, use and cost of 
energy, power or hydrocarbon feedstock play a significant role in their 
ability to compete in domestic and world markets. IECA is the only 
cross sector non-profit trade association in the country dedicated 
exclusively to the development of sound energy and environmental policy 
and whose membership are exclusively consumers of energy.
eliminating the backlog of applications for permits to drill (apds) is 

        OUR BEST NEAR-TERM SUPPLY OPTION OVER THE NEXT 1-2 YEARS

    We are very concerned that the BLM and Forest Service are not 
adequately funded to process the growing number of applications for 
permit to drill (APDs). We do know that the BLM has successfully 
increased the number of drilling permits it has processed year over 
year and they are to be congratulated for it. However, we continue to 
hear from a significant number of natural gas producers that the 
backlog of unprocessed drilling permits continues to grow and are 
delaying their ability to produce natural gas.
    We understand that these agencies lack the necessary funding of $10 
million each to hire and train the needed personnel to keep up with the 
additional volume of APD's. If these permits were already processed we 
would be enjoying the impact of greater supply and lower price.
    This being the case, the most important action this subcommittee 
can take to increase short-term natural gas supply is by accelerating 
the capacity of the BLM and the Forest Service to process drilling 
permits. From our perspective, action by this subcommittee to ensure 
that these agencies receive this very small amount of increased funding 
is an important insurance policy to the American public that we may not 
run out of natural gas in the near term.
    We also encourage this subcommittee to increase accountability of 
the BLM by requiring quarterly progress reports and quarterly 
Congressional hearings that would allow this committee and consumers to 
monitor and ensure that significant progress is being made until the 
entire drilling permit backlog is removed.

             OTHER KEY POINTS ABOUT THE NATURAL GAS CRISIS

    1. The natural gas crisis is government induced and is caused by 
the failure of the Congress and the Administration to remove barriers 
to access over 400 trillion cubic feet of natural gas reserves under 
federal control and particularly the area recognized as Lease 181 in 
the Gulf of Mexico.
    2. IECA recommends swift action on the part of Congress and the 
Administration to prevent potential supply disruptions this winter. 
These actions may also reduce the price of natural gas.
  --Increase natural gas supply by removing barriers to areas currently 
        off-limits;
  --Optimize use of non-natural gas energy sources for power 
        generation;
  --Work with State officials to dispatch natural gas fired power 
        generation only as needed and on a economic and energy 
        efficiency basis;
  --Encourage the public to conserve energy and improve energy 
        efficiency across the entire economy.

              THE NATURAL GAS CRISIS IS GOVERNMENT INDUCED

    The natural gas crisis and the resulting record high prices that 
are more than twice that of Europe and three times that of the Far East 
and China are not market or hurricane induced. It is government 
induced. There is no shortage of natural gas in the United States. It 
is an ``access'' issue and Congress and the Administration are 
accountable.
    The natural gas crisis has been in full swing for five years and 
neither the Congress nor the Administration has acted appropriately to 
deal with the access issue. For five years manufacturers, homeowners, 
farmers and other consumers have been adversely affected by the 
significant impact of high natural gas prices. During that time the 
price has increased more than 400 percent, which is far higher than 
crude oil or gasoline, and the situation continues to worsen. Even 
before Hurricane Katrina, the price of U.S. natural gas was the highest 
and most volatile in the world--and should we have a cold winter--
prices promise to go even higher.
high natural gas prices have severe impacts on the manufacturing sector
    While gasoline prices hurt consumers by increasing the cost of 
transportation and reducing disposable income, high natural gas prices 
have a much larger and lasting impact because they not only increase 
the cost of heating and cooling, but also affect the competitiveness of 
industry and the retention of good jobs. Since 2001, natural gas prices 
have significantly contributed to the loss of 3.0 million manufacturing 
jobs and the shifting of future investment overseas.
    Almost without an exception, there has not been a single grass-root 
manufacturing facility built in this country in five years! The United 
States is no longer an attractive place to invest manufacturing capital 
because of the comparatively high energy prices and uncertain 
reliability. Low-cost reliable energy has historically been one of our 
country's real strengths that fostered growth in our once powerful, but 
now dwindling manufacturing sector.

OCTOBER, 2005 IECA SURVEY INDICATES THAT INDUSTRIAL DEMAND DESTRUCTION 
                            IS ACCELERATING

    High natural gas prices have resulted in significant industrial 
demand destruction. According to the Energy Information Administration, 
industrial demand for natural gas has decreased 9.1 percent from 
8,142,240 mmcf in year 2000 to 7,398,630 mmcf in year 2004. The 
decreased demand by the industrial sector is the primary reason the 
United States does not have shortages of natural gas at this time. As 
the price goes up, manufacturing loses competitiveness and shuts 
facilities down, freeing up natural gas for other sectors.
    An October 2005 IECA random survey of 31 large manufacturing 
companies from diverse sectors indicates that demand destruction is 
accelerating. Each company was asked whether their natural gas demand 
would increase or decrease this winter versus last. The profile of the 
manufacturing sectors and the number of participating companies are as 
follows: chemical/plastics (11); glass (3); steel (6); paper (5); 
fertilizer (1); brick (1); food processing (3); cement (1).

42 percent said their demand would not change.
22.6 percent said their demand would decrease by 5 percent
16.1 percent said their demand would decrease by 10 percent
6.5 percent said their demand would decrease by 15 percent
3.2 percent said their demand would decrease by 20 percent
3.2 percent said their demand would decrease by 25 percent
3.2 percent said their demand would decrease by 40 percent
3.2 percent said their demand would increase by 5 percent

    The survey indicates that 54.8 percent of those surveyed would 
decrease their natural gas demand this winter anywhere from 5 to 40 
percent ! If this survey is reflective of the US industrial demand 
profile, natural gas demand by manufacturing is significantly falling 
along with good jobs.

 ``LET MARKETS WORK'' STATEMENTS . . . FAILS TO RECOGNIZE THE FEDERAL 
                   GOVERNMENT IS CONSTRAINING SUPPLY

    Too often we hear members of Congress say we should ``Let markets 
work.'' This statement is not an ``energy policy'' and fails to 
recognize the federal government is constraining supply by preventing 
access to areas that are under federal control that contains some 400 
TCF of natural gas. United States annual consumption is only 22 TCF and 
even a small portion of that supply would have a dramatic impact on 
reducing record high prices. At the same time, the federal government 
has enacted numerous environmental laws that lead to increased demand 
for natural gas. How can ``the markets work'' when government increases 
demand and restricts supply?
    The statement also does not reflect the reality that we have 
stringent government environmental regulations in place that control 
the regulatory process by which natural gas production companies 
receive approval to drill. And, if these government agencies are not 
adequately funded or well managed, slow the process of drilling permit 
approvals.
    In closing, we need access to areas currently off-limits to natural 
gas production and increased capacity to process drilling permits. Mr. 
Chairman, we ask for your assurances that the drilling permit backlog 
matter will be resolved.
    Thank you for the opportunity to provide this testimony.

    Senator Burns. Thank you.
    I will start the questioning here. I would ask Director 
Clarke. You have had a little time, but not maybe ample time to 
set up these pilot projects to increase your ability to issue 
these APDs. I would like some sort of a report on that on how 
you are doing. Where are you in the process?
    Ms. Clarke. Senator, we are very grateful for the authority 
granted to the BLM under the Energy Policy Act to establish 
these pilot offices. I think that they hold great promise for 
us in being able to deal with the backlog.
    Immediately upon passage of the act, I identified a team 
and a single individual that we asked to lead this effort. We 
are ahead of schedule in getting the MOU between all of the 
Federal participants in place and have already contacted many 
of the States and are working on outreach to them to bring 
those partners along.
    We anticipate hiring 10 Fish and Wildlife individuals. The 
recruitments are already out to fill those slots, I believe 
about four Forest Service slots, and we are working well with 
the EPA and other partners to make sure that staff is dedicated 
to the processing of APDs. Clearly, that does hold the 
opportunity for us to most swiftly get natural gas to the 
marketplace. So we are ahead of schedule on this. We anticipate 
hiring 130 individuals under the authorities of the pilot 
program.
    The additional funds that will come to us from rental 
receipts put about $19 million into the program, of which 
nearly $11 million is going to go directly to APD processing in 
the BLM ranks. An additional $6 million or $7 million will be 
funding the Federal partners' participation. Some of that money 
will be dedicated to inspection and enforcement to make sure 
that we are managing our program in balance.
    Senator Burns. Thank you very much.
    Ms. Clarke. Could I just tell you we expect to have these 
offices operational in January? The legislation gives us until 
March. So we recognize there are urgencies and we are seeking 
to expedite implementation of the pilot offices.
    Senator Burns. It has been claimed by the industry that 
there is a lack of communication. I will fill that in. The 
industry contends the problem is that the BLM is not 
identifying incomplete applications--in other words, you will 
have applications that have been laying around that are marked 
incomplete--and has guidelines that do not allow a 
standardization application process to prevent incomplete APDs. 
But also, there is a problem that once an APD is discovered to 
be incomplete, the applicants are not notified immediately upon 
that. Can you clear that up for us?
    Ms. Clarke. Senator, we have been working diligently 
throughout my tenure as Director of the BLM to deal with the 
challenge of APDs and to improve our processes. In July 2002, I 
pulled together all of the field managers and petroleum 
technicians, State directors, and others to talk about the 
problems with APD processing.
    At that time, we put into place numerous actions to improve 
our responsiveness to requests for permits to drill. One of the 
things we did was to create quality assurance teams, which have 
been routinely going out to field offices, to make sure that we 
are consistently applying our rules and our program to each of 
those offices and to also improve the way we approach 
processing.
    We have begun accepting applications in packages where they 
cover an area or a plan of development. That allows us to go in 
and do one NEPA process and approve all of the applications at 
once.
    We are also working to make sure that we do improve our 
procedures in dealing with industry. We have done a lot of 
outreach to improve communication. There are directions given 
to us in the Energy Policy Act which give us very clear 
guidance on the Congress' expectation in regards to timing and 
communications, what constitutes a complete package.
    As you know and as the pilot programs identify, we have 
other participants, other Federal and State players, that need 
to partner with us, and I do believe that by coalescing all of 
those in some one-stop shopping kind of locations, we will have 
the full attention of those players that need to assist us in 
moving these permits forward.
    So we are committed to being on time and on deadline, and 
guidance has already gone out to the field identifying the new 
expectations for time lines on the APD processing.
    Senator Burns. Well, Mr. Magruder has indicated that there 
are two players in this that are not here today, the Forest 
Service and, of course, on Indian lands. Indian lands have 
jumped 50 percent in their production in the last 3 years. Why 
would that show such an increase and yet we seem to be lagging 
off reservation?
    Ms. Clarke. I think we are doing well across the board in 
increasing production. Senator, that is not to say there is not 
opportunity for continued improvement and expansion of energy 
production. I believe that we have been given some great new 
tools, authorities, and certainly we all have the incentive.
    Senator Craig asked if we were managing the situation as a 
priority. Let me assure you that it absolutely is a priority. 
We have a daily meeting on all things to do with energy and 
energy development at the BLM. It is front and center on my 
screen. We recognize the needs of the Nation for reliable 
energy sources and we recognize the capability BLM has to 
contribute to the supply. We want to be part of the solution, 
not part of this problem.
    Senator Burns. At one time we tried to work out a one-stop 
shop that would work for the Forest Service and the BLM and 
Indian country. I do not know where that is right now, but I 
will think about that.
    So, I have got a question. Mr. Magruder, would you agree 
that a 50 percent increase on Indian lands, even though they 
are not here, is a bit better than off-reservation production?
    Mr. Magruder. There is a huge resource that needs to be 
tapped on Indian lands. I was fortunate to participate in a 
program sponsored by the DOE just last week. We brought in--I 
will be there were--30 tribes represented in Denver and a good 
communication, good exchange between industry, referred to as 
developers from a tribal perspective, and the tribal nations, 
and trying to find out what business expectations are 
acceptable. I think it was a good exchange. But there is a 
large, large resource there.
    That is where I picked up on the fact that Fort Duchesne 
office is being cut in the wake of all these increases, and 
they are coupled at the hip. One-third of the permits have to 
go through the Fort Duchesne office for us to put the bit in 
the ground.
    It seems to me like there needs to be some integrated team, 
committee, call it what you want, but there needs to be an 
integration of people that truly understand oil and gas. There 
is a difference, and you need that integrated team right now. 
Otherwise, I do not know if we are really changing the process 
much.
    Senator Burns. Even on these pilot programs, Ms. Clarke, 
when you hire new people, how long does it take to train them 
and can you get people qualified that, like Mr. Magruder says, 
are acutely aware and know a little bit about the oil and gas 
business?
    Ms. Clarke. We are recruiting to all sources to fill the 
positions that are going to be available in those pilot 
offices, and we will be looking for the most qualified 
individuals. Once they get in those offices, they will have 
some time learning what they need to know about the local area, 
the geography, the resource that they are going to be 
overseeing. But we are absolutely committed and confident that 
we can pull this together and make it work and make those pilot 
offices produce success and results.
    Senator Burns. Senator Craig.
    Senator Craig. Thank you, Mr. Chairman.
    Kathleen, in my opening statement, I said tell me it ain't 
so, and in part, you have done that. Obviously, there has been 
a tremendous effort on the part of you and the BLM to get this 
underway. Your record of improvement is impressive. Is it good 
enough in relation to the marketplace? No, it is not. The pilot 
projects are underway, and I think it is important we monitor 
them with you to make sure that we stay on that course.
    I guess my question to you, in looking at the demand that 
is currently out there, the APD's that are current, do you have 
enough resource today to get the work done in a timely fashion? 
We all measure time in different ways. Or do you need our help 
in getting greater resource? If you do, should that come in 
direct appropriation, or can that come with giving you some 
authority, as we do other agencies, to reprogram within the 
agency to say that for the next 2 years, it will be our high 
priority to do the following things and we will lessen 
priorities in other areas?
    Ms. Clarke. Senator, with the additional funding that is 
going to be coming to the BLM, specifically to those pilot 
offices, I do believe we are going to have the capability of 
dealing with what has been referred to as the backlog or the 
pending applications. Those clearly provide the opportunity for 
us to most readily respond to the needs of this Nation for 
energy right now.
    I think there are always opportunities for us to address 
the prioritization of activities within the bureau, and we are 
going through a very robust exercise right now to take a look 
at internal policies, as well as program priorities and funding 
allocation, to make sure that we are pooling resources where 
they are available to the highest priorities, which, as I have 
indicated, are the production of energy.
    We would look forward to working with your committee, if we 
identify opportunities for legislative action to assist us in 
that effort, or to reprogram dollars that we have to meet those 
higher priority needs.
    Senator Craig. Clearly for us I think and for you, while 
there are many efforts underway to increase overall 
availability of supply in the United States, being able to 
produce it domestically and get it into the current system is 
the easier response, the quicker way of getting part of this 
overall supply issue down a little bit. We have got what is 
known as demand destruction going on at this moment. It has 
been spoken to. With the increased demand, we have lost about 9 
percent of the use. That is all jobs. It may be gas being 
delivered, but it is jobs lost that is really very significant 
in all of the industries associated.
    If you meet the targets that are out there and we stay on 
course toward moving these applications in a more timely way, 
then my question may not be to you but may be to any one of 
these three gentlemen. Do we have the delivery system in place, 
or is that the next problem? Are we working as robustly on that 
with FERC and other agencies as we are working with Kathleen on 
the wellhead issue, if you will? So we increase our capability 
at the wellhead, but we have not delivered it or we have no 
capacity to deliver it. Does anyone wish to respond to that 
particular side of the equation?
    Mr. Magruder. I will be glad to take a shot at it just to 
start with, and I am not professing to be a natural gas expert 
in any way other than the fact I live within the framework.
    Senator Craig. Well, you are our current expert.
    Mr. Magruder. That is right.
    The take-away capacity going to the west coast out of the 
Rocky Mountain region is approximately 85 percent utilized. The 
take-away capacity going out east of the Rocky Mountain region 
is about 85 percent utilized. So they are approaching that 
point.
    But in the last 2 weeks, two significant things have 
occurred. Encana has announced the pipeline and the commitment 
of that gas which is half a bcf. So our take-away capacity in 
the Rocky Mountain region has stayed ahead of the production 
growth for the first time in a long time. Three years ago, 
producers were faced with a $2.50 differential. Natural gas 
prices at the city gate here on the east coast may have 
appeared high, but I can guarantee you a producer like myself--
we were receiving 62 cents for natural gas in July. So talk 
about destruction. There was a lot of destruction because of 
lack of take-away. That has reversed.
    Kinder Morgan has announced a major pipeline system that 
will source in the center of the Rocky Mountain region and 
deliver natural gas into Ohio. That is going to be a straight 
ticket, $1.10, whatever the fee is. Nobody is really certain 
right now, but that is going to be a huge value-add and will 
provide additional take-away that has not been available in the 
Rocky Mountain region. So that is a 30-month project that is 
out on the horizon that is going to be a major artery of 
natural gas out of the Intermountain West area directly into 
the east coast. So that is significant.
    You probably need to get the right individuals in here to 
talk about the dynamics associated with take-away. My position 
is it is there, and the developers like myself are doing 
everything possible to get wells drilled and add supply into 
the marketplace.
    Senator Craig. Does anyone else wish to comment on that?
    Mr. West. I would just add this. Running an ammonia plant, 
we have about a 12-inch gas line going into an ammonia plant 
because we use so much natural gas. As far as I know, we have 
not had anyone who has been turned down gas that we cannot get 
it to you if you are going to pay for it.
    I have had phone calls from utility companies in the east 
saying, could you tell us how many more ammonia plants are 
going to go down? So we want you to ease up. We are planning 
how much gas that will bring into the marketplace that will be 
available for us. So that is kind of the change in the 
distribution I think that is going on as people are trying to 
fill up their pipeline capacity going in their direction.
    Mr. Magruder. I need to reinforce one item. When we talk 
about pipeline, it requires right-of-way procurement to be able 
to do that. Some of that will be across Federal lands, which is 
a much lengthier process than across private or State lands. As 
we talk about the APD process and we look to Kathleen's group 
to create process improvement, we really need to address right-
of-way too. It is just as critical and as important as the 
ability to drill a well. It does not make sense to drill a 
well--you are talking about getting it to the market. If you 
cannot get the resource from point A to point B, it does not 
make a lot of sense. So we need to make sure that, when we are 
talking about the APD and the permitting process, we are 
addressing right-of-way needs too.
    That requires a different skill set. I think Kathleen will 
tell you that the people that address the right-of-ways are 
slightly different than those that address the mechanical 
integrity of a well or whatever may be their role in the APD 
approval process.
    Senator Craig. If I could, Mr. Chairman, let me come back 
to Kathleen to address that right-of-way issue because out 
West, as you well know, a lot of that land is Federal land and 
BLM land predominantly in many instances.
    Ms. Clarke. We have been working with the western 
governments to identify appropriate energy corridors for some 
time. However, it has been most helpful that the Energy Policy 
Act in section 368 pulls together the Department of Energy, the 
Department of Agriculture, and the Department of the Interior 
to do an EIS and get those corridors identified and in place. I 
am pleased to report that the scoping period started with the 
formal notice on September 28. So we are moving ahead. There 
will be public meetings beginning October 25. So we are right 
in the middle of it today just getting started, and we will be 
working very diligently to make that happen as quickly as 
possible.
    I think some of the frustration in the past has been that 
BLM would identify a corridor that would not match up with the 
corridor the Forest Service had identified, and we certainly 
are not going to be helpful to one another if we do not get our 
corridors and our vision for development of energy resources 
into alignment.
    Senator Burns. We had a road like that that came out of 
Canada and did not hook up with the road in Montana one time 
and had a little argument about that.
    Senator Craig. Thank you, Mr. Chairman. Thank you all.
    Senator Burns. Senator Allard.
    Senator Allard. Thank you, Mr. Chairman.
    I would just associate myself with many of the questions 
that have already been asked. I am going to change over to oil 
shale and then come back, time permitting.
    But on the oil shale, how are you moving along as far as 
implementing the provisions that are in the energy bill, and 
are you doing anything beyond the energy bill to facilitate the 
development of that potentially very generous resource?
    Ms. Clarke. Senator Allard, as I am sure you are aware, we 
put out a request for proposals to come forward for our 
research and development proposals for oil shale. We have 
received 20 proposals. As a matter of fact, today we have the 
committees that we have put in place to review and assess those 
to make sure that they meet the criteria of our solicitation 
and to really come up with a quality set for further review. So 
we will be authorizing and granting permits for several of 
those high quality proposals to move forward.
    In the meantime, we are taking the direction from the 
Energy Policy Act, have identified a project manager, and are 
beginning an EIS so that we can have appropriate NEPA work to 
oversee commercial development of this resource. So we are on 
target and being very aggressive in trying to tap into that to 
date unutilized resource.
    Senator Allard. Well, I am pleased with what you have done 
up to this point.
    When do you think you will have these demonstration 
projects identified?
    Ms. Clarke. Identified and authorized?
    Senator Allard. Yes.
    Ms. Clarke. Spring is our date. Like I say, we are doing an 
initial analysis. We will sort of do a first cutoff to 
determine those that are responsive to the request and then 
going through a little more in-depth review to make sure that 
we are moving forward those nominations which we believe have 
opportunity to really make a difference and that are feasible 
in terms of their science and technology.
    Senator Allard. Very good. Thank you.
    I would like to go back to the permit drilling. You say 130 
days, Mr. Magruder, is an average, or is it a minimal time?
    Mr. Magruder. Well, they really range anywhere from--I 
would say it is a good average.
    Senator Allard. Of that permitting process, if you are a 
small driller and want to go in and put a bit in the ground, 
what is the most frustrating part of that permitting process?
    Mr. Magruder. I was just telling someone during the break. 
Really it is a combination of three things. It is the NEPA 
process that has grown to what it is today, and that is what is 
demonstrated right here. That is adhering to NEPA, the Historic 
Preservation Act, and the Endangered Species Act. Those three 
things are what create the guidelines that we have to adhere to 
in the permitting process. So I think that certainly all the 
preliminary NEPA work that goes into the botanical study, the 
visual impact, all those sorts of things that have to be 
performed--and you have to go through it for each site, every 
one that we submit. So it is a very onerous process.
    Unfortunately, it seems like just exercising good judgment 
is not allowed anymore, but in reality that is what we do. 
Every permit that we have submitted is really exercising best 
management practices that are essentially approved by the BLM, 
the BIA, or the tribe or the Forest Service, whichever agency 
you are working with. All we do is just cut that template over 
and over and over, but we have to go through the physical 
effort of recreating those documents and that study each time.
    So in my opinion--you know, the comment I made earlier--in 
given areas, I think that the field managers who have a 
balanced view of how to develop these resources and all the 
multiple use activities they have to adhere to--I am not an 
expert in those fields. My job is to try to drill wells and 
produce them as efficiently and as environmentally as possible. 
Those people know the answers. What takes us 2 years to do an 
EIS, I would venture to say that there are people who can do it 
in a matter of 6 hours in an afternoon if they close the door. 
They know the area. They know the botanical conditions, and 
they know the historic conditions.
    Senator Allard. That is because they have already made 
applications before and gone through the process.
    Mr. Magruder. Yes, they have already been through it over 
and over and over. They go through a lot of this that appears 
to me to be a real waste of time.
    Senator Allard. From your view, what would be an 
appropriate distance between wells and areas to make these kind 
of studies?
    Mr. Magruder. It is all a function of technology. The 
resource is not the same. Natural gas resources in the Rocky 
Mountains change depending on the reservoir type. Oil resources 
change depending on the reservoir type. Oil shales. The 
Department is going to have to come up with a new skill set to 
be able to handle that.
    But just developing oil and gas, you want to focus on 
natural gas. That is why we are here today. Technology has 
allowed us to drill many more wells. Colorado is an example. 
Piceance Basin. We started off drilling one well per section 
there. Now we are able to drill 64 wells per section because of 
completion technologies, drilling techniques, everything has 
changed. But we really have not changed in lock step with the 
Federal process.
    I challenge. As an example, what is so sacred about a 30-
day public notice? That was put in the regs many, many years 
ago before the Internet, before mobile phones, before our whole 
connectivity that we have today. Why would not 5 days be 
acceptable for public notice? That would compress the cycle 
time. If you made that one decision, that would compress the 
whole permitting cycle time tremendously. It is just questions 
like that that have to be addressed and have to be asked. How 
can we take this entire cycle, not sacrifice the environmental 
and all the other deliverables that should come out of this 
process? Can we end up with the same pristine location in the 
process but do it in half the amount of time? That is the 
question we need to ask.
    Senator Allard. Now, Ms. Clarke, you have heard his 
concerns. What can you do, if anything, or what are you doing, 
and what suggestions would you make to this committee to meet 
some of his concerns?
    Ms. Clarke. I think he is absolutely correct, that our 
response to the mandates of NEPA have grown over the years. We 
are accustomed to being challenged in court or through protests 
or----
    Senator Allard. This is not new legislation. It is lawsuits 
that has driven this.
    Ms. Clarke. Yes. Well, we have so many different things 
that play on us. For example, since I have been here, there is 
an over 600 percent increase in the leases that are protested. 
In the State of Utah, my home State, 100 percent of leases 
issued by BLM are protested. It is approaching 80 percent in 
Colorado, and on average it is----
    Senator Burns. Who is protesting them?
    Ms. Clarke. It is being protested by various interests. 
Environmental groups, others do not want the oil and gas 
activity there. We have challenges to the issuance of APD's. It 
is a lengthy process to get a land management plan in place 
that really provides the framework for development. In our 
collaboration with partners, you get many differing voices and 
views together, and it is not easy to manage lands for multiple 
use. So I think a lot of the process predicament that we are in 
is real.
    We would welcome the opportunity to sit down with the 
committee and examine what some opportunities might be to 
simplify. I think we are all committed to good environmental 
stewardship. We all want to leave the land that we enjoy to the 
next generation. But clearly there are opportunities for us to 
improve the development of oil and gas and energy resources 
while being good stewards of the land.
    Senator Allard. So you think there is an opportunity for us 
to improve that permitting process.
    Ms. Clarke. I think there probably are some opportunities. 
I think we are doing everything that we can within the legal 
framework, or at least everything we have seen. Let me suggest 
that I do not pretend that all wisdom resides at the BLM. We 
work with industry. We invite their suggestions. We appreciate 
the guidance of this committee and others and remain open to 
ideas and opportunities to improve. I think there are also 
opportunities for the Congress to consider streamlining some of 
the processes that we find ourselves committed to.
    Senator Allard. Well, Mr. Chairman, I would just suggest I 
think there might be some staff time that could be spent both 
on the committees and maybe on our individual staff to kind of 
sit down with BLM and see what kind of opportunities there 
might be out there.
    Senator Burns. Well, we did put one thing in the energy 
bill, Senator Allard, that has not been mentioned here today, 
and that was the categorical exclusions, and if they will be 
used.
    I want to recognize Senator Domenici.
    Senator Domenici. Well, I sit here, Mr. Chairman, in total 
frustration. I just do not know where to start.
    It looks to me like that idea of categorical exclusions 
that we put in the energy bill is a good one. It also looks to 
me like the idea of the pilot project offices is a good one. 
But all of these are going to take time. The problem we have is 
we are being asked by the American people and by our fellow 
Senators to come up with something that will give some relief 
now and cause some production of new large quantities of 
natural gas quickly. I have not heard anybody suggest any yet, 
which disturbs me greatly. Whoever it was that said we really 
got off base when we decided, at one point in our history, that 
we apparently had plenty of natural gas and we just let natural 
gas be used for everything which is a good free market concept. 
But what happened is that nobody did anything innovative with 
reference to the production of power for electricity by any 
other means. They just all floated to the softest spot, and 98 
percent of the powerplants in the last 15 years are all natural 
gas and I assume there are more coming on.
    I was going to ask Mr. Cicio. You represent the industrial 
users. Does that mean that you can speak a little bit about 
powerplants, or is that out of your area?
    Mr. Cicio. Possibly.
    Senator Domenici. Well, I am just wondering. I know that 
there are going to be proposals around soon to put caps on 
natural gas, to freeze the price, and most of us do not think 
those kinds of things will work, but they are going to sound 
good.
    But I wonder what you would think about a law that would 
gradually reduce, by a percentage, the natural gas that 
utilities could use to produce electricity.
    Mr. Cicio. That is a very good question, Senator. I believe 
my membership, which are exclusively large consumers, would----
    Senator Domenici. Large consumers but not necessarily 
powerplants?
    Mr. Cicio. Large consumers of energy. We use large amounts 
of natural gas as fuel and feedstock, large amounts of 
electricity. My membership represent all the industries that 
cogenerate their own electricity too.
    I would suspect that as much as they would like to support 
something like that, they would not because it is a mandate. 
The reason that the electric utility industry used natural gas 
is buried in Government regulation.
    Senator Domenici. I understand.
    Mr. Cicio. We would want to fix that problem rather than 
put a band aid on it which may cause other problems that we 
cannot foresee.
    Senator Domenici. So if we did not allow some change in the 
standards for which they could use alternatives, they would 
state that they were being put in a bind where they just would 
not have energy. Right?
    Mr. Cicio. That is correct.
    Senator Domenici. But I am just feeling around. We have got 
to try something.
    With reference to the EIS's that are site-specific, Mr. 
Magruder, aren't there some areas where the BLM is trying to 
pool and do more than one well site, by doing an area including 
more than one well site?
    Mr. Magruder. That is correct. I think in the Powder River 
basin, it has been proven that that is an acceptable practice, 
areas on the western slope of Colorado where you have high 
density drilling now from central pads, which seem to appeal to 
everyone because we are able to concentrate a lot of equipment 
in one location as opposed to the leopard spots that some 
people complain about. But that is done there. It is done in 
the Green River basin. So, yes, it is a practice that can be 
applied in other areas.
    Senator Domenici. Is there anything, Ms. Clarke, that we 
could do to help you so that process would be more broadly 
used?
    Ms. Clarke. Senator, we have sent directions, guidance, if 
you will, to all of our field offices to instruct them to 
employ some of these tools such as areas of development and 
processing them as one. I believe I also indicated that we have 
quality assurance teams that are going out and visiting field 
offices to make sure that they are paying attention to the 
guidance and that they are incorporating those.
    We do have opportunities for improvement, and I have 
learned anecdotally that some of those offices still have not 
moved into these new opportunities.
    I am having a meeting with all of the primary field offices 
that manage oil and gas production and State directors the 
first week in November, and we will sort of drill down on what 
these tools are and insist that they start overseeing them.
    We are also building into our management reviews and 
performance plans elements that will hold our managers 
accountable for assisting us in getting the best management 
practices employed.
    Senator Domenici. When you look at that chart, is there 
more than one EIS that occurs in that chart?
    Mr. Magruder. Really I think you are referring to the term 
EA, environmental assessment. EIS is an overarching or large 
impact study area. An EA is typically a site-specific 
situation.
    Senator Domenici. I understand. You are correct.
    Mr. Magruder. That is just for one well right there, but I 
could, off the record, tell you all sorts of stories of 
multiple EA's that take place on the same given study area.
    The Forest Service is a great example. We have not really 
addressed the Forest Service, but there is a tremendous amount 
of resource in areas. I am not talking about your typical 
redwood stands. I am talking about areas that are common and 
similar to areas that are being developed just across lease 
lines that have the ability to be leased. My company, as an 
example, drilled the first well in 25 years on a forest in 
Utah, but it took us hiring the individual that wrote the 
initial NEPA document to basically get everybody in the same 
room and explain the intent of that initial language because 
after 25 years, you have nobody in the Forest Service who has 
ever seen a well drilled. They do not know how to process 
paperwork. They do not understand the terminology. They do not 
understand the impact. You have got people that are almost 
retired without seeing a well drilled on their property.
    I do not know if that answers your question.
    Senator Domenici. Yes, sir, that is fine.
    Did anybody ask the question about winter drilling 
restrictions? Was that asked? What about that, Ms. Clarke?
    Ms. Clarke. As we work with State and local governments, we 
are often asked, during the course of developing a land use 
plan, to accommodate the presence of wildlife that may need to 
have their habitat protected during certain seasons. So we do 
have situations where either in the environmental impact 
statement or as a condition of approval to a permit to drill, 
there are limitations that are placed there to deal with either 
sensitive species or typically big game species.
    Senator Domenici. Well, I guess the question is, are winter 
limitations a significant limitation on producing in your 
jurisdictional areas?
    Ms. Clarke. It probably is different from office to office 
and State to State.
    Senator Domenici. Well, but just tell me is it an important 
issue?
    Ms. Clarke. In some locations, it is an issue; in others, 
it is not at all.
    Senator Domenici. Could you give the committee some 
indication later about winter limitations? We might want to 
look at that. It was certainly done in an era when we were not 
as concerned about this as now, and maybe it ought to be looked 
at again.
    Ms. Clarke. I would be happy to work with the committee to 
better understand what those stipulations are and what 
opportunities there are to mobilize and get energy produced. 
Thank you.
    Senator Domenici. Mr. Magruder, did we identify the right 
offices when we identified the pilot project offices?
    Mr. Magruder. Yes, you did.
    Senator Domenici. We will try to monitor BLM's 
implementation, but you all will know whether they are putting 
something together that will work. I mean, you will be able to 
tell us, will you not?
    Mr. Magruder. We will.
    Senator Domenici. Because it does not do any good to put an 
office together if, within the office, they do not do something 
to accelerate the process.
    Mr. Magruder. That is correct.
    Senator Domenici. I am interested in hearing a little bit 
more about the additional 100 billion cubic feet of new natural 
gas supply that you spoke of. What is it going to take to 
access that? Does industry have the rigs and capacity to do 
that?
    Mr. Magruder. I need to clarify one point. I do not know if 
it was very clear, but that 105 bcf incremental impact is in 
the first year alone. So that is just in the initial year. So 
in the out-years, that number gets much larger. But I was just 
referring to a near-term impact.
    With respect to the rigs, that is always a big question, 
and I am glad we are addressing that in public right now. I 
would like to just say that in 1980, when I got out of school, 
there were about 4,000 rigs running and the infrastructure was 
there. But over time, because of the cyclic nature of our 
industry, it has declined down to as low as 500 to 600 rigs 
active. But today there are about 2,000 rigs that are active in 
the United States. In 2005, 211 new rigs are scheduled to move 
into the market. Now, they can be in the form of a 
refurbishment or a new rig.
    In my company, as an example, last April I woke up about 3 
o'clock in the morning and I realized I was not going to get a 
rig and I needed one. So we went as far as El Salvador, 
Singapore, and Greece, and we found rigs. We have two 
refurbished rigs coming into the market right now. It takes 
about 120 days to get them here and refurbished and crewed. 
Roughnecks are making anywhere from $65,000 to $95,000. So the 
argument that they are not making enough money and we cannot 
attract them, at that age I would work for those wages.
    Senator Burns. It sounds better than cowboying, I will tell 
you.
    Mr. Magruder. So anyway, in 2006, 270 rigs are scheduled to 
enter the market again. Somebody asked me at the break, what 
about this rig situation? In the Rocky Mountain region, I can 
tell you there are a lot of mid-continent and gulf coast 
drillers that will not come up here because of the winter 
stipulation. The rigs are in the air and then they are down 5 
months out of the year. They are not going to do that. They 
cannot mobilize all their people in here and do that.
    So, they have got to work with companies like ourselves 
that have a balanced portfolio on Federal fee and State lands, 
and you drill in those periods where the winter stips do not 
affect you. But you can do the math. If it takes, let us say, 
130 days or if it takes 8 months to get a drilling permit, that 
takes anywhere from, in the Powder, 2 days to drill, in Uintah 
basin, anywhere from 5 days to 20 days, the same as the 
Piceance, you have to have an inventory of permits. Drilling 
contractors are not stupid. They are going to align with those 
people that have the drilling inventory in front of them.
    Now, the days of just picking up the phone and calling a 
drilling contractor and saying, hey, can we go out next week 
and drill a well together, are long gone. There is a huge 
supply chain effort behind all of these drilling programs from 
the standpoint of steel. They are rationing cement now. 
Drilling contractors, crews, the list goes on. It is not just 
the NEPA game. We are having to balance everything when we do a 
project management program.
    So the ideal scenario is to have a continuous drilling 
program. Some will argue that the BLM issues more permits than 
you actually drill. Well, I would say they are right. In the 
past year or 2, we have exercised at least 60 percent of those 
permits granted, but because of the process itself, if it takes 
5 to 20 days to drill a well and it takes 6 months to get a 
permit, you have to have an inventory in the event that you are 
successful because you have got an annual commitment on the rig 
in a lot of cases. It can range anywhere from $5 million to $20 
million as far as your annual commitment. You use it and you 
pay for it. If you do not use it, you still pay for it.
    So the issue on not having enough permits, we have 
exercised at least on 60 percent of those permits. The drilling 
rigs, it is just a function of the market. Once we define the 
demand, our market always seems to respond to it, and we are 
doing everything possible to be able to execute within our 
portfolio. We have taken our own destiny in control by 
acquiring and buying our own rigs in some cases or making 
arrangements to buy those rigs.
    Senator Burns. Can I follow up with a question?
    Senator Domenici. I am finished, Senator.
    Senator Burns. Mr. Magruder, we hear about the rent that 
you pay on your leases and how long. We hear of instances where 
a rig has to be moved before completed in order to maintain 
your rental or your lease or whatever. Bring us up to date on 
that, would you please?
    Mr. Magruder. I just had an example a couple weeks ago in 
the Utah area where we had to be out for winter stips by 
October 1. Each area applies different stipulations, and 
generally, we can work with--you know, elk hunting season only 
lasts a couple of weeks out of each year. And we are very 
sensitive. Most of the people----
    Senator Burns. We are sitting here and I am missing mine.
    Mr. Magruder. That is right. I am going Friday.
    But most people are very sensitive to that and we work 
around those conditions. I just feel that a total lockout of 5 
months in winter stips, you are shutting down the methane 
manufacturing business for 5 months, and that is a period in 
time where we can continue to develop. A prime example just 
took place last week where we had to rush and get a rig down a 
mountain and over to another location because the lockout 
period was being imposed.
    A lot of operators deal with those situations. Kathleen can 
comment as to what happens in the Pinedale and Jonah areas when 
the winter stips hit. There is just an influx of rigs. All the 
drilling contractors are trying to figure out what to do with 
all those drilling rigs that are going to be locked out for a 
period of time.
    Senator Burns. It was about 10 years ago on the Energy 
Committee--and I think Senator Craig will remember this--and 
also a follow-up hearing that was held in Commerce where 
Senator Hutchison of Texas said if we do not do something about 
stripper wells and a lot of other issues out there, we are 
going to lose the entire infrastructure in order to explore and 
develop. She was right.
    It just sounds like that this winter restriction, Director 
Clarke, is maybe a bigger issue than we have thought before 
prior to this. Is that correct?
    Ms. Clarke. I think that there are some significant 
reductions to potential for development with winter stips. 
Those are put in place as we cooperate very closely with fish 
and game in the various States and with other partners to 
really identify how to balance the competing interests and 
multiple uses that come under the charge of the BLM. So Senator 
Domenici suggested perhaps we ought to have a discussion about 
how significant those issues are.
    We have invited a pilot program in the Pinedale area where 
we are testing the impact on some of those wildlife species 
from having winter activity. We are not yet through the studies 
on that to determine how significant or acceptable or 
unacceptable those impacts are, but I think we are open to 
examining possibilities.
    There are also waivers available or exceptions. We have had 
some companies come in this year, and we are working with them 
to determine if it is appropriate to except some of those 
restrictions so that they can proceed to develop through the 
winter. So we are willing to work with the Congress and with 
companies to improve production of energy resources on BLM 
lands.
    Senator Burns. Well, to the untrained eye, such as I am, 
but I can give it from a practical standpoint where--and I 
never thought about these restrictions. I am glad it came up. I 
will be a little more attentive to that now, I would imagine. 
But where they have shut down drilling before--I have been out 
across that country, and I have never seen any wildlife out 
there in the dead of winter to be right honest with you. You 
have got frozen roads. It seems like the only time that you 
really have environmental damage--and most of it is surface--is 
in the spring of the year, spring breakup, and we know how to 
deal with those.
    Mr. Cicio, I just want to ask a question. We had testimony 
from a lot of the chemical companies in Energy the other day 
that said this issue is so vital that the loss of our 
commercial chemical production in this country is on the edge 
right now. That is the reason that you and Mr. West are here 
because of the vital interest in this thing and what we are 
talking about as far as the economy of the country is concerned 
and how important Ms. Clarke and her responsibilities and the 
representative of the companies that can get us more 
production. That is why this whole discussion is being held 
this morning at that table. That testimony was very, very 
revealing and I thought very important.
    Mr. Cicio. Senator Burns, I cannot impress upon this 
committee enough the critical nature of this issue. The comment 
you made earlier by the chemical industry is right on target. 
What is very interesting is the recent survey we did. It was 
informal and it was random, but what it does do is cover every 
major sector of natural gas consumers in the country. It was 
frightening because we found out, if this is a representative 
sample, that demand destruction is happening in a relatively 
short period of time at better than twice the rate that 
occurred over a 4-year period of time. Of course, we are at 
over $13 gas.
    But on an anecdotal basis, the stories that I received from 
all of these different manufacturers talks about companies 
being on the fringe of shutting down plants. A very important 
point. At high prices, everyone says, well, look that is great. 
We are going to do a lot of energy efficiency. Without 
question, energy efficiency projects are occurring, but this 
survey taught me that there are a lot of energy efficiency 
projects that have gone on hold because a lot of manufacturing 
plants have been designated as potential shutdown units, and 
companies will not do energy efficiency projects on plants that 
may be shut down permanently. We are on the fringe of another 
significant turndown.
    A key point is that this 105 bcf that was mentioned--it is 
actually in the grand scheme, compared to our national 
consumption of 22 tcf of gas, 105 bcf is not a lot. But this 
amount relatively is a significant psychological improvement. 
There is a lot of fear built into this marketplace. If you look 
at the NYMEX natural gas contract strip, the prices of natural 
gas are high and stay high for 18 months and beyond. That means 
that there are expectations for continued high prices. The 
CEO's look at that strip and those continued high relative 
prices, relative to anywhere in the world. They are making 
decisions today about what they are going to do with these 
existing plants and what they are going to do with their new 
capital. As I have already said, there are no new plants here. 
There are just plant shutdowns. So the urgency of this 
committee--and we are so happy that you decided to hold this 
hearing. Small amounts of additional gas mean a great deal to 
the fierce psychology of the marketplace to begin to bring that 
NYMEX natural gas futures strip price down and bring some 
confidence back into this marketplace.
    Senator Burns. Well, that fear has not been reflected in 
the wellhead prices, though, as much as it has in the end user. 
We have figures to show that. So in order to get these fellows 
in production, they are going to have to see some reflective 
work in their efforts in order to spur that production.
    The American taxpayer has got to understand that schematic 
up there. All of America is paying for that through the prices 
of their energy, of delay, of a lot of things, the winter 
exemptions. All of this is costing everybody in the United 
States, and the end user prices are the reflection of it.
    So we are going to have to take a good look at this thing. 
I just wish more cooperation between the BLM and the Forest 
Service, and we will talk to the Forest Service. We will have 
the chief in and talk to him. We will do that kind of 
privately, Mr. Magruder. You made some very good points here 
today on the challenges that we have in front of us and with 
the response of Ms. Clarke and these pilot projects.
    We do not have a lot of time. This is time-sensitive. The 
American public has got to understand that. Sometimes with the 
grant of waivers--do you plan to use those categorical 
exclusions that were given the BLM with regard to energy 
production? That is a small step. What are your plans with 
regard to how you use those categorical exclusions?
    Senator Craig. Kathleen, before you answer that, would you 
answer it also in context of the judge's decision as it relates 
to categorical exclusions and his constant enhancement of his 
decision. Does that impact BLM?
    Ms. Clarke. We are still trying to sort out how the impact 
of the judge's decision relative to the Forest Service 
categorical exclusions affects us. But we are proceeding as 
though it has no effect, and we have sent direction to the 
field that they should immediately start utilizing the 
categorical exclusions. I am aware of at least one company that 
is coming in with some request for winter activity and 
utilizing those categorical exclusions. We are anxious to put 
them to use and demonstrate to others that they are an 
effective tool for us to help facilitate increased production.
    Senator Craig. Good.
    Senator Burns. Well, I would ask the BLM--of course, I have 
yet to ever see a compassionate bureaucracy, and they have got 
rules and regulations. They have got stacks of books. But I 
think we as the Government who have responsibility to oversee 
those lands, we also have a responsibility to the taxpayer. We 
have a responsibility to the consumer, to all Americans. We 
should be in a mind set at all of these offices of facilitating 
and looking for ways to provide faster--the 30-day comment, Mr. 
Magruder, I have mixed feelings on that. But it would not take 
me a half hour, but it takes other folks. But nonetheless, it 
is in the law. Maybe we should take a look at that, Ms. Clarke, 
and maybe speed that process up.
    But we in the Government ought to be in the business of 
aiding and facilitating more production any place that we can 
find a way to streamline the process and to get these folks in 
the business of production because, I will tell you, nobody can 
produce it faster than we can if we have gotten the incentives. 
Well, the incentive is already out there. Right now it just 
appears to me that the rules and regulations--we have a hard 
time cutting through that red tape. Is that a good assumption?
    Ms. Clarke. That is a fair assumption, absolutely.
    Senator Burns. Well, let us get a mind set within the BLM 
that we are going to help these folks wherever we can.
    Do you have any more questions?
    There are some Senators that did not make it back. There is 
so much going on up here it is unbelievable. But they will have 
some questions for this panel, something that we probably 
forgot to cover or whatever.
    We are going to take a look at another--I am going to sit 
down and talk with some people about the difference between the 
wellhead and the delivered price. We will talk about that one 
of these days, but that is different. What we wanted to talk 
about today is to identify and tell the American people that 
all these rules and regulations cost money and it costs them 
when they pay their bill to heat their houses, when they drive 
their cars.
    We have coalbed methane in Montana. We just have a terrible 
time, it seems like, getting those permits and the ability to 
recover that energy resource. I will tell you, we have been 
blessed with some pretty good BLM administrators in the State 
of Montana, and they have worked hard. But they have got their 
rules to go by. We have got to find a way to facilitate that 
and to make it work.
    Mr. Magruder, thank you for your figures and facts this 
morning. I appreciate that very much.
    Just make sure that the American people have got to 
understand most of these rules and regulations--and some of 
them do not mean a darned thing. If this is a correct 
assumption, we are stirring old soup here. We already know what 
is in it. We just have to stir it again, and it takes time to 
do that. Is that a correct assumption?
    Mr. Magruder. I think you are right on the mark and 
everybody is expecting LNG to facilitate some of the gap by 
2008 to 2010, but we cannot sit and do nothing during that time 
period. When we talk about a near-term solution, I think the 
Rockies offers a near-term solution and we can do it.
    Senator Burns. Well, I say that because the infrastructure 
is there. It does not take us very long to react. We do not 
have to build a platform or worry about a hurricane.
    Mr. Magruder. Exactly.
    Senator Craig. I have got one more question. We should not 
stay, you see.
    Kathleen, in existing right-of-ways that cross public 
lands, i.e., BLM lands, how much greater flexibility do you 
have in an existing right-of-way, or do you know if there is 
language within the existing right-of-way permits to allow 
additional pipeline? I know there is a distance relationship 
between one pipeline and another. Can you facilitate more 
pipelines in an existing right-of-way, or can you reduce the 
overall time it takes to permit in existing right-of-ways?
    Ms. Clarke. In general, I would say the answer is yes. 
Where we have an existing right-of-way or a utility corridor or 
a pipeline, we do not have nearly the environmental hoops to 
jump through.
    Senator Domenici. Because you have already jumped through 
them primarily.
    Ms. Clarke. Yes, right.
    The categorical exclusions talk about disturbances of small 
areas. So I think we are in better shape there, and certainly 
doing our energy corridor effort with our Federal partners is 
going to further facilitate movement forward without so much 
process and so much environmental review.
    Senator Craig. Thank you. Thank you, Mr. Chairman.

                   ADDITIONAL MATERIAL FOR THE RECORD

    Senator Burns. We have received additional material that 
will be inserted at this time.
    [The letter and statement follows:]

                              American Petroleum Institute,
                                  Washington, DC, October 26, 2005.
Hon. Conrad Burns,
Chairman, Senate Committee on Appropriations, Subcommittee on Interior 
        and Related Agencies, Dirksen Senate Office Building.

    Dear Mr. Chairman: The American Petroleum Institute (API) is 
pleased to have this opportunity to comment on the permitting process 
for energy projects on federal lands. API represents more than 400 
companies involved in all aspects of the oil and natural gas industry. 
We are committed to continuing to supply the energy that American 
consumers and businesses rely on to keep our economy growing. However, 
permitting difficulties and process impediments can delay and 
discourage the responsible development of these energy supplies. Now, 
more than ever, we should be encouraging the growth in domestic energy 
supplies. We applaud your own and this committee's interest in this 
vital matter and hope our policy suggestions prove helpful.
    For too long, we have encouraged the use of energy, such as clean-
burning natural gas, while discouraging the responsible development of 
new supplies. Potential supplies from our offshore areas have been 
placed ``off limits'' through moratoria in the Atlantic, Pacific, most 
of the Eastern Gulf of Mexico and off Alaska's coasts. It has been 
estimated that these areas contain 420 trillion cubic feet (Tcf) of 
natural gas--enough to heat more than 100 million homes for more than 
60 years. For additional perspective, this is three times the natural 
gas resources of Canada and Mexico combined.
    In addition, in the Mountain West, vast areas of multiple use 
federal lands have been withdrawn from development either directly or 
indirectly through restrictions and constraints on operations that 
delay development and/or make it uneconomic. These non-park, non-
wilderness federal lands are resource-rich. The 2003 natural gas study 
by the National Petroleum Council (NPC) for the Secretary of Energy 
indicated that: ``. . . the trend toward increasing leasing and 
regulatory land restrictions in the Rocky Mountain region . . . is 
occurring in precisely the areas that hold significant potential for 
natural gas production.'' The NPC study concluded that 125 Tcf of 
natural gas was effectively off limits and/or significantly affected by 
access-related regulatory requirements.
    Regulatory improvements are needed to enhance our domestic supplies 
to meet America's growing demand. The Bureau of Land Management has 
taken a number of important steps to clarify requirements and reduce 
permit approval backlogs, but more needs to be done. Adequate funding 
is essential for adequate staffing levels to increase permit review 
performance, revise and streamline processes as well as address the 
provisions of the recently enacted energy bill, while continuing strong 
oversight and enforcement of requirements on operators.
    We look forward to working with this committee on these important 
issues. Please let us know if you have any questions or need additional 
information on the issues addressed in our attached comments.
            Sincerely,
                                                     Betty Anthony.

         Prepared Statement of the American Petroleum Institute

    The Energy Policy Act of 2005 was an important first step in 
addressing our national energy policy. However, there is much more to 
be done. Demand for oil and natural gas has been growing, while energy 
policy has discouraged the development of new domestic supplies of 
these critically important fuels. As a result, even before the recent 
hurricanes and their impact on production, there was a very tight 
supply/demand balance, resulting in higher prices for consumers, 
greater market volatility and concerns about the impact on economic 
growth.
    We did not arrive at this juncture overnight. For far too long, 
barriers to development have been erected and maintained and process 
impediments have slowed efforts to bring new domestic supplies to 
consumers and a wide array of businesses, both large and small.
    Government policies have largely limited offshore exploration and 
production to the Central and Western Gulf that was so heavily affected 
by Hurricanes Katrina and Rita. At the same time, development was 
prohibited elsewhere--including the eastern half of the Gulf of Mexico 
and the Atlantic and Pacific Coasts and off Alaska's coasts. These 
moratoria should be removed so that the substantial oil and gas 
resources can be developed using advanced technology that ensures they 
will be developed in an environmentally responsible manner.
    There are also vast onshore oil and gas resources. However, in one 
of the most resource-rich regions, the Mountain West, development has 
been severely restricted by permitting delays, process impediments and 
not-in-my-backyard (NIMBY) sentiments that often lead to litigation for 
the sole purpose of delaying or deterring development.
    Federal lands hold the promise for obtaining these much needed 
domestic supplies. According to the latest published estimates, there 
are more than 131 billion barrels of oil and more than 1000 TCF of 
natural gas remaining to be discovered in the United States. However, 
78 percent of this oil and 62 percent of this gas are expected to be 
found beneath non-park, non-wilderness federal lands and coastal 
waters.
    In order to increase supply, API's policy suggestions start with 
the urgent need to implement the policy recommendations in the National 
Petroleum Council's (NPC) study, ``Balancing Natural Gas Policy: 
Fueling the Demands of a Growing Economy'' (2003). Key NPC 
recommendations include:
  --Increasing access to non-park, non-wilderness onshore areas and 
        reducing permitting costs and delays.--More than half the 
        technically recoverable resources in the Mountain West are 
        either off limits or highly restricted--that is enough natural 
        gas [about 125 trillion cubic feet (Tcf)] to heat the 60 
        million homes currently using natural gas for 30 years. And, 
        the resources in the Arctic National Wildlife Refuge could 
        provide the equivalent of current imports from Saudi Arabia for 
        20 years.
  --Lifting constraints on key offshore areas with high-resource 
        potential.--Only 11 percent of the offshore submerged lands 
        under U.S. jurisdiction are available for leasing. 
        Administrative moratoria preclude exploration and development 
        in many Outer Continental Shelf (OCS) areas until 2012--at 
        least 79 Tcf is off limits off the East and West Coasts and in 
        the Eastern Gulf of Mexico plus about 120 Tcf in federal waters 
        off Alaska's coasts. (It is important to note that these 
        estimates may be low as they are based on older and limited 
        data).
    However, perhaps of more direct interest for this hearing, the NPC 
also highlighted the federal restrictions on leasing that have put 
significant volumes of U.S. resources off limits, as well as post-lease 
restrictions on operations that effectively preclude development of 
domestic energy resources. The NPC study, which is the most 
comprehensive study of the effects of such constraints, included an 
analysis of federal constraints on U.S. gas supply in the Mountain 
West. The study found that in key areas of greatest supply potential, 
federal policy precludes or seriously constrains development. For 
instance, of the 209 TCF of estimated undiscovered gas in the Mountain 
West, 69 TCF is completely off limits, while another 56 TCF is 
seriously constrained by federal policy. Not only are there lease 
stipulations prescribed, but additionally there are conditions of 
approval (COAs) that can, for example, restrict access during certain 
times of the year or impose other constraints that can add substantial 
costs and delay the development of new energy supplies. And, when the 
moratoria on development on the Outer Continental Shelf (OCS) are 
included, the NPC found that sustaining these constraints over the next 
20 years would cost U.S. consumers more than $300 billion in increased 
energy costs.
    The Bureau of Land Management has been working hard to reduce the 
backlog of Applications for Permits to Drill (APDs) and they have made 
considerable progress. BLM has also tried to improve its own management 
processes and apply new and innovative approaches. For instance, by 
creating a hosted worker program, they have thought outside the box in 
trying to address the problem of APD backlogs. This program allows for 
technically competent people to efficiently process permits and may 
free up BLM staff to focus on the other issues of importance such as 
updating resource management plans. However, BLM remains constrained by 
staff availability and is facing increased demands due to increased 
energy development activity. Adequate funding that recognizes their 
increased needs is essential if we are to develop sorely needed 
domestic oil and natural gas supplies in the future.
    Congress by enacting the Energy Policy Act of 2005 also has taken 
several positive steps to streamline the permitting of onshore oil and 
gas projects. However, it will be critical to follow up and ensure that 
federal land management agencies are funded adequately to enable them 
to implement these key provisions. For example focusing on the onshore 
permitting process, BLM currently faces a backlog of APDs which is a 
necessary regulatory requirement before development can commence. 
Prompt review and approval is especially important in areas with a 
short seasonal operating ``window.'' The new law requires that the BLM 
improve the process significantly by requiring drilling permits to be 
issued within 30 days. This is a positive step in the right direction, 
but unless BLM has the staff allocated to focus on this increased 
workload, oil and natural gas operators may continue to see slowed 
response time from the agency.
    One area of concern is the volume of comments that BLM must assess. 
Public comment and debate should be encouraged but, in some cases, the 
comments are not substantive and are directed at slowing down or 
canceling energy projects even those that were already approved. The 
BLM, in some cases, has received over 60,000 comments on development 
projects which because of the overwhelming volume can result in 
diversion of BLM staff from other projects in order to address these 
comments.
    Polices related to onshore energy development that we recommend 
that the Department of the Interior address fall into several 
categories:
  --Opening lands to responsible development;
  --Providing adequate funding for agencies to update land use plans 
        and administer lands as well as ensure compliance with 
        environmental and other regulatory requirements;
  --Streamlining permitting and approval processes for development; and
  --Removing unnecessary impediments to development.
    Overall in the Mountain West, the NPC indicated there is either no 
access to, or high cost regulatory requirements imposed on, more one-
half of the region's technically recoverable resources (Table S6-3, NPC 
Volume 4). Such restrictions come in many forms--requirements 
(``stipulations'') imposed when leases are granted, as well as the 
conditions of approval later imposed through the environmental analysis 
process associated with approval of a permit to drill. It is in this 
area of work, where BLM can make additional strides in addressing the 
supply issue.
    The attached flowchart shows the ``Federal Onshore Oil and Gas 
Leasing and Permitting Process. This process outlines the requirements 
of an operator by either the BLM or the Forest Service if the operator 
wishes to lease and/or develop resources on federal lands. Industry and 
government have reached the same conclusion: the process is complicated 
and duplicative and constitutes an impediment to production of the 
nation's energy resources. These steps are intended to protect the 
environment and historical and cultural properties but, while we 
support this goal, the process itself could and should be streamlined. 
Some specific ways to streamline this process include:
  --Joint filing of Right of Way and drilling permits for federal lands 
        to expedite the permitting process.
  --Expanded use of categorical exclusions or sundry notices for 
        minimal disturbance activities, including categorical 
        exclusions for wells and rights of way with minimal surface 
        disturbance in existing fields and sundry notices instead of 
        APDs for successive wells on multi-well drill pads.
  --Implementation of BLM's 2003 Process Improvement Memoranda.
  --Independent review of agency practice and interpretation of 
        criteria for determining site significance, including 
        establishment of standards for cultural resource report 
        standards and elimination of duplicate survey requirements.
  --Monitoring by BLM of lease stipulations and conditions of approval 
        to determine their effectiveness and their removal as 
        appropriate.
    However, BLM must have the necessary funding to improve this 
process.
    Other steps that could be taken to improve government land use 
planning include:
  --Adequate funding for agency personnel to update resource management 
        plans (RMPs). All activity on BLM lands is managed through RMPs 
        and an activity not anticipated in an RMP cannot occur until 
        the plan is updated or amended.
  --Use of reasonably foreseeable development scenarios as planning 
        tools not to establish caps on the number of wells or other 
        limits on surface activities.
  --Improvements in data sharing by federal and state land management 
        agencies.
  --Encouraging the use of joint APD/Right-of-Way applications for 
        wells.
  --Use of sundry notices instead of APDs for successive wells on 
        multi-well drill pads.
    Additionally, adequate agency funding is needed to:
  --Administer the National Environmental Protection Act (NEPA) process 
        effectively; and
  --Provide timely resolution of appeals and protests.
    BLM recently issued guidance to its field offices on implementing 
the requirements of the Energy Policy Act of 2005 including the NEPA 
related provisions of the law. One of these was direction on the use of 
categorical exclusions. These categorical exclusions are important to 
prompt development of domestic energy resources. Categorical exclusions 
do not remove the required environmental protections but rather apply 
to those minimal surface operations where an impact is negligible.
    The above policy suggestions, if backed with proper funding, will 
help produce additional future oil and natural gas supplies essential 
to our energy security and economic growth. However, with significant 
amounts of oil and gas production still shut down in the Gulf of Mexico 
in the aftermath of the recent hurricanes, there are additional 
measures that could be taken by BLM expedite onshore production. These 
include:
  --Exercising existing authority to allow year-round drilling and 
        completions to proceed;
  --Issuing permits immediately for all applications in areas where 
        existing NEPA requirements have been met;
  --Proposing new fast track, emergency response rules when there is a 
        national energy emergency in order to significantly reduce 
        permit review and approval times.
    If pursued, these would be added responsibilities and so would 
require resources and budget flexibility to implement.
    In order to have a sound national energy policy that enhances 
domestic energy supplies, federal land management agencies need to have 
the necessary funding and appropriate staffing levels. We urge this 
committee to assess the Department of Interior's current funding status 
and compare it to the important task of administering government 
oversight of the development of America's most vital energy resources 
on federal lands. Thank you for the opportunity to comment on this and 
we look forward to working with this subcommittee and answering any 
questions about this submission.

                         CONCLUSION OF HEARING

    Senator Burns. Thank you and we thank the witnesses. These 
hearings are closed.
    [Whereupon, at 12:05 p.m., Tuesday, October 25, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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