[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





    POWERING DOWN: ARE GOVERNMENT REGULATIONS IMPEDING SMALL ENERGY 
                 PRODUCERS AND HARMING ENERGY SECURITY?

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

                                HEARING

                               before the

       SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             MARCH 8, 2012

                               __________




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



            Small Business Committee Document Number 112-057
              Available via the GPO Website: www.fdsys.gov

                                _____

                  U.S. GOVERNMENT PRINTING OFFICE

76-464                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001













                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                      CHUCK FLEISCHMANN, Tennessee
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York

               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                     Barry Pineles, General Counsel
                  Michael Day, Minority Staff Director
















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hon. Mike Coffman................................................     1

                               WITNESSES

Tim Barber, Environmental/Federal Regulatory Supervisor, Yates 
  Petroleum Corporation, Gillette, WY............................     2
David Ewing, President, Ewing Exploration Company, Sugar Land, TX     4
Kimberly J. Rodell, Regulatory Project Manager, Banko Petroleum 
  Management Inc., Englewood, CO.................................     6
Mark Squillace, Professor of Law and Director of the Natural 
  Resources Law Center, University of Colorado Law School, 
  Boulder, CO....................................................     7

                                APPENDIX

Prepared Statements:
    Tim Barber, Environmental/Federal Regulatory Supervisor, 
      Yates Petroleum Corporation, Gillette, WY..................    25
    David Ewing, President, Ewing Exploration Company, Sugar 
      Land, TX...................................................    28
    Kimberly J. Rodell, Regulatory Project Manager, Banko 
      Petroleum Management Inc., Englewood, CO...................    30
    Mark Squillace, Professor of Law and Director of the Natural 
      Resources Law Center, University of Colorado Law School, 
      Boulder, CO................................................    44
Additional Materials for the Record:
    Supplemental Statement of Mark Squillace.....................    52
    Coatings Engineered for Ultimate Performance Cerenzie 
      Engineering Consulting Letter for the Record...............    56

 
    POWERING DOWN: ARE GOVERNMENT REGULATIONS IMPEDING SMALL ENERGY 
                 PRODUCERS AND HARMING ENERGY SECURITY?

                              ----------                             

                        THURSDAY, MARCH 8, 2012

              House of Representatives,    
               Committee on Small Business,
                    Subcommittee on Investigations,
                                 Oversight and Regulations,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10 a.m., in room 
2360, Rayburn House Office Building. Hon. Mike Coffman 
(chairman of the subcommittee) presiding.
    Present: Representatives Coffman, Tipton, West.
    Chairman Coffman. The hearing is called to order.
    I appreciate the witnesses for appearing today.
    The point of today's hearing is to hear directly from small 
oil and gas producers regarding the barriers the federal 
government has enacted and the frustrations they face in 
producing oil and gas on federal lands. I doubt that there is a 
member on this Committee who does not receive a call from a 
constituent every day regarding high energy prices, the poor 
state of the economy, the lack of jobs, or the federal 
government's enormously high budget deficit.
    President Obama claims that the solutions to these problems 
are complex and that there are no easy answers or solutions. 
However, I believe we will hear today there are things the 
government can do to address all of these concerns in party by 
producing more energy at home. Expanding domestic energy 
production will bring more oil and gas to market, helping ease 
rising gas prices. Expanding domestic energy production will 
create jobs both with the firms drilling for oil and gas and 
those that support these activities.
    Finally, expanding domestic energy production will bring 
new revenue to the federal government without raising taxes 
through the payments of rents and royalties on lands leased and 
those put into production. The ability to produce more domestic 
energy exists. Unfortunately, what is non-existent is the will 
on the part of this administration to utilize the oil and 
natural gas we have.
    In the past few years, the number of new federal lands 
available for oil and gas production has dropped significantly 
along with approval of permits to drill. While the 
administration likes to claim oil production has increased 
under its watch, the U.S. Energy Information Agency has found 
that overall production is below previous estimates and are 
projected to fall further. Addressing these declines has been a 
priority of this Congress and a number of legislative proposals 
have been introduced and voted out of the House to open up 
America's energy potential and expand business opportunities 
for small firms. Unfortunately, these are still awaiting action 
in the U.S. Senate.
    At the same time, an oil or gas lease is worthless unless 
the company can obtain a permit to drill. This is why I have 
introduced legislation that would require BLM to annually 
inventory and report the 200 nonproducing lands with permits to 
drill pending that have the highest potential for oil and gas 
development and requires the BLM to issue these permits within 
180 days of issuing its report. I will agree with the president 
that expanding domestic production of energy is no panacea to 
our nation's ills, but it offers part of the solution. And a 
solution that releases the entrepreneurial spirit of small 
businesses is preferable to policies that impose excessive 
regulations and new taxes on the very small firms we all look 
at to help rescue us from our current predicament.
    Chairman Coffman. Let me go over the hearing rules just for 
a second. If Committee members have an opening statement 
prepared, I ask that they be submitted for the record. I would 
like to take a moment to explain the timing lights for you. You 
will each have five minutes to deliver your testimony. The 
light will start out as green. When you have one minute 
remaining the light will turn yellow. Finally, it will turn red 
at the end of your five minutes. So I ask that you try to keep 
to the time limit but I will be a little lenient as you finish. 
And keep in mind we can put your written statements in the 
record as well. So you are free to talk in a more informal 
manner.

  STATEMENTS OF TIM BARBER, ENVIRONMENTAL/FEDERAL REGULATORY 
SUPERVISOR, YATES PETROLEUM CORPORATION; DAVE EWING, PRESIDENT, 
EWING EXPLORATION COMPANY; KIM RODELL, SENIOR PROJECT MANAGER, 
BANKO PETROLEUM; MARK SQUILLACE, PROFESSOR OF LAW AND DIRECTOR 
   OF THE NATIONAL RESOURCES LAW CENTER AT THE UNIVERSITY OF 
                      COLORADO LAW SCHOOL

    Chairman Coffman. Let me introduce first Tim Barber from 
Yates Petroleum Corporation. Our first witness today is Tim 
Barber of Yates Petroleum Corporation. Yates Petroleum is a 
425-employee oil and gas production company with operations in 
New Mexico, Wyoming, and Colorado. Mr. Barber works in the 
company's Gillette, Wyoming office where he currently serves as 
manager of regulatory affairs. Mr. Barber, you may deliver your 
testimony.

                    STATEMENT OF TIM BARBER

    Mr. Barber. Good morning, Mr. Chairman and members. Thank 
you for the introduction.
    My comments here today are based on direct experience with 
Wyoming BLM and I think there are two foundational problems 
with how BLM is conducting itself that I believe you are 
interested in.
    Number one, BLM and Interior are daily adding unneeded and 
duplicated regulation through policymaking, guidance documents, 
instructional memorandum, and individual staff interpretation, 
none of which go through a rulemaking process or are approved 
by Congress but are treated as if they were actual rule or 
regulation. I call this entrepreneurial regulation.
    Number two, BLM is not following its foundational actual 
rule and actual law that it is required to. Ironically, the 
reason many times that they give for not following the 
foundational regulation is that they are too busy working on 
number one.
    Let me provide some specifics. Onshore number one spells 
out an orderly process for the approval of APDs, which we may 
know as application for permit to drill that binds BLM and the 
applicant to processing timelines. The onshore order process 
should not take any more than 90 to 120 days for BLM to approve 
an APD. At the BLM office in Buffalo, Wyoming, applicants 
regularly wait two years after their application, and some 
applications have been in that field office for five and six 
years awaiting approval. Some of the lengthier APDs have been 
hostage to the Resource Management Plan Amendment Process, 
which has delayed the working of those APDs.
    The Buffalo BLM office was interestingly funded with 
additional monies by Congress to be able to be capable of 
approving 3,000 APDS per year. I have included in your packet a 
BLM spreadsheet of their APDs that they have approved this 
fiscal year. They have approved only 80 wells since October 1, 
2011, and during the period between December 7, 2011, and 
February 29, 2012, though over 940 drilling permits were 
awaiting approval, no APDs were approved.
    Included in your handout information is an overview of the 
timelines that are in the actual regulation for your review. 
When an affected party has a problem with a BLM decision, their 
only path available to pursue an appeal is to go through a 
process called a State Director Review, and that is provided 
for in Onshore Order No. 1. State Director Review decisions are 
required by regulation to be issued in 10 days. In Wyoming, 
these appeal decisions are taking nine months or more.
    BLM's duplicated and conflicting efforts are very 
concerning to me. Some examples are BLM's working currently on 
a policy for hydraulic fracturing for federal mineral wells. 
States all over the place, like Wyoming, already have an agency 
that regulates all wells, not just federal mineral wells. There 
is no need for BLM to embark on this effort. In Wyoming, BLM 
has recently come up with an instructional memorandum on the 
use of drilling pits for federal mineral wells. Same situation 
exists here. There is a state agency that has regulation in 
place that covers all wells. There is no need for BLM to add 
another layer of regulation.
    On a local level, BLM officers are coming up with their own 
preferences on things like how to build roads, reclamation of 
closed locations, requirements for well control, and even how 
to apply for a drilling permit, even though actual regulation 
already exists for each of these situations. The net effect of 
these non-rule regulations is that the agency accomplishes less 
at a higher cost to the agency, a higher cost to the taxpayers, 
and the regulated community. Longer APD processing times, 
arbitrary decisions not based on actual regulation, and less 
viable oil and gas projects, and less potential for drilling 
and production are the reality.
    It is my opinion that there are two primary paths to 
resolution here. (A) Congress should strongly consider auditing 
offices like the Buffalo BLM office to find out what has been 
accomplished with the additional budget resources that has been 
provided to them. And I am sorry to say that I do not think 
that you will like what you find. The audit process should be 
ongoing with weekly or monthly updates provided as to things 
like APD processing. I think the privilege of an increased 
budget should come with a responsibility of demonstrating that 
that budget is bearing fruit.
    Secondly, Congress may want to provide direction to the 
agency, its director, and Interior regarding what I have called 
entrepreneurial regulation. The direction can come in several 
forms, including defunding the agency when it heads in the 
wrong direction. BLM's resources and strength is best focused 
on managing lands for multiple use, not building layers of 
personal interpretation dressed up to look like actual 
regulation.
    I wish to thank you for your time and for your attention, 
and I would consider it a great opportunity to answer any 
questions that you might have for me.
    Chairman Coffman. Thank you, Mr. Barber.
    Our next witness is Dave Ewing, president of Ewing 
Exploration Company, a small prospecting company based in Sugar 
Land, Texas. Mr. Ewing has been involved in the oil exploration 
business for several decades working for both independent as 
well as major oil production companies before starting his own 
firm. He will testify today regarding the problems his company 
has experienced in developing a project in Wyoming.
    Mr. Ewing, you may deliver your testimony, please.

                    STATEMENT OF DAVE EWING

    Mr. Ewing. Good morning, members of the Small Business 
Committee.
    My experience in North America spans better than a couple 
of decades. I have been 60 years with emphasis on the Rocky 
Mountain states, Gulf Coast, and Western Canada. I am here 
today to discuss BLM's decisions which are causing the possible 
loss or probable loss of a high quality, high reserve potential 
oil prospect in the southwestern portion of the Bighorn Basin 
in Northern Wyoming.
    In 2005, our company initiated an exploration program to 
locate drillable prospects in that southwestern Bighorn Basin, 
looking for folded anticlinal structures which there in that 
basin are critical to entrapment of oil. To date, in excess of 
3 billion barrels of oil have been produced in the basin from 
structures and every known structure has been drilled with 
almost every one being productive. The only remaining area in 
the basin where a structure could have eluded the drill is in 
the area where my company is exploring. In the southwestern 
portion of the basin you have geologic structures formed at the 
same time as all the other productive structures were formed. 
When Yellowstone Park erupted 800,000 years ago, ash in the air 
moved to the east. There was a lake in the Bighorn Basin at 
that point in time. That ash dropped out in horizontal layers, 
sedimentary volcanic on top of those structures causing you not 
to be able to map those structures like you had in the balance 
of the basin just looking at surface data.
    To develop a structural picture under those flat lying 
sediments we first purchased 70 miles of existing seismic data 
and then based on that interpretation we bought over 4,500 
acres of federal, state, and fee lands and of the 28, almost 
3,000 acres we purchased from the BLM, they evaluated them 
under the old RMP using NEPA regulations.
    In June 2008, we shot two new red seismic lines. They are--
that is me. Okay. Could we put that map up, please? I am going 
to keep going.
    We shot two additional red lines to develop a better 
structural picture. Again, to do that seismic we had to go to 
the BLM and get them to approve everything to do with those 
lines, including all the NEPA analysis that was required. In 
September of '09, the BLM issued to us a permit for a 6,500-
foot exploratory well. The permit approval took better than a 
year to get but when we drilled the well we got a dry hole but 
got information that said we should be considering additional 
exploration in there.
    Additional fee and state leases still not showing up on the 
map in green and purple. The blue leases on the right are the 
nominated leases that we put up for sale in 2010 November. I 
flew into Cheyenne the day before the sale. They pulled those 
parcels down; said they needed additional NEPA analysis. 
Amongst that blue you will see a purple lease. That is a state 
lease, five-year lease which is in its second year, close to 
being in its third year. And we are going to get five years on 
them. The red, the yellow, the buff to the west are leases that 
we bought from 2006 through '07, '08, and '09, which put us in 
a position to drill that first well I talked about. When we 
drilled the well we tried to post against that one little 160 
acres in purple and it turned out that they did not issue the 
lease until after we drilled the well offset to the lease, 
which fortunately I guess you would say, it was a dry hole.
    After we did that then I posted--they told us that they 
would post the acreage again in '12. They pulled it down a 
month ago in February '12. At this point they have told me that 
now those leases will not come up again until the earliest in 
2014. That all is contingent on approval of the consolidation 
of the RMPs currently underway in the Bighorn Basin.
    To conclude, I would just simply say there are several 
questions that need to be addressed by your Committee or to 
your Committee. One, why did the partial withdrawals occur 
without any regard for EEC's ongoing activities? Two, what was 
the BLM's motive for obstructing EEC's opportunity to acquire 
these leases? Three, was there a reasonable alternative 
available to the BLM? Four, why was the RMP consolidation 
undertaken in the first place? And five, why did the BLM not 
consider or give any consideration to the county commissioners 
who were part of the co-operators in the approval of the RMP 
consolidation? They are frightfully mad and I am through, Your 
Honor.
    Chairman Coffman. Thank you very much.
    Our next witness is Ms. Kim Rodell. She serves as senior 
project manager for Banko Petroleum, a nine-person engineering 
consulting firm headquartered in Englewood, Colorado. In her 
capacity as senior project manager, Ms. Rodell assists small, 
independent oil and gas producers with federal regulatory 
compliance. She will be testifying regarding the inconsistent 
limitation and policies she and her small firms' customers 
experienced in complying with federal regulations.
    Ms. Rodell, please deliver your testimony.

                    STATEMENT OF KIM RODELL

    Ms. Rodell. Hello, Mr. Chairman and members.
    Again, my name is Kim Rodell, and I am with Banko 
Petroleum. We assist companies in navigating the federal 
regulatory maze. The oil and natural gas development in the 
west is critical to our economies and our growth. These 
critical jobs branch out directly and indirectly in a variety 
of different directions from those working directly from the 
operators to those service companies to restaurants to retail. 
The growth in the economies is from people who have stable, 
well paying jobs, and who are willing to put money into their 
communities.
    Independent energy companies, often comprised of 12 or 
less, develop 95 percent of the oil and gas wells within our 
country. These businesses produce 54 percent of American oil 
and 85 percent of American natural gas. Though oil and gas 
developments occur on both federal, state, and fee surface--and 
minerals, I apologize. However, because of the uncertainty of 
operating on federal lands, many of those who are willing to 
invest in these developments turn to the state and fee 
minerals, cutting out any potential royalty payments to the 
federal government.
    We encounter a lot of challenges like everybody else. Our 
biggest is the inability to plan and the uncertainty as to when 
approvals may be issued. Along with approvals, conditions of 
approvals are attached to these permits and sometimes, although 
we may know what might be attached, these are never finalized 
until the final permit is issued. Conditions of approval 
oftentimes include timing limitations due to wildlife. These 
timing limitations can place very tight drilling windows on 
operators, sometimes as tight as 45 days.
    In the Rocky Mountain region, we drill in complex geologic 
zones with the average well taking 90 to 120 days to drill and 
complete, if not longer, if the geologic structure is more 
complex or down hole issues are encountered.
    Our biggest concern right now is the sage grouse which is a 
nonthreatened and endangered species. This bird has been 
creating devastating uncertainty in the West. The protections 
put in place on this bird resemble those close to a true 
threatened and endangered species. The protections put on these 
hunted birds give us, you know, it does not allow us to play 
because there can be so many limitations along with areas that 
we have to avoid completely--no surface occupancy and 
restricted surface occupancy areas, sometimes never listed on 
the initial leases. The birds live in sage brush habitat 
throughout the West, basically everywhere where oil and natural 
gas development occurs.
    While BLM is trying to protect both the numbers and 
contiguous habitat, those of us who operate understand the need 
for those protections; however, getting restrictive limitations 
with regards to the BLM and the Divisions of Wildlife make it 
very cumbersome. While trying to plan a drilling schedule, 
small operators are more limited than their larger cousins, who 
sometimes have areas in different geographic areas and under 
different timing limitations, so they can move rigs, staff, and 
equipment while those smaller independents often area in one 
geographic area and are often restricted to wading through 
those timing limitations and the inability to plan in such an 
uncertain regulatory environment.
    Again, the small operators are affected. They have invested 
money and time, equipment, and they are put on hold. Onshore 
independents employ 2.1 million people, and this figure is 
anticipated to rise to 2.6 by 2020. Approximately 63,000 man-
hours are needed for every individual well drilled. The federal 
government receives $40 in royalty and leasing bonus payments 
to the federal government for every one dollar invested in the 
natural gas and oil onshore program.
    Just to give you an example, I am currently working a 
project in a federal unit that has 37,000 acres. We have been 
working on an access issue for over two years now. This 
basically locks up 37,000 acres of mostly federal minerals and 
the inability for these companies to hire in these areas. After 
several meetings with the BLM prior to the submission of the 
permits, we were given one option. We did everything necessary, 
including with the BLM and all the agencies who were involved 
in the project, and approximately six months later the permit 
was returned unapprovable and denied.
    At this point there are 37,000 acres of federal minerals 
locked up along with jobs and royalties. We work and live in 
these communities. We pay our taxes and send our children to 
school in these communities. We enjoy a healthy outdoor 
environment and are proud of the West. We also strive to ensure 
that future generations enjoy both the beauty and strong 
economies that we have experienced.
    We would like to do our part to promote the production of 
responsible energy and build a secure energy future.
    I appreciate your time and thank you.
    Chairman Coffman. Thank you, Ms. Rodell.
    Our next witness is Mark Squillace. Did I say it right?
    Mr. Squillace. Correct.
    Chairman Coffman. All right. I got it right. Mr. Squillace 
is a professor of law and director of the National Resources 
Law Center at the University of Colorado Law School.
    Mr. Squillace, you may now deliver your testimony, please.

                  STATEMENT OF MARK SQUILLACE

    Mr. Squillace. Thank you, Mr. Chairman. And good morning.
    I am delighted to be here to offer my views about some of 
the opportunities and some of the obstacles that are facing 
small oil and gas operators on our public lands. As the 
chairman noted, I am a professor of law at the University of 
Colorado Law School. I want to emphasize, however, I appear 
here today on my own behalf and not on behalf of the 
university.
    I want to note first that my written testimony emphasizes 
five key points. Those are that planning and environmental 
assessment are important to sound decision-making; that the 
BLM's process for administering leasing is problematic to the 
extent that it protects existing leases at the expense of 
lessees, like small operators who might come on our public 
lands. In the written statement I highlight some of the 
innovations and best management practices that oil and gas 
developers have used, and some of these developments have 
really been spurred, I think, by some of the small operators 
and they deserve praise for that.
    There are, however, some concerns that some of the 
innovations are expensive to implement and the agencies do need 
to be careful to make sure that companies are not 
undercapitalized and have the finances to complete the work on 
their oil and gas leases. And finally, I do want to give a 
shout out, if you will, to the Environmental Protection Agency 
for what are likely to be forthcoming air emissions 
regulations. I know they are somewhat controversial, but I 
think they are long overdue and necessary to protect public 
health and to protect our environment.
    This morning I would like to emphasize the first two 
points. I am happy, of course, to answer questions about any of 
these five points. So let me turn first to the question about 
the BLM's planning and environmental assessment procedures.
    I understand the concerns that have been expressed by some 
of the witnesses, today, and I certainly do not defend 
unreasonable delay on the part of the agencies in issuing 
permits and giving approvals. But we should understand some of 
the context here. I would note, for example, a recent reporter 
noting that there are 7,000 approved APDs that have never been 
drilled upon. It is also true that there are many leases, 
thousands of leases that have been issued by the BLM that have 
not been developed and there are no pending APDs on those 
leases. Moreover, it is important to note that environmental 
assessment cannot be blamed for all of the problems that we are 
seeing with APDs as a result of the Energy Policy Act of 2005. 
Many of the APDs are categorically excluded under NEPA, meaning 
there is no NEPA analysis that is done. The GAO did a study at 
the end of 2009 suggesting that many of these categorical 
exclusions were unlawful, and I do not want to debate the 
merits of the study on this but just to note that environmental 
assessment cannot be blamed for many of these problems.
    There is another important point to emphasize here 
regarding drilling, which is that it is very difficult right 
now to get a rig because of the demand for oil and gas 
development, particularly oil development. There are just under 
2,000 rigs operating in the United States today. My 
understanding is it takes at least six months to get a rig onto 
a site. In many cases it takes sometime longer than that.
    I want to be clear that I do not think the process always 
works as well as it should. It is one thing to say that 
processes are good, and another thing to say that it works 
well. I am not sure it works well; in particular I have been 
critical of the agencies for their planning processes because I 
think they are far too complex. They could be simplified. I 
think one of the unfortunate consequences of complex planning 
is that it takes resources away from site specific analysis and 
oftentimes that site specific analysis becomes very rote. It is 
boilerplate; it does not really help promote better decisions. 
And so I think that is problematic.
    Nonetheless, there are, I think, good things to be learned 
from the environmental assessment process, and I want to 
respond, I think, to the comment that Ms. Rodell made about the 
sage grouse which is, I think, a really critical issue and she 
rightly points out the controversy regarding the sage grouse. 
It is true that the sage grouse has not been listed under the 
Endangered Species Act. It is also true that in 2010 the U.S. 
Fish and Wildlife Service issued a ruling that said that the 
sage grouse listing was warranted but precluded. Kind of a 
technical, legal term that suggested that indeed there was 
evidence to list the sage grouse; it is just that there are 
other priorities that are of a higher priority for the agency.
    And the important point here is that it is in no one's 
interest to see the sage grouse listed, and if we are to avoid 
listing of the sage grouse we have to engage in robust planning 
to ensure that proper controls are put into place. This is 
particularly true today where we have horizontal drilling and 
multiple well development on pads where you can move the pad 
around to avoid some of the conflicts that exist.
    I see I am running out of time but I would like to just 
briefly address the second issue regarding overprotection of 
existing leases by the BLM. This is a huge problem, and to 
understand it you have to understand some things about the 
Mineral Leasing Act. Its purpose was to discourage speculation, 
to avoid monopolization of federal resources, and to assure a 
fair return to the government for its resources. And a lot of 
that has been undermined by the government's policy of allowing 
existing lessees to get into units. This allows them to avoid 
the 10-year primary term that exists under the Mineral Leasing 
Act. Under the law you get 10 years, and if you are not 
developing at the end of that 10 years, the lease is supposed 
to expire. The problem is you can avoid that expiration if you 
go into a unit.
    The other, I think, significant problem here is that there 
are acreage limitations under the Mineral Leasing Act. No 
individual company can own more than 246,080 acres in a single 
state, and that is to avoid the monopoly problem. But if you go 
into a unit as a result of the Energy Policy Act of 2005 it 
does not count against your state limit. I think it is somewhat 
shocking to note that in January of 2011 there was a story in 
the oil and gas journal about Encana Energy Company and the 
fact that Encana was bragging about the fact that it holds 
869,000 acres of leases in the Piceance Basin in Colorado. Now, 
that is more than three times the federal limit. I want to note 
that those are not necessarily all federal leases but the 
Piceance is 80 percent federally owned. And the only way they 
can do that is if many of these leases are in the units so that 
they can avoid the acreage limitations. They brag that they 
owned the basin, and this is one of the most productive basins 
in the country.
    Something really needs to be done here. I would urge the 
Committee to get the General Accounting Office to do a study of 
some of the problems that exist with this practice. This really 
harms small operators because if those leases had terminated, 
they would go back into the pool and small operators would have 
a chance to bid on them and they would be developed. They are 
now languishing. They are not being developed. The article in 
the Oil and Gas Journal suggested that it would take 35 years 
or more for Encana to develop all of its oil and gas resources. 
This is a real problem and I want to encourage the Committee to 
look at ways in which we can increase transparency, and have 
BLM rules that promote unitization in ways that are better for 
the small oil and gas operators.
    I am sorry for going over my time but thanks for your 
indulgence.
    Chairman Coffman. Thank you so much.
    Let me ask the first question and then I am going to defer 
to Congressman Allen West of Florida and then we will probably, 
obviously since there are two of us we will do a second round 
if necessary.
    In Colorado, and this is maybe anecdotal, but in talking to 
the oil and gas companies it seems that there is very limited 
interest in public lands at this point in time and I think 
across this country. And I think the movement is to fee lands. 
And so when we see reports of increased drilling or development 
in the United States it seems to be off of public lands onto 
fee lands. And I wonder if, number one, is that true? And 
number two, how do you account for that? I mean, I do not see 
any appetite whatsoever right now in terms of new development 
on public lands. Mr. Barber.
    Mr. Barber. That is a very good question, Mr. Chairman.
    Certainly there is more quick opportunities and a smoother 
planning ability when state and fee lands minerals are pursued. 
In some areas like the Powder River Basin where I work, two-
thirds of the minerals are owned by the federal government, so 
you really have to be in the federal mineral game in order to 
develop. One of the things that worries me is that in basins, 
in formations where porosity is high and minerals can flow, 
whether it is natural gas or oil, the federal mineral estate, 
because it is not being developed as quickly as the state and 
fee minerals can actually change ownership by moving from one 
leasehold area across through a well bore that is actually 
producing.
    So if I am here in section one with a federal lease that I 
am waiting for a permit on and surrounding me there are 
privately owned or state owned minerals, those minerals under 
the right geologic circumstances can actually change hands. And 
so those minerals that could have been produced and paid 
royalties to the federal government and ultimately to the state 
are not producing. That is very concerning. I wonder if the 
public in the U.S. knows that potentially their minerals may be 
produced up somebody else's well bore.
    Chairman Coffman. Any other comments on that? Yes, Ms. 
Rodell.
    Ms. Rodell. I often see the overarching regulatory agencies 
and the uncertainties in which the smaller operators, the 
environment which the smaller operators are looking at and 
operating in definitely turns them away from operating on 
federal lands. And although some of these federal lands are, 
you know, they are 10-year terms, sometimes it takes us eight 
years to get to even the process of submitting some APDs. 
Leases can be nominated, they can be paid for, and they cannot 
be issued. So there are times when we are waiting for leases to 
be issued or we are going through some environmental--and again 
I stress, the environment is important to all of us but we can 
have so many different layers. And currently we have got 11 
federal agencies that are trying to take aim at the oil and gas 
companies. These oil and gas companies cannot--they cannot plan 
in such an uncertain environment and so they do; they move to 
fee and state minerals because the process takes a fraction of 
the time. Although, oftentimes the same parts of the operations 
are put in place, the permitting can take, you know, it usually 
can take less than 30 to 60 days.
    Chairman Coffman. Mr. Squillace.
    Mr. Squillace. Yes. I do not want to dismiss certainly the 
points that have been made about the problems with 
overregulation and the difficulties that some of the companies 
have been having, but it is important to keep in mind that 
natural gas is at a historically low price right now. The 
general counsel for one of the major companies told me recently 
that they are not even looking at gas plays at this point in 
time because of that low price. She told me that they cannot 
make a profit on gas plays. And I think that is certainly 
having an effect on lower demand.
    Again, it is not the only thing that is going on. If you 
look in Wyoming, most of the plays are gas plays. There is 
interest up in the Niobrara because those are liquid 
hydrocarbon plays and I think there is a lot more profit to be 
made in the liquid sector.
    Chairman Coffman. Mr. Ewing.
    Mr. Ewing. I would like to comment on those remarks. My 
experience with Amoco for 15 years, I, number one, I would like 
to comment about the unitization. I thought that the entire 
time I was with Amoco. We spent millions and millions of 
dollars. We had a huge staff. We explored everywhere in Wyoming 
and other states. Whenever you find a prospect area you have to 
get seismic, you have to spend a lot of money putting the 
leases together and everything, and you get to a point where 
very quickly you are up to the 246,000 acres and the only way 
that you are going to, once you buy that acreage, the only way 
you are going to get it off your books and make yourself legal 
is to form a unit. Now, when you form that unit you are told 
you will drill wells by such and such a point in time, and if 
you do not, the unit will be terminated. So that is the manner 
in which people will go in. And Professor says they are 
bragging about how much acreage they hold. They have got 
obligations in every one of those units down there that you are 
talking about.
    As far as fee versus federal, I ran smack into that. Fifty 
percent of the well we drilled up in the Bighorn was people 
down in the Houston area that I brought into the prospect, and 
when they were still with me, when we nominated those lands to 
drill a second well, when they found out that the BLM had 
pulled down those leases they just all called and said, sorry, 
we are out. So in effect I lost half of my investors at that 
point. And a small operator lives on what he has and the 
investors that he can bring in because there are not many small 
operators who have the production wherewithal that will allow 
them to go out and take all the risk of the drilling 
themselves. So I wanted to make that point.
    I have a question myself. Will I have an opportunity to 
give you any testimony after the questioning is completed? I 
would like to.
    Chairman Coffman. Sure. Absolutely.
    Mr. Squillace. Thank you.
    Chairman Coffman. Let me do one more question and then I 
will defer to Congressman West for some questions. And that is 
on the deadlines that BLM has, and I think that Mr. Barber, you 
mentioned one specific deadline that was ignored. What are the 
most salient examples of deadlines that BLM has that they 
ignore and that hurt small operators?
    Mr. Barber. I am referring to this printout slide that says 
``APD processing: What does the regulation say?''
    When an operator comes into BLM with an application for 
permit to drill, the first thing they have to do is provide a 
$6,500 application fee. Keep in mind this is an application 
fee. It is not refundable and it does not guarantee a 
processing time or a permit. BLM is required by Onshore Order 
No. 1 to follow these steps.
    Number one, they have to post the APD for 30 days prior to 
a decision. I think that is typically met by most field 
offices. BLM has 10 days to notify the operator if the 
application is complete. Some offices meet that and some 
offices do not but it is specifically required in the 
regulation. BLM then has 10 days to schedule an onsite 
inspection. That is rarely met in the offices I work with. If 
deficiencies are identified, the operator has 45 days to 
respond to those deficiencies. Typically those are met because 
the operator wants to keep the project going. And then once the 
deficiencies are addressed, if there are any, BLM has 30 days 
to reach a decision. That, in my experience, is almost never 
met currently. And when BLM does not meet these timeframes 
stretches out the process.
    I talked earlier about when an operator has an issue with a 
BLM decision they go to an appeal at a state director review 
and that process was set up to deliver a quick answer from the 
state office of BLM to the field office as to whether that 
field office's decision was correct or incorrect. Those are 
regularly now in Wyoming taking 90 days or far more, many times 
close to nine months. And when an operator does not get an 
answer on that, not only (a) are they sort of robbed of their 
due process, but (b) BLM keeps making that decision over and 
over and over and it causes actually more of those appeals to 
happen.
    Chairman Coffman. Ms. Rodell.
    Ms. Rodell. I agree with Mr. Barber. We understand that 
onsites cannot be scheduled until there is no snow on the 
ground, so in the West--that is my primary area of operation--
sometimes we do have to wait. However, I have seen the onsite 
process take over a year just to schedule an onsite. In 
addition, with regards to the 45-day deficiency response, I 
recently have run into that area where you do receive an 
official letter from the BLM, you respond to the deficiencies. 
However, I had three additional e-mail deficiency responses 
come, all with very different deficiencies. These are not 
because the original deficiencies were not addressed; these 
were different deficiencies. And, you know, the consensus of 
the industry, of the oil and natural gas industry, are these 
are just obstructionist moves to keep these permits locked up 
for years.
    Chairman Coffman. Any other comments?
    Mr. West from Florida.
    Mr. West. Thank you, Mr. Chairman, and thanks to the panel 
for the long distances that you traveled to be here. And this 
is obviously one of the most important conversations we could 
be having in our country right now.
    Dr. Squillace, you made a comment about the 7,000 approved 
APDs that have not yet been drilled upon. Out of those 7,000, 
is it proven that all of them have resources that are there? I 
mean, these are not dry holes?
    Mr. Squillace. The point is that they have not been drilled 
upon at all so we do not know whether they might find something 
or not. I mean, I do not want to suggest that because the APDs 
were not drilled upon that there is necessarily a problem. The 
industry needs to make choices and decisions about timing of 
development. If the price of gas, for example, goes down and it 
is not profitable for them to develop at that particular point 
in time, it may be a perfectly rational decision not to develop 
that particular well even if they have an approved APD.
    The point is that from the agency's perspective there is a 
lot of work that they are doing that essentially does not go 
into helping companies like these that we have heard from today 
get the permits that they need. And I do not know what the 
answer to this is. I mean, it would be nice if we could figure 
out a way to make sure that the agency's resources are used for 
those permits where development is actually going to take 
place. It does not always happen and maybe there is no simple 
solution to it, but I do want to point out that from the 
agency's perspective there are these sort of dislocations in 
terms of their allocation of resources as well.
    Mr. West. Mr. Barber.
    Mr. Barber. Thank you, Mr. West.
    I think it is important to understand that when an oil and 
gas operator shows up at a BLM office with an application for 
permit to drill that they have to be very serious about that 
prospect at least as they know it at that time. They might 
bring a 50 well project in and they would need to cut a check 
for over $300,000 in order to just apply for those. They 
conduct archaeological surveys, wildlife work, many processes 
to help the NEPA process move forward. What they sometimes do 
not know that I referred to a little bit in my testimony is 
what that project will look like when it comes back from BLM 
finally approved. And many times those projects can come back 
so regulated and so gutted, if you will, that it is difficult 
to make an economical project out of them. We also have to look 
at the market conditions that were referred to earlier. Things 
like pricing at that point in time, rig availability, et 
cetera.
    Mr. West. Yes, Ms. Rodell.
    Ms. Rodell. Due to the uncertainty that these smaller 
operators try to operate in with the overarching regulatory 
structure there is no planning. And sometimes a smaller 
operator--and these fees are $6,500--sometimse a small operator 
might have to put in 20 APDs hoping that they can get two 
through the permit process to the time when they need to look 
at scheduling rigs. No rig company will sign a contract with an 
operator that does not have an approved permit. So sometimes 
these operators put in multiple permit applications hoping to 
pull a handful of permits that have a drilling window that they 
can reasonably drill in and outside of timing limitations.
    Mr. West. Next question, and I am a pretty simple, I am 
sorry, Mr. Ewing.
    Mr. Ewing. In discussing this situation with these APDs, 
because of the recent bust in the price of gas, that also has 
had an influence on some of the attempts to go ahead and 
develop acreage. You know, you went from four in the last 
year--you went from $4 down to what, $2.25, whatever it is now. 
And when that shale gas play got going, many small operators, 
many small land people even jumped in, grabbed leases, sold 
those leases to small companies. Small companies ultimately 
found out they had bitten off way more than they could chew 
because of the BLM restrictions on regulations and the ultimate 
cost of drilling and deviating a hole outward. So a lot of the 
APDs that are still sitting there undoubtedly are not only 
related to what Mr. Barber said but are people that got stuck 
with a situation that was not economic any further.
    Mr. West. Mr. Chairman, if you would be so kind if I could.
    Chairman Coffman. Go ahead.
    Mr. West. The second question I would like to ask and I am 
a very simple guy, on inauguration day in the United States of 
America, the average price of gasoline was $1.84. I spent 22 
years in the military. When I hear people talk about there is 
nothing you can do about it, in the military the maximum 
effective range of an excuse is zero meters. So in that time 
from inauguration day to now where we have gasoline prices at 
$3.77 almost per gallon across the country, I would like to get 
from each one of you what is the one golden nugget thing that 
you think can be done from Washington, DC's perspective, from a 
federal perspective? Let us not talk about Iran. I mean, that 
will take care of itself in due time. And speculators, because 
we have horrible monetary policy that is devaluating our dollar 
as opposed to the rising cost per barrel of oil. But from your 
perspective in the domestic energy production side, what is the 
one thing that we can do to rectify this situation? Mr. Barber, 
starting with you.
    Mr. Barber. Thank you, Mr. West. I am a simple guy, too.
    What I think happens out there, and I do not want to 
represent myself as an oil and gas marketer; I am not. But 
markets seem to respond to nervousness and our markets are 
nervous about oil. They are. Things happen. The price of oil 
goes up. Other things happen. The price of oil goes down. From 
my simple perspective what we need to do is put companies in a 
position so that they can explore for oil and gas on the leases 
that they have acquired so that that nervousness is reduced. I 
think right now with a tremendous supply of natural gas on 
hand, something could happen and I do not picture the price of 
natural gas tripling or going in half. I think there is plenty 
of supply out there. I think there is reasonable presumption 
that we can drill for more gas and acquire that. We need to be 
in that position on oil on liquids.
    Mr. Ewing. Insofar as oil is concerned, I avoid gas plays 
like the plague. I am not big enough to be involved in that. 
But the thing that needs to be done is to cut loose, get rid of 
some of the regulation so that people can explore for oil on 
these western lands. And there are still things to find but 
they are very difficult to find.
    And I was wanting to get into this historical perspective 
if I could a little bit on this. In 1946, the Grazing Service 
was merged with the General Land Office to form the Bureau of 
Land Management. They did not really have any teeth to work 
with until the Federal Land Policy and Management Act--FLPMA 
that I always forget what it stands for unless I read it--came 
about in 1976. The State of Wyoming set up the Wyoming Loan Gas 
Commission in 1951 and until 1971, just after in the Nixon 
administration when NEPA had been authorized, they administered 
all of the drilling. Ninety percent of the three billion 
barrels of oil that has been found in the Bighorn Basin came 
out of fields discovered before the BLM even got in the 
picture. The state administered all of these lands. The state 
had 45 people on staff and not only did they approve any well, 
whether it is federal, state, or fee in the state of Wyoming, 
they had to do all the work. Suddenly, in '71, after the horses 
had gone out of the barn so to speak, the BLM comes in and 
immediately had to start setting up an agency with a tremendous 
number of people with all sorts of regulations and it happened 
at a time when instead of doing that it should have just gone 
the other direction because in the case of the Bighorn which is 
all I am really talking about today and I have had experience 
on all the basins, but that area in the southwest that I 
described where you have flat lying beds obscuring the 
structure that still may lie--we know there is some structure 
there; we just do not know the definition of it well enough. 
But there is probably some more production there. Other than 
that, I have no interest in looking for a structure elsewhere 
in the Bighorn Basin because they are all exposed on the 
surface. They have all been surface mapped. They have all had 
seismic work done on them. They have all been drilled. And 98, 
99 percent of them have been productive. So what has happened 
is the BLM has come in and developed into a real monster after 
all of the major drilling in the Bighorn Basin took place. So 
if you look at that objectively, the rational mind would say 
let us make it easier with what little bit we have got left.
    Now, I have given you letters from my congressmen, Pete 
Olson and Rob Bishop, who strongly are objecting to what the 
BLM did to me. I also have letters from all the commissioners 
in your packet, most of them in there. They are jumping up and 
down. They are, as I mentioned earlier, co-operators with the 
BLM in the RMP consolidation.
    And I want to say even further, that consolidation is one 
of the biggest rip-offs that has taken off in the United States 
in years. They are doing this after all the drilling basically 
has been done and there is hardly any exploration still to be 
done. There was an 18,000 foot hole drilled right out in the 
flat, deepest part of the Bighorn Basin by Barrett Energy. They 
got 100 MCF a day. That is not a keeper. They have abandoned 
thousands of acres they took out there. I am probably the only 
company I know of other than development that some people are 
going around old fields just plunking little development wells 
they can still find. I am the only one that I know of up in 
that basin that is actually trying to explore for a virgin 
field, and I thought I had the opportunity to come up with a 
field that could be 5 million to 10 million barrel potential 
but they are just stopping me dead and actually they are 
putting my company out of business in the Bighorn Basin. I 
operate on a low cash flow myself and I have to have outside 
investors. And when I lose people like I told you about a 
minute ago, I am going to have a terrible time now.
    On top of that, because they told me those leases----
    Mr. West. I need to move on.
    Mr. Ewing. Time out?
    Mr. West. I need to move.
    Mr. Ewing. Keep going.
    Mr. West. All right. Ms. Rodell.
    Ms. Rodell. Unfortunately, I am not a world economist.
    Mr. West. Me either.
    Ms. Rodell. Shoot, and there are two of us in the room.
    However, oil is traded as a commodity on the worldwide 
market. A resolution to that, I am not sure I have one. I agree 
with Mr. Barber that so much of this is based on fear and 
worldwide unrest. However, I do think that if we can 
responsibly produce energy domestically it might take some of 
the pressure off of those imports that we get from those 
countries that are maybe not our best friends. In addition 
though, we can import or we can domestically produce as much, 
to an extent, a whole lot of oil. However, then we get into a 
refining process.
    So it is a much broader problem than just what can we as 
small producers do. The answer is I am not sure we can do 
anything.
    Mr. Squillace. So I am also not a world economist but this 
is an important question that we all care about as citizens and 
as consumers of oil and gas. And so I appreciate the 
opportunity to weigh in on this important issue.
    I would like to point out a couple things, and I agree with 
much of what Ms. Rodell just said. But it is also true that 
domestic oil production is actually up in the United States 
over the past several years and consumption is down. And one 
would think that under basic economic rules that if the supply 
goes up and the consumption goes down that the price would come 
down. But as was pointed out, I mean, we are dealing with some 
global kinds of issues that are difficult to reconcile with 
what is happening with prices.
    There is one interesting data point that I would like to 
share with the Committee regarding this and that is a chart--I 
believe it has been published by the Energy Information 
Administration--that shows the price of oil along with the 
price of natural gas. And it shows sort of a trend of the two 
commodities. And it is very interesting to see how they have 
diverged radically in the past several years. I mean, it 
emphasizes what Mr. Ewing said a moment ago about why he is not 
interested in gas plays. The price is so low you cannot do it.
    And what is interesting about that divergence is that the 
price of natural gas is really much more controlled by domestic 
forces than is the price of oil. The price of oil is much more 
of a global kind of commodity. If we produce a lot more there 
is at least a danger that it will be sold internationally if 
that is where the better price can be had because it is more 
easily transportable than gas. But gas is much more problematic 
in terms of that. And because of all these significant shale 
plays, the supply of domestic gas locally has gone up fairly 
dramatically. And I think that is why we are seeing this 
significant decrease in the price.
    So I do not think there is any silver bullet here to deal 
with the problem. The one thing I would say that is critically 
important is that we continue the trend towards reduced 
consumption. And I think one of the best things we have done in 
recent years was to increase the miles per gallon of our 
vehicle fleets. I think that is a really important step toward 
achieving energy and dependence. It is the one thing we really 
can, I think, do to affect global prices.
    Mr. West. Thank you, Mr. Chairman. I will not have a second 
round.
    Mr. Ewing. Mr. West, I did not answer your question as a 
matter of fact.
    Mr. West. I do not think the chairman is going to give me 
any more time.
    Mr. Ewing. Just give me two seconds to answer his question. 
There is probably not a real silver bullet but the truth is 
that if we were exploring up in Alaska where we will 
undoubtedly find some billion barrel fields. If we pushed 
exploration for oil in the United States, all over the United 
States, we would soon dispel all the nervousness that these 
folks have all referred to. And that nervousness is what the 
speculators thrive on. And I do not know what the Congress 
could do in terms of any regulation for the speculation but 
that is the name of the game as far as I am concerned. Thank 
you.
    Chairman Coffman. Thank you, Mr. Ewing.
    Mr. Tipton in Colorado.
    Mr. Tipton. Thank you, Mr. Chairman. I apologize to you and 
to our panel members for being late coming in.
    Just listening to you, Ms. Rodell, when you were talking 
about a little bit of the international component when we are 
looking over into the Middle East, the threat of Iran 
developing a nuclear weapon, the threat obviously that concerns 
many of us that that place is to Israel and then to world 
stability in terms of oil supply. You are commenting accurately 
that this is a world market, the commodity for oil. Is it your 
estimation, given the challenges we see in the Middle East, 
that even if the price is driven by an international market, 
that it is in the best interest of the United States of America 
to be developing our own energy resources right here rather 
than relying on foreign markets to be able to delivery our oil? 
And part of the reason I say that is I was a little disturbed 
when the president, through the World Import-Export Bank 
guaranteed a $2 billion loan to Brazil to be able to drill off 
of their shores and say we want to be one of their best 
customers. Would it be more sensible for us to be drilling on 
American soil, creating American jobs and developing American 
energy certainty?
    Ms. Rodell. I absolutely agree that domestic energy 
production is a huge component to not only our national 
security but also our jobs. As Mr. Squillace said, the natural 
gas production is more of a domestic commodity. I do think that 
there is a lot of opportunity to make that transfer, that 
transition from such an oil-dependent nation to start moving 
into different areas, i.e., natural gas, where we have 
trillions of cubic feet of undeveloped natural gas in this 
country. Unfortunately, when the divergence of the oil and gas 
prices happened, not a lot of folks--you cannot drill 
economically. So unless oil companies would like to volunteer 
their time and money, you are not going to see as much natural 
gas production. However, I think there is a huge opportunity 
for us to transition a lot of our base load power to natural 
gas. Some of our fleets to natural gas. And eventually, maybe 
some of our own cars to natural gas. But every time you do that 
transition, you do fight higher prices. And for the average 
American, buying a car is expensive enough, but if you have to 
make a decision as to buy an oil-based car or a natural gas-
based car and the price difference is $15,000, it is not a hard 
decision for most Americans to make.
    So I do absolutely think it is important. I think we can 
make a huge transition. I also think we can start to ensure 
more of our security if we responsibly develop these resources 
domestically.
    Mr. Tipton. I appreciate that. And I think one thing we 
need to keep a focus on is American jobs. In your testimony you 
were talking about over in Garfield County. And this past 
weekend I happened to be in Rifle, Silt, and Glenwood, an area 
that has lower unemployment typically, but if you drive a 
little bit further west into Mesa County we see effectively 
double digit unemployment that is there. So when we are talking 
about creating American energy certainty for our future and our 
security, and all of you may want to chime in on this, when it 
gets down to actually being able to create jobs, good paying 
jobs.
    And I can speak with confidence. I have dealt with and had 
folks that I have talked to that actually have dirt under their 
fingernails that love the area. They want to make sure that it 
is done responsibly. But what kind of a role can this positive 
development actually play in terms of getting America back to 
work?
    Mr. Barber.
    Mr. Barber. Mr. Tipton, thank you. It is a great question 
that sets up a thought, I think. There are some that think that 
the market for oil will be what it will be regardless of what 
we produce here in these United States. And although I do not 
know that that is true, let us say for a moment that it is. We 
have an opportunity to produce federally-owned minerals that, 
by the way, one dollar out of every eight that is produced, the 
value of those minerals goes back to the federal government. So 
right away there is a one-eighth partner in those wells, if you 
will, that is the federal government. They split those 
royalties with the states that it is produced in; 52-48 percent 
I think is the split.
    But if we are going to get $100 a barrel for oil, we are 
going to pay $100 a barrel for oil regardless of who we buy it 
from if that is the situation. It seems tremendously valuable 
to me to do it in a fashion that, first of all, one-eighth of 
those dollars go back to the federal government. If we buy it 
somewhere else none of those dollars go to the federal 
government. And then we can look at what does the rest of that 
$100 come from? Well, it comes from things like the money that 
goes to the local drilling company, the local roustabout crew, 
the local permitting company, the roustabout employees, hotels, 
retail. Just a vast, vast group of folks that when $9 or $10 
million is spent drilling a horizontal shale well that share in 
those prices that are out there for those services. If we give 
that up, all of those monies that are paid for those services 
go elsewhere. And I also worry that the other thing that can go 
elsewhere is the investment dollars of the companies that are 
willing to drill here but cannot.
    Mr. Tipton. Thank you. Mr. Chairman, were you going to have 
a second round? Okay.
    You know, one thing I think that would be a little 
interesting here, and Mr. Squillace, sorry on that, that I 
would kind of like to have you comment on, the Colorado state 
legislature recently passed a resolution--it was 12-10-04--that 
they passed onto the Bureau--to the BLM. In the resolution, it 
called on the BLM to revise its current restrictive resource 
plan in Colorado in order to increase oil and natural gas 
production in Colorado. Was state legislature wrong to be able 
to put that sort of a resolution forward with bipartisan 
support?
    Mr. Squillace. You know, of course, the nature of the 
resolution is such that it is a question of degree and what is 
too restrictive or what is not restrictive enough I think is a 
matter that people can have differing opinions about. I think 
it is certainly true that we need to encourage domestic energy 
development. I am not opposed to doing that. The concern I 
think, and one of the concerns relating to your earlier 
question, is just that we not get into a situation which we 
have seen so often in the western United States of boom and 
bust kind of development cycles. We need a steady kind of 
process for development, and too often the exuberance of higher 
prices at one moment leads us to go beyond perhaps where we 
should go with development and that leads to a bust cycle which 
is, I think, more detrimental than if we are able to do these 
things in a steady way. So I think that is the sort of 
difficult balance to try to find here. How can we have sort of 
steady development that achieves growth in jobs, that employs 
people, that is good for our local economy, and for our 
national economy as well, without overdoing it? And that is the 
temptation. It is a very difficult thing. There is a lot of 
pressure to move towards overdevelopment, but I think if we 
learn from the past we will know that there are limits to how 
far we ought to go in this direction.
    Mr. Tipton. You know, I am concerned about that very thing 
as well, and when we are looking at--you are a Coloradoan as 
well.
    Mr. Squillace. Yes.
    Mr. Tipton. When we look in Colorado, federal leases 
dropped, which I find shocking because the president is talking 
about putting Americans back to work and we are not creating 
the opportunity. We turned down the Keystone Pipeline, 20-plus 
thousand jobs directly, 100,000 indirectly that we could have 
created here in America. We look at our state. My congressional 
district, we have people that are suffering right now, not only 
with high gas prices but just worried about being able to keep 
a roof over their head right now. Colorado federal leases 
dropped, contrary to what the president is trying to purport 
right now that we are increasing production, but leases dropped 
from 320 in 2008 to 11 in 2011.
    So are we seeing restrictive policies out of this 
administration when it comes to some of our public lands? And 
again, let us underscore, we want to be able to do it 
responsibly. But we also want to be able to feed our children. 
We want our people to be able to work.
    Mr. Squillace. I think that is a very fair question. And we 
have discussed this a little bit before about how the drop in 
the price of natural gas has really affected interest in 
federal leasing. Now, it is not the only factor and I do not 
want to suggest to you that that is the only thing that is 
going on here, but there is no doubt that when natural gas 
drops below $3 a thousand cubic feet, there are significant 
economic reasons why the industry is not particularly 
interested in developing those leases and bidding on them. It 
is a very cyclical kind of thing. Natural gas in the United 
States is actually up significantly, largely because of some of 
the domestic supplies that are being found in the eastern part 
of the United States from the big shale plays out there.
    So I am not suggesting that there is nothing to the point 
that you are making. I would note that I believe the director 
of the BLM recently testified that about a quarter of the 
leases that the BLM has offered in the past few years have gone 
without any bids on them. So parcels have been nominated by 
industry and they are offered for lease and they are not bid 
upon. And so it may just be what is happening with the market. 
I do not think we should read too much into the fact that the 
current level of leasing is down.
    Mr. Tipton. Okay. And I will be happy--we ought to 
certainly talk about this because I am talking to companies 
that are having leases held up. You know, it is up to 10 years. 
Well nine years, I think, is the high mark to be able to 
actually develop and be able to go to production, which I think 
greatly creates that boom and bust cycle that you are talking 
about because time is money when it gets down to business and 
development and the tremendous capital investment that it takes 
to be able to develop some of these resources that are out 
there.
    I would just kind of like to open this up a little bit. I 
do not want to overstretch, Mr. Chairman, in terms of time 
here.
    Chairman Coffman. Mr. West, do you have any additional 
questions?
    Mr. West. I am good. Go ahead.
    Mr. Tipton. Great. Well, I will just kind of wrap it up.
    Can you give us any examples, and this may be open to the 
whole panel here, where the president's domestic or foreign 
policies have contributed to really what we are seeing at the 
pump? You know, we are seeing increased costs that are going 
on. The president talks about an ``all of the above'' energy 
policy but it is a matter really in terms of the tax code of 
picking winners and losers which he abhors on one hand and 
embraces on the other. I think our colleagues at least on the 
republican side, we need to have tax reform. It needs to be 
flatter, fairer, and simpler, but right now we are seeing an 
administration policy that seems to be pretty convoluted in 
terms of the real impacts on the American people. Just give me 
some of your comments, if you would, in terms of the 
administration policies.
    Yes, sir. Mr. Barber.
    Mr. Barber. Thank you, Mr. Tipton.
    When one considers the size of the companies that are sort 
of represented and being discussed here, they are generally 
smaller production companies. And we, like someone else who 
sells their product on a market, we could be just like a wheat 
farmer. The individual wheat farmer does not get to determine 
what it is that they receive for their commodity. They grow it 
and choose to sell it or put it in a grainery and sell it maybe 
when markets are different.
    So one of the things that maybe we do not have the ability 
to do in our positions is to determine what it is we get for 
that product because if we could I am sure we would want to get 
more for the price of natural gas right now. Natural gas is 
being--there is certainly plenty of supply and in some cases 
operators are out there shutting in wells to not produce at the 
current pricing. I think in terms of liquids there may be 
situations where it would be better to have a predictable price 
of some number that is survivable for companies but certainly 
that type of marketing is beyond the scope of smaller 
companies.
    Mr. Ewing. I would just like to make a comment on that. I 
think, as I said, I do not get involved in the gas play but I 
am certainly conversant with it. I watched the oil plays in 
Texas in similar types of environments and it turned out that 
many of those, the operator was the guy that owned, controlled 
the acreage initially and turned it to somebody was the only 
guy that made a lot of money on it. In the Austin Chalk plate 
down there you were lucky if you were getting a two-to-one 
return on the investment. If you had a dry hole on the way, 
your investors were very fortunate if they ever got their money 
back. What I think is going to happen in the gas play is that 
there is so--it is a similar type of play in that the return on 
investment is not very big. Yes, you can get a well every time, 
so from a promoter standpoint it is great. But what is going to 
happen is that all of these little guys that jumped in, and I 
mentioned a while ago they got burned, they will turn their 
acreage. It is all going to be bought up by the majors, at 
which point the majors will have the option of slowing down 
drilling so that they can get the price back up.
    Now, why would they do that? Right now when you bring in 
one of those wells they look great on initial potential. But 
very quickly those things dive. And in order to keep the 
investors happy you have to start drilling another well very 
quickly to get another good well that will also dive. It is 
what I have called the black hole of drilling. I know that is 
putting a bad slant on it because I am not interested in it in 
the first place. I cannot afford it but that is what is going 
to happen at the point in time when the majors get sufficient 
control of all of those acres, they will then just gradually 
slow down on their drilling and the price of gas--they will get 
the price of gas to edge up again. Prediction.
    Ms. Rodell. Thank you, Mr. Tipton. I think for most of us 
we are looking forward to simpler tax reform. However, I do 
know that the president is currently talking about removing the 
intangible drilling cost deduction that the oil and natural gas 
industry can take in addition to not allowing the deduction on 
depletion rates. And these are very frightening to smaller 
independents. These are not give-mes. These are standard 
manufacturing deductions that any manufacturing company would 
be able to get. These are costs. This is the cost of doing 
business. If he takes away these deductions from the oil and 
natural gas industry it could cause a 25 percent loss in 
capital reinvestment which then just basically turns around 
into loss of jobs and loss of domestic energy production 
because smaller companies will not be able to operate under 
these stipulations.
    In addition, we hear a lot about the billion dollars that 
the majors make, and although these profits may sound 
excessive, sometimes these are only a 6 percent rate of return 
for even the larger companies. So these are not--what needs to 
be looked at is not the overall figure because these are large 
international companies but what really needs to be looked at 
is the individual rate of return, sometimes as low as 6 
percent. So some of the proposed tax reforms will and can put a 
lot of the smaller independents just completely out of 
business.
    Mr. Squillace. I think we can all agree that a simpler tax 
code would be a good thing. I doubt that many people, many 
Americans would disagree with that point. The devil, of course, 
is in the details. But I would like to focus more specifically 
on the relevance of your comment to energy policy. And here I 
hope that we can agree that we need to take the long view. Now, 
where our energy policy will be or where our mix of energy will 
be in 2050 may be a subject of disagreement, but the key point 
here is that we ought not try to have an energy policy just for 
the moment. I mean, we know that the economy is down right now, 
people need jobs, and in the short term we need to deal with 
those kinds of issues. But we also need, as a matter of 
planning, to think about where we want our energy policy to go. 
And I hope as the Congress is thinking about these broad issues 
about energy policy that they will look at the big picture and 
look at the long term and try to adopt policies that will get 
us where we need to be in 30, 40, and even 50 years from now. I 
think that is really key. And if we can reach some kind of 
agreement about where we need to go, I think we can see a 
clearer path for us to get there.
    Mr. Tipton. Thank you. And thank you, Mr. Chairman.
    Chairman Coffman. Thank you, Mr. Tipton.
    I would like to ask one more question of all of you 
individually and that is to the smaller producers, if you were 
going to look at a single regulatory burden that would make the 
biggest difference in terms of reform, and I know some of you 
just talked about deadlines and deadlines passing but yet 
having to pay permitting fees anyway irrespective of whether 
BLM does its role, but if you are going to look at one simple 
thing or one specific thing, what would it be? And we will 
start with you, Mr. Barber, and we will go to the left then.
    Mr. Barber. Thank you, Mr. Coffman.
    The singular issue that I would say from my perspective 
that we could do is actually fortunately already in place in 
regulation. If we could get BLM back to the point where federal 
mineral wells, APDs are processed in the timeline that is 
called for in the regulation and is handled that way by some 
good BLM offices, if we could do that one single thing, that 
would make more APDs available for drilling and we would have 
better drilling prospects because they are directly following 
their own regulations rather than individual, personal 
entrepreneurial interpretation regulation.
    Chairman Coffman. Mr. Ewing.
    Mr. Ewing. Mr. Coffman, my whole pitch today relative to 
Ewing Exploration has been applied to the Bighorn Basin so my 
comment is going to be related to that.
    The BLM changed the rules that we were using to determine 
whether or not leases should be issued. They were, for the 
first five years, using the old RMP to do their adjudication as 
far as environmental NEPA examinations were concerned. Then 
suddenly, in 2010, when they pulled those parcels that I had on 
that map down from the sale, they pulled them down because a 
new information memorandum had been issued by Director Salazar 
back in the middle of 2010, well before that sale, telling his 
people that they had to start looking at wild lands 
characteristics up there in the Bighorn and throughout, I 
think, throughout the system. Once they did that it put them in 
a position to simply use the stroke of the pen they have to go 
ahead, and in spite of the fact that I had acquired all those 
acres under the old rules, in spite of the fact I drilled a 
well under those old rules, in spite of the fact we spent 
$250,000 getting new seismic under those rules and $70,000 to 
buy old seismic, they suddenly said you have got to operate 
under the new rules and we are going to pull these down. And 
since they will not have them up again, based on the letter I 
got less than two months ago, until the earliest in 2014, that 
will be 51 months from the time I first nominated those blue 
parcels for sale. And it will be after they have rejected them. 
They had them on the first sale and I flew into Cheyenne and 
found out the next day they had all been removed from the sale.
    So my complaint is that they changed the rules. If we could 
get them to go back to the original RMP rules, which are what 
Congressman Olson recommended they do along with Bishop, along 
with the Western Energy Alliance, and just use those rules 
because that IM that they changed allowed them to change the 
way they dealt with me, was simply called to be illegal by 
Judge Freudenthal's decision. So everybody says let us go back 
and use those. They just will not do it.
    Chairman Coffman. Ms. Rodell, if there were one thing that 
you could change in terms of regulatory reform for smaller 
operators, what would it be?
    Ms. Rodell. Because the BLM offices, although they all 
operate under the Department of the Interior, they often 
operate as very individual entities. You know, I do think 
consolidating some of those processes in a single office within 
a single group might not be a bad idea and allowing the BLM 
representatives in the field to do their part to supply those 
common offices with maybe some of the information to get these 
approvals through in a timely manner or to write the NEPA 
documents that are necessary for the approvals of the rights of 
ways and the ABDs.
    So I agree with Mr. Barber that there needs to be some 
timelines that need to be followed, and I think maybe a 
consolidation rather than individuals and individual offices 
might be a start to the solution.
    Chairman Coffman. Okay. Mr. Squillace.
    Mr. Squillace. Sure. And again here, I think that there are 
no simple answers to the question. There is no simple rule 
change that will relieve some of the burdens. But I agree that 
if we can provide more certainty to the industry, particularly 
the small operators, that would be a good thing and we ought to 
try to find ways to do that.
    One issue that I focused on over the past few years is my 
concern about the complexity of the land use planning process, 
both with the Forest Service and with the BLM.
    As an example, in the resource management planning process 
that the BLM uses, they get into sufficient detail that they 
are actually deciding on stipulations that belong in oil and 
gas leases that might be issued on particular lands. But that 
is not the end of the matter because then when they go through 
the APD process they may be imposing more restrictions and 
additions. It seems to me that while you can make an argument 
for that, we ought to simplify land use planning and avoid 
getting into the details when we have not studied the 
particular lands where the operations are going in anyway. Let 
us use land use planning as kind of a zoning exercise. Decide 
what we are going to do on particular lands and what we are not 
going to do on particular lands. And that creates a kind of 
certainty about where opportunities for the oil and gas 
industry are available. And then when development is going to 
take place we can look at it comprehensively. Hopefully we have 
saved some resources that are now being employed in the 
planning process and we can use them to help meet the deadlines 
that some of the folk are talking about here and then receive a 
quicker action and more certainty for the industry.
    Mr. Ewing. Can I make one more comment? One of the items, 
exhibits that I put in your packet up there looks like this. It 
is a comparison between the number of employees that the WOGCC, 
Wyoming Oil and Gas Commission has in Wyoming, and the 
employees that the BLM has. And if you look at that it tells 
you, I think, pretty much the story of why we are 
overregulated. As I pointed out earlier, I think before Mr. 
Tipton came in, the WOGCC had 44 employees. The BLM has 898 
employees adjudicating just the BLM lands in the state of 
Wyoming, not all of those lands that the state deals with. The 
annual budget for the WOGCC is $2,640,000. The budget for the 
BLM is estimated to be $54 million a year. I mean, what you all 
have to start to do if you are going to change the way this 
exploration goes on BLM lands, you have got to get into their 
budget and cut their funding and cut them down to size because 
we do not need all of their help. All they do is hold back 
exploration; they do not help it proceed forward.
    Mr. West. Mr. Ewing, that is what we call up here a jobs 
program.
    Chairman Coffman. Mr. Tipton, any other comments?
    Well, I want to thank you all so much for your testimony 
today and I think, Mr. Ewing, you raised the question about 
submitting additional testimony. And you and the other 
witnesses, all of the witnesses will have 14 legislative days 
to submit additional comments and materials into the record.
    Thank you very much for your testimony today.
    [Whereupon, at 11:35 a.m., the Subcommittee was adjourned.]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


