[Senate Hearing 112-]
[From the U.S. Government Publishing Office]



 
     DEPARTMENT OF THE INTERIOR, ENVIRONMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2013

                              ----------                              


                       WEDNESDAY, MARCH 14, 2012

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:35 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Jack Reed (chairman) presiding.
    Present: Senators Reed, Tester, and Murkowski.

                       DEPARTMENT OF THE INTERIOR

                       Bureau of Land Management

STATEMENT OF HON. ROBERT V. ABBEY, DIRECTOR

                 OPENING STATEMENT OF SENATOR JACK REED

    Senator Reed. Let me call the hearing to order. Good 
morning. I want to welcome our witnesses to the subcommittee's 
oversight hearing on Federal offshore and onshore energy 
development programs within the Department of the Interior.
    On behalf of the members of the Interior, Environment, and 
Related Agencies Subcommittee, I'd like to welcome our panel 
and thank everyone for joining us here today.
    Now, before us, we have the Honorable Robert V. Abbey, 
who's the Director of the Bureau of Land Management (BLM); the 
Honorable Tommy P. Beaudreau, Director of the Bureau of Ocean 
Energy Management (BOEM); and the Honorable James Watson, 
Director of the Bureau of Safety and Environmental Enforcement 
(BSEE). Gentlemen, thank you.
    Director Beaudreau and Director Watson, this is your first 
hearing before the subcommittee as heads of these two new 
bureaus which were created in October of last year, so we 
wanted to offer a special welcome to both of you.
    As many of you know, the subcommittee was fortunate to have 
the opportunity to discuss many aspects of energy development 
when Secretary Salazar appeared before us 2 weeks ago. In 
particular, I'm especially grateful that we had the opportunity 
to discuss with him the potential for offshore wind development 
to create new manufacturing and assembly jobs and to generate 
renewable energy in my home State of Rhode Island and in other 
States.
    However, and I know that many of my colleagues on both 
sides of the aisle will agree, there is much more to discuss 
about energy policy, which is why we've convened this hearing 
today.
    Making sure that the right resources and policies are in 
place and that safe and responsible energy development on 
public lands is a significant part of this subcommittee's 
jurisdiction. The three agencies that we have before this 
subcommittee today all play a huge role in ensuring the success 
of the President's energy strategy by overseeing both 
conventional and renewable energy development on Federal lands 
and in our Federal waters.
    We must ensure that these three agencies have the right 
resources with staffing in place to perform their permanent 
inspections and enforce their duties. That is why I think it's 
important to start with an overview of where these agencies are 
in terms of their fiscal year 2013 budget requests.
    For the offshore perspective, the budget proposed a large 
increase to BSEE for a total of $222.2 million. That's a 13-
percent increase or $24.8 million more than fiscal year 2012 
funding levels.
    The President's request also continues the inspection fee 
program that the Congress established last year and proposes to 
collect $65 million in inspection fees from drilling operations 
to offset the appropriations request.
    The budget request also includes a total program level for 
BOEM of $164.1 million. That's a $3 million increase more than 
the fiscal year 2012 levels, or approximately 2 percent.
    Finally, the budget includes a program level of $173.4 
million for BLM energy program. That's a $33 million increase 
more than the fiscal year 2012 level or approximately 23 
percent.
    The budget request also includes a new $48 million 
inspection fee program similar to the one we enacted last year 
for BSEE that will offset the appropriations request. I'm 
anxious to hear from Director Abbey how these fees would be 
used to strengthen energy development on BLM lands.
    We're also going to take a look this morning at the 
progress that's being made to better process offshore and 
onshore permits and efforts that these agencies have made to 
recruit, hire and train new petroleum engineers and inspection 
personnel.
    Since the Deepwater Horizon incident less than 2 years ago, 
major reforms have been made to the way the Interior Department 
oversees the planning, leasing, and permitting processes for 
offshore energy development. I understand that concerns are 
being raised about whether the administration is acting quickly 
enough to exploit our offshore energy reserves.
    It is also important to note that lease sales are underway 
and permits have in fact been approved since the incident 
including a total of 325 deepwater drilling permits and an 
additional 116 shallow water drilling permits approved in the 
Gulf of Mexico as of Monday, March 12.
    As we move ahead, I think the administration must strike 
the proper balance between the speed of processing and ensuring 
that industry is drilling responsibly and safely especially in 
the context of the largest oil spill in our Nation's history 
which we saw with the Deepwater Horizon incident.
    The same can also be said for making sure that we are 
addressing onshore energy development in a thoughtful and 
environmentally sensitive manner. I look forward to discussing 
efforts to improve the BLM inspection process, particularly 
related to the steep rise in the use of hydraulic fracking on 
public lands.
    Now, before we hear from our panel, I'd like to recognize 
Ranking Member, Senator Murkowski, and other colleagues if 
they'd like to speak.
    Senator Reed. Senator Murkowski.

                  STATEMENT OF SENATOR LISA MURKOWSKI

    Senator Murkowski. Thank you, Mr. Chairman, and welcome to 
our witnesses. I appreciate all that each of you do. It was 
nice to visit with you, Director Beaudreau. It's always nice to 
have an Alaskan at the helm. You clearly understand what we're 
faced with so on many of these issues. But, again, welcome to 
each of you.
    As Americans face steeply rising energy costs, it's 
important that this subcommittee ensure that the agencies that 
sit before us today have the resources that they need and the 
right policies are in place to maximize domestic production 
from our Federal lands in an environmentally responsible 
manner.
    Now, a number of new authorities were included in last 
year's Interior bill that I hope will give your agencies the 
tools necessary to improve the pace of permitting and increase 
our domestic production.
    For example, new fees on offshore operators were authorized 
and 50 percent of these collections must be used to expand 
capacity and expedite the development of the Outer Continental 
Shelf (OCS). Authority was also given to pay higher salaries 
for certain critical job positions in order to address the 
problems with hiring sufficient numbers of key personnel to 
review the exploration plans and the process permits in a 
timely fashion, as the chairman has mentioned.
    Finally, the responsibility for reviewing air quality 
issues in the Arctic OCS was transferred from the Environmental 
Protection Agency (EPA) to BOEM to deal with egregious 
permitting delays, almost 6 years in one case. I'd like to hear 
from all of you today about how these new authorities are being 
utilized, and whether you believe that you've got the tools 
that you need to improve the pace of permitting and increase 
production both on and offshore.
    Improving the Department's performance is particularly 
important to me in light of recent Department of the Interior 
reports that indicate that while overall production 
domestically is at an all-time high, but it's not necessarily 
the case on Federal lands and waters.
    ENE News recently reported the production of natural gas 
declined by 11 percent in fiscal year 2011 and oil production 
declined by 14 percent. A significant portion of this is 
clearly the result of the moratorium that was put in place in 
the Gulf of Mexico following the Deepwater Horizon.
    So I would like to explore with you today what the current 
pace of permitting is in the gulf; how many drilling rigs are 
operating; whether the improvements have been made to improve 
and accelerate the approval of exploration plans and drilling 
permits.
    I think there is a difference of opinion out there between 
the Department and the industry on whether or not things are 
improving. So I would like to hear your perspective on that.
    The discrepancy between production on State and private 
lands versus Federal lands also concerns me as I look at the 
new policies that are proposed in the fiscal year 2013 budget 
that will make leasing on Federal lands less competitive.
    When companies have the option of oil exploration on large 
new reserves on State and private lands, whether it's North 
Dakota or Texas, or for natural gas in the Marcellus Shale, I 
question the wisdom of proposals to increase Federal onshore 
royalty rates and put in place new inspection and drilling 
fees, and charge a fee on the so-called nonproducing leases.
    It seems to me that this is just taking us in a direction 
that will make our Federal lands less competitive, and we may 
see a continued trend of more investment fleeing to the 
stateside into the private lands or possibly even to other 
countries.
    Again, I thank the witnesses for joining us and for the 
work that they do within their respective agencies and look 
forward to the questions.
    Senator Reed. Thank you, Senator Murkowski. I just have to 
point something out. Mr. Beaudreau is from Alaska, but his 
father is from Woonsocket, Rhode Island. So that is either the 
shrewdest appointment ever made----
    Senator Murkowski. Way to go. Phenomenal.
    Senator Reed [continuing]. Or the luckiest appointment ever 
made, and only time will tell.
    Senator Murkowski. I'm sure he also has ties to Montana.
    Senator Reed. If not, he's bought a cabin there. Senator 
Tester, do you have any comments?

                    STATEMENT OF SENATOR JON TESTER

    Senator Tester. I would. Thank you, Chairman Reed, and 
Ranking Member Murkowski for holding this hearing today, and I 
want to welcome Mr. Abbey, Mr. Beaudreau, and Mr. Watson to the 
hearing this morning.
    I want to say just a few quick words about the fiscal year 
2013 Department of the Interior budget. First, there's been a 
lot of talk about oil and gas leasing and development in the 
United States and the need to expand the developments, reduce 
our dependence on foreign oil. And I firmly believe that we do 
need to reduce our dependence on imported oil.
    We are giving $1 billion a day to countries that don't 
necessarily like us much and that hasn't done us much good in 
securing and developing our economy or enhancing our national 
security.
    But I think it's important we don't confuse reducing our 
dependence on foreign oil with reducing prices at the pump. We 
all know the price of gasoline isn't just about supply and 
demand factors and the talking point of ``drill baby drill'' 
isn't getting us those desired results. So let's be honest 
about the facts.
    Drilling is up. There are more drilling rigs in the United 
States than there are anywhere else in the world. Production is 
up. We're producing more than we have in the last 8 years. 
Dependence on imported oil is declining. Consumption, 
domestically, is down.
    But we are facing competition from China for oil, and that 
is driving the world price as well as speculators influencing 
the market and adding as much as 56 cents a gallon at the pump. 
All this is to say that we need to look at an ``all-the-above'' 
solution. There is no magic bullet.
    In Montana, energy production is fueling our economy, 
literally, with the Bakken Field, we're producing nearly 
500,000 barrels per day. I'm proud Montana is a part of that 
expanding energy, domestic energy solution.
    But I also want to point out that this hearing isn't just 
about extracting traditional fuels from public lands. We also 
need to permit renewable energy projects in a timely manner. We 
need to put just as much effort into those leasing and 
approvals of those projects to secure our energy future.
    And I look forward to visiting with each one of you today 
and, particularly, you, Bob, about getting more renewable 
energy up and running. I look forward to visiting with you 
about those throughout this hearing and hearings to come.
    Senator Tester. And, once again, I want to thank Chairman 
Reed and Ranking Member Murkowski, for holding this hearing.
    Senator Reed. Thank you very much, Senator. Gentlemen, your 
statements are part of the record, so you may be free to 
summarize your comments and Mr. Abbey, please begin.

                  SUMMARY STATEMENT OF ROBERT V. ABBEY

    Mr. Abbey. Well, thank you, Mr. Chairman, and members of 
the subcommittee. It's always a pleasure to appear before you 
today to discuss the President's fiscal year 2013 energy and 
minerals budget request for BLM. In the interests of time, I 
will keep my opening remarks quite brief.
    BLM, as many of you know already, is responsible for 
managing more than 245 million acres of public lands primarily 
in the 12 Western States, as well as approximately 700 million 
acres of onshore subsurface mineral estate nationwide.
    BLM's unique multiple-use management of public lands 
includes activities as varied as livestock grazing, outdoor 
recreation and conservation of natural, historical, cultural, 
and other important resources. America's public lands provide 
resources that are critical to the Nation's energy security and 
will continue to play an important role in domestic energy 
production, in mineral development, for decades to come.
    Our management of public land resources and protection of 
public land values results in extraordinary economic benefits 
to local communities and to this Nation. It is estimated that 
in 2011, BLM's management of public lands contributed more than 
$120 billion to the national economy and supported more than 
550,000 American jobs.
    BLM's fiscal year 2013 budget proposal reflects the 
administration's efforts to maximize public benefits while 
recognizing the reality of the current fiscal situation.
    The New Energy Frontier Initiative recognizes the value of 
environmentally sound, scientifically grounded development of 
both conventional and renewable energy resources on public 
lands. Conventional energy resources on these public lands 
continue to play a critical role in meeting the Nation's energy 
needs, producing 41 percent of the Nation's coal, 13 percent of 
natural gas, and 5 percent of the domestically produced oil.
    During 2011, BLM held 32 onshore oil and gas lease sales 
covering more than 4 million acres. Onshore mineral leasing 
revenues are estimated to be $4.4 billion in 2013. The fiscal 
year 2013 budget strengthens BLM's oil and gas inspection 
capability through a proposed fee on oil and gas producers 
similar to the fees now charged for offshore inspections.
    Collection of these fees is consistent with the principle 
that users of the public lands pay for both the cost of use 
authorizations and for providing for oversight activities. This 
fee will generate an estimated $48 million to improve safety 
and production inspections for oil and gas operations.
    President Obama, Secretary Salazar and this Congress have 
stressed the critical importance of renewable energy to the 
Nation's energy security, job creation, and long-term economic 
development. To date, Secretary Salazar has approved 29 
commercial-scale, renewable-energy projects on public lands, 
and these include 16 solar, 5 wind, and 8 geothermal projects 
that represent more than 6,500 megawatts and 12,500 jobs.
    BLM's fiscal year 2013 budget proposes a $5 million 
increase for these efforts, and we do intend to reach our goal 
of almost 11,000 megawatts of renewable energy production in 
2013.

                           PREPARED STATEMENT

    Finally, the budget proposes legislative initiatives to 
reform hard-rock mining, remediate abandoned mines and 
encourage diligent development of nonproducing oil and gas 
leases.
    Mr. Chairman, members of the subcommittee, again, thank you 
for this time.
    [The statement follows:]

                 Prepared Statement of Robert V. Abbey

    Mr. Chairman and members of the subcommittee, thank you for the 
opportunity to appear here today to discuss the President's fiscal year 
2013 energy and minerals budget request for the Bureau of Land 
Management (BLM).
    BLM, an agency of the Department of the Interior (DOI), is 
responsible for managing our national system of public lands, which are 
located primarily in 12 Western States, including Alaska. BLM 
administers more than 245 million surface acres, more than any other 
Federal agency. BLM also manages approximately 700 million acres of 
onshore subsurface mineral estate throughout the Nation. BLM's unique 
multiple-use management of public lands includes activities as varied 
as energy production, mineral development, livestock grazing, outdoor 
recreation, and the conservation of natural, historical, cultural, and 
other important resources. BLM is one of a handful of Federal agencies 
that generates more revenue than it spends.

                       MEETING OUR NATION'S NEEDS

    BLM's management of public land resources and protection of public 
land values results in extraordinary economic benefits to local 
communities and to the Nation, helping to contribute more than $120 
billion annually to the national economy and supporting more than 
550,000 American full and part-time jobs according to the Department of 
the Interior Economic Contributions report of June 21, 2011. Energy and 
mineral resources generate the highest revenue values of any uses of 
the public lands from royalties, rents, bonuses, sales, and fees.
    These benefits are not only economic, but also contribute 
substantially to America's energy security. During calendar year 2011, 
BLM held 32 onshore oil and gas lease sales--covering nearly 4.4 
million acres--which generated about $256 million in revenue for 
American taxpayers. Onshore mineral leasing revenues are estimated to 
be $4.4 billion in 2013. The 2011 lease sale revenues are 20-percent 
more than those in calendar year 2010. There are currently more than 38 
million acres of Federal mineral estate under oil and gas lease, and 
since only about 32 percent of that acreage is currently in production, 
BLM is working to provide greater incentives for lessees to make 
production a priority. In fiscal year 2011, DOI collected royalties on 
more than 97 million barrels of oil produced from onshore Federal 
minerals. Moreover, the production of nearly 3 trillion cubic feet of 
natural gas made it one of the most productive years on record.
    Meanwhile, the coal produced from more than 300 Federal coal 
leases, on nearly a one-half million acres of Federal mineral estate, 
generated more than $780 million in royalties. This coal is used to 
generate electricity in at least 40 States, accounting for more than 
one-fifth of all electricity generated across the country. BLM held 
four coal leases sales in 2011. BLM accepted bonus bids of more than 
$700 million for these four lease sales, underscoring the 
administration's commitment to the goals of energy security and job 
creation.
    BLM also is leading the Nation on the new energy frontier, actively 
promoting solar, wind, and geothermal energy development. Under 
Secretary Salazar, BLM has approved permits for 29 commercial-scale 
renewable energy projects on public lands or the transmission 
associated with them since 2009. This includes 16 solar, 5 wind, and 8 
geothermal projects. Together, these projects represent more than 6,500 
megawatts (MW) and 12,500 jobs, and when built will power about 1.3 
million homes. In addition, DOI has identified more than 3,000 miles of 
transmission lines for expedited review. Enhanced development of wind 
power is a key component of our Nation's energy strategy for the 
future. There are currently 437 MW of installed wind power capacity on 
BLM-managed public lands, but there are 20 million acres of public 
lands with wind potential. Additionally, nearly one-half of U.S. 
geothermal energy production capacity is from Federal leases. The 
fiscal year 2013 budget reflects a goal of permitting a total of 11,000 
MW of clean renewable energy by the end of 2013.

                    FISCAL YEAR 2013 BUDGET OVERVIEW

    BLM's fiscal year 2013 energy and minerals budget makes significant 
investments in America's economy, while making difficult choices to 
offset priority funding increases. Investments in this budget will 
promote America's energy production at home and grow America's economy. 
The proposed budget for BLM makes a strategic investment in support of 
the New Energy Frontier, an important Secretarial initiative. 
Investment in this program today will reap benefits for years to come.
    The total fiscal year 2013 BLM budget request is $1.1 billion in 
current authority, which is essentially the same as the fiscal year 
2012 enacted level. The budget proposes $952 million for BLM 
appropriation and $112 million for the Oregon and California grant 
lands appropriation, BLM's two main operating accounts. The budget 
makes strategic funding shifts to target high-priority initiatives, 
scales back on lower-priority programs, and sustains and expands energy 
program activities. The budget also includes several important 
legislative proposals linked to the uses of lands and resources, 
including proposals to fund the remediation of abandoned hardrock 
mines; to provide a fair return to the taxpayer from the production of 
several hardrock minerals on Federal lands; to encourage diligent 
development of oil and gas leases; to repeal a prohibition on charging 
oil and gas permitting fees along with associated mandatory funds; and 
to reauthorize the Federal Land Transaction Facilitation Act. This 
testimony focuses on BLM's energy and mineral resources programs.

              PROMOTING AMERICAN ENERGY PRODUCTION AT HOME

    The fiscal year 2013 budget continues DOI's new energy frontier 
initiative to create jobs, reduce the Nation's dependence on fossil 
fuels and oil imports, and reduce carbon impacts. The Secretary's new 
energy frontier initiative emphasizes the value of scientifically 
based, environmentally sound development of both renewable and 
conventional energy resources on the Nation's public lands. 
Facilitating renewable energy development is a major component of this 
strategy along with effective management of conventional energy 
programs. BLM's proposed fiscal year 2013 budget advances the goals of 
the initiative by including priority funding for both renewable and 
conventional energy development on public lands.
    Renewable Energy.--President Obama, Secretary Salazar, and the 
Congress have stressed the critical importance of renewable energy to 
the future of the United States. Success in attaining the Nation's 
goals to reduce greenhouse gas emissions, mitigate climate change, and 
protect the global environment relies on sustained efforts to develop 
renewable energy resources. Renewable energy production is vital to our 
Nation's long-term economic development and energy security. The 
development of renewable energy creates American jobs and promotes 
innovation in the United States while reducing the country's reliance 
on fossil fuels.
    BLM continues to make significant progress in promoting renewable 
energy development on the public lands in 2012, including working to 
approve additional large-scale solar energy projects and complete a 
draft Solar Programmatic Environmental Impact Statement to provide for 
landscape-scale siting of solar energy projects on public lands. The 
agency is working on wind development mitigation strategies with wind 
energy applicants and other Federal agencies, and is currently 
reviewing more than 45 wind energy applications. Additionally, the 
transmission infrastructure required to deliver renewable energy from 
production facilities to major markets relies on corridors across BLM-
managed lands.
    The fiscal year 2013 budget request includes a total program 
increase of $7 million in the Renewable Energy Management program, 
including $5 million in new funding. This will support additional 
environmental studies to accelerate the identification of prime areas 
for utility-scale renewable energy project development. It will also 
enable BLM to continue ongoing program management responsibilities 
associated with geothermal energy development by replacing mandatory 
funding previously provided by the Geothermal Steam Act Implementation 
Fund, for which new deposits have ceased. The remaining $2 million 
increase is a transfer of geothermal funds from the oil and gas 
management program to BLM's renewable energy program.
    Conventional Energy.--While we work to develop renewable energy 
sources, domestic oil and gas production remain critical to our 
Nation's energy supply and to reducing our dependence on foreign oil. 
Secretary Salazar has emphasized that conventional energy resources on 
BLM-managed lands continue to play a critical role in meeting the 
Nation's energy needs. Conventional energy development from public 
lands produces 41 percent of the Nation's coal, 13 percent of the 
natural gas, and 5 percent of the domestically produced oil. DOI's 
balanced approach to responsible conventional energy development 
combines onshore oil and gas policy reforms with effective budgeting to 
provide appropriate planning and support for conventional energy 
development.
    The fiscal year 2013 budget proposes an increase of $2.4 million in 
appropriated funding to be utilized for inspection and enforcement of 
coal production on Federal and Indian lands. The requested increase 
will fund the program at roughly the 2011 enacted level. BLM will 
continue efforts to institute cost-recovery fees within this program, 
but recognizes these fees may not be in place by the start of 2013.
    The President's fiscal year 2013 budget proposes $13 million in oil 
and gas program increases to provide industry with timely access to 
Federal oil and gas resources, backed by the certainty of defensible 
environmental analysis. Of that increase, a $5 million program increase 
will restore BLM's leasing and oversight capacity to the 2011 enacted 
level. An additional $3 million will be used for large, regional-scale 
studies and environmental impact statements for oil and gas leasing and 
development issues. Finally, an additional $5 million programmatic 
increase will allow BLM to fully implement its leasing reform strategy 
without sacrificing other important program goals.
    BLM is committed to ensuring oil and gas production is carried out 
responsibly. To accomplish this, BLM performs inspections to ensure 
that lessees meet environmental, safety, and production reporting 
requirements. BLM recently initiated a program using a risk-based 
inspection protocol for production inspections, based on production 
levels and histories. Success realized in this program will support 
expansion of this risk-based strategy to the other types of inspections 
the BLM performs. The risk-based strategy will maximize the use of 
inspection staff to better meet BLM inspection goals and requirements 
in the future.
    The fiscal year 2013 budget proposes to expand and strengthen BLM's 
oil and gas inspection capability through new fee collections from 
industry, similar to the fees now charged for offshore inspections. 
Collection of these fees is consistent with the principle that users of 
the public lands should pay for the costs of use authorizations and the 
costs associated with the oversight of authorized activities. The 
inspection fee schedule included in the budget is estimated to generate 
$48 million in collections, which would offset a proposed reduction of 
$38 million in BLM's appropriated funds, while providing for a net 
increase of $10 million in funds available for this critical BLM 
management responsibility. The increased funding is aimed at correcting 
deficiencies identified by the Government Accountability Office (GAO) 
in its February 2011 report, which designated Federal management of oil 
and gas resources including production and revenue collection as high 
risk. The $10 million increase will help BLM achieve the high-priority 
goal of increasing the completion of inspections of Federal and Indian 
high risk oil and gas cases by 9 percent more than fiscal year 2011 
levels. BLM will also complete more environmental inspections to ensure 
environmental requirements are being followed in all phases of 
development. Fee levels will be based on the number of oil and gas 
wells per lease so that costs are shared equitably across the industry.
    To encourage diligent development of new oil and gas leases, the 
administration is proposing a per-acre fee on each nonproducing lease 
issued after enactment of the proposal. The $4-per-acre fee on 
nonproducing Federal leases (onshore and offshore) would provide a 
financial incentive for oil and gas companies to either put their 
leases into production or relinquish them so that tracts can be re-
leased and developed by new parties.
    The administration believes that American taxpayers should get a 
fair return on the development of energy resources on their public 
lands. A 2008 GAO report suggests that taxpayers could be getting a 
better return from Federal oil and gas resources in some areas. To this 
end, the administration is developing a proposed rule to address 
onshore royalty rates.

       ABANDONED MINE LANDS AND HARDROCK MINING REFORM PROPOSALS

    The budget includes legislative proposals to address AML hazards on 
both public and private lands and to provide a fair return to the 
taxpayer from hardrock production on Federal lands. The first component 
addresses abandoned hardrock mines across the country through a new AML 
fee on hardrock production. Just as the coal industry is held 
responsible for abandoned coal sites, the administration proposes to 
hold the hardrock mining industry responsible for abandoned hardrock 
mines. The proposal will levy an AML fee on all uranium and metallic 
mines on both public and private lands that will be charged on the 
volume of material displaced after January 1, 2013. The receipts will 
be distributed by BLM through a competitive grant program to restore 
the Nation's most hazardous hardrock AML sites on both public and 
private lands using an advisory council comprising of representatives 
of Federal agencies, States, tribes, and nongovernment organizations. 
The advisory council will recommend objective criteria to rank AML 
projects to allocate funds for remediation to the sites with the most 
urgent environmental and safety hazards. The proposed hardrock AML fee 
and reclamation program would operate in parallel to the coal AML 
reclamation program, as two parts of a larger effort to ensure that the 
Nation's most dangerous coal and hardrock AML sites are addressed by 
the industries that created the problems.
    The budget also includes a legislative proposal to institute a 
leasing process under the Mineral Leasing Act of 1920 for certain 
minerals (gold, silver, lead, zinc, copper, uranium, and molybdenum) 
currently covered by the General Mining Law of 1872. After enactment, 
mining for these metals on Federal lands would be governed by a leasing 
process and subject to annual rental payments and a royalty of not less 
than 5 percent of gross proceeds. One-half of the royalty receipts 
would be distributed to the States in which the leases are located and 
the remaining half would be deposited in the Treasury. Pre-existing 
mining claims would be exempt from the change to a leasing system, but 
would be subject to increases in the annual maintenance fees under the 
General Mining Law of 1872. However, holders of pre-existing mining 
claims for these minerals could voluntarily convert their claims to 
leases. The Office of Natural Resources Revenue in DOI will collect, 
account for, and disburse the hardrock royalty receipts.

                      REDUCTIONS AND EFFICIENCIES

    BLM's fiscal year 2013 budget proposal reflects many difficult 
choices in order to support priority initiatives and needs while 
supporting the President's commitment to fiscal discipline and spending 
restraint. In fiscal year 2013, BLM is requesting a decrease of $2 
million for its abandoned mine lands program. BLM will continue to fund 
the highest-priority sites, as determined through its ongoing ranking 
process. Red Devil Mine reclamation activities remain a high priority.

                               CONCLUSION

    BLM's fiscal year 2013 budget request for energy and minerals 
programs provides funding for the agency's highest-priority energy and 
minerals initiatives, while making difficult but responsible choices 
for reductions to offset some of these funding priorities. Our public 
lands and resources play an important role in American lives, 
economies, and communities and include some of our Nation's greatest 
assets. This budget request reflects the administration's commitment to 
encourage responsible energy development on the public lands, as well 
as to ensure the American people receive a fair return for the public's 
resources. Mr. Chairman, thank you for the opportunity to testify on 
BLM energy and mineral budget request for fiscal year 2013. I will be 
pleased to answer any questions you may have.

    Senator Reed. Thank you very much, Director Abbey. Director 
Beaudreau.

                   Bureau of Ocean Energy Management

STATEMENT OF HON. TOMMY P. BEAUDREAU, DIRECTOR
    Senator Reed. Please turn on your microphone.
    Mr. Beaudreau. Okay. Yes. Thank you, Chairman Reed, Ranking 
Member Murkowski, and Senator Tester.
    Thank you for the opportunity to appear today to discuss 
the President's fiscal year 2013 budget request for BOEM, and 
for the opportunity to provide these brief opening remarks.
    As we know, the Deepwater Horizon rig explosion and oil 
spill in the Gulf of Mexico spurred the administration to 
undertake the most aggressive and comprehensive reforms to 
offshore oil and gas regulation in United States history.
    Central to these reforms are the structural changes we have 
made to Federal oversight, including the establishment of new, 
independent agencies with clearly defined missions to provide 
effective management and strong safety oversight of the 
development of our shared offshore energy and mineral 
resources.
    Simply put, BOEM is responsible for overseeing the 
environmentally and economically responsible development of our 
country's abundant offshore conventional and renewable energy 
resources. This includes promoting responsible offshore oil and 
gas development as well as renewable energy projects such as 
offshore wind.
    BOEM's decisionmaking must closely consider the resource 
potential of geographic regions on the OCS, the critical role 
offshore energy development plays in the mix of resources 
necessary to meet the Nation's energy demands, the significance 
of offshore oil and gas to the economy and employment, and the 
vital need for environmental protection and responsible 
stewardship.
    These are priorities and values shared by everyone in this 
room. This budget request is designed to provide BOEM with the 
resources necessary to advance our commitment to a 
comprehensive all-of-the-above energy strategy that encourages 
safe and responsible domestic oil and gas exploration and 
development as well as pushes forward with the development of 
offshore wind and other clean, renewable-energy resources.
    The resources we have requested will allow BOEM to continue 
pursuing our programmatic priorities which include, one, 
finalizing and implementing the next 5-year offshore oil and 
gas leasing program which as proposed will include 15 potential 
lease sales and make available more than 75 percent of the 
undiscovered but recoverable oil and gas resources offshore of 
the United States.
    Two. Conducting the rigorous scientific and environmental 
analyses that are necessary at all stages of the offshore 
energy development process. Last December, we held the first 
lease sale following the spill which was one of the most 
successful in the history of the Western Gulf of Mexico.
    We will hold a consolidated lease sale for the Central Gulf 
of Mexico on June 20. Planning for both of these sales included 
rigorous analyses of available information concerning the 
environmental effects of the Deepwater Horizon oil spill.
    Three. We continue to conduct efficient and thorough 
reviews of offshore exploration and development plans under the 
new heightened standards which include site specific 
environmental assessments on every deepwater exploration and 
development plan.
    Four. We've implemented innovative lease terms that ensure 
that the American taxpayer receives fair return and that 
provides strong incentives for industry to diligently develop 
their lease holdings offshore to meet our energy needs.
    Finally, we are on the forefront of development of offshore 
renewable energy resources. Over the next year and beyond, we 
expect to issue a number of commercial leases for offshore wind 
development particularly along the Atlantic coast.

                           PREPARED STATEMENT

    BOEM is focused on its mission to help the United States 
secure its energy future through responsible development of 
conventional and renewable offshore energy. Thank you and thank 
this subcommittee for its continuing support of our mission and 
our efforts.
    [The statement follows:]

                Prepared Statement of Tommy P. Beaudreau

    Mr. Chairman and members of the subcommittee, thank you for the 
opportunity to appear here today to discuss the President's fiscal year 
2013 budget request for the Bureau of Ocean Energy Management (BOEM) 
within the Department of the Interior (DOI).
    This request is designed to provide the resources necessary to 
advance BOEM's commitment to effective and efficient management and 
oversight of the Nation's offshore resources as part of our 
comprehensive energy strategy to encourage safe and responsible 
domestic oil and gas exploration and development, as well as to expand 
development of clean and abundant renewable energy resources.
    With the guidance, support, and oversight of the Congress, the 
Obama administration has been implementing the most aggressive and 
comprehensive reforms to offshore oil and gas regulation in U.S. 
history following the Deepwater Horizon explosion and oil spill in the 
Gulf of Mexico. The Minerals Management Service (MMS) was restructured 
into three new, independent entities, and the Bureau of Ocean Energy 
Management (BOEM) took on the role of effective and efficient 
management and oversight of the Nation's offshore resources as part of 
our comprehensive strategy to encourage safe and responsible domestic 
oil and gas exploration and development. BOEM is also committed to 
expand development of clean and abundant renewable energy resources. 
Both activities support job growth and healthy local economies, and 
this budget request is designed to provide the resources necessary to 
advance this commitment.
    In order to ensure an efficient and integrated approach to offshore 
energy development, BOEM and the Bureau of Safety and Environmental 
Enforcement (BSEE) work together closely and certain functions remain 
linked and require close coordination. As you will hear from my 
colleague, Director James Watson, BSEE functions as the offshore safety 
authority, charged with enforcement of the strengthened safety and 
environmental standards implemented in the aftermath of Deepwater 
Horizon. We designed the reorganization to ensure that both agencies 
operate efficiently and without unnecessarily redundant bureaucracies. 
For example, BOEM and BSEE continue to share administrative 
infrastructure and functions that service both bureaus efficiently.
    For fiscal year 2013, BOEM is requesting an operating level of 
$164.1 million, which includes a base appropriation of $62.7 million 
and $101.4 million in offsetting collections ($98.8 million from rental 
receipts and $2.6 million from cost-recovery fees). BOEM manages the 
Nation's offshore energy and mineral resources in a balanced way that 
promotes efficient and environmentally responsible energy development 
through oil and gas leasing, renewable energy development, and a 
commitment to rigorous, science-based environmental review and study. 
BOEM's functions include offshore leasing, resource evaluation, review 
and administration of oil and gas exploration and development plans, 
renewable energy development, National Environmental Policy Act (NEPA) 
analysis, and environmental studies.
    BOEM's organizational structure is designed to advance core 
elements of its mission including:
  --strategic resource development;
  --environmental analysis and applied science; and
  --renewable energy development.

                   KEY PRIORITIES AND ACCOMPLISHMENTS

    Since its establishment on October 1, 2011, BOEM has made 
substantial progress and achieved a number of important priorities. 
These priorities will continue to guide the agency's activities 
throughout the remainder of fiscal year 2012, and form the basis of the 
budget request moving into fiscal year 2013. These priority areas 
include:
      Developing and Implementing the Five-Year Outer Continental Shelf 
        Oil and Gas Leasing Program for 2007-2012.--In December 2011, 
        BOEM held Western Gulf of Mexico (GOM) Lease Sale 218--the last 
        Western GOM sale scheduled under the current 5-year program and 
        the first sale conducted after completion of a supplemental 
        environmental impact statement that considered the effects of 
        the Deepwater Horizon oil spill. BOEM has scheduled 
        Consolidated Central GOM Sale 216/222, the final sale in the 
        current program, for June 20, 2012. In addition, BOEM is 
        developing the next 5-year program. Last November, BOEM issued 
        the proposed Outer Continental Shelf (OCS) Oil and Gas Leasing 
        Program for 2012-2017, which makes more than 75 percent of 
        undiscovered technically recoverable oil and gas resources 
        estimated in Federal offshore areas available for exploration 
        and development. It advances an innovative, regionally tailored 
        approach to offshore oil and gas leasing designed to take into 
        account the particular resource potential, environmental and 
        social concerns, and infrastructure condition of each planning 
        area. BOEM will finalize the program in fiscal year 2012.
      Conducting rigorous scientific and environmental analysis to 
        support all stages of the OCS Lands Act process--from pre-sale 
        planning through exploration and development. Rigorous 
        scientific analysis underlies all of BOEM's decisions. For 
        example, BOEM held Western Gulf of Mexico Lease Sale 218 after 
        conducting necessary environmental analyses to evaluate 
        available information concerning the effects of the Deepwater 
        Horizon oil spill. BOEM recently completed a similar analysis 
        with respect to the Central Gulf of Mexico Planning Area in 
        preparation for Lease Sale 216/222. BOEM has completed an 
        extensive supplemental environmental analysis for the Chukchi 
        Sea Planning Area that addresses key issues including the 
        potential effects of a hypothetical, very large oil spill. The 
        analysis supported the Secretary's decision to affirm Chukchi 
        Sea Lease Sale 193, originally held in 2008. This analysis 
        resulted in Chukchi Lease Sale 193 being judicially upheld, and 
        the injunction of those leases being lifted. At the postlease 
        stage, BOEM currently conducts site-specific environmental 
        assessments on all deepwater exploration and development plans, 
        rather than relying on categorical exclusions as had been done 
        historically.
      Ensuring a Fair Return.--BOEM lease terms now include a range of 
        fiscal and drilling requirements to ensure that taxpayers 
        receive fair value and encourage operators to undertake 
        diligent development, consistent with the administration's 
        Blueprint for a Secure Energy Future. Recent changes made in 
        lease terms include raising the minimum bid level from $37.50 
        per acre to $100 per acre in water depths of 400 meters or 
        greater; promulgating policies that reduce the time a lease can 
        be held without drilling activity by up to 3 years in water 
        depths of 400 to 1,600 meters; and increasing rental rates to 
        encourage faster exploration and development of leases. The 
        higher minimum bid level strengthens the bidding process and 
        supports the goal of ensuring a fair return. It discourages 
        bidders from acquiring tracts with the intention to hold them 
        undrilled for many years. Lessees who meet the shorter drilling 
        timeframes earn three additional years on the lease term as an 
        added incentive for timely drilling. BOEM has both increased 
        base rental rates and established escalating rentals to 
        encourage faster exploration and development of leases, or 
        earlier relinquishment when exploration is unlikely to be 
        undertaken by the current lessee.
      Conducting Reviews of Exploration and Development Plans.--BOEM 
        conducts efficient and thorough reviews of exploration and 
        development plans. Consistent with strengthened standards for 
        environmental analysis, BOEM is committed to ensuring that its 
        process for reviewing and approving plans is rigorous, 
        efficient, and transparent. BOEM works collaboratively with 
        industry throughout the review of plans, to ensure operators 
        understand and comply with BOEM's stronger operational and 
        environmental standards and that the review process is 
        efficient.
      Advancing Renewable Energy Leasing and Development through the 
        ``Smart from the Start'' Initiative.--BOEM has established a 
        regulatory framework for renewable energy leasing and 
        development on the OCS and has taken critical steps to support 
        the development of an offshore wind industry. On April 19, 
        2011, Secretary Salazar announced the approval of the Cape Wind 
        Associates' Construction and Operations Plan. The Secretary 
        signed the Cape Wind lease in 2010, and it is the first 
        offshore commercial wind lease in the United States.
      The Secretary's ``Smart from the Start'' Initiative, announced in 
        fiscal year 2011, is intended to build on the existing 
        regulatory framework and facilitate the efficient and 
        environmentally responsible siting, leasing, and construction 
        of new wind energy projects in the Atlantic. Recently, BOEM 
        completed a number of important steps to advance additional 
        lease sales in fiscal year 2013 and beyond, including:
    --developing a commercial lease form and conducting an analysis to 
            determine auction formats;
    --completing an environmental assessment to support leasing in wind 
            energy areas off of four Mid-Atlantic States; and
    --issuing Calls for Information and Nominations to gauge industry 
            interest in the areas offshore Rhode Island, Massachusetts, 
            Maryland, and Virginia.
      BOEM also is moving forward with the review for a potential Mid-
        Atlantic Wind Energy Transmission Line, which would enable up 
        to 7,000 megawatts of wind turbine capacity to be delivered to 
        the electric grid.
      The fiscal year 2013 request continues these efforts and supports 
        ongoing collaboration between BOEM, intergovernmental task 
        forces, industry, and stakeholders and a continued focus on 
        environmental assessment, while developing formats and 
        processes for renewable energy lease auctions. BOEM expects to 
        hold the first competitive lease sales for offshore wind in 
        fiscal year 2013.
      Science-Based Decisionmaking.--A core principle of BOEM is the 
        integration of science with decisionmaking through 
        comprehensive research and rigorous analysis. The new Office of 
        Environmental Programs establishes an umbrella organization 
        that integrates applied scientific research and information 
        with the environmental analyses that BOEM conducts in support 
        of programmatic decisions. This structure facilitates top-
        quality research by talented scientists from a range of 
        disciplines, as well as targeted scientific study to support 
        policy needs and priorities.
      Strengthening of the Environmental Review Processes.--BOEM is 
        committed to setting high standards for analyses conducted in 
        compliance with NEPA and other governing statutes, and this 
        budget request continues ongoing efforts to strengthen these 
        processes. BOEM is conducting a comprehensive review of its 
        application of NEPA to ensure that environmental risks are 
        thoroughly analyzed, appropriate protective measures are 
        implemented, and the process is transparent and well-understood 
        within the Federal Government and by stakeholders. This review 
        includes an ongoing assessment of the use of categorical 
        exclusions. In the interim, BOEM is conducting site-specific 
        environmental assessments for all new and revised exploration 
        and development plans in deepwater.
      Developing the First Geological and Geophysical Programmatic 
        Environmental Impact Statement for Areas in the Mid- and South 
        Atlantic.--BOEM is committed to conducting thorough, scientific 
        reviews that facilitate a better understanding of potential 
        conventional and renewable resources in the Atlantic, which is 
        central to our strategy for evaluating potential future leasing 
        in the Mid- and South Atlantic. This Programmatic Environmental 
        Impact Statement (PEIS) will evaluate potential environmental 
        effects of multiple Geological and Geophysical activities, such 
        as seismic surveys, conducted to inform future decisions 
        regarding oil, natural gas, and renewable energy development on 
        the OCS in the mid and south Atlantic planning areas. BOEM will 
        issue the draft PEIS this spring.

                  THE FISCAL YEAR 2013 BUDGET REQUEST

    This fiscal year 2013 BOEM budget request is consistent with the 
direction set forth in the fiscal year 2012 budget for BOEM and 
consists of limited funding increases reflecting difficult tradeoffs 
given the tight fiscal constraints. BOEM's fiscal year 2013 request of 
$164.1 million includes careful analysis of the resources needed to 
develop the agency's capacity and to execute its functions carefully, 
responsibly, and efficiently. Consistent with the overall contours of 
BOEM's request, these targeted increases, which amount to $3.3 million 
more than the fiscal year 2012 enacted level, reflect modest increases 
for renewable energy auction support services, environmental studies, 
and fixed costs--and are necessary to advance administration priorities 
that are vital to BOEM's mission.
      Renewable Energy Auction Support Services (+$1,296,000; 0 FTE).--
        In order to achieve the Secretary's renewable energy goal 
        outlined in the ``Smart from the Start'' Initiative, BOEM must 
        accelerate the auction schedule of potential wind leases. 
        Because it is not yet equipped with the technical support or 
        expertise to manage these auctions, BOEM will contract those 
        services and purchase wind resource data in the near term.
      Environmental Studies (+$700,000; 0 FTE).--The requested increase 
        will enable BOEM to initiate high-priority baseline 
        characterization and monitoring studies. With the release of 
        the proposed 5-year program, establishing baseline information 
        will become an increasing need in order to ensure a scientific 
        basis for informed and environmentally responsible policy 
        decisions.
      Fixed Costs (+$1,453,000; 0 FTE).--Fixed costs in the amount of 
        $1,453,000 are fully funded in this request. These costs 
        include increases needed to support employee pay, changes in 
        Federal health benefits and worker's compensation, rent to the 
        General Services Administration, and payments to the 
        Department's Working Capital Fund.
      Offsetting Collections and Cost Recovery (-$322,000; +0 FTE).--
        This requested change reflects a revised net estimate of BOEM's 
        fiscal year 2013 offsetting collections and cost-recovery fees.
      Administrative Reduction (-$122,000; +0 FTE).--This reduction 
        offsets high-priority increases in the fiscal year 2013 request 
        and will be applied by reducing administrative costs within 
        BOEM.
    The fiscal year 2013 request also includes legislative proposals 
that directly relate to BOEM's programs including:
      Deep Gas Incentives.--The administration proposes to repeal 
        section 344 of the Energy Policy Act of 2005. Section 344 
        mandated royalty incentives for certain ``deep gas'' production 
        on the OCS. This change will help ensure that Americans receive 
        fair value for federally owned mineral resources. Based on 
        current oil and gas price projections, the budget does not 
        assume savings from this change; however, the proposal could 
        generate savings to the Treasury if future natural gas prices 
        end up below current projections.
      Fee on Non-Producing Oil and Gas Leases.--The administration will 
        submit a legislative proposal to encourage energy production on 
        lands and waters leased for development. A $4 per-acre fee on 
        nonproducing Federal leases would provide a financial incentive 
        for oil and gas companies to either get their leases into 
        production or relinquish them so that the tracts can be leased 
        to and developed by other parties. The proposed fee would apply 
        to all new leases onshore and offshore and would be indexed 
        annually. In October 2008, the Government Accountability Office 
        issued a report critical of past efforts by Interior to ensure 
        that companies diligently develop their Federal leases. 
        Although the report focused on administrative actions that the 
        Department could undertake, this proposal requires legislative 
        action. This proposal is similar to other nonproducing fee 
        proposals considered by the Congress in the last several years. 
        The fee is projected to generate revenues to the U.S. Treasury 
        of $13 million in 2013 and $783 million over 10 years.

                               CONCLUSION

    BOEM plays a vital role in advancing safe and responsible offshore 
energy development to secure our energy future. Given our environment 
where serious fiscal constraints demand difficult decisions, we 
appreciate the critical resources the Congress has provided in recent 
appropriations--including investment in robust science to inform 
decisions relating to ocean energy policy and management and 
appropriate environmental safeguards. It is imperative to sustain this 
investment moving into the next fiscal year and the fiscal year 2013 
request reflects a careful analysis of the resources needed to ensure 
our ability to carry out the important mission with which we are 
charged.
    Thank you once again for the opportunity to testify here today, and 
for your consistent support throughout the reorganization process. I 
look forward to our continued work together, and to answering your 
questions today.

    Senator Reed. Thank you very much. Director Watson, please.

             Bureau of Safety and Environmental Enforcement

STATEMENT OF HON. JAMES WATSON, DIRECTOR
    Mr. Watson. Good morning, Chairman Reed, Ranking Member 
Murkowski, and Senator Tester. Thank you.
    I am pleased to appear before you for the first time as 
Director of BSEE and to discuss the tremendous strides we have 
made as well as our vision for the future of the agency.
    We have a critical mission, providing safety and 
environmental oversight of offshore oil and gas operations on 
the OCS. In leading positive changes in the safety culture of 
offshore operations, our near-term goal is to restore America's 
confidence that offshore operations can be carried out safely 
and responsibly and without the tragic human and ecological 
costs that occurred as a result of the Deepwater Horizon 
tragedy.
    In the long term, our goal is to set standards and build 
capacity for offshore safety assurance throughout this country 
and also to be the world leader for safe offshore operations.
    The key to our success is the employees of BSEE. Over the 
past 3 months, I have met our employees from all of our 
offices. They've made it clear to me that they believe in and 
are passionate in our mission. They are unmatched in their 
knowledge of the offshore industry and are making the best use 
of the resources at their disposal to advance the cause of 
safety and responsible offshore oil and gas operations.
    Overseeing safety and environmental performance on the OCS 
includes drilling permits and managing the orderly development 
of the Nation's offshore oil and gas resources. A lot of 
attention has been paid to our permitting pace, and I 
sympathize with the people who depend on these permits for 
jobs, the same people who were so negatively impacted by the 
Deepwater Horizon tragedy in many cases.
    Permitting is an essential part of our safety mission. We 
issue permits only when companies have demonstrated that they 
can conduct their proposed operations safely and responsibly, 
they're meeting all of the enhanced safety standards, and they 
can respond effectively in the event of a worst case discharge.
    By working closely with the industry, we have significantly 
decreased the amount of time it takes to approve a permit and 
have issued hundreds of deepwater and shallow-water permits 
over this past year.
    However, those who believe that the pace of permitting 
should be automatically the same as before Deepwater Horizon 
are ignoring the lessons of that disaster.
    I will commit to routing out inefficiencies in making the 
permitting as straightforward, predictable and understandable 
for the industry as possible, but not at the expense of safety.
    When coupled with increasing hiring and training of 
engineers, scientists, inspectors and other personnel, these 
efforts will further enhance the permitting process and improve 
safe and responsible operations on the OCS.

                           PREPARED STATEMENT

    We've made a tremendous amount of progress since our 
formation. In my written testimony, I've provided a number of 
examples of how we spent the time focused on hiring new 
personnel, enacting safety reforms, improving our permitting 
process, and completing the reorganization of the Minerals 
Management Service.
    Thanks again for this opportunity to testify. I look 
forward to answering your questions.
    [The statement follows:]

                   Prepared Statement of James Watson

    Mr. Chairman and members of the subcommittee, thank you for the 
opportunity to appear here today to discuss the President's fiscal year 
2013 budget request for the Bureau of Safety and Environmental 
Enforcement (BSEE) in the Department of the Interior (DOI).
    BSEE has an enormously critical mission--providing safety and 
environmental oversight of offshore oil and gas operations on the Outer 
Continental Shelf (OCS). More fundamentally, however, our mission is to 
restore the confidence of the American people that offshore operations 
can be carried out without the tragic human and ecological costs that 
were borne by the people of the Gulf of Mexico region nearly 2 years 
ago.
    The budget request for BSEE strengthens and advances the reform 
efforts begun in the aftermath of the Deepwater Horizon tragedy. This 
request advances the President's vision of maintaining and expanding 
responsible oil and gas production on our OCS as part of an all-of-the-
above approach to addressing our Nation's energy challenges, while 
providing the funding necessary to be the world leader in offshore 
safety and environmental oversight. The resources provided by the 
Congress over the past 2 years have been instrumental in laying the 
foundation and building a framework for a revitalized and enhanced 
offshore regulatory regime. This request continues the development of 
that framework, allowing us to continue the critical tasks that the 
President, the Congress, and the American people have rightly demanded 
of us.
    Let me be clear: the employees of the former Minerals Management 
Service (MMS) were, with isolated yet well-publicized exceptions, an 
extremely committed group of public servants that dedicated their lives 
to their communities and their Nation, often foregoing much higher 
salaries they could have earned in the oil and gas industry. The need 
for reform did not stem from the actions of these dedicated 
professionals. It arose from outdated regulations, an inability to 
match the pace and scope of the offshore industry's growth, and 
leadership that was often forced to focus on one of several 
fundamentally different priorities to the detriment of the others. The 
reorganization of MMS by Secretary Salazar into BSEE, the Bureau of 
Ocean Energy Management (BOEM), and the Office of Natural Resources 
Revenue was designed to address these issues and allow the employees of 
each agency to apply their expertise with clarity of mission. The BSEE 
employees I have met in the past 3 months have made it clear to me that 
they believe in, and are passionate about, our mission, and I am fully 
confident that we have the right core of people in place to start this 
agency off in the right direction.
    Overseeing safety and environmental regulations on the OCS includes 
issuing drilling permits, and managing the orderly development of the 
Nation's offshore oil and gas resources. A great deal of attention has 
been paid to our pace of permitting recently, and I greatly sympathize 
with the people who depend on these permits for jobs. It is in our 
country's interest to have a robust offshore oil and gas industry, and 
I am pleased to see a constant stream of new rigs coming into the gulf 
and an industry becoming increasingly optimistic about both the short 
and long-term outlook for their industry. However, I will not measure 
success for this agency by the rate at which we issue permits. 
Permitting is an essential part of our safety mission: we issue permits 
only when companies have demonstrated that they can conduct their 
proposed operations safely and responsibly. We will not rush permits 
out the door; we will conduct thorough reviews that ensure that the 
applicant is meeting all the enhanced safety standards put in place 
after the Deepwater Horizon explosion and oil spill, and that they can 
respond effectively in the event of a worst case scenario. Those who 
believe that the pace of permitting should automatically be the same as 
before the Deepwater Horizon are ignoring the lessons of that disaster. 
I will commit to rooting out inefficiencies and making the permitting 
process as straightforward and understandable for the industry as 
possible, and these efforts, when coupled with increased hiring and 
training of engineers, scientists, inspectors, and other personnel, may 
very well enhance the permitting process. But our primary 
responsibility is ensuring safe and responsible operations on the OCS.
    In March 2011, the Director of the former Bureau of Ocean Energy 
Management, Regulation and Enforcement came before you to discuss the 
reforms that agency had implemented to address the many safety, 
environmental protection, and regulatory oversight weaknesses 
highlighted in many reviews of the Deepwater Horizon spill, including 
those identified in the final report of the National Commission on the 
BP Deepwater Horizon Oil Spill and Offshore Drilling (Commission). The 
Congress responded by passing the fiscal year 2012 Consolidated and 
Further Continuing Appropriations Act that provided BSEE with new 
resources needed to institutionalize these fundamental reforms and 
implement additional regulatory measures needed to improve the safety 
of offshore drilling, as well as to enhance protection of the ocean and 
coastal environments. I would like to update you on the progress our 
agency has made in the last year.

                      RECRUITMENT OF KEY POSITIONS

    Although BSEE began operations as an independent agency only a few 
months ago, the recruitment for key management positions began last 
year after the reorganization effort received congressional support and 
resources. As a result, all key senior management positions have been 
filled. As part of our commitment to provide more comprehensive 
oversight of offshore oil and gas operations, we have increased the 
number of inspectors by 50 percent since April 2010, and the number of 
engineers, who also perform critical safety functions, by nearly 10 
percent. There are still a considerable amount of positions yet to be 
filled, including additional inspectors, engineers, regulatory 
specialists, environmental specialists, and other critical disciplines. 
While recruiting is a time consuming process, we are confident that we 
will continue to show significant strides in building out the new 
organization.

                           REGULATORY CHANGE

    We are continuing to update and enhance Federal regulations and 
ensure compliance through our offshore regulatory programs. We plan to 
update the Interim Drilling Safety rule, which was issued shortly after 
the Deepwater Horizon spill, in the near future to increase regulatory 
clarity while maintaining the same enhanced level of safety. Also, the 
Safety and Environmental Management Systems (SEMS) rule, which was 
finalized in September 2010, will be enhanced with the completion of 
the ``SEMS II'' rule. We are currently addressing comments received on 
the SEMS II proposed rule. We are also reviewing recent recommendations 
from the National Academy of Engineering as we continue to update 
regulations and enhance safety requirements.

                               PERMITTING

    With significant new safeguards designed to reduce the chances of a 
loss of well control, and a new focus on capping and containment 
capabilities in the event that one occurs, the permitting environment 
is completely different now than it was before Deepwater Horizon. 
Comparing the pace of permitting pre- and post-Deepwater Horizon does 
not consider the current reality that applications must now meet a 
suite of new requirements that receive extremely close scrutiny by the 
Bureau's engineers.
    We have worked very hard to help industry better understand the 
requirements and improve the efficiency of the application process. 
Perhaps most significantly, BSEE held permit processing workshops for 
industry, which has improved the quality and thoroughness of 
applications. We published a permit application completeness checklist 
to make it clear to industry what information is required and to reduce 
the frequency with which operators submit incomplete applications. We 
have established priorities for reviewing permit applications--
assigning the highest priority to permits for ongoing operations or 
emergency operations. We have begun to balance workloads for our 
engineers by taking some permit applications and moving them around to 
different districts. We have also allowed authorized users of our 
online permit application system to track the status of their 
applications. This answered the call from many operators for greater 
transparency in our permitting process. As a result of these steps, and 
the industry's increasing familiarity with the process, permit review 
times have decreased significantly in the past year. Rigs that had left 
the Gulf of Mexico are returning, new rigs are being contracted, and we 
are starting to see a small inventory of unused drilling permits 
develop.
    While staying focused on our primary objective--ensuring that 
enhanced safety requirements are met--we plan to continuously monitor 
and improve our permitting processes throughout the upcoming year, to 
give industry increased confidence in the timeliness of the process, 
while rebuilding the American people's confidence that these permitted 
operations can be performed safely and responsibly.

                   INSPECTION AND COMPLIANCE PROGRAM

    BSEE continues to expand its capacity to maintain a robust and fair 
inspection and compliance program. With the additional resources 
provided by the Congress, BSEE has been able to add 28 new inspectors 
in the Gulf of Mexico region since the Deepwater Horizon spill, and we 
are continuing our efforts to hire additional inspectors. BSEE's 
inspectors now witness far more activity on drilling rigs than before 
the Deepwater Horizon explosion and spill, including critical tests of 
blowout preventers (BOP).
    BSEE has also begun to set up its new National Offshore Training 
and Learning Center (NOTLC) and has put two groups of new inspectors 
through a core curriculum in offshore inspections. We are also 
supplying our inspectors with new equipment and tools, including 
handheld computers, to make our inspection process more efficient and 
effective. Both of these initiatives were initiated using the 2010 oil 
spill supplemental funding, but will need base resources to continue. 
Those resources are specifically requested in fiscal year 2013.

                       ENVIRONMENTAL ENFORCEMENT

    The Environmental Enforcement program was established as a separate 
division within BSEE to elevate the importance and visibility of the 
program, both internally and externally, to a level on par with safety 
and regulatory compliance.
    This program will ensure compliance with all applicable 
environmental requirements, ensuring that operators keep the promises 
they make at the time they obtain their leases, submit their plans, and 
apply for their permits. The funding requested in fiscal year 2013 will 
support the full build-out of this critical function.

               FISCAL YEAR 2013 BUDGET REQUEST SPECIFICS

    BSEE's fiscal year 2013 request is $222.2 million; an increase of 
$24.8 million more than the fiscal year 2012 enacted level. The request 
is offset by $52.5 million in eligible OCS rental receipts, $8.4 
million in cost-recovery fees, and $65 million in inspection fees, 
resulting in a net request of $96.3 million in direct appropriated 
funds. These additional resources are essential to effectively protect 
our Nation's natural resources as well as to address industry's need 
for an efficient, effective, transparent, and stable regulatory 
environment.
    BSEE's fiscal year 2013 budget fully supports the President's 
``Blueprint for a Secure Energy Future'' by enabling the safe and 
environmentally responsible development of the Nation's vast offshore 
energy resources. Until offshore renewable energy facilities are 
constructed, BSEE will focus its resources on conventional energy 
programs. Funds will be used to recruit expert engineers, scientists, 
and oil spill response specialists to support the development of strong 
scientific information and timely and thorough review of permits. The 
fiscal year 2013 budget request increases funding for operational 
offshore safety, oil spill response initiatives, environmental 
enforcement, and the development of modern electronic systems to 
increase the efficiency and effectiveness of offshore inspection and 
oversight activities.
    The fiscal year 2013 budget includes funding to maintain the gains 
made to date, and proposes the following specific changes:
      Critical Funding Needs for the Environmental Enforcement Division 
        (+$4,177,000; +14 FTE).--BSEE will further develop and manage 
        an expanded environmental oversight role arising out of efforts 
        to reform offshore operations and regulations as recommended by 
        many external national investigative reports.
      Research and Development for Offshore Drilling Safety 
        (+$2,000,000; 0 FTE).--BSEE will utilize this funding to 
        perform additional, and more in-depth, research relating to 
        safety systems and operations such as well cementing, BOP 
        research, methods of shallow gas containment, and well control 
        methods.
      Operational Safety (+$4,495,000; +29 FTE).--Funds will support 
        ongoing reorganization efforts identified as critical to the 
        success of BSEE in strengthening post-Deepwater Horizon 
        regulatory and oversight capabilities. It represents a cross 
        section of staffing for newly identified efforts and increased 
        activities such as development of regulations, safety 
        management, structural and technical support, and oil spill 
        response.
      NOTLC for Inspection Program (+$3,685,000, +11 FTE).--This will 
        provide base funding for the NOTLC. NOTLC supports the BSEE's 
        goals by providing upfront and ongoing learning and development 
        opportunities to BSEE staff.
      e-Inspections for the Enforcement Program (+$2,300,000; 0 FTE).--
        This multi-faceted initiative would allow BSEE to replace the 
        existing outdated paper-based process with a modern electronic 
        system for conducting the inspections mandated by the OCS Lands 
        Act.
      Wellbore Integrity (+$1,395,000; +9 FTE).--The requested funding 
        will provide resources needed for BSEE to meet current 
        requirements to evaluate whether operators have submitted 
        adequate information demonstrating access and deployment 
        capabilities for surface and subsea containment.
      Sustain Administrative Operations (+$5,000,000; 0 FTE).--Funding 
        is needed to sustain the necessary level of support services 
        for both BSEE and BOEM and to adjust the base to provide 
        sufficient administrative services to both bureaus
      Fixed Costs (+$1,772,000; 0 FTE).--This request fully funds 
        increased personnel-related costs and other fixed costs such as 
        rent.
      Inspection Fees (-$3,000,000; 0 FTE).--This request partially 
        offsets programmatic funding increases by increasing industry 
        inspection fee revenue. This is not an increase in the amount 
        of the fees, but rather increased revenue attributable to a 
        full year collection at the current fee levels. The additional 
        revenue will defray the cost of inspection and oversight 
        activities.
      Offsetting Collections (-$1,800,000; 0 FTE).--BSEE anticipates a 
        net increase in offsetting collections including rental 
        receipts and cost recoveries. These collections reduce the need 
        for direct appropriations and offset the cost of programmatic 
        funding increases.
    In addition to its continued focus on operational and environmental 
safety and compliance, the fiscal year 2013 request will further the 
completion of the reorganization of the former MMS and establish a base 
operating level consistent with the recommendations from the National 
Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling 
and the National Academy of Engineering's report on the Deepwater 
Horizon tragedy.
    In fiscal year 2012, the Congress made a commitment to offshore 
safety and environmental protection by providing the necessary 
resources to complete our reorganization, hire additional people, and 
provide the necessary oversight to allow for the continued growth of 
offshore energy development while giving the American people confidence 
that their Government is doing everything it can to prevent another 
catastrophe like the Deepwater Horizon. The fiscal year 2013 request 
builds on these efforts by providing necessary training for our 
employees, and the tools to increase the efficiency of our processes 
and operations. As the Nation looks to expanding domestic energy 
development, we must provide the leadership and the expertise to ensure 
offshore oil and gas development operations are conducted in a safe and 
environmentally responsible way. BSEE provides that leadership and 
expertise, and we very much appreciate your commitment to the Bureau's 
mission and success.
    Thank you again for the opportunity to be with you today.

    Senator Reed. Thank you very much, Director Watson. We'll 
initiate 6-minute question rounds to give my colleagues a 
chance to ask questions. I anticipate at least one or two 
rounds. We have a great many questions.

                          OFFSHORE WIND ENERGY

    Let me begin with Director Beaudreau. By the way, thank 
you, gentlemen, for your excellent testimony. Director 
Beaudreau, you mentioned the accelerating approval of offshore, 
wind in particular, along the Atlantic coast.
    We have made some significant investment both with Federal 
dollars and local dollars in terms of preparing Quonset Point, 
one of our former Navy bases, as a potential site for 
application. We have applications for 9 State projects, in 
State waters, we have an application for a project offshore in 
Federal waters.
    We've also done a lot of planning, especially the area 
management plan, which has drawn nationwide attention as one of 
the best, comprehensive approaches to evaluating offshore 
potential in areas of development. And, again, it's been 
recognized nationally.
    But we seem to be falling behind other States in terms of 
approvals. The next big step for us is to release the draft 
environmental assessment. Can you give us an indication when 
that environmental assessment will be completed?
    Mr. Beaudreau. Yes, Sir. You're absolutely correct about 
the work that the State of Rhode Island has done to promote the 
development of offshore energy. That work will feed and has fed 
directly into BOEM's process in evaluating the wind energy area 
in the shared area between Massachusetts and Rhode Island. What 
we call the area of mutual interest.
    One example is the Special Area Management Plan , which was 
a comprehensive environmental assessment that is relevant to 
our process under the National Environmental Policy Act in 
evaluating the area. That analysis and the good scientific work 
sponsored by the State of Rhode Island will feed directly into 
our environmental assessment, as will all of the work that the 
State task force has done.
    It helped us define what the potential conflicts might be, 
including the Cox's Ledge area which is a particular area of 
sensitivity both environmentally and for fishing interests.
    In light of all of that work, work already done by my 
agency, and work done by the State of Rhode Island, we 
anticipate issuing a draft of the environmental assessment this 
spring, late this spring.
    Senator Reed. One of the reasons I am being critical of 
getting the environmental assessment out, is that it looks like 
August of this year, 2012, is, the time where the final 
environmental assessment will be issued, which would put us 
back on track with some of the other States along the Atlantic 
coast.
    And if that's the case, would allow us to begin a leasing 
process at the end of the calendar year 2012, or early in 2013. 
Again, the fear is if we don't, we just fall behind, and that's 
not just a question of where the towers go in the water. It's 
also a question of the landside operations, where they might be 
situated.
    So I would urge you again to expedite--Secretary Salazar 
has committed to expedite this draft environmental assessment. 
And then with similar speed, finalize the environmental 
assessment so we can begin the leasing process.
    Mr. Beaudreau. Yes, Sir. This is absolutely a high priority 
for the Secretary and for my agency.

                            INSPECTION FEES

    Senator Reed. Let me just turn to Director Watson. And, I 
do anticipate a second round. Last year we included in, for 
BSEE, the inspection fee program. Can you tell us what 
improvements you're making with these fees? I think Director 
Abbey said it very well in terms of the proposed fees this 
year.
    It makes sense to basically help defray the cost of 
inspections and review to immediately rebound to the benefit of 
the drillers because they're the ones who presumably get 
quicker approvals, better inspections, better protection for 
the environment and less problems down the road.
    So can you comment, Director, about how you have been 
ensuring that these fees are being used well and wisely?
    Mr. Watson. Yes, Sir. The fees are focused on our safety 
program, primarily our field operations and our permitting 
operations.
    The expense of these operations is mostly in the cost of 
our work force. We're increasing the size of that work force at 
a pretty steep rate for a small agency. We have already 
increased the numbers of inspections--inspectors--by a 
significant number.
    We started at about 55, and I think we're up to 91 now. 
We're headed up to more than 100 and into about the 150 range 
that we're going to need for inspectors. And as you increase 
your number of inspections, you also need helicopters to get 
those inspectors offshore which are costly as well.
    And then, turning to the permit side, we are adding almost 
100 engineers. These are people who are plan reviewers for the 
information that's submitted to get a permit. And they are a 
combination of structural engineers, petroleum engineers, and 
some geophysicists and geologists to review those permitting 
applications.
    So we are still challenged to bring those people into the 
work force, but we have an aggressive outreach program. We did 
get some incentives for hiring these people in the fiscal year 
2012 appropriations which will be very valuable. And so, I'm 
optimistic about that program.
    Senator Reed. Just a quick--because my time has expired, 
the initial feedback from the industry is positive in terms of 
the more expeditious permitting process, the better sense of 
the professional skill of the inspections, is that what you're 
sensing?
    Mr. Watson. Well, my experience is the industry is looking 
at the bottom line, how quickly can they get a permit. But they 
are also focused on the competencies of our people. I haven't 
heard any disparaging remarks about our competencies.
    On the permitting side, I think there's been a combination 
of efforts by the industry to provide more comprehensive, 
better-prepared applications than say a year ago. And on the 
BSEE side, I think we're also better at doing these new safety 
standards, at reviewing them.
    And the numbers kind of bear this out. Just between last 
March and September, our average was about 97 days to get a 
permit processed. That was the average. And then between 
September and today, it's gone to 62 days. So it's right around 
2 months right now.
    And I think we can probably make some more improvements. 
But as I said in my opening statement, I'm not about the number 
of days it takes. I'm still about safety and environmental 
protection.
    Senator Reed. Thank you very much.
    Senator Murkowski.

                         OIL AND GAS PRODUCTION

    Senator Murkowski. Thank you, Mr. Chairman. Gentlemen, 
thank you for your testimony this morning.
    I want to try to better understand some statistics that are 
out there. Yesterday, the President released his, or he 
discussed the 1-year progress report on energy within the 
administration. He called it his blueprint for secure energy 
future.
    And in that report, he notes that oil production is up 
overall. That's a statement that has certainly been made. He 
doesn't disclose where that increased production comes from. 
Whether it's on Federal lands, private, or State.
    I mentioned in my opening comments, the Department of the 
Interior's own numbers would seem to indicate that onshore oil 
production is down 14 percent from last year, and offshore 
production down 17 percent. And yet, yesterday, when Secretary 
Salazar commented on the President's blueprint, he stated the 
fact of the matter is that we're producing more from public 
lands, both oil and gas, both onshore as well as offshore, than 
any time in recent memory.
    So I'm trying to understand our data here. Because I think 
that this is important. People really do want to understand 
what the situation here is in this country. So I guess we've 
got a situation where either the data from the Department of 
the Interior is wrong, or it has not been communicated 
adequately or appropriately to the Secretary.
    So the question that I have is, who's right here? When you 
peel this back, are we seeing an increased production on 
Federal lands and offshore as well, or not?
    Mr. Abbey. Well, let me take a stab at this, Senator 
Murkowski, and then others may contribute.
    But, no doubt, the statistics would show that the United 
States oil and gas production is up, and last year more oil was 
produced in this country than at any time since 2003, according 
to Dr.----
    Senator Murkowski. And do we, do we dissect that as just 
State, Federal----
    Mr. Abbey. I can.
    Senator Murkowski. Okay.
    Mr. Abbey. And, you know, no doubt the aggressive 
development of shale gas and shale oil has led to a shift to 
private lands in the East and to the South where there are 
fewer amounts of Federal mineral estate in those sections of 
the country.
    As far as natural gas, last year, there was more natural 
gas produced from BLM-managed mineral estate than in decades. 
Oil production was down somewhat last year. But we are moving 
forward again now offering up additional parcels for leasing. 
We're processing more applications for permits to drill than in 
the past several years.
    And so, we should see an increase in production of both oil 
on public lands as well as natural gas. But, again, natural gas 
production was up.
    Senator Murkowski. So it isn't accurate--Right. So, I'll 
grant you that. And I also recognize that--where that natural 
gas production is primarily coming from is on the State and the 
private side.
    But is it an accurate statement then to state that a 14-
percent decrease onshore from last year, and offshore, down 17 
percent for oil?
    Mr. Abbey. Well, again, the statistics will speak for 
itself.
    Senator Murkowski. But this is where the confusion is 
because the statistics are being used to suggest that there is 
this incredible increase in oil and gas production. But we all 
know that oil, you've got oil production, and you've got gas 
production, and we're seeing remarkable, remarkable 
opportunities with natural gas within our shale formations.
    And that's good. I support that absolutely. What I'm trying 
to understand is whether or not our oil production, offshore 
and onshore, is up or down?
    Mr. Abbey. The oil production from onshore, Federal 
minerals, was down last year from previous years. I will say 
this though. Where the industry decides to produce, or where 
they decide to develop, is up to them.
    For example, we have approved 7,000 applications for 
permits to drill that are not being drilled. We have more than 
25 million acres of lands that we've leased that are not being 
developed. So a decision is being made by the market.
    Senator Murkowski. I understand that. And I will, in 
probably my next round here, ask about some of those incentives 
or disincentives that we impose that kind of pushes, those that 
are in the exploration and production realm, to go from Federal 
lands to State lands.
    I want to ask very quickly, and this is to you, Director 
Abbey. I mentioned it to the Secretary last week, a couple 
different times. This relates to the Legacy Well situation in 
Alaska.

                              LEGACY WELLS

    For members of the subcommittee, it's somewhat an 
interesting situation. About 40 years ago, there was 
exploration by the Government, by the Navy primarily, in the 
National Petroleum Reserve, they drilled some 137 different 
wells, looking around, and, then moved on.
    The problem that we face is they moved on without properly 
abandoning and caring for those wells. Now, decades afterwards, 
we're having some of the casings collapse. We've got erosion 
issues coming in. And it's not only unsightly, but it's an 
environmental scar. And it's something that has been difficult 
for Alaskans to accept because on the one hand the standards 
for--the environmental standards are exceptionally high--and I 
think appropriately so.
    We want to make sure that we're taking care of the land 
there. But on the Federal Government's side, they can come in. 
They can explore. They can leave, and their environmental 
responsibility is not attended to.
    If you were on the private side, you would be fined--I 
think the fines that we're talking about could be in the realm 
of $40 million. The revenues that have been received from the 
National Petroleum Reserve-Alaska are certainly sufficient to 
help clean this up, but we're on track for cleaning up these at 
about the rate of 1 per year.
    It's going to take us another 135 years to clean it up 
which is certainly not acceptable. So I asked the Secretary, 
and I would ask you, Director Abbey, whether or not we can get 
a commitment to be coordinating between BLM and the Alaska Oil 
and Gas Conservation Commission to not only provide the 
Commission with an inventory of the exact number, the 
associated costs for plugging them, and then a plan.
    An action plan, so that we can have a reasonable level of 
assurance that we will move forward, that the Government will 
move forward, in keeping their commitment to Alaska and to the 
land up there.
    Mr. Abbey. My response would be similar to what the 
Secretary shared with you. We are committed to working with the 
State of Alaska to identify where the highest-priority needs 
are for cleanup.
    We have spent millions of dollars to date in cleaning up 
some of those legacy wells----
    Senator Murkowski. And they're expensive, we acknowledge, 
yes.
    Mr. Abbey [continuing]. Very much, very expensive. This 
year we are--we do have sufficient funds to clean up an 
additional three, but as you suggest, and I will admit, that's 
a pretty slow progress toward dealing with the challenge that 
we face.
    Senator Murkowski. Well, we need to be working on this 
together, so I appreciate that. Thank you, Mr. Chairman.
    Senator Reed. Thank you, Senator Murkowski. Senator Tester, 
please.

                         OIL AND GAS PRODUCTION

    Senator Tester. Yes, thank you, Mr. Chairman. And, once 
again, thank you all for being here.
    As I mentioned in my opening statement, the number of rigs 
operating in the United States this year is the highest number 
in probably 8 or 10 years. The United States has more rigs 
operating right now, and correct me if I'm wrong, than the rest 
of the world combined.
    Our domestic production is at an all-time high. And, you 
know, maybe the public lands is down some, and I want to get 
into that a little bit. But the fact is, if it's up on State 
and private, we got more rigs operating in the United States 
than the whole rest of the world combined.
    And I talked to a person from eastern Montana today where 
they've got a bunch of permits, and they can't get any rigs 
because they're all tied up. I don't know, you know, I just 
kind of want to get your perspective on all of this because 
there's about 32 million acres of Federal land that's leased 
right now.
    As you pointed out there, I think there's 7,000 
applications, permits to drill, that have been issued, and not 
drilled? Can you give me--give me some insight into why that 
is. Give me some insight into what you're seeing as trends on 
the Federal lands.
    Mr. Abbey. Well, Senator, I'd be happy to. Again, there's a 
lot of factors that come into play relative to a decision that 
would be made by the industry on where they choose to drill.
    As it relates to the number of applications for permits to 
drill, we issued 4,200 last year. That was more than the number 
that were submitted by the industry. We had a little backlog 
from the previous year, and we were able to address some of the 
backlog.
    But we issued 4,200 applications for permits to drill last 
year. At the end of the year, we had more than 7,000 that were 
not being drilled. As I mentioned, there are several factors 
for that. Sometimes, it's financing. Another factor that comes 
into play is that the industry themselves have chosen to drill 
elsewhere where it's more economical.
    But it is a choice that they have to make. It is a choice 
that they make every day. We are moving forward as 
expeditiously as possible to streamline our review processes 
without forsaking the need to insure safety as well as 
environmental diligence on the drilling operations.
    We're increasing our inspections for all drilling. But much 
of the easy plays are located right now on the private mineral 
estate.

                       WELL INTEGRITY INSPECTIONS

    Senator Tester. Okay. And this goes to, I think, Senator 
Murkowski's last question, or last point, and that is as we 
push to open up lands in a responsible way, not sacrificing one 
resource for another, we also have to consider things like the 
casing, how it's cemented in.
    And, quite frankly, I hope we're thinking about what 
happens when the wells usefulness is gone. I hope we're 
thinking about that upfront. So, can you give me some sort of 
idea on what the thought process is to make sure that this 
land's being leased responsibly, and that the development is 
being done in a responsible way so that we don't have a bunch 
of wrecks like Senator Murkowski was talking about?

                      ONSHORE OIL AND GAS LEASING

    Mr. Abbey. Well, let me start by saying that in 2009, when 
Secretary Salazar and I both came into our new positions, we 
inherited an onshore oil and gas program that was on the verge 
of collapse.
    And I say that because more than 50 percent--or close to 50 
percent of all the parcels that were being offered for lease by 
BLM were being protested or litigated. That's unacceptable. 
There were literally hundreds of leases that had been awarded 
by the Department of the Interior, specifically, BLM, tied up 
in protests and litigation.
    And so the millions of dollars that we had collected from 
the oil and gas companies for their leases that they purchased, 
were placed in suspense accounts until those protests and 
litigation could be resolved. Again, that was unacceptable.
    The rules that were in place to govern the oil and gas 
operations, and to ensure production verification of the oil 
and gas that was being extracted from these public assets, were 
more than 20 years old. Technology had advanced significantly 
in that 20-year period, but no one was paying attention to 
updating those rules.
    We had EPA and other fellow agencies criticizing the 
National Environmental Policy Act (NEPA) analysis that was 
being performed by BLM, primarily as it related to air quality 
documents.
    We had sportsmen, we had other public land stakeholders 
criticizing the leasing everywhere and anywhere mentality that 
was going on at the time, and certainly, very much a part of 
BLM culture.
    Because there were concerns about the environmental damage 
that was being--that was occurring as a result of not doing a 
very good job of looking at these lands before we committed 
those lands through leasing.
    So we took it upon ourselves not to ignore the challenge or 
the problems, but to address them. And one of the ways that we 
have been able to address them is to insure that there is a 
better opportunity to look at these lands prior to committing 
them through leasing.
    And we've done that through our leasing reforms. The 
primary purpose for our leasing reform is to make sure that the 
lands that we are going to be leasing, are the right ones to 
lease, and they have the greatest chance to be developed in a 
timely manner.
    Senator Tester. Did you say that 50 percent of the leases, 
when you took over, were being either litigated or protested? 
Is that what I heard you say in this answer?
    Mr. Abbey. Close to 50 percent----
    Senator Tester. So where are you at, now?
    Mr. Abbey [continuing]. Close to 50 percent of the parcels 
that we were offering were being protested or litigated.
    Senator Tester. Okay. And what----
    Mr. Abbey. At this point in time, it's around 35 percent.
    Senator Tester. Okay, okay. My time is up. We'll save some 
for the next round. Thank you, Mr. Chairman.
    Senator Reed. Thank you very much, Senator Tester. This is 
a very, I think, useful line of questioning. Just as Director 
Abbey points out, there are a significant number of leases that 
are capable of being drilled, but not being drilled. Those are 
the decisions of the private entrepreneurs, the companies, 
onshore.

                            OFFSHORE LEASING

    Offshore, Director Beaudreau, is that the same situation 
where you have a significant number of leases all ready, 
approved, and yet the drilling activities are not commencing?
    Mr. Beaudreau. Ah, yes, that's correct. There's a 
significant percentage of the leases that have been issued by 
the Interior Department offshore that are not currently subject 
to an exploration or development plan.
    And we've tried to develop, both through our leasing 
process and postleasing processes, to try to encourage prompt 
and diligent development of those leases to bring them into 
exploration, bring them into production.
    As Director Abbey indicated, there are a number of 
commercial factors that weigh into industry's decisions about 
when and where to drill. We're trying to line up our leasing 
process and our incentives to influence those decisions so that 
we can have prompt development.
    Senator Reed. Thank you.

                        ONSHORE INSPECTION FEES

    Director Abbey, in the President's budget, we've mentioned 
there's a request for additional inspection fees that will be 
comparable to the increases that we've provided to BSEE and the 
Director is using, Director Watson, for improving his program.
    Can you indicate how you can improve your program with 
these fees?
    Mr. Abbey. I'd be happy to. And, thank you for the 
question. As Senator Tester alluded to, it's important that if 
we are going to be leasing these parcels of public lands for 
oil and gas development, that we have sufficient inspections to 
insure that it's being done responsibly.
    You know, we--it is our goal to inspect drilling operations 
that are considered a high risk. And those high-risk operations 
are those with the most violations, but also those that are 
producing the most volumes of gas or oil.
    We test for blow-out preventer equipment, setting and 
cementing casings. We also test for plugging operations and 
well-completion operations. The additional monies that we would 
get from the inspection fee would provide sufficient funds to 
add another 46 inspectors to our work force that would again 
allow us another opportunity, or greater opportunity, to be 
onsite when the drilling is actually taking place.

                          HYDRAULIC FRACTURING

    Senator Reed. One of the other complicating aspects is the 
fact that the new technology, the fracking technology, has 
raised at least issues which are being evaluated by State 
authorities, by other agencies, and it's, I would think, 
something that you are looking at more closely now in terms of 
your inspection program; is that accurate?
    Mr. Abbey. It is. You know, fracking is not new by any 
means. About 90 percent of the wells that are being drilled 
today on public lands are using the fracturing technology.
    So our inspections have always included looking at the 
fracking operations as they were occurring. But again, the 
additional fees would provide us opportunities to be onsite 
more often than where we are right now.

                             ROYALTY RATES

    Senator Reed. The Secretary has also indicated recently his 
intention to raise the onshore royalty rate from 12.5 percent 
to 18.75 percent. Can you tell me how these rates, the present 
rate and the proposed rate, compare to State rates? Because 
State rates is probably the comparable point.
    Mr. Abbey. Well, it varies somewhat. Let me just suggest 
that our primary goal is to make sure that the American 
taxpayer is receiving a fair return for the assets that are 
being developed. That's the least that we can do.
    At the same time, as we go forward we have analyzed what 
some of the States--well, many of the States actually--are 
charging relative to royalty for production that are occurring 
within or around State lands.
    We've also done some analysis of what some of the other 
countries have--are charging relative to royalties or similar 
types of fees that are assessed oil and gas companies.
    Even though our budget was based upon an assumption that an 
increase of royalties would go to 18.75 percent for both oil 
and natural gas, let me just reassure the members of this 
subcommittee that that decision has not been reached.
    We're continuing to look at the full range of statistics 
that we have been able to compile, the analysis that we're 
continuing to perform, prior to making any decision to increase 
the royalties for oil and gas production on these public lands.

                     ONSHORE OIL AND GAS PRODUCTION

    Senator Reed. Well, thank you very much. And I know Senator 
Murkowski is going to get into this, and she's raised a very 
important question about the difference between production 
figures on private lands and public lands.
    And I think implicit in all your answers has been just that 
there are commercial reasons why even if the lease is 
available, it's not being utilized. Can you kind of list the 
three or four general, number of rigs? Is there an insufficient 
number of rigs?
    Mr. Abbey. Well, no doubt--Well, I don't have the figures. 
But I do know that the availability of rigs is an equation that 
comes into consideration by the companies relative to where 
they're going to be developing, or drilling.
    Let me just say right up front. It is quite--it is a lot 
cheaper to drill on private land than it is on public lands. 
All they have to do is cut a deal with the private landowner.
    When you come before BLM with a proposal to drill on public 
lands, there are a lot of factors that we evaluate. Again, we 
have to look at the appropriateness of leasing certain parcels 
for oil and gas development or any particular use. We have to 
adhere to NEPA. We have to adhere to consultation not only with 
Native Americans, but with the Fish and Wildlife Service to 
ensure that the proposals that are before us can be adequately 
mitigated.
    So there are an awful lot of rules and regulations that the 
companies would have to adhere to. But each of those rules and 
regulations are intended to make sure that the production goes 
forward to the degree that it can be allowed as appropriate.
    But also the leasing reforms that we have applied are to 
provide greater certainty to the industry themselves that if 
they lease a parcel of land, that they're going to be able to 
develop that parcel of land. And I can tell you in 2009 that 
was not the case.
    Senator Reed. Well, thank you. My time has expired. Senator 
Murkowski, please.

                         ONSHORE ROYALTY RATES

    Senator Murkowski. Well, thank you. And I'll follow on 
because you've given me a little bit of assurance by saying the 
decision has not been made on this issue of increasing the 
royalty rates onshore.
    You have stated, and rightly so, that it is more costly to 
develop on the public lands. And so, as we look to a royalty 
rate increase as has been suggested, that too then adds to that 
cost.
    And again, to my earlier point, I think it causes 
developers to look to develop on State and private lands before 
they would turn to our public lands. I do think it's important 
to recognize the study that was commissioned by the Department 
to look at the royalty rate structures on our Federal lands and 
compare them to other States, as you've noted, to other 
countries.
    There's a consensus coming out of the report that says that 
they--that a rate increase is not warranted. They compare 
Wyoming to other onshore areas and conclude that Wyoming's 
competitive edge is on shaky ground, and Alberta and British 
Columbia are aggressively seeking to attract investment by 
offering incentives for lower royalty rates that encourage 
development.
    So I really hope that the Department is looking very 
critically at your own analysis and working to insure again 
that we are not putting additional hurdles in place for 
development on Federal lands, additional costs on top of the 
costs that are already in place.
    So I am glad to hear you make the statement that it has not 
been--a conclusion has not been reached. Do you have any idea 
when you might make that determination, where you're going with 
that?
    Mr. Abbey. Well, Senator, we really don't--or least, I 
don't, at this point in time. I do know that we had 
conversations as recently as yesterday with the Office and 
Management and Budget regarding proposed rules as it relates to 
royalty increases.
    You know, Wyoming is doing quite well. You cited that in 
this study and said that they're losing their competitive edge.
    Senator Murkowski. Your study, not mine.
    Mr. Abbey. But nonetheless, there are a lot of factors that 
we have taken into consideration relative to what we will 
ultimately propose for any royalty rate increase.
    I will say this to you that the 12.5-percent royalty rate 
that's in place right now for both natural gas and oil has been 
in place for decades. And so, I do think it was prudent that we 
conducted this study. That we are doing the analysis to 
determine what is a fair return to the American taxpayer.

              OUTER CONTINENTAL SHELF INSPECTION PERSONNEL

    Senator Murkowski. Let me ask about the timeliness of where 
we are with OCS permitting. And I guess I'll bring you into the 
conversation, Director Watson.
    Can you tell us how the Department is doing with respect to 
hiring the additional personnel that you need to conduct the 
inspections and process the permits?
    As I mentioned in my statement, in the last Interior bill, 
we moved forward the new fees to help with this effort, provide 
additional authorities to not only increase the level of 
competition, but really to try to get additional funds for 
those personnel responsibilities.
    Where are we with that? I'm still hearing from folks that 
they feel that the agency is still understaffed, and that is 
causing what they consider to be ongoing delays. Where are we?
    Mr. Watson. We began with about 60 inspectors and a modest 
number of engineers that do the permitting. And we have a 
target that is based on where the industry is projected to go 
in terms of the number of applications that we would expect to 
get, plus all of the new standards that we've implemented and 
the workload that's required.
    And it comes out to you need about a total of 150 
inspectors, and you need about 230 engineers. And so, we are on 
a process of hiring inspectors and engineers. In the area of 
inspectors, we've gone up from about 60 last year to 91 this 
year.
    And on the engineers, we've added about 10 percent. So 
we're needing to add more engineers.
    Senator Murkowski. You've got a long ways to go.
    Mr. Watson. We do have a long way to go in engineers. But, 
as you know, the appropriation just came out in December. It 
was vital that we had some ability to incentivize those 
engineers to work for the U.S. Government instead of for the 
oil companies. They're paid very well by the oil companies 
especially when the price of oil is what it is today.
    So we are in the process of implementing that pay 
incentive. And we also are doing some aggressive outreach to 
connect with new graduates from the engineering schools. We're 
even working with the American Petroleum Institute and other 
industry organizations to assist us with those people that may 
want to work for the Government because of some of the benefits 
and perhaps some of the stability that we can provide that the 
industry typically doesn't.
    So I'm optimistic. It'll take a couple of years for us to 
reach our goal. But I think we will make a big stride this 
year.
    Senator Murkowski. Well, as you all know, the congressional 
intent was that part of these new fees be used to expand the 
capacity so that we could expedite the orderly development of 
offshore there.
    And I do appreciate the timelines and I also recognize that 
we just can't snap our fingers and have these folks in place. 
But I--you will be able to count on me to keep inquiring with 
you on a regular basis to see how we are doing, not only in 
getting the bodies in these positions, but again making sure 
that it's going towards the goal which is a more orderly and 
expedited processing for these OCS permits.
    So it's not only getting the bodies in, but making sure 
that we're seeing greater movement there. My time has expired, 
Mr. Chairman.
    Senator Reed. Thank you very much, Senator Murkowski. 
Senator Tester.
    Senator Tester. Yes, thank you, Mr. Chairman. I want to 
talk about fracking for a little bit.

                          HYDRAULIC FRACTURING

    A current complaint from the industry is there's too many 
cooks in the kitchen. The Department of Energy (DOE), United 
States Geological Survey (USGS), and the EPA are all in the 
process of studying fracking. I've heard that there's maybe as 
many as 10 agencies that are involved in the process.
    I think the budget gives $13 million to USGS. I think 
there's about $45 million for fracking research in total in the 
different budgets. Duplication is something that I'm always 
worried about. People doing the same work in different 
agencies, and we can get a little better bang for the buck.
    I just want to get your perspective on what's going on with 
the research effort. And is there coordination between agencies 
so that there isn't overlapping research.
    Mr. Abbey. Again, duplication is always a concern for all 
of us, I believe, as we go forward during these lean times. I'm 
aware of two studies that we are assisting with. We're not--
only with data.
    One study by EPA, and then a second study that's being 
conducted by the USGS within the Department of the Interior. 
Our participation, like I said, is fairly limited to providing 
statistics and data that they are then taking into account as 
part of their analysis.
    As it relates to BLM, we are proposing a new rule relative 
to fracking. The components of that rule are based upon three 
primary recommendations. It came to us from the DOE Task Force 
on Fracturing Technology.
    The three components that we're focused on are public 
disclosure of the chemicals that are being used on drilling 
operations on public lands. Many States have such disclosure 
policies in place right now, and we want to make sure that the 
standards that are going to apply to public lands, are similar 
to what's being applied on State lands.
    The second component of our proposed fracking rule will 
address well-bore integrity, to make sure that the casings that 
are being used during the drilling operation are secure. 
They're going to protect groundwater.
    And then the third component is water management, both 
looking at the source of the water that's being used because 
there's a significant amount of water that's used in fracking 
operations in most circumstances. And then, second, what occurs 
with the disposal of that wastewater after a fracking operation 
ceases.
    Making sure that the disposal is consistent with local and 
State law, not Federal law, but local and State law. So those 
are the three components that we've incorporated into our 
proposed rule. We anticipate releasing a draft rule pertaining 
to fracking as early as April.
    Senator Tester. I want to take it one more direction, and 
that is, when I talk to the industry, the industry says, 
fracking is going on so deep that it can't impact the potable 
water up above.
    When I talk to folks, other folks, they're saying that 
their water is being impacted by the fracking. I don't know 
which is the truth. USGS has estimated that some aquifers in 
the Bakken are losing about 1 to 2 feet per year due to 
increased energy production.
    I don't know why that is, if it's because of fracking or 
some other reason. But water's very, very important. And I just 
wondered, can you give me any idea if, number one, the aquifers 
in the Bakken are indeed losing that kind of--that they're 
being diminished by one to feet a year?
    And, second, why is that? And, third, is there something we 
can do about it?
    Mr. Abbey. Well, I would refer you to USGS for the answer 
to your specific question relative to what is causing that 
depletion. I do know that many fracking operations require an 
extensive amount of water. That water has to come from 
somewhere.
    And so energy companies are securing water rights wherever 
they're operating in order to have access to such water so that 
they can continue with the fracking operation. But I would also 
give acknowledgement to the industry for they understand the 
potential impact, and certainly the long-term impacts of 
continuing the operations that are currently taking place with 
the amount of water.
    And they're doing, or at least proposing to do, a better 
job of re-using water. And actually treating water onsite so it 
can be used there on additional or new fracking operations.
    Senator Tester. Well, it is a big issue. I mean, there was 
an amendment on the floor yesterday that I think failed because 
some people didn't want to encourage more fracking. The Bakken 
play is because we have the ability to frack. We're getting 
natural gas because we have the ability to frack. We like to 
see it done.
    But by the same token, 10 years from now, we don't want to 
look back and say, ``Oh, my God! What have we done?'' So I 
would hope that the research that's being done is being done in 
a coordinated fashion and very timely.

                              WELL CLOSURE

    I want to talk about well closure for BLM wells, for wells 
on BLM land. Could you compare the procedure to what happens on 
state or private lands in a State like Montana when it comes to 
well closure?
    Mr. Abbey. Well, again, we take plugging and abandonment 
quite seriously because it's the last time we actually have an 
opportunity to look down the hole before the cement is placed.
    And so, we give that one of the highest priorities as part 
of our inspection program--is that when there is going to be a 
well that's going to be closed and abandoned--that we have our 
inspectors out there almost 100 percent of the time to make 
sure that the process is completed based upon the engineering 
that had gone into that design and approval process.
    Senator Tester. Is that the--can you give me any idea--you 
may not have knowledge--what goes on the State or private lands 
as far as well closure?
    Mr. Abbey. I really don't. I do know that there should be 
some similarities, but some States do a better job of 
prioritizing inspections than others. I won't cite any examples 
relative to who does that better than others, but nonetheless, 
you know, we are responsible for managing these wells on 
Federal lands, and that's where our focus is right now.
    Senator Tester. All right. Thank you very much.
    Senator Reed. Thank you, Senator Tester. I have a few more 
questions and I will then obviously recognize my colleagues for 
their additional questions.

                        OFFSHORE LEASE AUCTIONS

    Mr. Beaudreau, I understand that you're going to use a new 
auction process format for offshore wind, alternate energy, 
unlike what you do for oil and gas in the gulf, for example.
    And it raises a question of why the different auction 
procedures, first question. Second, we've got to get that 
information out to potential applicants in a very expeditious 
way otherwise they might not be prepared when the auction 
occurs.
    And, frankly, they also, deserve the opportunity of, 
evaluating, and commenting on the procedures to insure that 
they are fair to all potential parties.
    So, could you comment on the reason for the new procedures 
and also commit to getting the proposal out quickly so that 
relevant parties can participate?
    Mr. Beaudreau. Yes, the reason for the new procedures is 
that, strictly speaking, offshore wind energy development is 
fundamentally different than oil and gas. You have a finite 
area that is being made available. You want to make sure that 
you get as much efficiency out of that area as possible.
    Unlike oil and gas where you purchase a parcel. You assume 
the risk for the parcel. You drill a well. If it's a dry well, 
you go someplace else. Here, we have a number of interested 
companies. We have a number of interests that we need to take 
into account in considering how to lease the finite area.
    That includes the efficiency of their project. The 
likelihood that this particular operator can actually bring a 
viable project online, and the best configuration of multiple 
projects within the limited area.
    And so that creates a little bit more complex process. That 
said, we are very actively evaluating alternatives for this 
leasing process with the idea of, while addressing those 
multiple factors that distinguish it from oil and gas, keeping 
it as simple as possible.
    And there's a number of reasons for that. We have gone 
through an extensive process to make this area available. We 
want to encourage the development of offshore wind, and so we 
want to keep our auction process as simple as possible, while 
at the same time, getting the area into the hands of operators 
who will be able to stand up real projects.
    With respect to the auction process and familiarity among 
operators with that process, you're absolutely right. That is 
essential. We put out a description, an auction format 
information request last fall, and had a comment period 
provided to operators and got a lot of useful feedback from 
operators about the different factors and alternatives we could 
employ in the auction format.
    And so we've been extensively engaged with operators 
through that process. And we are planning into the run-up to 
lease sales, coordination with operators, to make sure they 
understand exactly how a lease process will unfold, exactly 
what would be expected of them, because we want an efficient 
lease sale.
    And we want it to work, and we want it to work right out of 
the box.
    Senator Reed. Do you have an idea of when you will be 
prepared to sort of publish a final, or at least final for 
comment, proposal?
    Mr. Beaudreau. Yes. We've done all of the comment and so 
now we're working on finalizing what the auction format will 
be.
    You know, each auction will have to be tailored a little 
bit to the region, but we hope to have all of that in place for 
competitive leasing later this year.

                        OFFSHORE WIND INSPECTION

    Senator Reed. Very good. Now, assuming you've got turbines 
and transmission lines operating in the water, will BOEM 
employees conduct the on-site inspections? Or, will BSEE step 
in and take over?
    Mr. Beaudreau. Yes. So in the near term, part of what we're 
trying to do with the additional funding that we've received is 
hire structural engineers who can help us evaluate construction 
and operation plans which is a key component down the road to 
getting steel in the water.
    Eventually, when those operations are up, steel is in the 
water, BSEE will have a role in conducting safety inspections 
and compliance with respect to those operations.
    Senator Reed. Director Watson, you're collaborating right 
now for the hand off, I presume?
    Mr. Watson. Yes, Sir. The two Bureaus were just recently 
created, but we have a lot of inter-dependencies, and there's 
still evolution going on. I think right now our priority is 
with the oil and gas safety and establishing our environmental 
enforcement division.
    But we'll be ready when the time comes to take on the wind 
work.
    Senator Reed. Just a final question. You know, you don't 
have the same dangers that we saw with the oil rig exploding, 
et cetera, but you have the problems of hurricane damage, et 
cetera.
    Have we clearly set out the responsibility for the 
leaseholders in terms of their obligation to repair and to 
remediate? You know, there's no oil fund for this process, I 
presume.
    Mr. Beaudreau. No, that's right. And there are other 
mitigation factors around the impacts on avian resources, 
marine mammals. That is why we're doing these environmental 
analyses so we can develop mitigation measures and requirements 
to ensure that, one, the operations go up that can provide 
energy from renewable sources, but, two, we're managing the 
potential impacts.
    Senator Reed. Thank you very much. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. I want to add a 
couple more questions to the inquiry from Senator Tester on 
fracking.

                          HYDRAULIC FRACTURING

    One of the concerns that I'm hearing from folks is that the 
concern that these will be overlapping or duplicative 
regulations that are coming out of BLM on top of what they 
already face within the States.
    Can you speak to that as an issue? Give me some assurance 
there that we're not just adding on additional, Federal 
regulations, on top of what the States are doing, and how you 
will work to eliminate any such redundancy?
    Mr. Abbey. Again, as I mentioned earlier, there's going to 
be three components of our fracking rule: disclosure of 
chemicals, well-bore integrity, and water management.
    The similarities that exist would be in the disclosure of 
chemicals. Many States now are requiring----
    Senator Murkowski. Right.
    Mr. Abbey [continuing]. As part of fracking operations, for 
the companies to disclose what chemicals are being used as part 
of their operations.
    We will be requiring that, but we also hope----
    Senator Murkowski. Will that information be shared 
publicly, or will there be provisions that will allow for 
protecting any trade secrets that might exist?
    Mr. Abbey. The information would be available publicly 
unless there's some rationale and justification that the 
companies would provide us to keep that trade secret from being 
made public.
    Senator Murkowski. So that would be considered on a case-
by-case basis?
    Mr. Abbey. It would be considered on a case-by-case, and we 
have a process already in place to make that type of 
determination.
    Senator Murkowski. Okay. All right. Let me ask about 
onshore inspection fees.

                        ONSHORE INSPECTION FEES

    Currently, BLM collects more than $32 million for the 
processing of the APDs, and this fiscal year 2013 budget 
proposes new authority to collect an additional inspection fee 
that apparently totals $48 million.
    How did you establish these fees? Are they based on actual 
inspection costs? Where did they come from?
    Mr. Abbey. Basically, they are based on actual costs, or 
what our estimates of actual costs would be. The fee itself 
would be implemented in accordance with the number of wells 
that are on a particular lease.
    And, for example, if there's a lessee with a lot of wells 
on that particular lease, they would pay more inspection fees 
than a smaller operator would.
    Senator Murkowski. So, has there been any assessment on the 
impact to small businesses that may be on the Federal lands? 
When we're talking offshore, we don't worry about that because 
you don't have any very small operators there.
    But, has there been any kind of an assessment there that 
looks at what the impact may be on those smaller businesses?
    Mr. Abbey. We have done that analysis and that assessment 
and, you know, quite frankly though, the highest risk we have 
sometimes are with smaller operators. They just do not have the 
capital to do everything that's required to ensure 
environmental protections for the drilling that's occurring or 
the production that's occurring.
    So there's a necessity for us to get out there on the site 
to make sure that those operators are complying with all the 
laws and rules of governing their operations. So we can't 
ignore them. But we have taken into account--or taken into our 
analysis the economic effects or impacts to operators.
    Senator Murkowski. As you have done the analysis, have you 
looked at kind of the cumulative impact of these additional 
fees that we're talking about? You've got the existing APD 
fees. You're talking about new inspection fees, increasing 
royalty rates, perhaps.
    Are you concerned that what might result is lower bonus 
bids coming out, less production on Federal lands, which then 
results in less revenue to the Treasury? Has that been factored 
into the analysis as well?
    Mr. Abbey. It is. And we understand the cumulative effects 
on the industry itself based upon everything that we are doing 
to ensure environmentally responsible drilling on these lands.
    And to make sure that we're making appropriate parcels of 
public lands available for such extraction. Well, that is a 
factor that we've also taken into account as we review the 
royalty rate options before us.
    We are looking at the cumulative effects--that all the 
other actions that we're also taking have on the industry.
    Senator Murkowski. Okay. Got one more question, Mr. 
Chairman. This is it for me.

     BUREAU OF LAND MANAGEMENT/OFFICE OF SURFACE MANAGEMENT MERGER

    But, the Department yesterday had announced its analysis of 
this merger, the proposed merger between the OSM and BLM. It 
generated a fair amount of discussion and controversy within 
the Energy Committee when that was announced.
    I do appreciate what the Department of the Interior has 
done to avoid the violation of the statutory responsibilities 
under the Surface Mining Control and Reclamation Act, but the 
analysis, as I understand it, fails to quantify how this merger 
is actually going to generate any savings or efficiencies.
    And we had asked for an assessment of the costs and the 
benefits of the proposal. But, from what I can tell, the 
Department has failed to include any of that. I am of the mind 
that the Interior Department needs to go back and actually 
calculate whether the consolidation of administrative functions 
is really worth pursuing.
    I know that you have been involved in this probably more so 
than most others out there. What can you tell us about this new 
proposal versus what was originally laid out there, and about 
the fact that we haven't been able to demonstrate that we're 
going to see any cost savings here?
    Mr. Abbey. Well, again, I think the jury is out relative to 
how much cost savings there actually will be. But----
    Senator Murkowski. You do agree that it is's an important 
part of what this was all about?
    Mr. Abbey. It is. But we also believe that there will be 
efficiencies gained based upon the actions that the Secretary 
approved yesterday. And by that, and what you read, is that BLM 
will be providing administrative support to OSM.
    Where they were required to hire similar skills in 
positions that we already had in place right now, they would no 
longer need those type of positions because those services 
would be provided by the BLM.
    Some of the revenue collections functions would then be 
transferred to the Office of Natural Resource Revenue (ONRR). 
Again, gaining some efficiencies relative to the savings of 
positions. But the OSM would remain an independent entity 
within the Department of the Interior performing their mandated 
functions.
    All we are trying to achieve are some administrative 
efficiencies, some cost savings, and to allow the OSM to focus 
their limited dollars on the important work that they do 
perform on behalf of this Nation.
    Senator Murkowski. So, are you suggesting then that the 
cost benefit analysis will still be coming to us? That, in 
fact, there is an ongoing assessment in terms of what cost 
savings might be achieved that we might be able to learn that 
later?
    Mr. Abbey. No, that's not what I'm implying. Basically, 
what I'm saying is that we're going to learn how much 
efficiencies there are, or cost savings there are, as we go 
forward and implement the actions that were approved.
    Senator Murkowski. Well, I'm leaving here to go to another 
Appropriations subcommittee where I'm going to be inquiring 
with the Secretary of the Air Force about where they're going 
to achieve certain cost savings, and they're kind of going into 
the same thing.
    Well, we'll see if we get the cost savings that we're 
hoping for. My argument to them was, you made that argument to 
me in 2005 with the Base Realignment and Closure round. We 
didn't achieve the cost savings. Now, you're going back and 
you're doing the exact same thing.
    So count me a bit as a skeptic if we're waiting to see 
whether there's any efficiencies that are gained. I think you 
know that there's a lot of consternation about this specific 
merger. So I would hope that we would be focusing on how we see 
those savings, how we gain those efficiencies.
    Mr. Abbey. Again, I think that there will be some savings. 
I just could not give you the exact amount of savings at this 
point in time.
    There will be fewer people that would be employed. The 
systems would be consistent, or at least the systems that we 
would have in place in BLM, that would allow us to provide the 
support that OSM would require, are already in place. So it 
wouldn't require us to do much adjustment or to increase that 
type of capacity.
    And, again, we would be benchmarking against what OSM is 
currently doing and improving our own performance and 
operations within the BLM.
    Senator Murkowski. Mr. Chairman, thank you.
    Senator Reed. Thank you, Senator Murkowski.
    Senator Murkowski. And thank you, gentlemen, for your 
testimony.
    Senator Reed. Senator Tester.
    Senator Tester. Yes, thank you, Mr. Chairman. Just a very 
quick follow up on what Senator Murkowski was talking about.
    You said there were going to be fewer people. Is there 
duplication that will be eliminated?
    Mr. Abbey. There is. I mean, that's why there will be less 
people because there will be duplication eliminated.
    Senator Tester. Okay. And will there be a higher level of 
accountability at least for us in order to know who to look at 
it, where the buck stops?
    Mr. Abbey. Yeah. You have my telephone number relative to 
the support function----
    Senator Tester. Well, I mean, part of the problem that I 
find is when it comes to accountability, I'm not talking about 
your agency, necessarily, is that there is duplication in work 
being done. And when it comes to a problem, when it arises, 
that there's--well, too many cooks in the kitchen.
    So you can't nail anybody down. Would this, from your 
perspective, would this help with accountability?
    Mr. Abbey. I do. Again, there's a lot of opportunities for 
us to improve our performance.
    Senator Tester. Okay.
    Mr. Abbey. In these lean times that we're all in, we need 
to be looking at every opportunity that we have to improve our 
performance, to create the efficiencies that the American 
taxpayers are demanding, and to reduce costs, because there are 
no new dollars coming our way.
    Senator Tester. All right. Thank you. That was just brought 
up. I'm glad Senator Murkowski brought it up because I think 
ultimately in the end, I think money is important but for us, I 
think what's equally--well, it is equally important in my 
opinion is--if something goes upside down and there's more than 
one agency dealing with it, people slip through the cracks.

                    ONSHORE RENEWABLE ENERGY LEASES

    But that's not what I want to talk about. In your budget 
this year, $73 million was permitted to construct renewable 
energy projects on public lands. The agency has a goal of 
10,000 megawatts at the end of the year.
    The Department has recently sent out a request for 
information on proposing competitive leasing on public lands 
for renewable energy. It's a proposal similar to a bill that 
Senator Risch and I have, S. 1775, which directs the agency to 
pilot competitive leasing for renewable energy on public lands.
    BLM's request is a bit different, for information, it's a 
bit different? It does not include revenue sharing for states 
or communities or ecosystems which are most impacted by the 
development and has minimal sideboards for mitigation or 
avoidance of natural resource damage, and it doesn't return 
funding to streamline the process, as S. 1775 does.
    I believe it's because the BLM does not have the authority 
to do so today. I am optimistic to see the agency moving 
forward, but leasing is only a part of the equation. I would 
like to have you expand on how your agency plans to address the 
broader issue of impacts to communities, natural resources, if 
the permitting is expanded.
    Mr. Abbey. Well, first and foremost, we're quite intrigued 
by your legislation. Not only encouraging competitive process, 
but also, potentially, the return of some of the revenues back 
to mitigate for the impacts associated with such development.
    So we look forward to working with you, Senator, and others 
in this Congress to pass common sense legislation that would 
allow us to meet our common goals.
    As we go forward with greater emphasis on renewable energy 
development in using public lands to achieve that goal, we are 
quite confident that by calendar year 2013 we will have 
approved 11,000 megawatts of renewable energy generated from 
public lands.
    That would include wind, solar and geothermal, primarily. 
We are also moving forward expeditiously through our land use 
planning process and our NEPA process to actually designate--in 
the case of solar, solar energy development zones, where we 
would steer development, do our best to steer development to 
areas that have already been screened, analyzed, and cleared 
for such development.
    We would be proposing to do something similar for wind in 
the very, very near future, so that we could steer development 
to the best places where that development could go forward and 
actually achieve our mutual goal of diversifying the Nation's 
energy portfolio.
    At the same time, we understand that these are large-scale 
projects. They're large foot prints on these public lands. 
Therefore, we need to make sure that there is appropriate 
mitigation to offset the lands that are being dedicated for 
that particular type of use.
    We will work very closely with the communities. We are 
working very closely with all public land stakeholders, with 
the industry itself, as well as environmental groups, to come 
up with an appropriate mitigation for such a large-scale 
commercial development. And I think we're seeing some 
successes.

                         GEOTHERMAL DEVELOPMENT

    Senator Tester. That's good. I want to flesh out geothermal 
a little bit as long as you brought it up.
    Mr. Abbey. You bet.
    Senator Tester. I think it's an incredible opportunity to 
provide baseload power. It is very costly at this point in 
time.
    Senator Murkowski and I have a bill which would expand our 
knowledge about geothermal energy and its potential.
    Can you speak specifically, you touched on it, but 
specifically on your efforts to expand geothermal production 
and the barriers that you're facing at this point in time to 
deploying this technology?
    Mr. Abbey. Well, quite honestly, the footprint associated 
with geothermal is a lot less than with wind and solar. It also 
has probably the highest potential for future development than 
probably solar or wind as it relates to the amount of public 
lands that would be dedicated or made available for that type 
of particular use.
    We're very optimistic about the future of geothermal. You 
know, the prices are not necessarily competitive when you're 
looking or competing against coal and some of the other 
conventional energy sources at this point in time. But we do 
believe that geothermal will be a major part of our Nation's 
energy portfolio in the years to come.
    Senator Tester. Are you facing any barriers at this point 
in time other than money?
    Mr. Abbey. No, we're not.
    Senator Tester. Okay. Well, thank you, Mr. Chairman. I 
think a three-member committee with a three-member board, this 
works out pretty damn nice. So thank you all very much for your 
time.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Reed. Thank you, Senator Tester. I want to thank 
the witnesses for their excellent testimony and for your 
skillful leadership of your agencies. I also want to thank my 
colleagues for what I concur with Senator Tester was a very 
productive and very thoughtful hearing.
    There may be additional questions. I would ask all of my 
colleagues to submit them within 1 week, by March 21, and for 
you gentlemen to respond as quickly as possible to any written 
questions.
    [The following questions were not asked at the hearing, but 
were submitted to the Bureaus for response subsequent to the 
hearing:]

                 Questions Submitted to Robert V. Abbey
            Questions Submitted by Senator Dianne Feinstein

               NATIONAL ENVIRONMENTAL POLICY ACT REVIEWS

    Question. Bureau of Land Management (BLM) is now just completing 
work on the Solar Programmatic Environmental Impact Statement, which 
has been a 4-year effort to categorize Federal land into Solar Energy 
Zones (SEZs) where solar development is encouraged, areas off limits to 
solar development, and areas where solar development will be allowed 
only in situations where a variance is awarded.
    In theory, this process was supposed to identify zones of BLM land 
where solar development is appropriate and the permitting process can 
be done expeditiously.
    However, I am concerned that the benefits of this process are still 
unclear.
    First, I don't understand how it will expedite permitting. BLM has 
not conducted comprehensive field studies of the SEZs, so solar 
development proposed within the zones will still be subject to a multi-
year period of field studies, consultation with Fish and Wildlife 
Service (FWS), substantial species mitigation expenses, and likely 
another full EIS.
    Second, BLM has already permitting numerous projects in the only 
large zone in California, known as Riverside East, and experts suggest 
that the transmission capacity to this zone will be used up by the 
projects already permitted and further development in this area is 
unlikely.
    What incentives does BLM propose that will ensure that development 
of solar power on public lands in California is centered on these 
zones?
    Answer. The Supplement to the Draft Solar Programmatic Environment 
Impact Statement (EIS) describes in detail proposed incentives for 
developers to site new projects in SEZs--including greater certainty of 
applications being approved and shorter permitting times. This will be 
further refined in the final EIS.
    BLM has taken a number of important steps through the Supplement to 
the Draft Solar Programmatic EIS to facilitate future development in 
SEZs in a streamlined and standardized manner. Utility-scale solar 
energy development projects proposed in SEZs will be required to comply 
with National Environmental Policy Act (NEPA) and other applicable 
laws, including, but not limited to the Endangered Species Act and the 
National Historic Preservation Act, and applicable regulations and 
policies. Nonetheless, much of the environmental analysis completed for 
the Supplement to the Draft Solar Programmatic EIS will benefit future 
development in SEZs by minimizing the level of detailed analyses 
required for individual projects. In addition to this work, under the 
Supplement to the Draft Solar Programmatic EIS BLM is proposing to 
undertake a variety of additional activities that could help steer 
future utility-scale solar development to the SEZs. For example, these 
include faster and easier permitting in SEZs; improvement of mitigation 
processes; facilitation of the permitting of needed transmission to 
SEZs; encouragement of solar development on appropriate non-Federal 
lands; and economic incentives for development in SEZs. For further 
details please see the Supplement to the Draft Solar Programmatic EIS, 
section 2.2.2.2.3 incentives for Projects in SEZs at: http://
solareis.anl.gov/documents/sup/Supplement_to_the_Draft_Solar_PEIS.pdf.

                     WEST MOJAVE SOLAR ENERGY ZONE

    Question. The Conference Report to the fiscal year 2012 Interior, 
Environment, and related agencies appropriations bill states: ``. . . 
the Secretary is instructed to complete a report evaluating the 
possible Solar Energy Study Areas in the West Mojave that respect 
designated off-road vehicle routes and provide the report to the 
Committee on Appropriations within ninety days of enactment of this 
Act.''
    What is the status of this report?
    Answer. BLM's California State Office is currently reviewing a 
draft report that includes a summary of BLM's approach and progress in 
the evaluation of solar energy development in the West Mojave. This 
evaluation is part of the Desert Renewable Energy Conservation Plan 
(DRECP). BLM is evaluating off-highway vehicle (OHV) access and other 
recreational resources as part of the environmental analysis. 
Recreation and OHV specialists at the BLM State offices, districts, and 
field offices are involved in this analysis. Some of the alternatives 
will include potential energy development impacts to OHV Open areas and 
to designated trails in the West Mojave. BLM is aware of the importance 
of access to multiple-use areas on public lands and is working with its 
Federal, State, and local partners to maintain multiple uses within the 
DRECP planning area.
    When does BLM intend to create a SEZ in the West Mojave to 
encourage development in this area of lower ecological value?
    Answer. Planning and analysis of renewable energy development in 
the West Mojave is currently underway. Draft environmental documents 
are expected to be released for public review in mid-September 2012. 
The final documents are expected to be released in mid-March 2013, and 
BLM anticipates making a final decision on the plan in late May 2013.
    DRECP is the largest landscape planning effort in California, 
covering approximately 22.5 million acres of Federal and non-Federal 
land in the Mojave and Colorado (Sonoran) deserts of southern 
California. Solar, wind, and transmission development are all under 
consideration for the West Mojave in the DRECP. Alternatives will 
consider different configurations of development in the West Mojave on 
both Federal and non-Federal land. One possible outcome of the DRECP 
could be the designation of an additional SEZ in the West Mojave.

                          PRIORITY PERMITTING

    Question. When this administration took office in 2009, more than 
200 applications had been filed to develop renewable energy projects on 
BLM land in California, but no projects had been permitting, and only 
two were under formal NEPA review. Objectively speaking, the process 
for permitting was fundamentally broken.
    Over the past 3 years, this administration has fixed a broken 
system. BLM now creates a list of 8 to 12 ``priority projects'' each 
year on which to focus its work. The projects on this list propose to 
develop less environmentally sensitive lands in a manner less likely to 
end up in court, and have developers who have done the necessary work 
lining up transmission agreements, power purchase agreements and 
conducting field studies to be considered, for lack of a better term, 
``ready to go.''
    Bottom line: BLM has prioritized the permitting of the best 
projects, and it has been able to permit many good projects 
expeditiously as a result. The proof is in the pudding. Very few of the 
projects in California permitted through the priority list process have 
been challenged in Court. (Brightsource's Ivanpaw, arguably the most 
controversial project permitted by BLM, was one of the two projects 
already under formal NEPA review when Obama took office.)
    BLM is now just completing work on the Solar Programmatic 
Environmental Impact Statement, which attempts to categorize Federal 
land into SEZs where solar development is encouraged, areas off limits 
to solar development, and areas where solar development will be allows 
only in situations where a variance is awarded.
    How does BLM plan to integrate its highly successful ``priority 
projects'' approach to permitting with this new approach?
    Answer. Over the past 3 years, BLM has implemented a program to 
prioritize the processing of renewable energy applications. These 
priority lists were developed in collaboration with FWS, the National 
Park Service (NPS), and the Bureau of Indian Affairs with an emphasis 
on early consultation. The screening criteria for priority solar and 
wind projects, developed through BLM policy memoranda issued in 
February 2011, assisted in evaluating and screening these utility-scale 
projects on BLM-managed lands. The process of screening for projects is 
about focusing resources on the most-promising renewable-energy 
projects. One of the likely outcomes of the Supplement to the Draft 
Solar Programmatic EIS is that some SEZs would be established. Projects 
located within the SEZs would be given priority for processing, all 
other factors being equal, over projects outside these zones. However, 
even if SEZs are established, there will almost certainly be legitimate 
reasons for developing certain projects outside of these zones, and BLM 
will work to ensure that permitting timelines are reasonable for all 
meritorious projects. As described in the Supplement to the Draft Solar 
Programmatic EIS (Appendix A, Section A.2.1.1), BLM will develop and 
incorporate into its Solar Energy Program an adaptive management and 
monitoring plan to ensure that data and lessons learned about the 
impacts of solar energy projects will be collected, reviewed, and, as 
appropriate, incorporated into BLM's Solar Energy Program in the 
future.

                       DEPARTMENT OF DEFENSE LAND

    Question. A recent study by the Defense Department (DOD) found that 
four military bases in California could produce 7,000 MW of solar power 
on marginal base lands. The lands cannot be used for training and have 
little ecological value. However, some of these base lands were 
``withdrawn'' long ago. I understand that BLM and the Interior 
Department continue to assert that these lands should be returned to 
BLM management if they are developed for solar, even though these lands 
are often surrounded on all sides by the base. Realistically, I think 
Interior's position will prevent the DOD from opening its bases to 
solar development if it means giving up control of lands in the middle 
of military bases.
    Will BLM agree to work with the DOD to settle, within 3 months, its 
legal dispute with regard to management of withdrawn lands developed 
for solar energy?
    Answer. While the development of renewable energy on the public 
lands is a national priority, providing opportunities for renewable 
energy development on DOD lands (including BLM withdrawn lands), is 
also important. We have established a collaborative process with the 
DOD to address renewable energy development opportunities on BLM-
withdrawn land. The Department of the Interior (DOI) and DOD in April 
2011 formed an Interagency Land Use Coordinating Committee (ILUCC) to 
help facilitate that dialogue. The Committee is co-chaired by DOI 
Deputy Assistant Secretary Sylvia Baca and DOD Assistant Deputy Under 
Secretary John Conger. The ILUCC members include not only BLM, but also 
FWS, NPS, Office of the Solicitor, and the individual DOD services. 
Several subgroups have been formed under the ILUCC to address various 
areas of collaboration, including a subgroup that is focused on 
resolving authorities for the siting and permitting of renewable energy 
projects on BLM withdrawn lands.

    BUREAU OF LAND MANAGEMENT SOLAR SUPPLEMENTAL DRAFT PROGRAMMATIC 
                     ENVIRONMENTAL IMPACT STATEMENT

    Question. Director Abbey, last October BLM issued its Draft 
Supplemental Solar Programmatic Environmental Impact Statement (PEIS), 
which includes large amounts of ``variance'' lands outside the solar 
zones. It is my understanding that while applicants are strongly 
encouraged to pursue projects within the identified solar zones, BLM 
will consider permitting development in these ``variance'' areas. While 
some flexibility to consider lands beyond the zones may be necessary, I 
find it highly problematic that an estimated 50,000 acres of land that 
were donated or purchased with Land and Water Conservation Fund dollars 
have been included in the variance lands. Given that these lands were 
intended to be preserved in perpetuity, I do not believe they should be 
open for development. Can you tell me what is the process by which BLM 
will consider and grant permission for solar projects to be constructed 
on ``variance'' lands?
    Answer. The process for considering solar projects on ``variance'' 
lands has been delineated in the Supplement to the Draft Solar 
Programmatic EIS in detail. However, no final decision has been made. 
In addition, there might be market, technological, or site-specific 
factors that make a project appropriate in a non-SEZ area. BLM will 
consider variance applications on a case-by-case basis, based on 
environmental considerations; consultation with appropriate Federal, 
State, and local agencies, and tribes; and public outreach. If BLM 
determines a variance application to be appropriate for continued 
processing, BLM will require the applicant to comply with NEPA and all 
other applicable laws, regulations, and policies at the applicant's 
expense. Applicants applying for a variance must assume all risk 
associated with their application and understand that their financial 
commitments in connection with their applications will not be a 
determining factor in BLM's evaluation process.
    Why have donated and LWCF-acquired lands been included among the 
``variance'' lands and what steps are being taken to avoid their 
development?
    Answer. Comments received on the Supplement to the Draft Solar 
Programmatic EIS have requested that donated and LWCF-acquired lands be 
identified as exclusion areas for utility-scale solar energy 
development. BLM is currently considering this request. However, no 
decision has been made yet. We would be pleased to brief members of 
your staff if you so desire.
                                 ______
                                 
            Questions Submitted by Senator Mary L. Landrieu

    Question. Director Abbey, thank you as well for taking time to 
appear. While reading your testimony, I was most interested in what 
steps you take to increase the percentage of leased onshore lands which 
are currently producing. We have 38 million onshore acres leased, which 
is a slight decrease from the previous year, when 41 million acres were 
leased. On these 38 million acres, only 32 percent, by your estimate, 
are currently producing.
    What is the prime deterrent to production on Federal onshore lands? 
It certainly is not a shortage of companies able to do the work. In 
fact, production on private lands has increased drastically--enough to 
cover the 15 million barrel shortfall from 2010 to 2011. In your 
opinion, what is holding back the huge amount of companies who want to 
work onshore from doing so on Federal lands?
    Answer. The Bureau of Land Management (BLM) strives to achieve a 
balance between oil and gas production and protection of the 
environment. Facilitating the efficient, responsible development of 
domestic oil and gas resources is part of the administration's broad 
energy strategy that will protect consumers and help reduce our 
dependence on foreign oil. BLM is working on a variety of fronts to 
ensure that development is done efficiently and responsibly including:
  --implementing leasing reforms;
  --continuing leasing activities in the National Petroleum Reserve in 
        Alaska;
  --continuing to process drilling permits in a timely fashion; and
  --improving inspection, enforcement, and production accountability.
    Oil and gas drilling and development are market-driven activities, 
and the demand for leases is a function of market conditions. Market 
drivers include prevailing and anticipated oil and gas prices, bidder 
assessments of the quality of the resource base in a given area, the 
availability/proximity of necessary infrastructure, and the proximity 
of the lease to local, regional, and national markets and export hubs. 
The shale formations that currently have high industry interest for 
development, such as North Dakota's Bakken shale, Texas's Eagle Ford 
shale and the Marcellus and Utica shales of the Eastern United States, 
are primarily in areas with a high proportion of non-Federal land. 
These areas have seen increased development recently due to a favorable 
mix of the factors noted above. As drilling priorities shift due to 
changes in technology or markets, an operator may choose different 
areas for development. Further, BLM lands are primarily gas-prone. 
Recent national rig counts (by Baker Hughes) indicate that rigs 
drilling for gas are at an ``all-time low'' (by percentage) and the gas 
is selling at ``a record discount to crude.'' (Wall Street Journal, May 
14, 2012).
    Approximately 38 million acres of Federal land are currently leased 
for oil and gas development. Approximately 12 million acres are 
producing oil and gas, and active exploration is occurring on an 
additional 4 million acres. BLM has approved approximately 7,000 
drilling permits that are not being used by industry.
    Question. You mention that you plan to take steps to increase 
production on leased lands, and I see that one step would be a proposed 
$4 per-acre fee on nonproducing lands, which I do not support. Do you 
have any plans to increase regulatory clarity to make the process or 
permitting and oversight more straightforward? Do you plan to increase 
the minimum bids for onshore lands or shorten the time leases may be 
held without production?
    Answer. The purpose of the nonproducing lease fee is to encourage 
diligent development of leased parcels. The nonproducing lease fee will 
provide financial motivation to either put leases into production or 
relinquish the leases so they can be re-leased.
    As part of BLM's ongoing efforts to ensure efficient processing of 
oil and gas permit applications, BLM will implement new automated 
tracking systems expected to significantly reduce the review period for 
drilling permits and expedite the sale and processing of Federal oil 
and gas leases.
    The new system for drilling permits, which is expected to be fully 
online by May 2013, will track permit applications through the entire 
review process and quickly flag any missing or incomplete information. 
This will enable operators to communicate with the BLM more promptly to 
address deficiencies in their applications.
    To expedite the sale and processing of Federal oil and gas leases, 
BLM will launch a new National Oil and Gas Lease Sale System, which 
will streamline the phases of competitive oil and gas lease sales by 
electronically tracking BLM's leasing process from start to finish. 
This new system will replace numerous stand-alone systems and provide a 
consistent, easy-to-use electronic process for both the oil and gas 
industry and BLM employees. BLM estimates the National Lease Sale 
System will be ready to begin testing in a pilot State by December 
2012.
    The Mineral Leasing Act establishes the national minimum acceptable 
bid and the primary term of an oil and gas lease. The act provides the 
Secretary of the Interior with the authority to establish a higher 
national minimum bid amount. However, the act does not provide 
authority to the Secretary to modify the primary term of an oil and gas 
lease.
                                 ______
                                 
               Questions Submitted to Tommy P. Beaudreau
            Questions Submitted by Senator Mary L. Landrieu

    Question. Director Beaudreau, thank you also for taking time to 
appear before this hearing today. In your testimony, you mentioned the 
efforts that the Bureau of Energy Management (BOEM) is making to 
increase offshore production, in light of the President's stated desire 
to increase production. You mention that you aim to open 75 percent of 
technically recoverable assets to drilling, and that you have taken 
steps to increase the percentage of currently leased lands that are 
producing.
    I see that you have scheduled the final lease sale under this 5-
year plan and that you are already looking forward to the next 5-year 
plan, under which you aim to open 75 percent of technically recoverable 
assets. Since we currently produce on only 2 percent of the total land 
in the Outer Continental Shelf (OCS), what effect will this have on the 
amount of land being produced on--that is, is an increase to 75 percent 
of technically recoverable assets as large a step as the President has 
stated?
    Answer. The proposed Five-Year Oil and Gas Leasing Program for 2012 
to 2017 focuses on encouraging exploration and development where the 
oil is--and the Gulf of Mexico still has the greatest, by a large 
margin, untapped resource potential in the entire OCS. The Gulf of 
Mexico is the crown jewel of the OCS, and will remain so for the 
foreseeable future as developments in seismic and drilling technology 
have opened new resource frontiers in the gulf. The Gulf of Mexico, in 
particular the deepwater, already has several world class producing 
basins, and just in the past year there have been a number of 
significant new discoveries.
    The 75 percent represents the portion of BOEM's estimated total 
``undiscovered technically recoverable resources'' on the OCS that 
underlie areas being considered for oil and gas leasing in the proposed 
program. Our geological and geophysical data indicate that those 
resources are not evenly dispersed across the OCS and that a relatively 
small area may have very high concentrations of potentially recoverable 
resources.
    According to BOEM's findings, the Central Gulf of Mexico is 
estimated to hold more than 30 billion barrels of oil and 133.9 
trillion cubic feet of natural gas of undiscovered resources. This is 
nearly double the resource potential of even the Chukchi Sea. The 
Western Gulf of Mexico is just behind the Chukchi Sea with more than 12 
billion barrels of oil and nearly 80 trillion cubic feet of natural 
gas. BOEM derived the 75-percent figure from an evaluation of the 
undiscovered technically recoverable resources estimated in the 
proposed lease areas as a function of this total estimated amount.
    Question. You also mentioned the steps you have taken to increase 
production on the lands which are currently leased, including a 
proposed $4 per-acre fee on nonproducing leases, which I do not 
support--you have raised the minimum bid on deepwater acres, and you 
have shortened the time that a lease may be held without any production 
occurring. What has been your feedback from industry on these two 
steps? What effects do you believe that these steps will have?
    Answer. While BOEM implements these measures for offshore leases, 
we have continued to see robust industry interest in acquiring leases 
that include these underlying terms. The increased minimum bid and new 
lease terms were in place for Western Gulf of Mexico lease sale 218, 
held in December 2011. The bidding activity in that sale demonstrates 
that these changes are not having a detrimental impact on industry's 
interest in acquiring leases in the gulf.
    A $4 per-acre fee on nonproducing Federal leases would provide a 
financial incentive for oil and gas companies to either get their 
leases into production, or relinquish them so the tracts can be leased 
to and developed by new parties. In general, industry has not been 
supportive of the fee, citing concerns over delays that they argue are 
out of their control. However, the administration believes that this 
legislative proposal is important to encourage energy production on 
lands and waters leased for development. The $4 per-acre fee would only 
apply to new leases and would be adjusted for inflation annually. The 
minimum bid on deepwater acres encourages prompt development and 
production, and helps to ensure that the American public receives fair 
market value for these shared resources. BOEM plans to use the minimum 
bid as a way to limit the sale size, rather than arbitrarily adjusting 
the size of the sale. This allows the market to determine which tracts 
are leased. The minimum bid strategy used will be consistent with the 
goal of maximizing the economic value of OCS resources.
    As you mention, BOEM has taken several specific steps to provide 
incentives for diligent development and to encourage operators to bid 
on tracts that they are more likely to develop. These steps include:
      Increasing Rental Rates To Encourage Faster Exploration and 
        Development of Leases.--In the Gulf of Mexico, during the 
        initial term of a lease and before the commencement of royalty-
        bearing production, the lessee pays annual rentals which either 
        step-up by almost half after year 5--for leases in water 400 
        meters or deeper--or escalate each year after year 5--for 
        leases in less than 400 meters of water. The primary use of 
        step-up and escalating rentals is to encourage faster 
        exploration and development of leases, or earlier 
        relinquishment when exploration is unlikely to be undertaken by 
        the current lessee. Rental payments also serve to discourage 
        lessees from purchasing tracts they are unlikely to actually 
        develop, and they provide an incentive for the lessee to drill 
        the lease or to relinquish it, thereby giving other market 
        participants an opportunity to acquire these blocks. In March 
        2009, in addition to implementing escalating rental rates, BOEM 
        raised the base rental rates for years 1-5.
      Tiered Durational Terms To Incentivize Prompt Exploration and 
        Development.--Industry maintains that producing oil is a 
        lengthy process that takes years between the time a lease is 
        awarded and the time energy begins flowing from a well on that 
        lease site. In order to address this concern, BOEM implemented 
        tiered durational terms to incentivize prompt exploration and 
        development for leases in the Gulf of Mexico for certain water 
        depths (400-1,600 meters): a relatively short initial lease 
        followed by an additional period under the same lease terms if 
        the operator has already drilled a well. In addition, BOEM 
        maintains lease terms graduated by water depth in order to 
        account for technical differences in operating at various water 
        depths. Bureau of Safety and Environmental Enforcement also 
        recently informed lessees of a decision from the Department's 
        Office of Hearings and Appeals that reaffirms the requirement 
        that lessees demonstrate a commitment to produce oil or gas in 
        order to be eligible for lease expiration suspensions.
      Increased Minimum Bid.--In 2011, BOEM increased the minimum bid 
        for tracts in at least 400 meters of water in the Gulf of 
        Mexico to $100 per acre, up from $37.50, to help ensure that 
        taxpayers receive fair market value for offshore resources and 
        to provide leaseholders with additional impetus to invest in 
        leases that they are more likely to develop. Analysis of the 
        last 15 years of lease sales in the Gulf of Mexico showed that 
        deepwater leases that received high bids of less than $100 per 
        acre, adjusted for energy prices at the time of each sale, 
        experienced virtually no exploration and development drilling.
                                 ______
                                 
                  Questions Submitted to James Watson
            Questions Submitted by Senator Mary L. Landrieu

    Question. Thank you for making time today to appear before this 
hearing. I realize that you only assumed office on December 1, 2011, 
but I understand that you have already taken time to visit Port 
Fourchon, a vital supply and support hub for our offshore industry. I 
am hopeful that we will develop a close working relationship and that 
you will bring new and effective leadership to the Bureau of Safety and 
Environmental Enforcement (BSEE).
    Reading through you testimony, a few points caught my attention. 
First, you mention that the new standards for inspection are much more 
stringent, reflected in the fact that the timeline for permit approval 
is now longer and that you have hired more inspectors and engineers. I 
understand that these steps were taken to account for increased 
difficulty in permitting, but despite this, I continually hear from 
industry about the difficulty that they face not only in permit 
approval, but also the submission process which occurs prior to any 
technical review of a permit application.
     Would it make the permit submission process more streamlined if 
you were to hire more administrative personnel? I understand that 
already work is being shifted from district to district to alleviate 
excessive workload--could this be a function of understaffing on the 
administrative side of things?
    Answer. Permit reviews are addressed by engineers in the Bureau's 
district offices. BSEE is hiring and training new engineers to reduce 
review and approval time and improve upon the efficiencies that we have 
achieved over the past year. The variation in workload that we see 
among our district offices in the Gulf of Mexico region is a result of 
the geographic distribution of oil and gas activity in the Gulf of 
Mexico. The bulk of the activity in the gulf is occurring in the areas 
overseen by our New Orleans and Houma District offices. When 
appropriate, we shift certain high-priority permits from the New 
Orleans and Houma District offices to other offices that have the 
ability to provide assistance. Permit applications are submitted and 
reviewed electronically, so engineers in any district have access to 
all submitted applications. Administrative personnel are essential to 
operations in our regional and district offices, and provide vital 
support to our engineers who are educated and trained to review or 
approve permit applications.
    Question. I also hear that many of these submissions are being 
returned for resubmission 8 or 9 times--because of small grammatical 
errors or the use of footnotes. I understand that you have instituted a 
workshop for permitting, might it be helpful to these companies to have 
a workshop focused purely on the guidelines for submission, so that we 
may avoid these problems. Might it also be beneficial to rewrite the 
submission process so that permit applications are judged on their 
technical merits more heavily than their grammar?
    Answer. As you point out, BSEE has held permitting workshops for 
industry that were attended by more than 200 offshore industry 
personnel. In addition, the Bureau has also published an Application 
for Permit to Drill (APD) submission checklist for operators to provide 
clear guidance to operators about the requirements for submitting a 
complete APD. Because of these efforts, as well as industry's 
increasing familiarity with the new safety requirements instituted 
after the Deepwater Horizon event, permit review times have decreased 
significantly over the past year and the number of applications 
returned to applicants for being incomplete or incorrect has also 
declined. We return submittals to applicants for substantive reasons, 
not for grammatical errors. The Bureau will continue to work with 
industry to make the permit application and review process as clear and 
efficient as possible, while continuing to ensure that every 
application meets all safety requirements.
    Question. I also understand that you plan to update the Interim 
Drilling Safety rule to increase regulatory clarity, and that you are 
currently reviewing comments on the Safety and Environmental Management 
Systems II (SEMS II) rule to increase regulatory clarity and provide 
for a more streamlined, but still safe, process moving forward. What 
details can you give me about the changes you are making, and what 
affects you expect these changes to have?
    Answer. The Final Drilling Safety Rule will respond to the comments 
received on the Interim Final Rule and is expected to be published in 
the Federal Register in the near term. These changes will provide a 
considerable amount of clarification and simplification of the 
regulations featured in the Interim Drilling Safety rule.
    The SEMS II Proposed Rule proposes to expand, revise, and add 
several new requirements necessary to ensuring industry uses robust 
SEMS programs and to facilitate oversight. The comment period for the 
SEMS II Proposed Rule closed on November 14, 2011, and BSEE is 
currently reviewing the comments.
    Question. I know that your agency, as well as the others testifying 
today, is actively involved in developing and implementing a long-term 
restoration plan for the Gulf of Mexico. I am sure you are aware that 
the Mabus report on America's gulf coast highlighted the need for 
developing quantifiable performance measures to track progress in the 
Gulf of Mexico recovery efforts, including an assessment of baseline 
environmental conditions. The subsequent Gulf Coast Ecosystem 
Restoration Task Force report echoed these recommendations and further 
noted the need for a robust data collection regimen. In light of the 
budget pressures facing your agency, how does the fiscal year 2013 
budget support these important baseline environmental data collection 
activities? Are you considering more cost-effective, technologically 
advanced data collection systems, such as unmanned, persistent 
propulsion marine robotic vehicles?
    Answer. Baseline environmental data collection responsibilities 
fall under the Bureau of Ocean Energy Management's (BOEM) Office of 
Environmental Programs, and are not BSEE functions. The environmental 
program under BSEE focuses on environmental compliance and enforcement 
efforts and relies upon BOEM for necessary environmental analyses.
    BOEM's fiscal year 2013 budget request for environmental 
assessments includes an increase of $700,000 to support environmental 
data collection for baseline information on species, habitats, and 
ecosystems. These studies and other scientific information form the 
basis of environmental assessments and environmental impact statements 
required under the National Environmental Policy Act prior to 
development. This increase in funding will enable BOEM to initiate one 
or two new high-priority baseline characterization and monitoring 
studies. These studies will expand the scientific basis for informed 
and environmentally responsible policy decisions at BOEM and the 
enforcement of environmental regulations by BSEE.
    With respect to advanced data collection systems, BOEM has 
historically used the best-available technology in its studies and will 
consider emerging technologies when looking at future analyses.
    Question. The Interior Department administratively issued new 
guidance for removal of idle iron--unilaterally changing previous 
regulations for the decommissioning of offshore platforms and wells. 
Would the Department of the Interior support amending the new idle iron 
guidance to either allow for structures to be reefed in place or 
provided an extension of time to remove structure that will eventually 
be placed in the Rigs-to-Reefs program?
    Answer. The regulations regarding decommissioning facilities and 
wells (subpart Q of 30 CFR 250) have remained the same since October 
30, 2002. The Notice to Lessees and Operators (NTL) No. 2010-G05 was 
issued on September 15, 2010 to clarify the decommissioning 
regulations, provide clearer definitions, and allow operators to submit 
plans for the use of wells and structures that are potentially no 
longer useful for lease operations. BSEE is currently reviewing plans 
on a case-by-case basis and working with operators on schedules for 
decommissioning and future use of wells and structures.
    BSEE supports the reuse of obsolete oil and gas facilities. About 
12 percent of all platforms decommissioned annually in the Gulf of 
Mexico are used as artificial reefs through State-sponsored programs. 
The NTL 2010-G05 does not prevent an operator from reusing a structure. 
A proposal to reuse a facility as a reef is a complex multi-step 
process that must comply with several State and Federal regulations as 
well as engineering and environmental reviews. Consequently, not all 
structures are good candidates for artificial reefs. The Bureau's 
policy was developed in accordance with its mission and allows for 
sound adaptive management. We are in close communication with the State 
artificial reef coordinators, industry, and our Federal partners to 
ensure that the reuse of obsolete oil and gas facilities remains a 
viable alternative in the decommissioning process.
    Question. It is my understanding that the Federal Fishery 
Rebuilding Plan for Gulf Red Snapper is based on the critical marine 
habitat provided by older oil and gas structures in the Gulf of Mexico. 
Has the Interior Department discussed or coordinated with the National 
Oceanic and Atmospheric Administration (NOAA) or the National Marine 
Fisheries Service (NMFS) on the potential devastating impacts to marine 
life from its idle iron directive?
    Answer. The Department of the Interior, through BSEE, has 
coordinated, and will continue to coordinate with NOAA's NMFS on the 
decommissioning program and the possible impacts on marine life. The 
Department, in coordination with NMFS and Louisiana State University's 
Coastal Marine Institute, has also funded numerous studies regarding 
the habitat provided by Outer Continental Shelf facilities and the 
potential impact of decommissioning facilities on fisheries.

                          SUBCOMMITTEE RECESS

    Senator Reed. If there are any of my colleagues that wish 
to have statements submitted for the record, they will be 
accepted for the record without objection.
    And with that, again, let me thank you, and conclude the 
hearing.
    [Whereupon, at 11:04 a.m., Wednesday, March 14, the hearing 
was concluded, and the subcommittee recessed, to reconvene 
subject to the call of the Chair.]
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