[Congressional Record Volume 144, Number 151 (Wednesday, October 21, 1998)]
[Senate]
[Pages S12902-S12903]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              CONGRESSIONAL BUDGET OFFICE REPORT--S. 2500

 Mr. MURKOWSKI. Mr. President, I ask that the following report 
by the Congressional Budget Office on S. 2500 by printed in the 
Congressional Record for the information of all Members.
  The report follows:

                                                    U.S. Congress,


                                  Congressional Budget Office,

                                 Washington, DC, October 14, 1998.
     Hon. Frank H. Murkowski,
     Chairman, Committee on Energy and Natural Resources, U.S. 
         Senate, Washington, DC.
       Dear Mr. Chairman: The Congressional Budget Office has 
     prepared the enclosed cost estimate for S. 2500, a bill to 
     protect the sanctity of contracts and leases entered into by 
     surface patent holders with respect to coalbed methane gas.
       If you wish further details on this estimate, we will be 
     pleased to provide them. The CBO staff contact is Victoria V. 
     Heid.
           Sincerely,
                                                  June E. O'Neill,
                                                         Director.
       Enclosure.


               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

     S. 2500--A bill to protect the sanctity of contracts and 
         leases entered into by surface patent holders with 
         respect to coalbed methane gas
       CBO estimates that enacting S. 2500 would have no 
     significant impact on the federal budget in the next five 
     years, although it is possible that the legislation could 
     result in a loss of offsetting receipts. Because the bill 
     could affect direct spending, pay-as-you-go procedures would 
     apply. S. 2500 contains no intergovernmental or private-
     sector mandates as defined in the Unfunded Mandates Reform 
     Act and would impose no costs on state, local, or tribal 
     governments.
       In many parts of the west, ownership of the subsurface 
     estate is split: the coal estate, oil and gas estate, and 
     hardrock mineral estate may all be separately owned. Until 
     recently, current law has been interpreted to associate 
     coalbed methane (CBM) with the oil and gas estate. Thus, 
     royalties from CBM production are paid to the owner of the 
     oil and gas estate.
       On July 20, 1998, the 10th U.S. Circuit Court of Appeals 
     ruled that CBM is associated with the coal estate rather than 
     the oil and gas estate. If upheld, this ruling would mean 
     that where the coal estate and the oil

[[Page S12903]]

     and gas estate are owned by different parties. CBM royalties 
     now being paid to the owner of the oil and gas estate would 
     instead be due to the owner of the coal estate. Where the 
     federal government owns the coal estate but not the oil and 
     gas estate, the federal government could begin collecting CBM 
     royalties; where the government owns the oil and gas estate 
     but not the coal estate, the government might have to cease 
     collecting CBM royalties. According to the Department of the 
     Interior (DOI), the former of these two cases would be common 
     and the latter case would be rare. But because the ruling by 
     the 10th Circuit Court could be appealed to the U.S. Supreme 
     Court or could be contradicted by a ruling in a different 
     circuit court of appeals, DOI will not consider collecting 
     such CBM royalties until the interpretation of current law is 
     clear.
       S. 2500 would provide that, for any lease in effect on or 
     before enactment of the bill that allows for CBM production 
     and where the federal government retains ownership of the 
     coal estate, existing lessees would continue to pay CBM 
     royalties to nonfederal owner of the oil and gas estate.
       For purposes of this estimate, CBO assumes that, in the 
     absence of the bill, the current situation will continue for 
     the foreseeable future--that is, the federal government will 
     not collect CBM royalties on existing leases when it owns 
     only the coal estate. Therefore, we estimate that enacting S. 
     2500 would not affect offsetting receipts from mineral 
     production and any associated payments to states over the 
     next five years. Another outcome is possible, however. If the 
     ruling of the 10th U.S. Circuit Court of Appeals is 
     subsequently upheld, enacting the bill could result in a loss 
     of offsetting receipts that the federal government would 
     otherwise collect for certain CBM production. CBO has little 
     information about the size of the potential losses, but they 
     could be less than $1 million or as much as several million 
     dollars a year.
       The CBO staff contact is Victoria V. Heid. This estimate 
     was approved by Robert A. Sunshine, Deputy Assistant Director 
     for Budget Analysis.

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