Minerals Management: Costs for Onshore Minerals Leasing Programs in Three
States (Letter Report, 02/27/97, GAO/RCED-97-31).

Pursuant to a congressional request, GAO reviewed whether the costs
borne by Wyoming, New Mexico, and California for managing federal
minerals were comparable to these states' own programs, focusing on: (1)
how much the three states paid to the federal government for managing
minerals on federal lands within their boundaries; (2) the costs to the
three states for their own minerals management programs; (3) a
comparison of these federal and state program costs; and (4) the
activities that are associated with the federal and state programs.

GAO found that: (1) in fiscal year (FY) 1996, Wyoming, New Mexico, and
California received almost $358 million in revenues from federal onshore
leasable minerals and they will pay almost $14.6 million in FY 1997 for
a portion of the federal government's FY 1996 onshore mineral leasing
program; (2) Wyoming's share of the $14.6 million is $7.02 million, New
Mexico's is $5.94 million, and California's is $1.65 million; (3) these
amounts were computed on the basis of allocations of the federal
appropriations for all activities conducted by the Forest Service, the
Bureau of Land Management, and the Minerals Management Service related
to managing federal onshore leasable minerals; (4) onshore mineral
development on Wyoming's, New Mexico's, and California's state-owned
land generated combined royalties, rents, and bonuses of $148 million in
FY 1996; (5) the states' combined costs for managing onshore mineral
development, which includes development on state and private lands,
totalled about $19 million; (6) specifically, the costs for Wyoming's
minerals management program were $2.4 million in FY 1996, while New
Mexico's were $7.2 million and California's costs were $9.9 million; (7)
because of differences between federal and state programs, the states'
costs for these programs cannot be meaningfully compared; (8) federal
decisions about mineral leasing must involve land-use planning and
environmental analysis; (9) the three states GAO reviewed do not have
similar land-use planning processes; (10) furthermore, neither Wyoming
nor New Mexico requires an environmental analysis similar to that
performed by the federal government; (11) according to California State
Lands Commission officials, California laws require an environmental
analysis and the protection of state lands; (12) other differences are
state-specific and can be attributed to a program's size and regulatory
scope and number of mineral operations managed; and (13) for example,
California's oil and gas conservation agency devotes about 95 percent of
its resources to managing mineral development on privately owned land
and other lands not owned by the state or federal government.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-97-31
     TITLE:  Minerals Management: Costs for Onshore Minerals Leasing 
             Programs in Three States
      DATE:  02/27/97
   SUBJECT:  Land management
             Mineral leases
             Mineral resources
             State programs
             Budget receipts
             Administrative costs
             Planning
             Environment evaluation
             State law
             Mineral bearing lands
IDENTIFIER:  Federal Onshore Minerals Leasing Program
             California
             New Mexico
             Wyoming
             
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Cover
================================================================ COVER


Report to the Honorable
Craig Thomas, U.S.  Senate

February 1997

MINERALS MANAGEMENT - COSTS FOR
ONSHORE MINERALS LEASING PROGRAMS
IN THREE STATES

GAO/RCED-97-31

Onshore Minerals Leasing Programs

(140002)


Abbreviations
=============================================================== ABBREV

  BLM - Bureau of Land Management
  EPA - Environmental Protection Agency
  FOGRMA - Federal Oil and Gas Royalty Management Act of 1982
  GAO - General Accounting Office
  MLA - Mineral Leasing Act
  MMS - Minerals Management Service
  NEPA - National Environmental Policy Act of 1968
  OBRA - Omnibus Budget Reconciliation Act of 1993
  ONGARD - Oil and Natural Gas Administration and Revenue Database
  RMP - Royalty Management Program

Letter
=============================================================== LETTER


B-275497

February 27, 1997

The Honorable Craig Thomas
United States Senate

Dear Senator Thomas: 

The development of federal onshore leasable minerals nationwide in
fiscal year 1996 generated about $963 million, of which states
received about half, or $481 million.\1 The federal government's
appropriations for administering its onshore leasable minerals
program in that same year were almost $114 million.  States will pay
the federal government about $22 million of this amount.  The key
agencies responsible for onshore mineral leasing are the Department
of the Interior's Bureau of Land Management (BLM) and Minerals
Management Service (MMS), and the Department of Agriculture's Forest
Service. 

Concerned about whether the costs borne by Wyoming, New Mexico, and
California for managing federal minerals were comparable to these
states' own programs, you asked us to (1) identify how much the three
states paid to the federal government for managing minerals on
federal lands within their boundaries, (2) identify the costs to the
three states for their own minerals management programs, and (3)
compare these federal and state program costs.  This report also
discusses the activities that are associated with the federal and
state programs. 


--------------------
\1 The $963 million is the portion of onshore leasable minerals
revenue that is sharable with the states.  Leasable minerals include
oil and gas, coal, geothermal steam, sodium, trona, and potash. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

In fiscal year 1996, Wyoming, New Mexico, and California received
almost $358 million in revenues from federal onshore leasable
minerals; they will pay almost $14.6 million in fiscal year 1997 for
a portion of the federal government's fiscal year 1996 onshore
mineral leasing program.  Wyoming's share of the $14.6 million is
$7.02 million, New Mexico's is $5.94 million, and California's is
$1.65 million.  These amounts were computed on the basis of
allocations of the federal appropriations for all activities
conducted by the Forest Service, the Bureau of Land Management, and
the Minerals Management Service related to managing federal onshore
leasable minerals. 

Onshore mineral development on Wyoming's, New Mexico's, and
California's state-owned land generated combined royalties, rents,
and bonuses of $148 million in fiscal year 1996.\2 \,\3

The states' combined costs for managing onshore mineral
development--which includes development on state and private
lands--totaled about $19 million.  Specifically, the costs for
Wyoming's minerals management program were $2.4 million in fiscal
year 1996, while New Mexico's were $7.2 million and California's
costs were $9.9 million. 

Because of differences between federal and state programs, the
states' costs for these programs cannot be meaningfully compared. 
Federal decisions about mineral leasing must involve land-use
planning and environmental analysis.  The three states we reviewed do
not have similar land-use planning processes.  Furthermore, neither
Wyoming nor New Mexico requires an environmental analysis similar to
that performed by the federal government.  According to California
State Lands Commission officials, California laws require an
environmental analysis and the protection of state lands.  Other
differences are state-specific and can be attributed to a program's
size and regulatory scope and number of mineral operations managed. 
For example, California's oil and gas conservation agency devotes
about 95 percent of its resources to managing mineral development on
privately owned land and other lands not owned by the state or
federal government.\4


--------------------
\2 The federal fiscal year is from October through September, and the
fiscal year for each of the three states is from July through June. 
However, because each covers a period of 12 months, we consider them
equivalent in this report. 

\3 In addition, Wyoming and New Mexico collected $206 million and
$313 million, respectively, in severance taxes from mineral
production on federal, state, and privately owned land within their
boundaries in fiscal year 1996. 

\4 California's Division of Oil, Gas, and Geothermal Resources
regulates some aspects of the net-profit-sharing operations on lands
granted to the City of Long Beach. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Under the Mineral Leasing Act (30 U.S.C.  181 et seq., as amended)
(MLA), revenues for federal onshore minerals, which include bonuses,
rents, and royalties,\5 are distributed as follows:  50 percent to
the state in which the production occurred, 10 percent to the general
treasury, and 40 percent to the reclamation fund. The
reclamation fund is used for the construction of irrigation projects
under the \7 Lands leased under other laws have different
distribution requirements.  In fiscal year 1996, 41 states received a
total of about $481 million in revenues from the development of
federal onshore minerals.  Wyoming, New Mexico, and California
received about $206 million, $124 million, and $28 million,
respectively. 

Wyoming, New Mexico, and California also manage mineral development
on private and state-owned lands.  In these states, revenues from
state-owned land are used to fund public educational institutions. 
Wyoming's bonus, rental, and royalty revenues from minerals on
state-owned land in fiscal year 1996 were $29 million.  In New
Mexico, these revenues from minerals on state land were $115 million. 
California's revenues from state-owned minerals onshore were $3
million. 

In 1991, with the passage of the Department of the Interior's
appropriation bill, states receiving revenues from federal onshore
minerals began paying a portion of the costs to administer the
onshore minerals leasing laws--a practice known as "net receipts
sharing." Net receipts sharing became permanent with the passage of
the Omnibus Budget Reconciliation Act of 1993 (OBRA), which
effectively requires that the federal government recover from the
states about 25 percent of the prior year's federal appropriations
allocated to minerals leasing activities.  (See app.  I for a
detailed description of net receipts sharing.)

In general, managing federal and state minerals includes some level
of resource planning and use authorization, compliance inspections,
revenue collection, and auditing.  Resource planning may include
identifying areas with a potential for mineral resources; planning
for future mineral development and how that development will affect
other resources on the land (such as recreation, livestock grazing,
and wildlife); and geophysical exploration by potential lessees.  Use
authorization includes lease issuance and the approval of
post-leasing activities--including the drilling of oil and gas wells
and the extraction of other mineral resources--and such associated
activities as the construction of roads, facilities, pipelines,
storage tanks, and modifications to operations.  Once approved and
under way, these operations may be inspected periodically to
determine whether they comply with applicable laws, regulations, and
lease terms.  The revenues from mineral leasing and information about
production are collected and may be audited. 


--------------------
\5 On federal land, lessees pay bonuses to acquire tracts of land for
lease.  For nonproducing lands, lessees pay a rental of $1.50 to $2
per acre.  For producing leases, lessees or lease operators pay
royalties on the basis of a percentage of the value of the minerals
produced.  Reclamation Act of 1902. 

\7 Under MLA, Alaska receives 90 percent of receipts and the
remaining 10 percent is paid to the general treasury. 


   STATES' COSTS FOR FEDERAL
   MINERALS MANAGEMENT ACTIVITIES
------------------------------------------------------------ Letter :3

The federal government allocated $14.6 million of its appropriations
for minerals management to Wyoming, New Mexico, and California for
fiscal year 1996.  This amount, which will be deducted from the
states' 1997 revenue payments, was computed on the basis of
allocations of the appropriations for all onshore leasable minerals
management activities conducted by the Forest Service, BLM, and
MMS--the three key agencies responsible for administering the federal
onshore minerals leasing laws.  Table 1 shows the fiscal year 1996
net receipts-sharing deductions for Wyoming, New Mexico, and
California and the portions attributable to the Forest Service, BLM,
and MMS. 



                                Table 1
                
                  Net Receipts-Sharing Deductions for
                 Wyoming, New Mexico, and California by
                    Federal Agency, Fiscal Year 1996

                         (Dollars in millions)

                            Forest
State                      Service         BLM         MMS     Total\a
----------------------  ----------  ----------  ----------  ----------
Wyoming                      $0.14       $4.87       $2.01       $7.02
New Mexico                    0.06        3.27        2.61        5.94
California                    0.11        1.01        0.54        1.65
----------------------------------------------------------------------
\a Totals may not add because of rounding. 

The Forest Service manages mineral uses occurring in national
forests, which includes determining whether forest areas are suitable
for leasing, participating with BLM in making leasing decisions for
forest land, and managing mineral operations on forest land.  These
activities are required under several federal laws, including (1) the
National Forest Management Act of 1976, which prescribes forest
planning processes; (2) the National Environmental Policy Act of 1969
(NEPA), which requires environmental analysis and documentation; and
(3) the Federal Onshore Oil and Gas Leasing Reform Act of 1987, which
authorized the Secretary of Agriculture to determine which Forest
Service lands could be leased for mineral development and to specify
the conditions placed on mineral leases. 

Likewise, BLM manages surface uses and makes leasing decisions on
BLM-managed land.  BLM also issues leases and manages operations for
oil, gas, coal, and other minerals (1) on lands with split ownership,
namely where the minerals are federally owned but the surface is not,
and (2) on certain lands managed by other federal agencies.\8 BLM is
also responsible for performing inspections to verify the quantity of
minerals produced on federal leases.  In addition to MLA, major
federal laws governing BLM's management of onshore minerals include
(1) the Federal Land Policy Management Act of 1976, which gave BLM
general management responsibilities for public land, endorsed
multiple-use management, and prescribed a planning process similar to
the Forest Service's; (2) NEPA; (3) the Federal Onshore Oil and Gas
Leasing Reform Act; (4) the Federal Coal Leasing Amendments Act of
1976; and (5) the Federal Oil and Gas Royalty Management Act of 1982
(FOGRMA), which was enacted to ensure that the Secretary of the
Interior properly accounts for all oil and gas from public lands. 

MMS collects, audits, and disburses most mineral revenues from
production on federal lands.  In support of these functions, the
agency maintains information on leases and royalty payers.  MMS also
collects and compares royalty and production information reported by
payers and operators.  Finally, MMS audits payments received from
selected royalty payers.  As with some of BLM's minerals management
activities, MMS' functions stem from requirements in FOGRMA. 


--------------------
\8 BLM also has some supervisory authority over state and private
wells in federally approved units and communitization agreements. 


   STATES' COSTS FOR THEIR OWN
   MINERALS MANAGEMENT ACTIVITIES
------------------------------------------------------------ Letter :4

In fiscal year 1996, Wyoming's onshore minerals management program
cost $2.0 million, New Mexico's cost $7.2 million, and California's
cost $9.9 million.  All three states lease state-owned land within
their boundaries for minerals development.  Each of the three states
has a land office responsible for leasing and for collecting revenues
from those leases.  The states also have regulatory agencies that
oversee mineral operations within their boundaries, including those
on state and private land, and where applicable, on federal and other
land.\9 Appendix II includes a more detailed description of the three
states' mineral programs.  Table 2 shows the costs for the states'
minerals management programs. 



                                         Table 2
                         
                         Costs for Each State's Onshore Minerals
                           Management Program by State Agency,
                                     Fiscal Year 1996

                                  (Dollars in millions)

                        State land office or
                             commission                 Regulatory agency
                    -----------------------------  ----------------------------
State               Agency's name            Cost  Agency's name         Cost\a     Total
------------------  ------------------  ---------  ------------------  --------  --------
Wyoming             State Land and           $0.8  Oil and Gas             $1.6      $2.4
                    Farm Loan Office\b             Conservation
                                                   Commission

New Mexico          State Land Office         3.0  Oil Conservation       4.2\c       7.2
                                                   Division

California          State Lands               0.4  Division of Oil,         9.5       9.9
                    Commission                     Gas, and
                                                   Geothermal
                                                   Resources
-----------------------------------------------------------------------------------------
\a These agencies' costs are for their regulation of mineral
development on all lands under their jurisdiction, including state
and private lands.  They may also oversee some aspects of mineral
development on federal and other lands. 

\b The Wyoming State Land Office's costs include the Wyoming
Department of Audit's cost for auditing state mineral leases. 

\c Includes $483,000 for New Mexico's gas-marketing program. 

As land managers, the states' land offices serve some similar
functions for state land as the Forest Service and BLM do for federal
land.  The states' land offices decide how state land will be used
and issue leases for mineral development.  As royalty managers, they
perform most of the same functions as MMS does for federal royalties. 
They collect and account for mineral revenues, including bonuses,
rents, and royalties, and audit these payments. 

As BLM does for federal lands, the states' regulatory agencies review
and approve drilling and extraction permits and operations; inspect
operations for compliance with safety, environmental, and operational
requirements; and verify and compile data on reported production on
state-owned lands.  The state regulatory agencies are also authorized
to inspect operations for compliance with safety and environmental
standards on private land within the state.  The agencies are
mandated by state laws to perform other minerals management
activities on federal, state, private, and other lands.  These
activities include making spacing determinations, reviewing and
approving discharge plans for oil fields, witnessing surface casing
and well-plugging, and inspecting and permitting waste disposal for
commercial facilities. 


--------------------
\9 According to state officials, New Mexico's Oil Conservation
Division regulates some aspects of mineral operations on Indian
lands, and California regulates some aspects of net-profit-sharing
leases on granted lands. 


   COSTS FOR FEDERAL AND STATE
   PROGRAMS CANNOT BE MEANINGFULLY
   COMPARED
------------------------------------------------------------ Letter :5

Because of differences between federal and state programs, the
states' costs for these programs cannot be meaningfully compared. 
Current laws require the Forest Service and BLM to create land-use
plans that evaluate alternative resource uses--including minerals--on
federally managed lands.  These plans must include public involvement
and may be appealed to the agency or challenged in court.  The three
states we reviewed do not have similar land-use planning processes,
and neither Wyoming nor New Mexico has similar requirements for
environmental analysis to those for the federal land-managing
agencies.  In responding to a draft of this report, officials from
California's State Lands Commission commented that the California
Environmental Quality Act and other state laws require the protection
of the environment, which includes developing environmental
information and mitigation requirements; protecting significant
environmental values on state lands; and balancing public needs in
approving the uses of state lands.  A New Mexico state official noted
that mineral development in that state does not occur at the expense
of archaeological or environmental concerns. 

Federal law also requires certain royalty management activities that
are different from state activities.  For example, FOGRMA requires
the Secretary of the Interior to have a strategy for inspecting oil
and gas operations to ensure that all production is reported.  This
strategy includes inspections of equipment, specific measurement of
oil and production, and site security procedures.  In contrast, the
states rely primarily upon comparisons of royalty and production
reports to verify production amounts rather than on field
inspections.  (See app.  II for more details on the states'
activities.)

Other differences are state-specific.  For example, federal land in
Wyoming contains over twice as many producing coal leases than does
state land.  By law, BLM must perform an economic evaluation of coal
for leasing but not for oil and gas leasing.  The scope of the
regulatory agencies' responsibilities also differs from that of the
federal program, as these agencies regulate mineral development on
state, private, and in some cases, federal and other land.  In their
response to a draft of this report, officials in California's
Division of Oil, Gas, and Geothermal Resources commented that its
regulatory scope is unique among the states, as about 95 percent of
its workload involves administering laws and regulations on private
and granted lands. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

We provided the Department of the Interior, the Forest Service, BLM,
and MMS with a draft of this report.  Wyoming's State Land and Farm
Loan Office and Oil and Gas Conservation Commission, New Mexico's
State Land Office and Oil Conservation Division, and California's
State Lands Commission and Conservation Department's Division of Oil,
Gas, and Geothermal Resources were also provided with a draft of this
report. 

In written comments, the Department of the Interior and MMS generally
agreed with the contents of the report.  (See app.  IV.) BLM provided
us with technical clarifications, which we have incorporated as
appropriate, and also suggested that we include information on the
states' mining regulatory agencies.  However, we did not include this
information because we focused on activities comparable to the
federal leasable minerals program (for which net receipts sharing is
computed), which does not include all mining-related activities.  The
Forest Service had no comments on the draft. 

In written comments, Wyoming's Office of the Governor acknowledged
that the federal and state mineral leasing programs are different,
but disagreed with our position that the costs cannot be meaningfully
compared.  (See app.  V.) The Governor's Office commented that a
comparison could be made that includes an analysis of the
similarities and differences in the programs.  Our analysis shows
that because of such differences in the programs as land-use
planning, environmental, and production verification requirements, a
cost comparison would not be meaningful. 

The Governor's Office also requested that we expand our report to
provide a breakdown of the federal program's direct and indirect
costs by function.  However, our report discusses the federal
minerals management program from the perspective of net receipts
sharing, which is based upon appropriations and not on actual program
costs.  Accordingly, we describe how the appropriations are allocated
but do not provide actual costs; such a discussion would be outside
the scope of this report.  Furthermore, we believe that regardless of
the level of cost detail provided, a comparison between federal costs
and state costs would not be meaningful because of the differences in
the programs.  The Office of the Governor's comments included
comments and technical clarifications from Wyoming's Oil and Gas
Conservation Commission, State Land and Farm Loan Office, and
Department of Audit, which we incorporated as appropriate. 

In commenting on this report, New Mexico's Oil Conservation Division
(for written comments, see app.  VI) stated that the states'
regulatory agencies are responsible for minerals management
activities beyond the management of state-owned minerals.  We
adjusted the text of our report to clarify the role of the regulatory
agencies in managing state, private, and where applicable, federal
and other lands.  Furthermore, the Oil Conservation Division
commented that many of the net receipts-sharing costs are not
justifiable; however, such an assessment was outside the scope of our
review. 

In written comments, California's State Lands Commission commented
that the draft was generally a fair and accurate review of
California's minerals management costs.  (See app.  VII.) However,
Commission officials commented that our reporting of the Division of
Oil, Gas, and Geothermal Resources' costs overstated the cost of
managing state lands.  We adjusted the text of our report to clarify
that the regulatory agencies' scope of authority extends beyond state
lands in all three states and that about 95 percent of California's
Division of Oil, Gas, and Geothermal Resources' time is devoted to
regulating the development of minerals on privately owned and other
land.  The Commission also commented that it is responsible for
implementing the California Environmental Quality Act and is required
to develop environmental information and mitigation requirements. 
Furthermore, it commented that state law requires the Commission to
protect significant environmental values on state lands and to
balance public needs in approving the uses of state lands.  We
incorporated this information into the text of this report.  The
Commission also commented that it has a program of inspections and
other audit procedures to verify production amounts and royalty
payments that is more extensive than we had described in the draft. 
We incorporated specific recommended changes into our discussion of
California's minerals management program in appendix II. 
California's Division of Oil, Gas, and Geothermal Resources provided
technical clarifications, which we also incorporated into the report
as appropriate. 


---------------------------------------------------------- Letter :6.1

In conducting our review, we examined relevant reports and other
documents prepared by the three federal agencies within the
Departments of Agriculture and the Interior that are responsible for
(1) managing federal onshore leasable minerals and (2) allocating
their appropriations among the states for net receipts sharing.  We
interviewed program managers and budget officials from these
organizations in Washington, D.C., and in regional, state, and local
offices, as appropriate.  We also obtained cost data and estimates
from officials in Wyoming, New Mexico, and California.  We
interviewed the officials responsible for compiling the cost data and
discussed the functions of their agencies and how they compare with
the federal program.  We conducted our review from June through
November 1996 in accordance with generally accepted government
auditing standards.  A full description of our objectives, scope, and
methodology is included in appendix III. 

As requested, unless you publicly announce its contents earlier, we
plan no further distribution of this report until 7 days after the
date of this letter.  At that time, we will send copies to
appropriate congressional committees, federal agencies, state
agencies, and other interested parties.  We will also make copies
available to others upon request. 

Please call me at (202) 512-9775 if you or your staff have any
questions about this report.  Major contributors to this report are
listed in appendix VIII. 

Sincerely yours,

Barry T.  Hill
Associate Director, Energy,
 Resources, and Science Issues


NET RECEIPTS-SHARING PROCESS
=========================================================== Appendix I

Under the Mineral Leasing Act (30 U.S.C.  181 et seq., as amended),
states generally receive 50 percent of the revenues from federal
onshore mineral leases, which include bonuses, rents, and royalties. 
Under the act, onshore federal mineral receipts are distributed as
follows:  10 percent goes to the general treasury, 40 percent to the
reclamation fund, and 50 percent to the state in which the production
occurred.\10 Lands leased under other laws have different
distribution requirements. 

With the passage of the Department of the Interior's 1991
appropriation bill, the federal government began recovering a portion
of the costs to administer the federal onshore minerals leasing laws
from the revenues generated--a practice now known as "net receipts
sharing." The 1993 Omnibus Budget Reconciliation Act (OBRA) made net
receipts sharing permanent.  The agencies whose appropriations are
included in the net receipts-sharing calculations are the Department
of the Interior's Bureau of Land Management (BLM) and Minerals
Management Service (MMS) and the Department of Agriculture's Forest
Service. 

OBRA requires that 50 percent of the preceding fiscal year's
appropriations to administer minerals leasing laws be deducted from
the mineral revenues from federal lands before they are distributed
among the states, the general treasury, and the reclamation fund.  As
a result, the states bear the cost associated with about 25 percent
of the appropriations.  To illustrate, if one year's appropriation
were $100, OBRA requires that 50 percent of that appropriation, or
$50, be recovered from the revenues in the following year.  If the
lands were leased under the Mineral Leasing Act, the $50 would be
recovered as follows:  $25 comes from the states receiving mineral
revenues, $5 from the general treasury, and $20 from the reclamation
fund. 

Although MMS is responsible for deducting the amounts from each
state's revenues, the deductions also include amounts for the Forest
Service and BLM.  The Forest Service and BLM compute and report their
allocations to MMS, which then calculates the total amount to be
deducted from each state's revenues.  The following sections explain
how the Forest Service, BLM, and MMS compute their allocations and
how MMS combines the allocations of all three agencies to compute the
actual deduction from state revenues for the management of the
federal onshore minerals leasing program. 


--------------------
\10 Alaska receives 90 percent of the revenues, and the general
treasury receives the remaining 10 percent. 


   FOREST SERVICE'S ALLOCATIONS
--------------------------------------------------------- Appendix I:1

For its portion of the net receipts-sharing deduction, the Forest
Service calculates and allocates the actual cost of its minerals
management program.  At the end of each fiscal year, the Forest
Service identifies the amounts charged to the minerals management
program for each forest and totals these amounts by state to
determine each state's minerals management costs.  The Forest
Service's fiscal year 1996 leasable minerals management costs for
Wyoming included those for the Bighorn, Shoshone, Bridger-Teton, and
Medicine Bow National Forests.  The Forest Service's leasable
minerals costs for New Mexico included those for the Carson, Cibola,
Gila, Lincoln, and Santa Fe National Forests.  The Forest Service's
costs for California included the Angeles, Eldorado, Inyo, Klamath,
Lassen, Los Padres, Mendocino, Modoc, Stanislaus, and Tahoe National
Forests. 

The Forest Service adds a percentage to these direct costs for
indirect expenses.  In fiscal years 1995 and 1996, the Forest Service
added 20 percent to the leasable minerals costs for program support
and common services, including those provided by the regional and
headquarters offices.  For Wyoming, New Mexico, and California, the
Forest Service's allocation for the fiscal year 1996 net
receipts-sharing computation was about $552,000, $234,000, and
$517,000 respectively. 


   BLM'S ALLOCATIONS
--------------------------------------------------------- Appendix I:2

For its part of the net receipts-sharing process, BLM allocates its
onshore minerals management appropriations to each state.  Each BLM
state office receives an energy and minerals budget, which includes
all funds dedicated to the management of onshore oil, gas,
geothermal, and other mineral resources on federally managed lands. 
From these amounts, BLM subtracts appropriated amounts not
specifically related to federal onshore leasable minerals, such as
costs to manage Indian minerals and other, nonleasable minerals.\11

To these state office budgets, BLM adds a factor for indirect
expenses.  In fiscal year 1996, BLM added 19 percent to the energy
and minerals appropriations to cover the expense of general
administration and information management.  For Wyoming, New Mexico,
and California, BLM's allocation for the net receipts-sharing
computation was about $19 million, $13 million, and $5 million,
respectively. 


--------------------
\11 Salable and locatable minerals are nonleasable minerals on public
domain land.  These include sand and gravel and hard-rock minerals,
such as gold and silver.  All minerals occurring on acquired land are
leasable. 


   MMS' ALLOCATIONS
--------------------------------------------------------- Appendix I:3

To determine the share of its budget related to onshore activities,
MMS begins with the budget for the Royalty Management Program (RMP),
which is responsible for managing revenues from federal mineral
leasing, both onshore and offshore.  Each RMP division identifies the
amount of its budget that is related to managing onshore, offshore,
and Indian revenues on the basis of workload factors.  Then, RMP
allocates the federal onshore amount to the states, again, on the
basis of workload factors, such as the number of producing leases in
the state as a percentage of the total number of federal onshore
producing leases.\12 For Wyoming, New Mexico, and California, MMS's
allocation for the net receipts-sharing computation was about $8
million, $10 million, and $3 million, respectively. 


--------------------
\12 Until 1995, MMS used two methods to allocate its onshore minerals
management appropriations to the states.  In 1996, the agency began
using one method to allocate its onshore budget, the method described
in the text. 


   FINAL CALCULATION OF NET
   RECEIPTS-SHARING DEDUCTION
--------------------------------------------------------- Appendix I:4

After the Forest Service, BLM, and MMS have identified the amounts to
be allocated for onshore leasable minerals management, MMS calculates
the final deduction for each state as follows: 

1.  MMS divides the sum of the agencies' allocations in half as
required by OBRA.  The sum of the Forest Service's, BLM's, and MMS'
allocations for fiscal year 1996 was almost $114 million.  One-half
of this amount was $57 million. 

2.  The resulting amount ($57 million) is allocated among the states
on the basis of each state's proportion of total revenues for that
fiscal year.  For example, Wyoming received about 43 percent of the
federal onshore leasable mineral revenues in fiscal year 1996.  To
compute the revenue-based allocation, MMS multiplied $57 million by
43 percent, which resulted in an allocation of about $24 million for
Wyoming. 

3.  However, under OBRA, the allocation to each state cannot exceed
one-half of the estimated amount that the agencies attributed to that
state.  For fiscal year 1996, the total amount that the agencies
attributed to Wyoming was about $28 million, which is the sum of the
Forest Service's, BLM's, and MMS' allocations to the state.  One-half
of the $28 million is about $14 million. 

4.  The lower amount is deducted according to each state's
revenue-distribution formula in the following fiscal year.  Because
Wyoming receives one-half of the federal mineral receipts, it is
charged one-half of this lower amount ($14 million).  Thus, Wyoming's
total deduction in fiscal year 1997 will be about $7 million. 

For all but two states--Wyoming and New Mexico--the allocation based
upon each state's proportion of total revenues resulted in the lower
deduction for fiscal year 1996.  Table I.1 shows the fiscal year 1996
revenues and net receipts-sharing deductions (which will be deducted
in fiscal year 1997) for the states. 



                               Table I.1
                
                  Fiscal Year 1996 Revenues and Fiscal
                     Year 1997 Deductions by State

                                                       Final deduction
                                  Fiscal year 1996    from fiscal year
State\a                                 revenues\b       1997 revenues
------------------------------  ------------------  ------------------
Alabama                                   $226,578             $11,157
Alaska                                   5,275,082             566,552
Arizona                                     23,239               1,376
Arkansas                                   979,132              55,052
California                              27,853,825           1,649,917
Colorado                                37,096,417           2,196,324
Florida                                     33,338               1,979
Idaho                                    2,320,336             136,705
Illinois                                    90,546               7,289
Indiana                                        104                   3
Kansas                                   1,159,257              68,674
Kentucky                                   116,867               4,907
Louisiana                                  995,105              42,647
Michigan                                   762,624              42,265
Minnesota                                    6,714                 199
Mississippi                                574,300              18,789
Missouri                                 1,242,446              36,994
Montana                                 22,097,622           1,308,314
Nebraska                                    15,314                 909
Nevada                                   6,320,589             374,210
New Mexico                             124,115,117           5,944,818
N. Carolina                                    118                   4
N. Dakota                                2,561,441             151,900
Ohio                                       191,602              15,243
Oklahoma                                 1,864,532             113,057
Oregon                                      66,050               3,911
Pennsylvania                                23,696               1,955
S. Carolina                                    255                  11
S. Dakota                                  691,207              40,924
Tennessee                                       76                   7
Texas                                      675,462              36,564
Utah                                    36,415,201           2,157,200
Virginia                                    98,871               7,828
Washington                                 496,157              29,376
W. Virginia                                212,025              14,352
Wisconsin                                      930                  28
Wyoming                                205,960,840           7,016,230
======================================================================
Total                                 $480,563,017         $22,057,670
----------------------------------------------------------------------
\a Four states had $0 revenue and $0 deductions:  Georgia, Maryland,
New Hampshire, and New York. 

\b Numbers have been rounded. 


INFORMATION ON STATES' MINERAL
PROGRAMS:  WYOMING, NEW MEXICO,
AND CALIFORNIA
========================================================== Appendix II

Officials in Wyoming, New Mexico, and California described their
minerals management programs and provided us with actual and
estimated costs of operating these programs. 


   WYOMING
-------------------------------------------------------- Appendix II:1

Wyoming receives revenues from the production of oil, gas, coal, and
other minerals in the state.  In fiscal year 1996,\13 Wyoming
received $30 million from production on state lands and $206 million
from federal royalties, rents, bonuses, and other revenues.  Almost 4
million acres of state-owned land in Wyoming contain 816 producing
mineral leases, compared with 5,632 producing leases on more than 27
million acres of Forest Service- and BLM-managed land. 



                               Table II.1
                
                   Statistics on Mineral Revenues and
                 Producing Leases in Wyoming for Fiscal
                               Year 1996

                         (Dollars in millions)

                         Oil and gas         Coal           Other
                        --------------  --------------  --------------
Revenues and producing          Federa          Federa  State\  Federa
leases                   State       l   State       l       a     l\b
----------------------  ------  ------  ------  ------  ------  ------
Revenues                   $21     $73      $4     $88      $5   $45\c
Producing leases           761   5,587      16      35      39      10
----------------------------------------------------------------------
\a Other minerals on state land include bentonite, uranium, sodium,
and sand and gravel. 

\b Other minerals on federal land include bentonite, carbon dioxide,
sodium, sulfur, and trona. 

\c Includes rents, bonuses, minimum royalties, estimated royalties,
and other revenues. 


--------------------
\13 The federal fiscal year is from October 1 through September 30,
and the fiscal year for each of the three states is from July 1
through June 30.  However, because each covers a period of 12 months,
we consider them equivalent in this report. 


      STATE LAND AND FARM LOAN
      OFFICE
------------------------------------------------------ Appendix II:1.1

Wyoming's State Land and Farm Loan Office's Mineral Leasing and
Royalty Compliance Division issues leases on state lands for mineral
development and collects, verifies, and processes royalty payments
and payment information.  The Division's activities are guided by the
agency's mission of optimizing economic return from state lands in
the interest of the state's schools and institutions.  The Division's
total costs for fiscal year 1996 were about $750,000.\14

The Mineral Leasing Section's resource-planning activities do not
include formal land-use planning activities similar to those required
of federal agencies.  Instead, they focus on compatibility of mineral
operations with other surface uses.  State Land and Farm Loan Office
officials estimate that direct costs for resource planning were about
$29,000 in fiscal year 1996. 

The Mineral Leasing Section issues leases for mineral development on
state land.  Although it has no formal procedure for environmental
analysis, the Mineral Leasing Section may place restrictions on
leases if necessary to protect the public, the environment, cultural
or archaeological resources, or threatened and endangered species. 
Another agency, the Oil and Gas Conservation Commission, reviews and
approves "applications for permit to drill" and other requests for
permission to operate on state lands.  However, the Mineral Leasing
Section records these permits and monitors the status of operations
on state land.  The Section maintains information about lease
assignments, transfers, and units and communitization agreements. 
The Section's estimated use authorization costs in fiscal year 1996
were just over $131,000. 

State Land Office staff do not routinely perform compliance
inspections, although the Office has budgeted to hire contractors for
some site inspections.  State Land Office staff may inspect a
previously producing operation if it suddenly reports no production,
and work with other state and federal officials to protect state
lands from being drained.  Costs for inspection-related activities in
fiscal year 1996 were an estimated $44,000. 

Mineral Leasing and Royalty Compliance Division staff maintain and
verify data on leases, payers, and royalties.  The staff receive and
process royalty information, which includes volume and product value
information for each well.  They also receive, account for, and
process royalty payments.  Auditing is limited mainly to desk reviews
of reported sales data, which include verification that information
contained in royalty reports is supported by other source documents. 
These activities cost the State Land Office an estimated $415,000 in
fiscal year 1996. 

The State Land Office may also be involved in appeals to the Wyoming
Board of Land Commissioners, coordination of settlements, and
assessments of penalties, and it continually works to develop
computer systems for royalty management.  These along with
administrative and other support activities make up the balance of
the Division's costs for fiscal year 1996. 


--------------------
\14 For this and the other agencies discussed, this total includes
direct and indirect costs for the agency.  The costs given for the
activities were provided to us as general estimates of direct costs
and are not intended to total to the actual expenditures for the
agencies. 


      WYOMING OIL AND GAS
      CONSERVATION COMMISSION
------------------------------------------------------ Appendix II:1.2

Wyoming's Oil and Gas Conservation Commission is the state's oil and
gas regulatory agency.  The Commission's activities include
permitting geophysical exploration; approving operators' requests to
develop minerals on state, federal, and private leases; inspecting
those leases for compliance with operating requirements; and
collecting and maintaining production data for all wells in the
state.  The Commission also administers the Environmental Protection
Agency's (EPA's) Underground Injection Control program.  The
Commission is funded through a mill levy tax on all oil and gas
production in the state;\15 it also receives a grant from EPA.  The
Commission's reported costs for fiscal year 1996 were about $1.58
million. 

The Commission's resource-planning activities include both limited
land-use planning and permitting of geophysical exploration. 
Land-use planning focuses on the proximity of proposed oil and gas
operations to sensitive areas, such as houses or water wells, and
creeks, drainages, rivers, or wetlands.  The Commission may require
operators to line fluid pits, use a closed system to prevent
contamination of these areas, or move the proposed operation.  The
Commission also works jointly with BLM to approve seismic exploration
on state, federal, and private land.  Commission officials estimate
that these resource-planning activities cost about $175,000 in fiscal
year 1996. 

The Commission's use authorization activities include establishing
minimum distances between oil and gas wells and reviewing and
approving proposals to operate on state, federal, and private land. 
As part of its enforcement of Wyoming's oil and gas conservation
laws, the Commission establishes well-spacing requirements that apply
to all wells in the state.\16 The Commission also receives and
reviews applications for permit to drill on all state and private
lands in the state and reviews and approves units and communitization
agreements.  These use authorization activities cost an estimated
$480,000 in fiscal year 1996. 

The Commission's five inspection staff inspect oil and gas wells in
response to environmental concerns or resource waste.  The staff
inspect such things as (1) blowout-preventer equipment, (2) general
oil field conditions, (3) well-plugging operations, (4) dry holes on
state and private lands to ensure that they are properly plugged, and
(5) operations for compliance with surface requirements; they also
respond to landowners' complaints.  The Commission does not perform
production accountability inspections in the same way that BLM does;
inspectors do not usually strap tanks, gauge meters, or witness
transfers of oil, unless they suspect that theft has occurred.  The
Commission spent an estimated $436,000 on compliance inspections in
fiscal year 1996. 

The Commission receives data on production and wells for all wells in
the state and maintains a database of the information that is
available to Wyoming's Department of Revenue and the State Land and
Farm Loan Office to assist in their audits of royalties and severance
taxes.  The Commission spent an estimated $218,000 on collecting,
verifying, and maintaining information on production and wells in
fiscal year 1996. 

The Commission carries out EPA's Underground Injection Control
program in Wyoming, and has primary responsibility for Class II
(noncommercial) injection and enhanced recovery wells on all but
Indian-owned lands.  Wyoming has almost 6,500 injection wells, and
the Commission inspects about 20 percent of the wells per year to
make sure the casing is intact to prevent groundwater from being
contaminated.  The Commission also witnesses the plugging and
abandonment of all wells and attends blowout-preventer tests.  Its
costs for the Underground Injection Control program were about
$320,000 in fiscal year 1996. 


--------------------
\15 The mill levy tax is currently set at 7/10 of a mill per dollar
of value. 

\16 BLM accepts the state's spacing rules for federal leases. 


      DEPARTMENT OF AUDIT
------------------------------------------------------ Appendix II:1.3

Wyoming's Department of Audit's Minerals Audit Division audits
revenues from mineral development in the state, including royalties,
severance tax, and conservation tax.  The Division spends about 5
percent of its time and budget on revenues generated on state lands,
and its direct costs for auditing leases on state lands in fiscal
year 1996 were about $67,000. 


   NEW MEXICO
-------------------------------------------------------- Appendix II:2

New Mexico receives revenues from the production of oil, gas, coal,
and other minerals in the state.  In fiscal year 1996, the state
received a total of $115 million in royalty, rent, and bonus revenues
from production on state lands and $124 million in federal royalties,
rents, bonuses, and other revenues.  About 9.8 million acres of
state-owned land in New Mexico contain 5,116 producing mineral
leases, compared with 6,160 producing leases on more than 22 million
acres of Forest Service- and BLM-managed land. 



                               Table II.2
                
                   Statistics on Mineral Revenues and
                   Producing Leases in New Mexico for
                            Fiscal Year 1996

                         (Dollars in millions)

                         Oil and gas         Coal           Other
                        --------------  --------------  --------------
Revenues and producing          Federa          Federa  State\  Federa
leases                   State       l   State       l       a     l\b
----------------------  ------  ------  ------  ------  ------  ------
Revenues                  $111     $95      $2     $11      $2   $18\c
Producing leases         5,000   6,121       1      13     115      26
----------------------------------------------------------------------
\a Other minerals on state land include potash, geothermal resources,
and sand and gravel. 

\b Other minerals on federal land include langbeinite, potash, and
carbon dioxide. 

\c Includes rents, bonuses, minimum royalties, estimated royalties,
and other revenues. 


      STATE LAND OFFICE
------------------------------------------------------ Appendix II:2.1

New Mexico's State Land Office is responsible for leasing state lands
for mineral extraction and for collecting and distributing the
royalties generated from the production of minerals.  The Office's
Oil, Gas, and Minerals Division identifies parcels to be leased, sets
the lease terms, and holds lease sales.  The Royalty Management
Division collects and audits royalties paid for minerals from state
lands.  The State Land Office's estimated costs in fiscal year 1996
for managing the mineral program were just over $3 million. 

The Oil, Gas, and Minerals Division performs resource-planning
functions on state trust lands.  The Division conducts very limited
land-use planning, primarily considering the long-term plans for
property that it wants to lease.  New Mexico does not require
land-use planning nor environmental planning, although the State Land
Office determines if endangered species are present on state lands
identified for leasing.  The Division issues permits for seismic
exploration.  The State Land Office estimates that resource-planning
activities cost $149,000 in fiscal year 1996. 

Use authorization consists of holding monthly lease sales, reviewing
and approving lease assignments and transfers, and reviewing
development plans.  The State Land Office monitors diligent
development by verifying that drilling and production reports show
that production is occurring on leases.  The Office does not,
however, perform physical inspections of sites for the purpose of
verifying production quantities.  The Office conducts environmental
inspections if necessary--if, for example, a leak is reported.  It
estimates that use authorization and compliance activities cost
$366,000 in fiscal year 1996. 

The State Land Office's Oil, Gas, and Minerals Division maintains
information on leases and agreements and information on payers.  The
Royalty Compliance Division processes royalty reports and payments,
and collects and disburses revenues.  The Royalty Compliance Division
also compares information on royalties and production and identifies
and resolves discrepancies.  Oil and gas producers report and pay
royalties to the Royalty Management Division monthly on the basis of
the volume and price of oil or natural gas produced.  The Division
reviews the royalty data and evaluates whether the correct royalty
was paid.  The Division also audits royalty reports to verify that
the reported value is correct.  The State Land Office estimates that
costs for these activities were about $847,000 in fiscal year 1996. 

Other minerals management activities include the adjudication of
appeals; coordination of settlements; litigation support; development
of procedures and rules; and system development, implementation, and
operation. 


      ONGARD SYSTEM
------------------------------------------------------ Appendix II:2.2

New Mexico's Oil and Natural Gas Administration and Revenue Database
(ONGARD) is a shared database that includes production, tax,
transportation, and royalty information for all oil and gas wells in
New Mexico.  The database includes information on all state leases
and the locations of all 45,000 active wells on federal, Indian,
state, and private lands.  State officials compare production and
transportation reports from the system to verify production amounts
reported to the state.  According to state officials, this comparison
is an important control to ensure that the state receives the correct
royalty amounts.  Development costs for ONGARD totaled $15 million to
$20 million as of July 1996.  State Land Office officials estimate
that the costs for implementing and operating ONGARD in fiscal year
1996 were about $734,000. 


      OIL CONSERVATION DIVISION
------------------------------------------------------ Appendix II:2.3

New Mexico's Oil Conservation Division of the Department of Energy,
Minerals, and Natural Resources is responsible for regulating oil,
gas, carbon dioxide, and geothermal wells on state and private land
and in some cases on federal and Indian land.\17 The Division
establishes spacing for oil and gas wells in the state and reviews
and approves operators' applications for permission to operate on
state and private lands, inspects oil and gas operations, processes
production information, and administers EPA's Underground Injection
Control program.  The Division's budget for fiscal year 1996 was
about $4.2 million.\18

The Division authorizes uses on state and private lands by reviewing
and approving applications for permit to drill and other operator
proposals.  The Division approves drilling plans before operations
can begin on state leases and may place conditions on its approval of
drilling plans on all leases; for example, it requires operators to
place nets over all fluid pits to keep birds from landing on the
oil-soaked water.  The Division also reviews and approves abandonment
plans for all wells and other facilities.  The Oil Conservation
Division estimates its fiscal year 1996 costs for these use
authorization activities at about $683,000. 

The Oil Conservation Division requires drainage protection and
inspects oil and gas operations to verify that operators are
complying with their approved plans and with environmental
requirements.  The Division is not required by state law to conduct
field inspections to verify mineral production quantities.  The
Division's fiscal year 1996 costs for drainage protection and
operational and environmental inspections are estimated to be
$819,000. 

The Division collects monthly production disposition and well
information for each well in the state and makes it available to the
oil and gas industry and other state agencies through the ONGARD
database; the State Land Office compares it with royalty reports, and
the Taxation and Revenue Department compares it with severance tax
reports.  The Oil Conservation Division also receives volume reports
from oil and gas transporters and compares the production amounts
with the amounts reported as transported.  The Division investigates
and attempts to resolve discrepancies.  We were not provided with a
separate cost estimate for this function. 

The Division administers EPA's Underground Injection Control program,
in which it has primacy.  The Division inspects wells into which
water is being injected to ensure that water does not escape into
other geologic formations, which could contaminate groundwater.  A
grant from EPA covers about 10 percent of the Division's costs to
administer the program. 


--------------------
\17 The Oil Conservation Division and the Bureau of Land Management
often work together in the field, but New Mexico has not entered into
a formal memorandum of agreement with the Bureau. 

\18 This includes $483,000 for gas marketing. 


   CALIFORNIA
-------------------------------------------------------- Appendix II:3

California receives revenues from the production of oil, gas,
geothermal resources, and other minerals in the state.  In fiscal
year 1996, the state received about $3 million from onshore mineral
production on state lands\19 and $28 million from onshore federal
royalties, rents, bonuses, and other revenues.  Onshore, California
owns over 1.3 million acres of school lands and minerals; these lands
contain 13 producing mineral leases,\20

compared with 358 producing leases on almost 38 million acres of
Forest Service- and BLM-managed land.\21



                               Table II.3
                
                   Statistics on Mineral Revenues and
                 Producing Leases Onshore in California
                          for Fiscal Year 1996

                         (Dollars in millions)

                         Oil and gas         Coal           Other
                        --------------  --------------  --------------
Revenues and producing          Federa          Federa  State\  Federa
leases                   State       l   State       l       a     l\b
----------------------  ------  ------  ------  ------  ------  ------
Revenues                  $0\c     $14      $0      $0      $3   $14\d
Producing leases             1     334       0       0      12      24
----------------------------------------------------------------------
\a Other minerals on state land include geothermal resources (which
generated about $3 million in revenues in fiscal year 1996), and
hard-rock minerals, and sand and gravel (which generated about
$70,000). 

\b Other minerals on federal land include geothermal resources,
potash, sodium, and trona. 

\c California's onshore oil and gas generated about $20,000 in
revenues in fiscal year 1996. 

\d Includes rents, bonuses, minimum royalties, estimated payments,
and other revenues. 


--------------------
\19 Total state revenues of $76 million include offshore and onshore
production, including about $58 million from two net-profit-sharing
operations administered by the City of Long Beach.  California
granted the city the mineral rights in trust but retained the right
to receive 95 percent of the operations' profits. 

\20 California has surface and mineral ownership of approximately
570,000 acres of school lands and retains the mineral rights to an
additional 760,000 acres. 

\21 We did not include federal offshore revenues nor producing leases
because the management of the federal offshore program is separate
from the onshore program, and none of the offshore management costs
are included in net receipts-sharing deductions. 


      STATE LANDS COMMISSION
------------------------------------------------------ Appendix II:3.1

California's State Lands Commission is responsible for leasing
revenue-generating lands and collecting revenues for the state and
for protecting, preserving, and restoring the natural values of state
lands, both onshore and offshore.  The Commission evaluates resources
on the land; leases state land for mineral development and permits
and reviews plans for mineral development on that land; inspects to
ensure compliance with laws, regulations, and lease terms; and
collects and audits revenues that the mineral development generates. 
The Commission's onshore and offshore minerals management costs for
fiscal year 1996 totaled about $6 million.  The Commission attributes
costs of about $390,000 to onshore minerals management. 

The State Lands Commission's resource-planning activities include
economic evaluation, mineral and geologic work, and reservoir
engineering.  According to Commission officials, these activities
implement planning and environmental requirements imposed by the
California Environmental Quality Act and other state laws.  The State
Lands Commission estimates that its direct costs for onshore and
offshore resource-planning activities were about $534,000 in fiscal
year 1996. 

The Commission leases state land for mineral development, both
offshore and onshore.  Although the Commission is currently issuing
leases for navigable stream beds and river land, no offshore leases
have been issued since 1968, when the California state legislature
instituted a moratorium on offshore leasing because of an offshore
oil spill that occurred near Santa Barbara.  Despite the leasing
moratorium, drilling continues on existing leases under environmental
and management control by the Commission.  The Commission's Mineral
Resources Management Division reviews and approves drilling and other
operation plans on state leases, onshore and offshore.  The plans are
required to provide for production-monitoring equipment and
procedures for the documentation of royalty payments.  For offshore
development, the Division reviews oil-spill contingency plans.  The
estimated fiscal year 1996 costs for onshore and offshore use
authorization activities were about $824,000. 

The Commission monitors onshore and offshore operations to ensure
diligent development and inspects for compliance with operational and
environmental requirements.  Because of the environmental sensitivity
of operating offshore, the Commission inspects offshore operations at
least annually.  Inspections involve examining all meters, witnessing
every shipment made, and sampling and verifying quality for pricing
purposes.  The costs for compliance inspections and oil-spill
prevention activities both onshore and offshore were estimated to be
$925,000 in fiscal year 1996. 

The Commission maintains information on leases and royalty payers,
and verifies royalty statements for value, volume, and quality.  The
Commission receives monthly reports from mineral operators showing
production amounts and estimating royalties due.  Commission staff
compare this information with quality and pricing information and
calculate the amount of royalty that should be paid.  The Commission
also receives and processes royalty payments, bills for late
payments, and disburses royalties to the state general fund. 
Estimated costs for these activities onshore and offshore in fiscal
year 1996 were about $313,000. 

The Commission's minerals audits are conducted mainly for the Long
Beach operations.  The costs for these activities not related to the
net-profit-sharing leases were estimated at $1,000 for fiscal year
1996.  These and other activities, including appeals adjudication,
litigation support, the development of rules, and system operations
and development cost an estimated $271,000 in fiscal year 1996. 


      DIVISION OF OIL, GAS, AND
      GEOTHERMAL RESOURCES
------------------------------------------------------ Appendix II:3.2

The Department of Conservation's Division of Oil, Gas, and Geothermal
Resources regulates oil, gas, and geothermal resources in California. 
The Division reviews and approves plans to develop minerals on state
and private lands; inspects operations to protect public health and
safety; collects and maintains production and well information; and
has primary responsibility for administering EPA's Underground
Injection Control program.\22

Officials estimate that 4 percent of the Division's time is devoted
to state-owned land, 1 percent to federally managed land, and the
remaining 95 percent to private and granted lands.  The Division is
funded through a uniform assessment on every barrel of oil and every
10,000 cubic feet of gas produced in California.  The Division's
onshore and offshore minerals management costs for fiscal year 1996
totaled about $10 million.  The Division attributes about $9.5
million to onshore minerals management--regardless of land ownership. 

Although the Division is not generally required to perform land-use
planning, it reviews counties' decisions on oil, gas, and mineral
exploration and development.\23 The Division is the state's main
source for oil, gas, and geothermal reserve estimates and develops
5-year production forecasts and possible development scenarios.  The
Division also provides information on the condition of plugged and
abandoned wells in areas where future land development will occur and
reviews land-development plans for these areas to ensure that wells
are properly plugged and abandoned.  These resource-planning
functions were estimated to cost $150,000 for both onshore and
offshore activities in fiscal year 1996. 

The Division reviews and approves drilling permits, enhanced recovery
and rework proposals, and plugging and abandonment plans for all
wells in the state.  In approving drilling permits, Division staff
review well placement so that wells do not drain resources from
adjacent leases; operators are required to notify adjacent
leaseholders of operations that may affect their leases.  Use
authorization activities onshore and offshore cost an estimated $2.3
million in fiscal year 1996. 

Division staff perform field inspections for compliance with
operating requirements and monitor leases to determine whether they
are being developed diligently.  Inspectors are present at
blowout-preventer tests and examine the surface area of a lease to
verify that the lease and facilities are in order, operations are
fenced and signed, pits and sumps are screened to protect wildlife,
and there are no leaks from tanks and pipelines.  The Division does
not normally perform on-site production verification inspections. 
Compliance inspections and related activities onshore and offshore
were estimated to cost $4.5 million in fiscal year 1996. 

The Division is the state's repository for well and operations
information and receives production reports for all wells in the
state monthly and annually.  The Division compares annual production
reports with monthly reports to check for inconsistencies in reported
production.  It provides estimates of reserve volumes to counties for
their ad valorem tax estimates.  The Division also conducts field
audits by comparing companies' run tickets and other source documents
with production reports provided to the agency.  Production report
processing, data resolution, and audit activities were estimated to
cost $750,000 in fiscal year 1996.  Other activities such as
enforcement, appeals adjudication, and legal support, along with
systems operations and development costs, are estimated at about $1.1
million in fiscal year 1996. 

The Division also administers EPA's Underground Injection Control
program.  This includes the approval and inspection of all injection
wells in the state, including those on federal land.  The state
receives an annual grant from EPA--about $453,000 in fiscal year
1996--which, according to Division officials, funds about 18 percent
of the state's total cost of the program. 


--------------------
\22 California's Division of Oil, Gas, and Geothermal Resources has a
memorandum of agreement with BLM and is drafting joint regulations
with the State Lands Commission to eliminate duplicative permitting
and inspection activities. 

\23 Except for exploratory geothermal wells, according to Division
officials. 


OBJECTIVES, SCOPE, AND METHODOLOGY
========================================================= Appendix III

In May 1996, we were asked to (1) identify how much Wyoming, New
Mexico, and California paid to the federal government for managing
minerals on federal lands within their boundaries, (2) identify the
costs to the three states for their own minerals management programs,
and (3) compare these federal and state program costs. 

Two of the three states we were asked to include in this
study--Wyoming and New Mexico--received the largest state revenue
shares from federal mineral onshore leases in fiscal year 1996.  The
third state we were asked to include--California--provided geographic
diversity because it is not in the Rocky Mountain area.  California
received the fifth largest share of revenues from federal onshore
leases in fiscal year 1996. 

To determine the costs for the three states for federal minerals
management, we obtained fiscal year 1996 net receipts-sharing data
for the three federal agencies responsible for minerals management
activities--the Department of Agriculture's Forest Service, and the
Department of the Interior's MMS and BLM.  We interviewed agency
officials responsible for allocating the agencies' budgets for
minerals activities to the states.  We also interviewed Forest
Service and BLM field staff to discuss the minerals management
activities they perform.  Specifically, we met with Forest Service
officials in Regions 2, 3, and 5, and with BLM officials in the
Wyoming, New Mexico, and California State Offices. 

To determine the costs for the three states' minerals management
programs, we requested and received cost estimates for fiscal year
1996 from the states' land and conservation offices.  Specifically,
in Wyoming, we obtained cost data from the Wyoming State Land and
Farm Loan Office, the Wyoming Oil and Gas Conservation Commission,
and the Wyoming Department of Audit's Mineral Audit Division.  In New
Mexico, we obtained data from the State Land Office and from the Oil
Conservation Division of the Energy, Minerals, and Natural Resources
Department.  In California, we obtained data from the State Lands
Commission and from the Division of Oil, Gas, and Geothermal
Resources of the Department of Conservation.  To obtain descriptions
of functions associated with these costs, we interviewed officials at
each of these offices. 

Because of key differences in the federal and state programs, a
comparison of the programs' costs would not be meaningful.  To assess
the differences between the federal and state programs, we reviewed
legal and statistical information on each, including federal minerals
legislation, state conservation and land laws, and federal and state
statistics on mineral activities in each of the three states. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
THE INTERIOR
========================================================= Appendix III




(See figure in printed edition.)Appendix V
COMMENTS FROM THE WYOMING OFFICE
OF THE GOVERNOR
========================================================= Appendix III



(See figure in printed edition.)


The following are GAO's comments on the Wyoming Office of the
Governor's comments enclosed in a letter dated January 10, 1997. 


   GAO'S COMMENTS
------------------------------------------------------- Appendix III:1

1.  Wyoming's Office of the Governor acknowledged that the federal
and state minerals leasing programs are different but disagreed with
our position that the costs cannot be meaningfully compared.  The
Governor's Office commented that a comparison could be made that
includes an analysis of the similarities and differences in the
programs.  However, our analysis shows that because of differences in
the programs' land-use planning, environmental, and production
verification requirements, as well as state-specific differences, a
cost comparison would not be meaningful. 

2.  The Governor's Office requested that we expand our report to
provide a breakdown of the federal program's direct and indirect
costs by function.  However, our report discusses the federal
minerals management program from the perspective of net receipts
sharing, which is based upon appropriations and not on the program's
actual costs.  Accordingly, we describe how the appropriations are
allocated but do not provide actual cost breakdowns.  To obtain such
actual cost breakdowns would require a review of those costs, which
is outside the scope of this report.  Furthermore, we believe that
regardless of the level of cost detail provided, a comparison between
federal costs and state costs would not be meaningful because of the
differences in the programs described in the report. 

3.  Wyoming's Office of the Governor commented that we do not itemize
the basis for over $500,000 deducted from Wyoming's royalty share for
the Forest Service.  We adjusted the text of appendix I to clarify
that the amount referred to in the Governor's Office's
comments--$552,000--
represents the Forest Service's allocation to Wyoming for its
leasable minerals program, which is included in the net
receipts-sharing computation and is not the final deduction.  As
shown in table 1 of the letter, approximately $140,000, which is
about 25 percent of the allocation, will actually be deducted from
Wyoming's federal minerals revenues for the Forest Service's fiscal
year 1996 minerals management activities.  As we described in
appendix I, the basis for the Forest Service's allocations to the
states is the amount charged to the minerals program for each forest;
these amounts are totaled for each state to determine each state's
minerals management costs.  The Forest Service adds a percentage to
these direct costs for indirect expenses which, in fiscal years 1995
and 1996, was 20 percent. 




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE NEW MEXICO OIL
CONSERVATION DIVISION
========================================================= Appendix III



(See figure in printed edition.)


The following are GAO's comments on the New Mexico Oil Conservation
Division's comments enclosed in a letter dated December 19, 1996. 


   GAO'S COMMENTS
------------------------------------------------------- Appendix III:2

1.  New Mexico's Oil Conservation Division commented that we did not
distinguish between minerals management and surface management and
the costs associated with each and further commented that many of the
costs allocated to the states are not justifiable.  We did not
distinguish between the costs for minerals management and surface
management because our report does not address actual costs for the
federal minerals management program; rather, it discusses how
appropriations for federal onshore leasable minerals management are
allocated among the states.  We did not assess whether these costs
were "justifiable" because such an assessment is outside the scope of
this review. 

2.  The Division commented that the state programs include many
responsibilities that are not mandated under federal laws, such as
statewide spacing rules, oil and gas field rules (and exceptions to
these rules), discharge plans, and the witnessing of oil-well casing
and plugging operations.  We revised our report to include additional
information about all three states' minerals management activities. 

3.  The Division stated that the report leaves one with the
impression that federally managed oil and gas programs are
intrinsically more expensive than state programs because federal
programs are more comprehensive, involving multiple-use management. 
We did not analyze whether federal programs were "intrinsically more
expensive" or less efficient than the states' programs and did not
intend to leave this impression. 




(See figure in printed edition.)Appendix VII
COMMENTS FROM THE CALIFORNIA STATE
LANDS COMMISSION
========================================================= Appendix III



(See figure in printed edition.)


The following are GAO's comments on the California State Lands
Commission's comments enclosed in a letter dated December 20, 1996. 


   GAO'S COMMENTS
------------------------------------------------------- Appendix III:3

1.  In written comments and in subsequent discussions, State Lands
Commission officials commented that our reporting of the Division of
Oil, Gas, and Geothermal Resources' costs overstated the cost of
managing state lands.  Commission officials suggested that we clarify
that the regulatory agencies' costs are for managing all lands under
its jurisdiction--not just state lands.  We adjusted the text of our
report to clarify that the regulatory agencies' scope of authority
extends beyond state lands in all three states, stating specifically
that about 95 percent of California's Division of Oil, Gas, and
Geothermal Resources' time is devoted to regulating onshore mineral
development on privately owned and other land. 

2.  In written comments and in subsequent discussions, Commission
officials clarified California's legal requirements for environmental
and land-use planning.  They commented that the State Lands
Commission is responsible for implementing the California
Environmental Quality Act and is required to develop environmental
information and mitigation requirements and to protect significant
environmental values on state lands.  We incorporated this
information into the text of the report.  In written comments,
officials stated that the Commission is required to balance public
needs in approving the uses of state lands, but in discussing the
Commission's land-use-planning activities, officials agreed that the
state land-use-planning processes differ from federal land-use
planning. 

3.  Commission officials commented that the State Lands Commission
has a program of inspections and other audit procedures to verify
production amounts and royalty payments that is more extensive than
our description in the draft.  In their specific technical
clarifications, they stated that operators are required to submit
plans that provide for production-
monitoring equipment and procedures for documenting royalty payments. 
We incorporated the Commission's specific recommended change into our
discussion of California's minerals management program in appendix
II.  However, according to Division of Oil, Gas, and Geothermal
Resources officials, Division inspectors do not perform production
verification inspections because California does not have a severance
tax.  Because the Division of Oil, Gas, and Geothermal Resources
performs the majority of the workload for California's onshore
minerals management program, we did not adjust the text of the report
to reflect the Commission's comment. 


MAJOR CONTRIBUTORS TO THIS REPORT
======================================================== Appendix VIII

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION

Jennifer L.  Duncan
Susan E.  Iott
Sue Ellen Naiberk
Victor S.  Rezendes


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