in connection with the March 23 and 24 hearing. Both sets of responses should be summarized in the general answers to Part I of this list. Responses are requested to the following additional questions and issues.

A. OCS LEASING SYSTEM AND BIDDING PROCEDURES ALTERNATIVES

(The following question is an elaboration of question 17.)

38. What, if any, in-house or contractor studies or analyses have been undertaken or completed by the Department since 1969, concerning management of onshore or OCS oil and gas, including but not necessarily limited to:

The manner of bidding and payment for resource rights;

The frequency, size and configuration of lease sales;

The size and configuration of lease tracts;

The term of leases; or,

Limitations on acreage, joint bidding, assignment of leases, etc.

(The following question is an elaboration of questions 18 and 20.)

39. Summarize briefly the principal findings and recommendations regarding OCS oil and gas leasing in each of the studies or analyses referred to in response to questions 17 and 38, in the Public Land Law Review Commission report and contractor reports to the Commission. Summarize the Department's position on each recommendation.

(The following question is related for OCS oil and gas, to question 3 in Part I.) 40. How does the Department interpret the objective of receiving fair market value in the disposition of OCS oil and gas? Specifically:

a. What is fair market value and how is it measured?

b. What is net public resource value and how is it measured?

c. Does obtaining fair markets value from oil and gas leases result in maximization of Federal revenues?

d. From what point in time (e.g., time of lease, or of production) is fair market value estimated?

e. Is a discounted cash flow analysis used? What discount rate is employed?

f. Is there any difference in definitions or appraisal methods between onshore an OCS resources?

41. What, if any, conflicts are there in the choice of a leasing system or in leasing strategies between the objectives of:

a. obtaining a maximum return to the government (or fair market value); b. maximizing the early development of OCS oil and gas resources to meet anticipated energy demands, and

c. obtaining a proper balance of production overtime?

To the extent conflicts exist among these objectives, how are they resolved? 42. What options are being considered with respect to Outer Continental Shelf leasing system changes, and what are the Department's preliminary views regarding the comparative advantages and disadvantages of each in the context of achieving Departmental OCS leasing objectives? What would be the impact of each such option on:

a. Competition;

b. Incentive to rapid exploration and development;

c. Conservation of energy resources for future use;

d. Proportion of oil and gas ultimately recovered;

e. Efficiency of resource allocation;

f. Possible bias toward any one class of lessee (Ease of entry, etc.) ;

g. Timing and amount of revenue to Government;

h. Costs and difficulties of administration;

i. Ability to implement within the authority of the Act (i.e. would it require amendment of the OCS Lands Act)?

Specifically deal with the advantages and disadvantages, compared to the present system and to each other. What, under the foregoing criteria, are the Department's current views with regard to:

Lump sum (bonus only) bidding;

Deferred bonus bidding (with fixed royalty);

Royalty bidding (with fixed bonus);

Profit share bidding, and,

Work-program bidding (as used, for example, in the U.K.)?

43. Are there any plans to test one or more of the alternatives identified in question 42 in the future OCS lease sale? If so:

a. At what sale?

b. How will the experiment be implemented?

c. What will be the specific measures of success or failure?

44. To what extent is the Department's choice among leasing system options dictated or influenced by the government's desire to maximize immediate revenues (as opposed to the present value of expected long-term revenues)?

45. What is the Department's analysis of its experience with respect to fair market value returns from:

a. The present cash bonus system on the Outer Continental Shelf?

b. Competitive leasing of onshore oil and gas?

c. Non-competitive leasing of onshore oil and gas?

46. What, if any, evidence or analysis exists to indicate whether the system of cash bonus bidding encourages or discourages exploration and development, in contrast to alternative methods of leasing? In particular, what evidence or analysis is there:

a. Whether bonuses paid by high bidders in competitive lease sales diminish the funds that otherwise would be available for exploration?

b. Whether high cash bonuses paid by winners discourage independent operators from participating and reduce the number of serious contenders for leases, above and in addition to the high costs of operation in such places as the Outer Continental Shelf and the Arctic?

c. Whether payment of a high cash bonus selects a qualified and responsible operator who is the best able or most willing to undertake early exploration?

d. Whether payment of a high cash bonus is a significant incentive that would be absent under another system, for the operator to accelerate exploration and production?

47. Summarize the assumptions and analysis that led to the Department's specific decisions regarding the frequency and size of lease sales in the first five-year leasing schedule. Include a discussion of the role of:

a. estimated demand for oil and gas, and the assumptions regarding the role of OCS resources in meeting this demand;

b. any analysis or assumptions regarding the acreage of OCS lands that industry is able and willing to explore in a given period, and the relationship of the total acregae offered and total government bonus receipts.

Provide, for each of the next twenty years, the estimated production of crude oil, gas and condensate expected from each of the sales proposed in the first five-year leasing schedule.

48. How has the cancellation of the December 1971 lease sale affected the remainder of the five-year schedule? (Has the whole schedule been set back or will the remainder of the sales be conducted according to the original schedule?) When will a new schedule be released?

49. What safeguards are being adopted in the preparation of a new five-year leasing schedule to protect against, and provide relief from, anticipated recurring delays due to litigation and other foreseeable resistance to continuing regularly held OCS lease sales?

50. What, in summary are the procedures for estimating the value of individual tracts considered for leasing, and what has been the experience with these procedures? Specifically:

a. How are pre-sale estimates of the minimum reasonable industry bid per tract calculated, by whom, and using data of what origin?

b. For the past three OCS sales, how many and what proportions of industry bids and high bids have been lower, and higher, than the Department's pre-sale estimates? For each of these three sales, what has been the ratio between the total pre-sale estimate and the total of high bids? How can this last relationship be explained?

c. Are individual OCS tracts reevaluated after opening of bids but prior to award of a lease? If so, what information goes into the reevaluation, and how is it used?

d. What avenues are available within the Department to companies which may wish to appeal Departmental rejection of bids for certain tracts, and what information related to the value of such tracts do Departmental personnel who are handling such appeals have available to them?

51. To what extent, and in what fashion, do estimates of the relative quantities of gas as compared to oil influence the choice of tracts for leasing?

B. The issue of entitlement of coastal states to receive federal funds as compensation for possible adverse impacts of OCS mineral producing activities in areas adjacent to their coasts.

52. What is the Department's tentative schedule for future OCS oil and gas lease sales, particularly in:

The Atlantic,

The Gulf of Alaska,

California, and other "new" areas?

53. What arguments have been advanced by representatives of coastal states that they should share in mineral leasing revenues?

54. What, if any, formal studies or analyses exist of the net social and economic benefits or costs to coastal states of OCS mineral exploration and production adjacent their coasts? Summarize the major findings of these studies or analyses. 55. What are the historical and expected impacts upon the economies and coastal states and communities from OCS exploration development and production activities:

a. Increases in local employment and payrolls; profits of local enterprise; local, and state business and personal taxes, etc.

b. Increased outlays of state and local governments for public safety, education and welfare; public works and environmental protection.

c. Desirable or undesirable secondary effects from location of refineries and other industries; population growth, etc.

56. Summarize, by state and by type for the last ten years, payments to the states and to the Reclamation Fund from federal onshore mineral lease revenues, under terms of the Mineral Leasing Act, and the Alaska Statehood Act.

57. Summarize the major alternatives considered by and the major findings and recommendations of the Public Land Law Review Commission and of the Commission's contractor reports with respect to sharing of revenues from OCS mineral leasing. What is the current position of the Administration on these recommendations?

58. What are the implications, including the advantages and disadvantages, of legislation authorizing the coastal states to levy and collect a severance tax at a rate no higher than that applicable to onshore production within the state, on mineral production from the adjacent Outer Continental Shelf?

Senator Moss. I have several of my colleagues here and Senator Allott is on his way.

Senator Anderson, do you have any opening statement?

Senator ANDERSON. NO.

Senator Moss. Senator Jordan?

Senator JORDAN. I yield to Senator Hansen.

STATEMENT OF HON. CLIFFORD P. HANSEN, A U.S. SENATOR FROM THE STATE OF WYOMING

Senator HANSEN. Mr. Chairman, that was a fine opening statement you made this morning. It outlined the major issues on which we have invited comment from the Department of the Interior and from other interested witnesses. I would only wish to elaborate briefly on the context in which these hearings are being held.

The hearing this morning on Federal leasing of public lands for energy resources is one of a series we have been conducting as part of our national fuels and energy study in response to the current energy crisis.

The energy crisis and its solution is a subject as complicated as it is controversial. It is complicated for reasons which I will discuss in a

moment.

It is controversial first because of the clashes of interests at stake in seeking a public policy responsive to the energy crisis, and secondly

because of the difficulty in evaluating the conflicting solutions which have been proposed to abate the energy crisis.

Each of the self-proclaimed experts has his own ideas about solving the energy crisis. But seldom is there agreement among the experts. Secretary Morton in recent testimony pointed to the paradoxes which policy makers must face in their attempts to find solutions to the current energy crisis. He commented:

We know that our energy crisis message is getting across to some segments of the public and private sectors. Advice has been plentiful from the conservationists, from industry, from the consumers, and even from some of the 61 departments and agencies of our government who in some way have an input into our energy policy. This advice taken together has said:

Give us an energy policy that is intelligent and concise and, above all, responsive to the interests of the nation as a whole.

Give us a policy that can apply to the short-term and to the longer term as well. Give us an energy policy, they say, that will provide the consumer with the type of fuel he wants, in the amounts he needs, at the time he must have it, and at the lowest possible price.

Assure us this energy will be from secure and reliable sources. But don't drill offshore of my coastline, don't build any pipelines across my land, don't strip mine any coal, don't build any refineries or storage facilities in my area, abolish the oil import program but don't move oil in by tankers for this might pollute our waters.

Give us an energy policy that guarantees protection of the environment, where the use of energy does not intrude upon our esthetic values nor damage the ecology of the land.

Give us an energy policy that will maximize national security yet not impinge upon normal trade between Nations.

So much, for the time being, on the fact that the energy crisis is controversial. I expect that Secretary Loesch in his testimony this morning will further confirm that fact.

Now, I would like to return briefly to the contention that the energy crisis is complicated.

U.S. demand for energy has doubled in the past 20 years from 34 quadrillion B.t.u.'s in 1950 to about 69 quadrillion B.t.u.'s as of 1970. Demand is causing great strains on supply. The quantitative contribution of natural gas has more than tripled while petroleum use has doubled. Yet while production of oil and gas has been on the rise the reserve-production ratio of these fuels has been seriously declining. Improvements in the efficiency of petroleum resource recovery have been slow in coming.

Nuclear power, while beginning to grow rapidly, now amounts to little more than a percentage point in measurements of energy supply. Hydropower has remained nearly constant relative to other fuels mainly because of the fact that we have nearly exhausted our potential sources of that medium of power.

Coal, while remaining our most abundant resource, has also remained level in recent years relative to other fuels due to a number of factors including the constraining influences of environmental, health, and safety laws.

All the while demands for more energy continue to grow. Many factors, however, have restricted the availabilities of supplies. The recent report submitted by the Interior Department to the Congress pursuant to the Mining and Minerals Policy Act listed several factors contributing to the problem:

Domestic demand for petroleum and natural gas already substantially exceeds readily available domestic productive capacity;

85-197-732

Expropriations, confiscations, and forced modifications of agreements in foreign countries already have had adverse consequences regarding sources of petroleum supply, prices for foreign oil, stability of trade, U.S. revenues and the balance of payments situation;

Increasing dependence on foreign sources of petroleum supplies places increasing constraints upon the conduct of U.S. foreign policy and at the same time threatens the stability of the U.S. economy;

Investment in development of domestic energy resources is falling behind;

Environmental regulations threaten major disruptions of some domestic production;

Actual and prospective withdrawals of land available for prospecting and exploration may adversely affect domestic mineral development;

Fundamental research affecting mineral production and use is being cut back when instead it should be expanding.

These are but a few of the contributing factors to the present energy crisis listed in the Interior Department report.

There are many other factors including the need for improved energy conservation measures, a capital requirements crunch, tax policy, anti-trust policy, an anti-industry mood perpetuated by an untimely youthful rebellion against capitalism and competition within a free enterprise climate.

I mention these factors, because although we are narrowing our focus today to the issues most directly relevant to our consideration of Federal leasing policy regarding energy resources on public lands, we should not lose a sense of context linking such policy considerations to other important factors bearing upon finding solutions to this pressing energy crisis.

By way of example, the public lands have for years been a favorite source of Federal revenues, other than income taxes, for the Office of Management and Budget, and its predecessors. Little serious thought has been given by OMB to the relationship of its present policy of maximizing Federal revenues from leasing public lands for energy resource development to the effect such policy has in stimulating research related to improved recovery methods.

Little thought has been given to the long-range consequences in terms of a national energy policy of short-term increased Treasury receints.

Mr. Chairman, these are some of the issues that I hope this committee will objectively explore in its considerations of federal leasing policy in the context of the much broader energy crisis.

Senator Moss. Thank you, Senator Hansen, for that very comprehensive and knowledgeable statement showing the depth of the problem that faces our country and our government in dealing with the growing demands for energy.

At the same time we are confronted with new constraints on environmental degredation and other matters which impinge upon it and it does pose a great, great problem that we recently have been spending so much time on in this committee trying to assemble the record and make ourselves familiar with the problem so that if congressional action is needed we will be able to move promptly to do what needs to be done to minimize the conflicts that we see before us.