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a) To what extent are such conditions prescribed or proscribed by law, or within the discretionary authority of the Interior Department?

b) In what instances, if any, does the law permit or require bonding or other assurance of financial responsibility for environmental protection or performance?

c) What, if any, recourse or enforcement authority has the Interior Department (or your agency) with respect to violations or default of contract provisions regarding protection of other resources or environmental quality, or land reclamation? Does the Federal government have authority to cancel a lease, permit, or other resource right in such an instance? Is additional authority needed at this time? If so, what provision should such new authority contain?

d) What has been the specific effect of environmental laws, regulations, and requirements on the level of exploration and production of energy minerals on the public lands?

Regarding Outer Continental Shelf leasing, the quantitative impact of strengthened environmental laws in terms of delay in leasing should not be difficult to estimate, although the estimates would be crude to the extent that data on potential hydrocarbons to be leased is largely based not on geologic information but is based primarily on geophysical inference. Nevertheless, it would be possible to quantify how many barrels of oil and how many thousands of cubic feet of natural gas have been delayed from the stream of development for almost two years. It should also be possible to describe such quantified estimates in terms of the percent of U.S. consumption and the percent of U. S. production When viewed in that light, the order of magnitude would not appear to be very large.

To the extent that environmental impact statements may be found lacking in the future, an additional delay would take place. The marginal impact would of course be considerably greater as time passes.

The Department's procedures under 43 CFR 23 for examination of potential lease areas for possible impact on the environment and on other resoruces and uses are the strongest such procedures in the government today. Yet these procedures were adopted prior to the passage of the National Environmental Policy Act of 1969.

The issue here is not so much one of the availability of adequate guidelines and procedures. More important is the question of capability to implement these procedures. Unless the situation has changed radically from the time I was in the Department it would appear that the Bureau of Land Management and the Geological Survey are badly understaffed. In order to implement the procedures. many of the necessary technical reviews cannot be done in any detail for lack of personnel and funds with which to undertake the reviews. This leads to the application of general stipulations whereever possible. It is difficult for those stipulations to be universally applicable. Sometimes they may be too stringent for the case in question and some time not strict enough. Furthermore, there is almost no money available for the necessary planning and testing of various stipulations to improve them and to relate them to the problems of reclamation of arid land.

The issue of whether or not each indivudual lease--for example, a 5,000 acre competitive coal lease--could require an individual environmental statement or not remains to be decided. A valuable method which has been considered and may at the present time be close to implementation would be the use of analysis of broad areas, such as, the Powder River Basin coal deposit area of Wyoming and Montana, for an overall impact analysis, with separate technical examinations of individual proposed lease areas as they are considered. This is a particularly attractive option because it would require the Department to engage in total multiple-purpose land use planning for broad regional areas of potential energy resource development. Approximately six or seven major coal areas constitute the vast majority of federal coal resources and broad planning bases for these areas would seem to be a necessary prerequisite to intelligent leasing decisions.

While the Mining Law of 1872 simply does not provide for government control over environmental degradation, there have been numerous laws passed since 1872, some of which must in their intent supercede that of the Mining law. To the extent that this is true, it may be possible to move with more vigor on gross despoilers of the environment. This, however is a fundamental legal issue, one which might have to be resolved through litigation in the courts. While in general on-shore minerals have been delayed somewhat in their development because of environmental reasons, actual development of onshore minerals has probably been more delayed because existing leasees and permittees are looking to future uses of the resources they hold. Some attempted quantification of delays by types might yield interesting statistics. It seems certain in any case that delays in development because of environmental concern will increase for several years.

Q. (7) What safeguards in the preparation of a new five-year leasing schedule will protect against, and provide relief from, anticipated recurring delays due to litigation and other forseeable resistance to continuing regularly held OCS lease sales?

A. The Department's response to question number seven would be substantially the same one I would make regarding the Gulf of Mexico. However, in Atlantic Seaboard or the Gulf of Alaska, considerable additional factual information will be required before adequate environmental impact statements can be written. Detailed efforts have already been undertaken to develop an understanding of the existing data in those areas. From that information base it should be possible to develop preliminary environmental analysis. However, many more questions than answers exist. Delays in leasing because of fundamental environmental concern probably is likely. The amount of those delays would be hard to calculate and would relate directly to both the adequacy of the resource information base and to public acceptance of leasing in those areas. The Department might do well to invite the various state agencies concerned with this same problem to collaborate with them in the environmental studies of the Atlantic Seaboard now underway.

Q. (8) Does the present system of leasing or disposal for each energy resource provide sufficient incentive for early exploration and development? Do the current size of lease tracts for the various energy minerals, acreage limitations on lease holdings, and length of lease terms deter exploration and/or development of any energy resource on public lands?

A. The current system on the Outer Continental Shelf provides considerable incentive to develop the leases quickly in that they have five years to produce. Extentions can be granted for an additional two year period and often they are. However, to force development more quickly by conditioning the lease on certain performance standards would be both expensive and difficult to manage and could require considerable administrative judgements as to whether or not leasees have met development requirements. The administrative work load would be heavy and the question of whether or not it would be worth the effort would have to be quantified.

The suggestion that limitations on the size of holdings be changed from acreage limitations to reserve limitations makes considerable sense. A more fundamental question, however, is whether or not the limitations per State make any sense at all. The issue is fundamentally one of antitrust and restriction of competition. The Department of Justice probably has more adequate tools than either acreage or reserve limitations to deal with these questions. Further, there are many perfectly legal methods for maintaining interest in holdings above and beyond the limitations as presently conceived.

The fundamental issue raised in the Department's testimony regarding the fact that very few coal deposits currently under lease are being developed and the judgement that many of those deposits are being held for gasification, liquification, and mine mouth power plants needs considerable analysis. Quantification in this area would help provide a basis for reasonable planning for the development of these resources.

Completion of the Department's current planning regarding criteria for issuance of prospecting permits and leases, rental terms, diligent development production requirements, etc. needs to be pursued vigorously. Publication of such criteria would provide the basic framework in which a Federal energy resource management program could be developed. The Department is showing considerable foresight and initiative in this area and should be encouraged to complete its initial planning and move to implementation of the results.

Q. (9) In which cases, if any, do elements of the present system encourage speculative nonproductive holding of resources on the public lands? Consider particularly

a) Noncompetitive leasing of onshore oil and gas;

b) The system of prospecting permit and preference right leases for coal; c) The indefinite term and twenty-year review of coal leases; and

d) The location-patent system for uranium ore.

A. Attempts to encourage production rather than speculative nonproductive holding of coal resources, particularly under preference right leases, poses major problems of administrative judgement. The very low rentals and lack of incentive to develop leases in the past are widely recognized as was stated in the Department's testimony. The issue is not so much whether higher rentals and minimum production requirements should be included in leases as much as it is what the levels of those requirements should be.

The best way such terms could be calculated would probably be through a discounted cash flow analysis such as is used for outer continental shelf leasing. However, the Department does not now have the money and manpower to get such analysis done should it chose to do so. Without such analysis on noncompetitive leasing it is very difficult to guess what those levels should be.

Alternative methods, of course, require the exercise of judgement. Setting rentals and minimum production requirements at very high levels and crediting those rentals against royalties when production commenced would probably encourage prompt production, or simply discourage leasing at all until serious development was planned by the potential leasee. It is difficult to know what level those rentals would have to be but they would certainly have to be at least ten times the current rate.

Minimum production requirements have to be based on some estimate of both the reserve in place and production over time. To the extent that detailed infor

mation on producable reserves is lacking it will be most difficult, but not impossible, that steps be taken immediately to move in this direction. A major problem remains regarding the many leases currently in effect but it would appear that enforcement of diligent development provisions of the current leases could greatly rectify the situation.

Q. (10) Does the present system of leasing or disposal of each energy resource provide for receipt of fair market value by the government for the resource? Consider particularly the four instances named in question nine. In each instance where the government generally receives less than fair market value, what benefit does the public receive from leasing or disposal programs in which receipt of fair market value is not a principal objective?

A. The Department's response to question number ten is an extremely useful one and goes far in the direction that the Government should be moving to assure fair market value return. The alternative of financing Government prospecting for Federal minerals--particularly coal--makes considerable sense because the cost of such prospecting is not high. The yield of low-priced resources to the prospecting permittee for the small investment he makes is often extremely great. Quantification of cost of such a program and a general estimate of benefits would likely lead to a very high benefit to cost ratio. The prospect of issuing a small number of checker-boarded preselected noncompetitive leases or permits tends to provide similar information. However it is my opinion that the price paid by the public would be quite high in that the amount of resources alienated compared to the cost of the information received, would not justify the decision.

All of this should be fairly easily quantifiable. It would appear worthwhile to expend funds necessary to develop the data base and economic calculations in order to determine the direction in which the program should run.


The issuance of prospecting permits through a competitive system is attractive on the surface, but I share the opinion of the Department that the handicap of the system would be the lack of good data on the undiscovered resources. simple fact of the matter is that the Government would find itself in the position of trying to decide whether or not to accept a bid on a competitive lease for an unknown amount of resources of an unknown value. Such a system would not inspire public confidence.

Q. (11) What is the experience to date with respect to classes of enterprise engaging in exploration and production operations involving energy minerals on public lands? Does the present system of leasing of disposal for any of the major onshore and offshore energy resources unduly favor some classes of enterprise (for example, large integrated firms)? What is the relationship between classes of enterprises presently engag ed in development of energy resources on public lands and the rate of exploration and production with respect to the development of coal, oil shale, and geothermal energy?

A. Generally speaking the bidding information available in the Department on Outer Continental Shelf leasing is very good and the information cited in its testimony supports the argument that the present system does favor acquisition of leases by large, integrated companies.

There have been very few onshore coal leases in the past few years. Only recently have high bonuses have been offered. Whether or not this situation will continue is open to debate. It will depend largely upon the establishment of leasing environments which encourage competition.

To my knowledge there has been little or no quantification of whether or not the small or medium size firms actually develop coal which is alienated through the prospecting permit/preference right lease system. It would be my guess that the prospecting permits have been picked up by small operators or speculators. If there is actual development, the preference leases are probably turned over to operations by larger corporations. The large underground mines and massive strip mining of today simply require heavy capital investment. It is highly unlikely that small companies could undertake economic operations at scale, unless they are from joint vertures with larger companies or greatly expand on the basis of long-term sales contracts.

Q. (12) What are the advantages and disadvantages, in terms of the criteria set forth below, as applied to OCS oil and gas leasing of a (1) cash bonus bid-fixed royalty system; (2) deferred bonus bid fixed royalty system (payments of one-third of the bonus bid successively upon award of lease, discovery, and production); and (3) fixed bonus royalty bid system?

a) Competition;

b) Incentive to rapid exploration and development;

c) Conservation of energy resources for future use;

d) Total amount of resources ultimately recovered under the lease;

e) Efficiency of allocation;

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

g) Problems of administration and levels of Government personnel required to administer the leasing system;

h) Timing and amount of revenue to Government;

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

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