A. The Department's response to this question is detailed and generally recites the state of qualitative understanding of this subject. Quantification of information in this area can be undertaken in at least two ways and until such is available it will be difficult to determine which of the methods of leasing would most meet the Department's leasing goals. One way to quantify it would be to review the almost twenty years of experience in this area and calculate what alternative systems would have yielded had they been leased by alternative methods. The second method would be through experimental leasing under various systems. The problem with the second method is that production figures would not be available for several years and it would be several more years before any definite answers would be forthcoming as to which system yielded "best" results. Nevertheless such experimentation on a carefully controlled basis might be worthwhile. The deferred bonus bidding system looks particularly attractive. It meets many of the requirements laid down for avoiding heavy front end capital outlays which do not favor smaller companies, and yet tends to discourage rampant speculative bidding which many fear might take place under a royalty bidding system. Solution of the legal issue of whether or not a deferred bonus bidding system would require additional legislation needs to be vigorously pursued. Q. (13) How adequate for purposes of planning and management is the information available to your Department or agency on energy resoruces of the public lands? Consider particularly: a) Geological and geophysical information relevant to OCS oil and gas b) The reserves, and probable and potential resources, on lands under c) The number, acreage, and reserves or resources of uranium claims; d) The persons owning or effectively controlling leases or claims; e) The progress of development, or volume and value of production from If it is the position of your Department (or agency) that inadequate information is available, what changes in law, organization, or regulations would be necessary to make the desired information available? A. The answer to this question lies in the meaning of the term "adequate". Whether or not the resource information is adequate for leasing decisions in the Gulf of Mexico, or anywhere else, has to be tested against management criteria. For example, resource information is used in appraising leases prior to leasing. To the extent that the resource base yields reserve estimates, which when calculated into a standard economic analysis, yields appraised values far below that of the high bid then the question of adequacy of information base must remain. Some analysis has been done which indicates the lack of statistical correlation between appraisals prior to leasing and the high bids. The question then of geologic and geophysical data adequacy is directly relevant to management responsibility in that it is not possible to develop appraisals which approximate the transaction evidence. The Department statement regarding the lack of information on coal on Federal lands is extremely useful and bears out my own understanding of the situation. There really are a "significant number of decisions being made without adequate information". The key question is whether or not we can afford to continue making those decisions based on that lack of information or whether such decisions should be postponed until enough information is known to protect the public interest. Given the large acreages and tonages already under lease I would argue in favor of postponement of further decisions until resource base information is more complete. Unfortunately, several years may be required, however, to make a significant amount of this information available unless a substantial funding effort is undertaken. Q. (14) Does oil and gas exploration, development and production on A. Q. A. the Outer Continental Shelf impose a net economic or fiscal The argument raised by the Department pro and con regarding impact (15) What funds have been paid to states under the revenue sharing The basic issue raised by Question number 15 is that if there does not appear to be an undue burden placed upon adjecent Outer Contential Shelf states then the question must be raised why it would be equitable to continue a shared payment to onshore states. The rationale for continuing a 37 1/2% distribution to onshore states and a 90% distribution to Alaska is not clear. There may be justification for continuing such a distribution but it is not self evident. Quantitative analysis of the impact of Federal development on localities has gone on on a number of areas and it's direct application to these questions should be undertaken. I appreciate the opportunity of having been asked to comment on these questions. I would be happy to elaborate in additional detail on any of my responses. RICHARD & TROOP PETLA OSTROFF JOHN FORAY ROBLAT D MOSHER LAW OFFICES NOSSAMAN, WATERS, SCOTT, KRUEGER & RIORDAN THIRTIETH FLOOR. UNION BANK SQUARE 445 SOUTH FIGUEROA STREET LOS ANGELES, CALIFORNIA 90017 TELEPHONE (213) 628-5221 August 24, 1972 REFER TO FILL NUMBER Senate Committee on Interior and Insular Affairs Room 3208 New Senate Office Building Washington, D.C. 20510 Attention: The Honorable Henry M. Jackson, Chairman 17-60-1 In accordance with your letter of June 1, 1972 I have enclosed herewith my comments regarding the questions to which you specifically directed my attention in the attachments to said letter. These comments represent conclusions and recommendations which were more fully developed in the articles and studies identified in my letter of April 26, 1972 to you. I also refer you to a more complete statement of my views with respect to questions involving public international law to my article "An Evaluation of United States Oceans Policy" which appeared in Volume 17, No. 4 of the McGill Law Journal at pp. 603-698, a copy of which accompanies. Please let me know if you would like me to comment further on any particular aspect of Federal Policy. AUGUST 24, 1972 RESPONSE OF ROBERT B. KRUEGER TO U.S. SENATE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS Question 1 (Question 8 of Attachment A): 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? Comment: The current system of leasing with respect to the Outer Continental Shelf provides sufficient incentive for early exploration and development in light of the existing and predictable high cost of entry. The Outer Continental Shelf Lands Act, which requires an oil and gas lease to cover an area not exceeding 5,760 acres, but contains no acreage restrictions with respect to sulphur or other minerals, would appear to be sufficiently flexible with respect to operating procedures. To lengthen the period of the lease drilling term or to expand the size of the leasehold estate could cause higher cash bonus bids to be made but might deter competition. It has been suggested that the timing and size of Federal offshore lease sales will detrimentally influence the entry of smaller firms into offshore exploration. There appears, however, to be no evidence that smaller firms can be induced into effective competition, even if sales were spaced farther apart or the size of the tracts were reduced. The experience of the Bureau of Land Management with the leasing of small tracts indicates, in fact, that the smaller firms per se are not individually capable of competing for leases in the Outer Continental Shelf. The "start up" and initial exploratory drilling costs of offshore development, which are approximately the same whether a small or a full tract is leased, are sufficiently high as to preclude the entry into competition for Outer Continental Shelf resources of smaller oil and gas firms, except where acting jointly, irrespective of lease period or the size of leased tracts. Question 2 (Question 9 of Attachment A): In which cases, if any, do elements of the present system encourage speculative nonproductive holding of resources on the public lands? (a) (b) Consider particularly Noncompetitive leasing of onshore oil and gas; The system of prospecting permit and pre- 85-197 O - 73 - 23 |