Hearings and Business Meetings

SD-366 Energy Committee Hearing Room 10:00 AM

Mr. Duane Zavadil

Vice President of Government and Regulatory Affairs, Bill Barrett Corporation - Testifying on behalf of the Independent Petroleum Association of Mountain States

Testimony of
Duane Zavadil
On behalf of
The Independent Petroleum Association of Mountain States,
Before the
Senate Committee
on
Energy and Natural Resources
June 27, 2006
Mr. Chairman and members of the Committee, my name is Duane Zavadil and I am
Vice President of the Independent Petroleum Association of Mountain States. I want to
thank this Committee for holding a hearing about the benefits to the public of the Energy
Policy Act of 2005. First, I’d like to thank all members of this Committee for their
dedication and hard work in passing the Energy Policy Act of 2005. Second, I want to tell
you the good news, that this Committee’s hard work from last summer, is making a
difference in public land development to help increase supplies of natural gas headed to
consumers. The final point I would like to make is that close oversight of the Act’s
implementation will be necessary to see continued increases of energy production on
federal lands in the Intermountain West.
Public Land Energy and the Energy Policy Act
Public lands owned and managed by the federal government hold resources that benefit
the nation in multiple ways: food, recreation, habitat for wildlife, and last but not least, energy.
As the nation’s appetite for energy continues to grow and production from traditional sources
decline, public lands in the Rockies must play a significant role in the nation’s energy security.
The federal government is the largest owner of natural gas reserves in the nation by way
of its surface and subsurface management of public lands. The Bureau of Land Management
(BLM) and the Forest Service manage 261 million and 193 million acres of surface lands
respectively. These lands are located overwhelmingly in the Western states. The federal mineral
estate underneath BLM, Forest Service, other agencies and even some private lands,
encompasses 699 million acres.
The federal government will play a significant role in the future development of natural
gas because demand for natural gas is not expected to decline significantly in the next two
decades and likely beyond. According to the Energy Information Administration (EIA), by 2030
U.S. consumption of natural gas will be 27 trillion cubic feet, up from 21.9 Tcf today. It is
estimated that federal lands contain nearly 200 trillion cubic feet of technically recoverable
natural gas. Public lands contain the largest onshore reserves of natural gas in the nation and
currently supply 11 percent of the nation’s natural gas. The EIA estimates that Intermountain
West natural gas production will double over the next two decades surpassing the Gulf of
Mexico. Today, more than half of the natural gas from this region is produced from public lands.
The current bureaucratic process for developing these lands, however, moves slowly and
in recent years has not kept pace with the nation’s energy demands. Last year, hurricanes
Katrina and Rita underscored the lack of secure, excess natural gas. The agency currently
responsible for administering energy production on public lands, the Bureau of Land
Management faces a multitude of issues. Preparing critical land use plans has slowed to a crawl.
Leasing has become divisive, spurring extended administrative processes through protests and
appeals of federal agency decisions. NEPA remains a source of delay and uncertainty. Demand
for drilling permits has outpaced the agency’s ability to process them. BLM’s management of
this dynamic combination of factors has a real effect on the market price for natural gas.
Notwithstanding these problems, the Energy Policy Act of 2005 is providing, and will continue
to provide relief to the 62 million households that consume natural gas.
The Act contains provisions to improve the federal government’s ability to develop its
onshore energy resources in the public interest. Both leasing and permitting on federal lands
were addressed in the landmark legislation. For some provisions, it is too early to determine
whether the implementation of this legislation will yield substantive changes in public land
energy development. However, we are seeing tangible benefits of this legislation in the form of
increased production that could reduce the impact of another serious supply disruption.
Leasing, Planning and Permitting
Planning
The land use planning process is critical to oil and gas development on public land. Both
the BLM and Forest Service are required to prepare planning documents pursuant to federal law.
These plans guide multiple-use activities in the areas covered by the plans. The importance of
these plans cannot be understated. If land-use plans are not updated with sufficient consideration
of the need for expanded energy production, the nation’s ability to provide affordable domestic
energy is severely limited.
Many of the current plans are outdated and do not reflect the importance of public lands
in meeting energy demands. Recognizing this, in 2001BLM initiated an overhaul of its entire
planning base with the goal of updating all 160 RMPs within ten years. Twenty-one “Time
Sensitive Plans” (TSP) were identified as high priority because they address energy resource
development, respond to nationally significant lawsuits, or have legislatively mandated time
frames. With 2006 upon us, six TSPs critical to oil and gas development are not yet final (Table
2) limiting BLM’s ability to effectively manage the public’s energy resources. Furthermore,
some of the plans, in their draft form, contain prescriptions that further limit, rather than expand,
the potential for energy production. Simply put, many of these draft plans are inconsiderate of
the effect that the government has on natural gas prices and consumers. If these plans are
appropriately updated, BLM managers will be able to more effectively carry out many elements
of energy program administration, elements such as leasing and permitting that were addressed
Table 1: 2005 Lease Protests
State Parcels
Offered
Parcels
Protested
Percent
CO 292 234 80%
MT 442 48 11%
NM 314 197 63%
UT 329 264 80%
WY 968 542 56%
by the Act. These plans need to be reviewed for their impact on consumers and completed as
soon as possible.
Leasing
Media accounts of oil and natural gas leasing lead one to believe that leasing is galloping
along at a break neck pace. In reality, leasing has continued at an even pace through both the
Clinton and Bush Administrations. For the last several years, with rising natural gas prices and
improved technology, there has been significant interest in areas that were not feasible to
develop in the past. As these areas have been nominated for oil and gas leasing by companies,
conflicts arise with organizations who want to block all development. As a result, administrative
challenges, called “protests,” of leases in the Intermountain West have been on the rise over the
past few years.
BLM lease sale protests have increased
significantly over the past few years. Between 2001 and
2005, 42% of all lease parcels offered in the
Intermountain West have been protested. In 2005, 55%
of the lease parcels offered were protested (Table 1).
Isolating Colorado and Utah, 80% of all offered lease
parcels were protested. Protests divert BLM personnel
and funding from effectively managing the multiple uses of the land to fighting litigation and
administrative processes. Protests further tie up a company’s capital that could be used to
produce energy.1 (See Attachments for more information about Leasing Public Lands).
1 Companies that successfully bid on a lease are required to pay the entire bonus bid (sometimes upwards of $2,000
per acre in recent sales) and first year’s rent within 10 days of the lease sale.
Table 2: Applications for Permits to Drill (APD)
Q1-Q3
2004
Q1-Q3
2005
Q1-Q3
2006
Average
Change
APDs
Received
4470 5769 7272 27%
APDs
Approved
3363 4296 4874 20%
The Energy Policy Act of 2005 has the potential to improve the leasing process for public
lands. The Act requires agencies to examine their leasing processes to determine where
improvements can be made. The Act requires further coordination between agencies where there
is overlapping jurisdictions (wildlife, air quality, etc.). Pilot project offices should have
expanded capacity to review nominations and offer parcels for leasing. These measures provide
the basis for BLM to eliminate many of the delays associated with nominating and issuing leases
for public land energy production.
Permitting
Permitting remains the most immediate and perhaps manageable element controlling the
amount of natural gas to reach consumers. Commodity prices tells us that more wells need to be
drilled. Both industry and BLM have responded and drilling is up. The backlog of permits in
BLM field offices, however, continues to grow. As Table 2 shows, the number of permits
approved by BLM has increased 20%
over the last three years. At the same
time, the number of permits received by
BLM has increased by 27%. Field
offices have fallen further behind. For
companies juggling tight drill rig
availability with seasonal stipulations that allow drilling only during a narrow time frame,
permitting delays are very problematic. Approval times are unpredictable and often reaching six
months or more. An unpredictable permitting process leaves drilling contractors unable to
sufficiently respond to market conditions by moving more rigs into the region, and producers are
threatened with increased costs by losing drilling rigs or paying for drill rigs that they cannot
keep busy. Multiply these pressures by the number of rigs that are working and the need to have
multiple permits available to execute a coordinated, flexible drilling program and the need for a
more timely permitting process becomes painfully apparent. (See Attachments for more
information about Drilling Rigs in the Rockies).
The Energy Policy Act of 2005 created the Pilot Program to Improve Federal Permit
Coordination in the busiest BLM field offices throughout the Intermountain West. The provision
creating the pilot program also included a funding mechanism that uses one-half of the revenues
received from lease rental payments. BLM has diligently implemented this section by hiring and
training new personnel in the pilot offices. Although the program is just getting off the ground,
IPAMS has great expectations that new personnel will quickly learn their responsibilities to
minimize the apparent losses in efficiency that are inherent in any new program.
In addition to improving coordination among the federal agencies, IPAMS is very
pleased that the pilot program will examine the permitting process to see where efficiency gains
are possible. IPAMS believes this may be the most important step toward improving the
permitting process on federal land. A comprehensive look at the current process to identify
where the bottlenecks occur will help this Committee determine potential legislative action and
oversight opportunities. Without examining the permitting process and making changes to
improve its efficiency, BLM will likely continue to fall behind in permit approvals even as the
agency’s role will grow more important in meeting the nation’s energy needs.
One tangible improvement on the permitting front is the use of Section 390 of the Energy
Policy Act of 2005 which categorically excludes certain oil and gas operations from redundant
analysis under the National Environmental Policy Act. Recently, IPAMS conducted an informal
survey of our members regarding their experience with Section 390 of the Energy Policy Act.
Nearly one-third of the respondents had suggested the use of the categorical exclusions to the
BLM and 28% were accepted. Another interesting result from IPAMS’ survey was that Section
390 categorical exclusions took just as long to complete as the normal process for approving
permits. This finding may indicate the need for closer oversight by this Committee to ensure the
agency is carrying out the Congressional intent of Section 390.
Conclusion
Public land natural gas development is vitally important to the nation. The government’s
role in the natural gas markets today should be apparent and will increase in over time. While
paradigm changes in the administration of the federal minerals program are necessary to avoid
increasing dependency on foreign natural gas, the Energy Policy Act of 2005 is helping to
address some of the immediate barriers to meeting natural gas demand. IPAMS hopes that
federal agencies, at all levels, will continue to work with industry to ensure that the opportunities
created by the Energy Policy Act of 2005 continue to increase energy production on federal
lands.
Thank you for the opportunity to testify before you today, I am happy to answer any
questions you may have.