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8
Discussion and Recommendations
INTRODUCTION
The committee agreed that a number of the problems involved in
balancing oil and gas development with other uses of the federal lands could
be ameliorated by adjustments in current planning and leasing practices.
In some cases, the BLM and the Forest Service are already making such
adjustments.
The planning process now used by both agencies provides some gov-
ernmental guidance and control for what had been a system of largely
privately initiated mineral development. A strength of that prior system
was that it could respond quickly to changes in economic conditions. The
modern planning system mandated by Congress for both BLM and Forest
Service lands requires that decisions be made well in advance of specific
kinds of activities, thereby limiting the private sector's ability to respond
promptly to changes in market conditions.
Federal land and resource planning has evolved rapidly in response to
increasing demands for resources from these lands and to growing concerns
for environmental protection across the society as a whole. At the same
time, the agencies have markedly improved their ability to meet the re-
quirements of the National Environmental Polic y Act in their planning and
leasing decisions, although recent court decisions demonstrate that some
uncertainty still exists about these legal mandates. These court decisions
and the evolving refinement of the planning process have increased the
complexity, cost, and length of time required for that process.
113
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114
These plans, upon adoption by the agencies, are legally binding; that
is, they control the agency's exercise of its management discretion unless
and until modified. In some situations these plans will preserve options for
various future uses of federal lands and resources, and will provide some
measure of stability by limiting agency discretion over the plan's life. On
the other hand, the plans may restrict future uses of federal lands on the
basis of currently available information, and may create new costs and limits
for future generations. For example, communities surrounded by federal
lands may find their opportunities to respond to changes in economic and
other conditions constrained by planning decisions that may not be easy to
alter in coming years.
The planning process attempts to balance national and local interests,
and makes judgments about costs and benefits, although it may not do
so explicitly. The statutory definitions of the "multiple use" management
goals, assigned by Congress to both the Forest Service and the BLM in the
Federal Land Policy and Management Act of 1976 (43 USC 1701-1782)
explicitly caution, however, that the agencies are "not necessarily to iselect]
the combination of uses that give the greatest economic return or the
greatest unit output" (43 USC 1702(c)~.
Perceptions of benefits and costs are not necessarily the same for
the national and the state or local interests. For example, the cost of
closing some federal lands to oil and gas development to meet national
demands for recreation and environmental quality may be largely borne
by people in the immediate area of federal lands. On the other hand,
the cost of meeting national needs for oil and gas may be borne by
local communities in terms of recreational and environmental impacts.
Community opinion may be divided between those who welcome economic
opportunities from oil and gas activity, and those who place a premium on
recreation and preservation or who emphasize stability, continuity, support
for existing industries (such as timber), and avoidance of boom-bust cycles.
The committee visited and heard from officials in two counties (both
named Teton County, one in Wyoming and one in Montana), where the
public officials took diametrically opposed positions on oil and gas leasing
on federal lands within their jurisdictions. The disparities in these local
attitudes underscore the difficulty facing any planning and decision-making
process.
SUMMARY OF CORE RECOMMENDATIONS
The committee has addressed a number of significant issues posed by
current practice. The following is a summary of its core recommendations.
In general, the agencies should analyze the reasonably foreseeable impacts
of oil and gas exploration and development in land and resource plans
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formulated for those areas where potential exists for oil and gas activist.
As a result of this analysis, one of three judgments ought to be made:
1. If this analysis leads the agencies to conclude that oil and gas
development can be regulated to control its impacts on other values to
acceptable levels, they should make such lands available for leasing, with
such stipulations as the planning analysis indicates are required to protect
those other values.
2. In some cases, information available at the planning stage may
not be sufficient to analyze the necessary trade-offs between protecting an
area's important environmentally related values and developing any oil and
gas that might exist. This may be the case with large areas of unexplored
land. In such cases, however, available information may be sufficient to
conclude that a limited number of exploratory wells can be drilled without
creating unacceptable impacts. If so, the agency ought to make the lands
available for leasing on a segmented basis. Such leases would contain
stipulations that convey to the lessee only the right to drill one or more
exploratory wells in areas identified by analysis in the planning process as
environmentally acceptable. The lessee would not have the right to bring
the lease into production until and unless the agency concludes that the
impacts of production are environmentally acceptable. The agency would
use the information gained by the exploratory wellts) to carry out a better-
informed, less-speculative analysis of the benefits and costs of production,
before making a final decision whether to allow it. If the agency decides,
after this further analysis, to disallow production, the lessee ought to be
reimbursed for the direct costs it incurred in acquiring and exploring the
lease.
3. In some cases, the information available at the planning stage
may show that even the drilling of exploratory wells, regardless of how
strictly it is regulated, would probably create unacceptable impacts on
other high-priority values. If so, the agency should declare that the lands
involved are presently unsuitable for oil and gas leasing. The agencies
should formulate specific criteria for determining unsuitability through a
combination of nationally applicable standards (established by rule making
to amend the agencies' generic planning regulations) and more localized
standards (formulated and applied in the planning process for local planning
units).
The committee also recommends that all onshore oil and gas leases
contain a carefully drawn stipulation that allows the land management
agency to prohibit further activity on any lease after it has been issued
where the agency determines that serious, unacceptable, environmental
harm is likely to result and the benefits of such prohibition outweigh the
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116
costs. In such situations, lessees ought to be compensated for their direct
costs in obtaining and developing their leases.
The reasoning behind the committee's core recommendations is two-
fold. First, it believes the planning process should be the principal focal
point for making decisions about where and under what conditions oil and
gas leasing should proceed on federal lands. Practically all the disparate
interests that addressed this issue in their presentations and comments to
this committee agreed upon that approach, even though they had somewhat
diverging views on exactly how the planning process should arrive at these
decisions. The committee is persuaded that the planning process, with
its systematic, interdisciplinary approach, allowing ample opportunity for
participation by all interests, is an essential component of decision making.
Second, the committee is concerned or that the planning process could
be saddled with a task that in some circumstances it could not perform well.
That is, in some cases it may simply be beyond the inherent limits of the
planning process to make meaningful, realistic forecasts about the impacts
of oil and gas development (as opposed to exploration) on other resources
and values. Where that is the case, further analysis may be necessary after
exploration has produced enough information to allow such projections
to be made. Furthermore, in some cases environmental concerns may
be recognized or be more fully appreciated only after the planning and
leasing process is completed. This suggests the need for agencies to retain
continuing authority to prohibit, with reimbursement of the lessee's out-
of-pocket costs in appropriate cases, activities in order to prevent serious
environmental harm.
An elaboration of the committee's core recommendations follows.
After that, a few other, narrower recommendations to improve the oil and
gas leasing process are set forth and explained.
RECOMMENDATION ONE
The agencies should use their planning processes to forecast the reasonably
foreseeable consequences of oil and gas exploration and development Where
those consequences are deemed acceptable, the agencies should make the lands
available for leasing.
As noted earlier, there is usually a significant time lag between agency
planning and leasing, exploration, or development. The period can stretch
over several decades. A plan may be in effect for 15 years. Leasing may
not take place until near the end of the plan's term. A lease is typically
not drilled even for exploration until the last year of either a 5- or a
10-year lease term, and it may take several more years to drill step-out
wells and prepare a field for full production. A moment's reflection on
the changes in technology, public opinion, policy, and scientific knowledge
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117
of environmental impacts that have occurred in the past few decades
demonstrates the difficulty of making realistic projections over such a time
period.
Changes that can occur over such a time scale can cut both ways;
that is, they may make mineral activity more or less acceptable. An energy
crisis and the emergence of new, lower-impact exploration and development
technology are examples of the former. The identification or formal listing
of an endangered species and the discovery of a geologic condition that
makes oil and gas development hazardous are examples of the latter.
Agency decisions not to lease or to lease only with severe restrictions
can readily be altered to accommodate changes that make mineral devel-
opment more acceptable. No-leasing decisions can be reversed and leases
issued; restrictive lease stipulations can be waived, suspended, or modified.
It is more difficult to deal with changes that argue for restricting
mineral development after leases are issued. The problem is a mixed one
of policy (honoring legitimate expectations of lessees! and law (the potential
"taking" of property rights).
~ .,4_ TV ~1 ~" ~
Besides the problem of time lag and evolving information and values?
there is the additional problem of efficiency; namely, the potential waste
of (mostly governmental) resources involved in assessing the possible en-
vironmental impacts of developing thousands of leases, when only a small
fraction of them will actually be drilled, and still fewer will yield petroleum
in quantities sufficient to warrant full field development. The government's
response to this problem has generally been to try to avoid or postpone
doing the environmental assessment until a proposal to drill is actually
made. This has usually been close to the end of the primary lease term,
and can be as much as 20 to 25 years after a land and resource plan is
prepared for the area.
The committee believes that the agencies should generally attempt
in their planning processes to forecast the reasonably foreseeable conse-
quences of oil and gas exploration and development. In many, perhaps
most, areas, such forecasts can be made with considerable confidence. Ar-
eas subject to planning may have already experienced exploratory drilling
or even production. Nearby areas under the jurisdiction of another agency,
federal or state, may have likewise seen oil and gas activity that has yielded
useful information about petroleum potential and the likely impacts of
petroleum activity on the lands subject to the planning process.
In some areas, however, particularly in wildcat areas where reliable
information on petroleum potential is lacking, forecasting the reasonably
foreseeable consequences of exploration and development will require sub-
stantial speculation because the actual impacts of oil and gas development
are controlled by the location, quality, and other characteristics of the
petroleum resource. Even in these wildcat areas, however, the agencies,
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prodded by some of the court decisions discussed in this report, are working
to improve the reliability of such forecasts.
In most cases, the committee believes that enough information about
the likely consequences of development will be available to allow the agen-
cies~to determine, at the planning stage, whether the consequences of
exploration and development are acceptable, considering the other values
and uses of the lands. If the agency determines that the impacts are accept-
able, the lands ought to be made available for leasing under stipulations
identified in the planning process as appropriate to protect other values.
In such cases the agencies should, in advance of actually holding
lease sales, perform an additional analysis to ensure that the conditions
and assumptions made in the planning process leading to the decision in
favor of leasing have not significantly changed. If they have, of course,
the agencies should prepare NEPA documentation and, if necessary, plan
amendments, to explore whether leasing remains acceptable.
Similarly, the agencies should also perform an additional analysis in
advance of acting on applications for permits to drill. and orior to anoroval
, ,1 A ~
of full field development plans of operations, in order to ensure that the
forecasts in the planning process have not significantly changed. If they
have, the agencies should prepare NEPA documentation and, if necessary,
plan amendments, to determine the appropriate level or type of activities.
While the committee recommends placing principal reliance on the
planning process in making basic decisions about oil and gas leasing, it urges
the agencies to try to keep the information they use as current as possible.
Agency plans sometimes tend to take on a life of their own, and agencies
may be reluctant to make major revisions or update the information in these
plans in subsequent plan amendments or revisions. Given the speculative
nature of some of the information, particularly geologic dam, used in the
planning process, the committee believes it is especially important that the
agencies attempt to ensure that the most current and reliable data are used
in these plans or any amendments or revisions thereof. Information and
accompanying analyses in previous plans should not, through inertia, go
unexamined over time. In the end, the plans may only be as good as the
accuracy of the data used.
RECOMMENDATION TWO
In areas where available information indicates the potential for high-
value oil and gas resources, but where surface values are especial) high
and potential land use conflicts cannot be resolved during planning, lands
should be made available for leasing with a right on) to drill exploratory
wells in defined locations. Information gained by that exploration should
be used to make a subsequent analysis and agency decision on proceeding
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119
with development if discovery of petroleum makes development possible. If;
after that analyst farther exploration and development Is prohibited, the
lessee should be reimbursed for its direct costs of obtaining and eurplonng the
leasehold.
In some situations, especially in wildcat areas where petroleum poten-
tial is significant but where little hard information is available, and where
other values that might be jeopardized by oil and gas development are
Important, a decision to issue leases that convey a right to proceed to
full development may be problematic. That is, because the actual charac-
teristics of any petroleum resource discovered in the area will determine
many of the impacts of development, in some cases the agency may simply
be unable to determine at the planning stage what these impacts will be,
and therefore be unable to make meaningful judgments about whether the
impacts are acceptable. Put a little differently, in some cases information
available to the agency at the planning stage suggests that the competing
values involved are in rough balance with each other (and that some of
these values may not be subject to conventional dollar weighing).
This information is relevant to both the benefit and the cost sides of
the leasing decision. On the benefit side, it shows the positive contributions
obtained from oil and gas activity (necessary to weigh against the environ-
mental costs of the development). On the cost side, this information is a
primary determinant of the environmental impact of the activity, because
the presence, location, and characteristics of the petroleum resource will
control the number and location of roads, drilling sites, gathering lines,
processing facilities, and other components of a producing field.
On the other hand, there will usually be enough information available
at the planning stage for the agencies to make a meaningful assessment of
the likely cumulative impacts of oil and gas exploration, because exploration
usually involves the drilling of a limited number of wells in relatively
discrete areas. This will generally allow the agency, in turn, to determine
at the planning stage whether the impact of exploration on other values is
acceptable.
In these cases, which would generally be areas that have never been
explored by drilling, the committee recommends that the agencies concen-
trate their analysis at the planning stage on the impacts of exploration. If
those impacts are deemed acceptable, the agencies should make such lands
available for leasing with a special stipulation that would convey to the
lessee only the right to drill exploratory wells.
The lease would not convey the right to proceed to production or
full field development. Such a right would only be granted to the lessee
after further analysis and a further decision by the agency. The agency
would use the information gained by the exploratory Welles) to engage
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120
in a better-informed, less-speculative analysis of the benefits and costs
of production, before making a final decision whether to allow it. This
additional analysis could take place in a process to amend the agency's
plan, in an environmental impact statement under NEPA, or in a document
that serves both functions.
This circumscribed category of staged leasing would not be the same
as the contingent rights stipulation sometimes used in the past. Leases with
contingent rights stipulations carry with them no rights to explore or develop
without further permission. The staged leasing the committee proposes
would contain a right to explore under suitable mitigating conditions,
but not a right to proceed to development. The exploration permitted
would obtain information on the petroleum resource sufficient to allow the
agency to engage in a much more informed analysis of the consequences
of development.
Although this staged approach to leasing would pose some risk to
lessees, a number of features would substantially mitigate the risk First,
prospective lessees would know of this limitation in advance of leasing
and could discount their bids by their assessment of the likelihood that
permission to proceed with full development may be denied. Second, the
recommendation is that if this subsequent analysis leads the agency to
conclude that development is unacceptable, the lessee ought to receive
compensation for out-of-pocket costs. This would be done by means of
the lease stipulation discussed more fully under recommendation four.
Third, prospective lessees may be assuaged by the expectation that if the
exploratory Welles) disclose the existence of a sizeable petroleum resource,
the balancing of the costs and benefits of production will likely shift toward
development. In reality, in other words, the agency would be unlikely to
deny the opportunity to develop the lease if substantial oil and gas resources
are found, even though it would retain the right to do so.
Conceivably there might be some difficulties in applying this explora-
tion-only approach in areas that contain state or private land beyond the
direct control of the federal agencies. In such situations, close coordination
among the different owners may be necessary to ensure the efficacy of the
approach, a matter dealt with in recommendation eight.
The Outer Continental Shelf Model
The committee's proposal for a limited amount of leasing for explo-
ration only borrows from the generic approach of the oil and gas leasing
program used on the Outer Continental Shelf. In its 1978 overhaul of
the Outer Continental Shelf leasing statute (Outer Continental Shelf Lands
Act; 43 USC 1331-1356), Congress explicitly segmented the decision-making
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process into four stages: (1) a 5-year leasing plan, (2) lease sales, (3) ex-
ploration, and (4) development and production, (43 USC 1337, 1340, 1344,
1351). Generally speaking, each stage is separate, and the completion of
one stage does not entitle a lessee to begin the next
The Outer Continental Shelf program also authorizes test or ex-
ploratory wells to be drilled, under governmental supervision, for envi-
ronmental protection purposes (see 30 CFR Part 251~. At the conclusion
of drilling, such wells are permanently plugged and abandoned (30 CF~
251.~2(g)~. The person proposing to drill a test well must "afford all inter-
ested persons, through a signed agreement, an opportunity to participate
in the drilling on a cost-shanng basis" (30 CF~ 251.6-3a. The infor-
mation gained as a result of the exploratory well must be shared with the
federal government and others who have shared in the cost of the well (30
CFR 251.11; 251.12~. The regulations also provide detailed guidance on
disclosure of the information to the public and the affected states (30 CFR
251.14-1; 251.14-3).
The committee recommends that a similar approach for cost and
information sharing be used in this limited category of staged leasing
onshore.
An Alternative Considered and Rejected
One alternative considered by the committee was that the agencies
determine, through analysis at the planning stage, the maximum amount of
acceptable development and attach stipulations to subsequent leases that
would prevent lessees from exceeding the maximum. Under this approach,
the planning process would be used to fix the maximum number of de-
velopment features such as wells, miles of new or upgraded roads, and
length of gathering lines or pipelines, as well as the maximum amount
of deterioration in air and water quality. Leases would not convey any
right to develop above those maximums set in the plans. If additional
development was proposed above that level, new environmental analysis
(and plan amendments) would be required. Lessees would have no right
to develop above that level, but leases could be suspended until the level
of development drops below the maximum, thereby allowing additional
activity to occur. This approach would commit the government legally to
allow some level of reasonably foreseeable development that is determined
to be acceptable at the plan/lease issuance stage, but the lessee would have
only a contingent right to develop beyond that level.
While this approach has some theoretical anneal Ohm ~ommi~P~ ha_
lieves that practical problems would prevent its functioning soundly. It
would be very difficult for planners to express maximum levels of accept-
able development in meaningful terms. Number of miles of roads, for
rr~~ ~~~&~8~ ~-
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122
example, is much too crude a measure. The location and construction
standards of roads are usually much more important than their length in
determining environmental impact. Moreover, this approach would require
such forecasting at the planning stage, before much may be known about the
location, extent, and likely methods for extracting and processing whatever
oil and gas east The Department of the Interior's coal leasing program at
one time contained an idea similar to this-determining maximum levels
of impact in a particular area subject to coal development but it was
eventually discarded as unworkable.
There might also be difficulties in sorting out rights of potentially
numerous different existing lessees in an area. An analog r might be drawn
here to the Environmental Protection Agency (EPA) "bubble" or emissions
trading concepts under the Clean Air Act, where rights to pollute up to
acceptable maximum levels may be parceled out on a first-come, first-served
basis, and a private secondary market may operate to achieve the most
efficient use of available development rights. But location is again arguably
more important with on-the-ground impacts of oil and gas development
than with air quality, where more "mixing" and uniformity of pollution are
achieved in ambient air.
RECOMMENDATION THREE
The agencies should use their planning processes to determine whether
certain lands are current) unsuitable for oil and gas exploration and develop-
ment when other potential uses of the land clear) outweigh potential values
for oil and gas resources.
Prior to enactment and implementation of modern environmental
assessment and planning laws, the federal government generally followed
the practice of issuing oil and gas leases upon request, without much (if
any) advance scrutiny of whether, for environmental or other reasons,
exploration and development of a particular area was wise. In substantial
part this traditional practice stemmed from a general consensus in the
Department of the Interior (and probably the society at large) that mineral
development was the highest and best use of most federal lands (those not
formally withdrawn from mineral development for national parks, military
uses, and the like).
Under this traditional practice, nearly all available lands were offered
for leasing, and for re-leasing as old leases expired, whenever anyone
expressed an interest in obtaining such a lease. The leasing program had a
life of its own-the Department of the Interior's role was rather mechanical
and reactive. Furthermore, the Forest Service played a fairly limited role
in oil and gas leasing on National Forests. This leasing practice was not,
however, required by law. The Mineral Leasing Act (30 USC 181-287)
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enacted in 1920 gave the Department of the Interior broad discretion to
lease or not to lease as it saw fit.
The NEPA and the planning statutes of the 1970s- required a change
in that practice by, in effect, mandating the federal agencies to be more
proactive than reactive. How much of a proactive mandate these laws
contain is not precisely clear, as exemplified by various court decisions dis-
cussed in Chapter 4. But these court decisions are unanimous in concluding
that the traditional way of proceeding leasing without some measure of
environmentally conscious decision making is inconsistent with current
law. These modern laws have, in other words, legislated a fundamental
change in agency decision-making processes as they relate to oil and gas
leasing, namely, that the wisdom of issuing oil and gas leases that carry with
them some right to explore and develop the resource must be evaluated
and explained in land and resource plans and/or environmental assessment
documents prepared pursuant to NEPAL
In the committee's judgment, the prior tradition of leasing upon re-
quest (as well as the policy direction from Department of the Interior
leadership in the past several years favoring leasing of all available land)
has led to a strong presumption in favor of leasing. That is, it Is the
committee's perception that the BLM and the Forest Service have been
somewhat reluctant to make decisions that certain lands should not be
leased for oil and gas.
In some cases, in fact, the government may be issuing oil and gas leases
in situations where the land management agency believes actual exploration
and development is likely to pose an unacceptable degree of degradation
to other values. Leases may be issued with the hope that exploration or
development will not be proposed (because, on the average, many more
leases are issued than are ever drilled), or that lease stipulations giving
the government the right to prohibit certain activity or to require stringent
mitigation measures will suffice to mitigate the consequences of drilling and
production activity.
As in earlier recommendations, the committee believes that the land
management agencies should use the planning process as the primary focal
point for the exercise of their discretion over leasing. Logically, this includes
a decision not to lease areas where, based upon the information developed
in the planning process, the agency is reasonably convinced that exploring
or developing a particular area would be environmentally unacceptable.
For example, an area being considered for oil and gas leasing in the
planning process may contain important habitat of an endangered species.
The federal agencies (which here would include the Fish and Wildlife
Service, given a key role in implementing the Endangered Species Act. 16
USC 1531 et seq.) may, at the planning stage, be reasonably confident
that oil and gas development can take place there without jeopardizing
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within a reasonable period of time (30 USC 1026(d)). No compensation
would be provided if such leases were terminated under this stipulation.
The Strength of the Outer Continental Shelf Analogy
In making this recommendation, the committee considered the strength
of the analogy between offshore and onshore oil and gas leasing. Clearly
there are some differences. The scale of activity offshore is markedly
different. Exploration and development costs tend to be much higher,
and marketable deposits tend to be larger. The higher capital investment
required makes the Outer Continental Shelf more the domain of the major
. · .
01 ~ compames.
Moreover, transportation problems are different and so are some
environmental risks (e.g., impact of oil spills on the marine environment).
There are also, arguably, fewer conflicts offshore than onshore between oil
and gas and other uses of the area. Also, offshore oil and gas development
does not open up relatively inaccessible areas to other uses the way onshore
development may.
Subsurface geology in areas targeted for activity offshore tends to be
less complex than onshore, at least compared to onshore areas like the
Overthrust Belt in the Rocky Mountains. One consequence is that while
per well costs are lower onshore than offshore (although these costs in
crease if the sites are in remote or rugged terrain), smaller pools and
less well defined structures generally require that more holes be drilled.
Another consequence is that directional drilling is comparatively less ex
pensive and likely to be more widely practiced offshore than onshore, which
gives offshore drillers more flexibility in drilling sites than their onshore
counterparts.
Ownership patterns onshore can be very complex, involving state and
private as well as federal interests. Offshore, by contrast, federal sovereignty
is uniform, except along the limits of state jurisdiction (generally out to 3
miles off the coast). Management of the Outer Continental Shelf is not as
subject to overlapping jurisdiction of different federal managing agencies
as are onshore federal lands. Finally, offshore development has a much
shorter history and is not as encumbered as onshore development by the
complex assortment of thousands of existing leases of varying size with
varying expiration dates.
Some of these differences might argue for more environmental atten
tion offshore (scale: the worst-case scenario from a major oil spill is more
serious offshore), while others might support more environmental attention
onshore (there are potentially greater conflicts among a wider variety of
uses onshore). The question is whether these differences destroy the utility
of the analogy.
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In the judgment of the committee, the analogy is close enough that
onshore leases ought to contain the same environmental "contingency" as
that included in offshore leases. The difficulty of making lasting judgments
about possible environmental impacts of leasing and their acceptability
over the potentially lengthy time period between leasing and development
argues for the stipulation.
The committee does recommend one adjustment in transplanting the
offshore approach onshore. If the stipulation is invoked to prohibit further
development offshore, the standard for compensation is the lesser of the
fad market value of the lease or the lessee's out-of-pocket costs. This might
be justified on the theory that the companies operating offshore are likely
to have substantial capital reserves to bear the risks involved. Onshore, on
the other hand, lessees are typically smaller independent companies much
less able to bear that rise In short, while reimbursement of actual direct
costs may not be of critical assistance or concern to major oil companies,
it can mean the difference between survival and bankruptcy for smaller
independents that are increasingly important in the federal onshore leasing
program.
In light of this difference, the committee recommends that the standard
of compensation onshore be uniform, and the government be obligated to
compensate the lessee for its out-of-pocket costs if exploration or devel-
opment of the lease is prohibited because of unacceptable environmental
impacts. This would mean that the lessee would be compensated for out-
of-pocket costs even if the lessee's reasonable expectation of profit were
less than that.
Cash Versus Other Forms of Compensation
Besides cash reimbursement, one option would be to compensate the
lessee who is denied development by giving it a bidding credit on other
leases. Such a credit has some useful advantages. It would keep the lessee's
investment "in play," as it were, in the oil and gas program. If the credit was
limited to bidding on other leases in the same state, furthermore, it would
ensure that the same state would retain a share in the potential revenues
obtained under the revenue-sharing provisions of the Mineral Leasing Act.
Another option is to compensate the lessee with a right to exchange the
existing lease for a new lease on another tract. This is more problematical
because it cuts against the 1987 Federal Onshore Oil and Gas Leasing
Reform Act's (101 Stat. 1330-256) policy of promoting competitive leasing.
Furthermore, although the committee has not studied the question, it is of
the understanding that the actual operation of a similar provision in the
Surface Mining Control and Reclamation Act (authorizing exchanges in the
context of leases in alluvial valley floors) has not proved very workable.
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Comparing the Committee's Recommendation to the
Forest Service's Proposed Regulations
~J ~ ~' - - 1 lo
The committee emphasizes that while the generic stipulation it rec-
ommends would make every on-shore oil and gas lease contingent upon
environmental acceptability, it believes this approach is superior to the one
taken by the Forest Service in its proposed regulations published in the
Federal Register on January 23, 1989. In that proposal, each oil and gas
lease would contain an explicit provision that the Secretary of Agriculture
"retains the authority under this lease to preclude all operations on a lease-
hold where analyses of the environment indicate such action is appropriate"
(proposed 36 CFR section 228(c)~.
The committee's proposal differs from that of the Forest Service in
two important-respects. First, it more tightly constricts the circumstances
under which the retained authoripr to withhold approval from the lessee
to proceed can be exercised by the agency. The Forest Service proposal is
l~roetv unbounded. requiring the agency to determine only that "analyses
of the environment indicate" that halting activity is "appropriate." By
contrast, the language of the Outer Continental Shelf Lands Act, which the
committee endorses, requires an explicit determination that activity would
"probably cause serious [environmental] harm or damage" that cannot be
mitigated within a reasonable period of time, and that cancellation of the
lease is better than continuing it in effect.
In the committee's view, the kinds of contingencies that would give
rise to exercising the power retained in the stipulation would be serious
ones, of the kind that would usually not have been foreseen or appreciated
in the planning and environmental assessment process that occurred before
the lease was issued. The contingency ought to be drawn, in other words,
so that it may be invoked only as a result of a serious threat of unmitigable
environmental damage. A very broad stipulation of the kind proposed
by the Forest Service could undercut the agencies' incentive to take the
pre-lease planning and environmental assessment process seriously.
It is the committee's judgment, in short, that the agencies ought to
reserve authority to restrict or prohibit lessees from proceeding where
necessary in extraordinary circumstances to prevent serious harm to the
environment. Such power ought not to be exercised casually. It is the
committee's understanding that it has not yet been exercised offshore even
though it has been part of the law for 11 years.
lithe second important difference between the committee's proposal
and that of the Forest SeIvice is that the latter lacks a compensation
feature. The committee believes such a feature is essential to provide
elemental fairness for oil and gas lessees onshore, many of whom are
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independent operators without the resources to absorb unexpected losses
of drilling opportunities.
An Alternative Considered and Rejected
The principal alternative to this kind of "safeguard" lease stipulation
is to issue oil and gas leases with stipulations that would let the burden
of environmental unacceptability fall upon the government rather than the
lessee. Under this approach, leases would arguably convey a property
right to develop, and if development ultimately proved unacceptable, the
government's only recourse might be to institute an eminent domain action
in federal court, compensating the leaseholder with taxpayer funds for the
fair market value of the lease.
This approach would in effect place the burden of inertia on the gov-
ernment, allowing unacceptable impacts to occur unless the government
instituted a judicial action to condemn the leasehold interest. Cranking
up the eminent domain machinery takes considerable time, with serious
environmental harm possible in the interim. It would also severely tax the
planning process, by in effect requiring the government to make the nec-
essary trade-offs and enter into firm commitments to explore and develop
on the basis of the information available then. In an imperfect world, this
is not always possible. Mistakes will be made, and unforeseen events will
occur. A proper regard for protecting the environment requires, in the
judgment of the committee, that the leases contain a general safety valve
for dealing with serious environmental problems, so long as the lessee is
reimbursed for its direct costs if development is prohibited.
Implementing the Committee's Recommendation
The committee notes that a potential difficult with the compensation
feature it endorses is in defining and determining what~out-of-pocket costs
are compensable. For example, a lessee may hold several adjacent leases.
Drilling on one might encounter the type of environmental problem that
would lead the government to invoke the stipulation. A lessee might run a
seismic line along the edge of that environmentally sensitive lease and then
seek reimbursement for the seismic survey, even though it was intended
to, and did, provide valuable information for development of the adjacent,
environmentally acceptable lease. Reimbursable costs should be specifically
and tightly defined to ward off such abuse.
Finally, the committee also considered the possibility of establishing an
insurance pool to cover the costs of compensating lessees. One idea would
be to levy a small surcharge on lease bonuses and/or on lease royalties,
calculated to raise a few million dollars a year. As indicated earlier,
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the committee believes that it should be rare for lease stipulations giving
rise to compensation to be invoked; therefore, the pool for compensation
need not be very large. Reimbursement decisions might be supervised by a
compensation board, with members expert in resource appraisal, petroleum
accounting, and other pertinent fields.
The advantage of establishing a mechanism to raise money for com-
pensation is that, at least theoretically, it allows the government agency to
decide whether to invoke the stipulation without being unduly influenced
by concerns about whether funds are available to compensate the lessee. A
disadvantage is that it complicates accounting and might require creation
of a minibureaucracy to administer.
The committee concluded that, because the experience on the Outer
Continental Shelf has been that the power to stop development of a lease
had never been used, there is no need at this point to create a full-blown
funding and administrative mechanism to implement this lease stipulation
onshore. Until and unless experience gained under this approach suggests
the need for such a mechanism, it could be handled under existing lease
administration procedures.
The proposals discussed above are the committee's core recommen-
dations. The committee also considered a number of other matters upon
which it submits the following recommendations.
RECOMMENDATION FIVE
The agencies should make efforts, short of creating substantial moratoria
on lease offerings, to control the configr~ra~on and timing of leases in a
parii.cular area to allow for better assessment of the cumulative impacts of
leasehold aciivaies in the area.
As noted earlier, the customary federal practice has been to offer
lands for lease as soon as they become available. Because federal lands
have usually not been offered for lease except upon request, and are made
available for re-leasing automatically upon expiration of existing leases,
the configuration (tract sizes and locations) and timing of leases are fixed
relatively haphazardly. The result is that lease offerings often do not form
a pattern that allows for sensible planning and assessment of impacts on
surface resources. Such variations may also adversely affect the indust~y's
ability to assemble logical exploration units. The Reform Act speaks a little
to this issue, requiring that lease tracts `'be as nearly compact as possible"
(30 USC 226(b)~1~(A)~.
One way to deal with the uncertainty of whether an area contains oil
and gas in developable quantities is to lease only part of an area, and refrain
from leasing the remainder until more is known through exploration of the
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135
few tracts leased. In one sense, this is a variation of the concept of leasing
for exploration in the committee's recommendation two. But rather than
separate the development decision from the leasing decision by means of
stipulations in the lease itself, this approach would separate the decision to
develop a large area of land from the decision to issue an individual lease
or leases for a part of that land.
A major practical difficulty with moving vigorously toward such a
system of leasing in stages with more coherent tract configuration is that
it could lead to fin fact, would probably require in some cases) delays
in re-leasing tracts as old leases expire, in order to assemble a block of
unleased land to be able to start fresh. This can create difficulties for those
states that are dependent upon steady streams of revenue from the federal
leasing program, because it can interrupt the flow of lease revenues. Such
moratoria, even if they are temporary, can also lead to concern in the
petroleum industry that a delay in leasing in a particular area will make
it more difficult to resume leasing. Another problem is that state and
private lands are sometimes intermingled with federal lands, which lessens
the control the federal agencies can exercise over the timing of exploration
and development.
A delay in leasing to reconfigure tracts might, on National Forest land,
be seen as inconsistent with the thrust of the Energy Security Act (see p.
45), which admonished the Forest Service not to delay leasing decisions in
order to prepare new plans. Cutting the other way, however, are decisions
construing the National Environmental Policy Act as requiring agencies to
consider, before taking any action, the cumulative impacts of several indi-
vidual, contemporaneous agency actions in a single environmental analysis,
such as where several pending proposals for energy development 'drill have
cumulative or synergistic environmental impact upon a region" (Kleove v.
Sierra Club, 427 US 390, 410 [19763~.
-an a- - -rr
The committee believes that the federal land management agencies
ought lo pay more attention to this issue in administering the leasing system,
but should move carefully because of the potential difficulties involved in
delaying lease offerings. Where the agencies have the opportunity, such as
in leasing areas for the first time, or where temporary delays in leasing in
certain areas have occurred for other reasons, the agencies should try to
configure and assemble parcels for leasing in a way that would allow better
and fairer (to both potential lessees and other interests) consideration of
the tradeoffs between the environment and mineral development.
1b the extent this is attempted, the Reform Act creates a potential
obstacle to synchronizing leases in a particular area. It requires that lands
offered for lease but not leased competitively "shall be offered promptly
within 30 days for [noncompetitive] leasing . . . and shall remain available
for inoncompetitive] leasing for a period of 2 years after the competitive
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lease sale" (30 USC 226 (b)(l)(A)). This allowance of a 2-year window for
noncompetitive leasing creates the possibility that leases issued at the same
time in a particular area may have considerably different expiration dates.
In order to keep leases in a particular area in synchronization with
each other as much as possible, the committee suggests that consideration
be given to amending the statute to narrow the '~window" for noncom-
petitive leasing to two weeks or 30 days. This would not require much
change in actual practice, because to date, almost all of the leases issued
noncompetitively are actually issued within one week of the competitive
sale.
RECOMMENDATION SIX
leases.
Consideration ought to be given to shortening the term of noncompetitive
Competitive leases are issued for 5-year terms; noncompetitive leases,
for 10 years (30 USC 226 berg. Shortening the noncompetitive lease term
offers a partial solution to the forecasting difficulties in making leasing
decisions in land use plans; that is, even year the lease term is shortened
would shorten the planning horizon, and the time lag between leasing
decisions and drilling, by like amount. At least theoretically, this would
make better forecasts of impacts possible.
Good reasons may exist independently of the problem under discussion
to recommend shortening the noncompetitive lease term. Making both
kinds of leases the same term would undercut the bidders' incentive to
avoid bidding competitively on leases and would probably result in greater
financial return to federal and state treasuries.
On the other hand, the committee is unable to reach a conclusion
about the impact such a shorter lease term may have upon the onshore oil
and gas ir~dust~y. A shorter term may lessen the ability of onshore lessees
to assemble land positions (combinations of leases) necessary to carry out
an exploration program. As noted earlier, onshore land ownership patterns
are more variegated and complex than offshore, and substantial time may be
required to negotiate necessary arrangements. Also, the fact that onshore
operators are usually smaller independent companies means they tend to
require more outside financing for exploration, which may also require
substantial time to negotiate.
RECOMMENDATION SEVEN
The agencies should improve opportunities for public participation in their
decisions to issue leases and to waive, suspend, or modify lease stipulations.
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The committee recommends that the agencies create a simple, standard
procedure for dealing with these public participation issues. These are
largely technical, process matters susceptible of relatively easy solutions.
They are, however, important in giving the oil and gas industry, other
interest groups, the public, and other governmental agencies confidence in
the oil and gas leasing program and its administration.
The agencies should do more than just post a notice in their offices;
they should be aggressive in reaching out to provide notice to, and solicit
input from, the state and local governments and the public. The agencies
should maintain a mailing list of interested parties to receive notice of sales
and related decisions as a matter of routine. Furthermore, the process for
rescinding, modifying, or suspending lease stipulations should be treated
with the same dignity and weight as the process of selecting them in the
first place.
RECOMMENDATION EIGHT
Where the potential impacts of oil and gas activity would extend beyond
the borders of the planning area, the federal land management agency should
coordinate its planning analysis with planning efforts by the same agency in
_ ~ . . ·
adjacent planning areas, and with other agencies that have Jurisdiction over
nearby lands and other surface values.
One of the obstacles to rational planning in relation to oil and gas
development is the complexity of ownerships often encountered. Federal
land or federally owned minerals may be intermingled with state, tribal,
and private land or minerals. Moreover, federal land may itself be under
the jurisdiction of different federal agencies. tvDicallv the ~Or~.~t .RP.n~irP
and the Bureau of Land Management.
Ownership and management jurisdictional lines usually depart from
watershed or ecosystem boundaries, and at least some environmental im-
pacts from oil and gas activity may be felt on adjacent lands. This also
renders more difficult efforts to predict and assess what kind of develop-
ment is reasonably foreseeable at the planning stage; that is, the agencies
may have little or no control over development on state tribal Or nriv~P
lands in the same area.
From the standpoint of rational planning, the difficulties here are
similar to those created by the hodgepodge pattern of leases and lease
expiration dates that has resulted from the former o`~.nPrn] "rar~tir~ of
leasing available lands upon request.
~.. . ..
, ~,, ~
~~~r-- ~^ ~I ~ ~1~`~
~_ a__ ~^ ~ Ad_ ILL-- Vt
one committee believes the agencies should coordinate their oil and
gas planning and decision making with adjacent planning units of the same
agency, and with other agencies and parties (federal, state, tribal, local, and
private) that manage or regulate activities on nearby lands. Existing law
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already contains provisions that promote such coordination; to some extent
problems can be mitigated if the agencies aggressively solicit the input of
other affected interests during their planning and NEPA processes.
Coordination does not, of course, demand consistency in recommen-
dations, decisions, and policies. It can, however, help all interested parties
and agencies plan for, and respond to, the activities authorized in the plans.
The committee recognizes that there is no mechanism, other than
persuasion, that requires adjacent planning units to cooperate in the federal
land use planning process. In the event that these adjacent planning units
fail to cooperate, or fail to cooperate in a timely fashion, the federal
planning agencies should continue their planning activities on schedule.
RECOMMENDATION NINE
To the extent feasible, the foregoing recommendations ought to be incor-
porated in the agencies' planing and leasing systems and applied to existing
lessees.
An effort to resolve the conflicts and problems arising out of current
planning and leasing practices must take account of the presence of some
80,000 existing oil and gas leases covering some 67 million acres of federal
lands. The nature of the rights to explore and produce conveyed in
these leases may vary somewhat from lease to lease. ~ the extent that
these leases actually convey vested rights to develop, they may limit or
even prevent application of some of the committee's recommendations to
activities conducted on the leaseholds.
Furthermore, solutions to the current problems must also take into
account the ongoing nature of the agencies' planning processes. In some
areas plans have been completed that may not comport with the recom-
mendations here. But, the agencies are taking steps to revise the treatment
of oil and gas leasing In current plans that they have determined do not
adequately comply with the judicial decisions discussed earlier in this report.
A single, generic solution to these problems is probably not practical.
The committee believes that existing leases ought to be subject, to the extent
feasible, to the regime that the committee recommends. The analysis of
reasonably foreseeable impacts of development and the unsuitability review
the committee recommends for the planning stage obviously must not be
applied in a way that destroys vested rights in existing leases. At the
same time, existing leases must be taken into account. Furthermore, the
committee recommends that, where possible, existing leases be made subject
to the reservation of authority to prevent serious environmental harm,
with an obligation to reimburse the lessee, as stated in the committee's
recommendation four. Some leases may already contain such a reservation
of authority. Even where they do not, it is possible that existing lessees
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might be agreeable to amending their leases voluntarily to include such a
condition, because the promise of reimbursement upon denial of permission
to proceed is a more certain remedy than lessees now have under existing
law. That is, even though existing lessees may have a right of compensation
under certain circumstances, costly litigation might be necessary to establish
it.
One way that some existing lessees might be encouraged to agree to
accept the stipulation would be if the Secretary of the Interior were willing
to suspend lease operations for a limited period, such as one year. One
possibility that might allow this is for the secretary to use his authority under
section 39 of the Mineral Leasing Act to suspend lease operations, with a
commensurate extension of the lease term, in the interests of conservation
(30 USC 209~. Such an extension of the term of existing leases to allow
incorporation of the stipulation could, at least in sensitive areas where the
availability of the stipulation might be particularly important, be a useful
step to take.
In any event, if applying such a stipulation to existing lessees unwilling
to include it voluntarily would require legislation, the committee notes that
Congress in the 1978 Outer Continental Shelf Lands Act Amendments did
apply such a provision to existing lessees.
Regarding land use plans, the committee recommends that the agencies
continue their practice of modifying and amending their plans as necessary
to conform to its recommendations. The committee cautions, however,
that a general or even substantial moratorium on new leasing should
not be instituted in order to implement its recommendations fully and
immediately. The committee notes, in this connection, that the clarifications
and adjustments in the agencies' planning processes contained in the House
version of the Reform Act would have given the agencies a transition period
of more than 3 years to bring their plans into conformity with the bill (see
H.R. Rep. No. 100-378, pp. 4, 9~.
National needs for oil and gas exploration and production and the
desirability of sustaining a domestic onshore industry cannot be ignored
in the transition to an improved system. Perfection in land use planning
and in administering an oil and gas leasing and management program
is unattainable. The committee believes that planning and leasing can
be improved by implementing the recommendations in this report, but
improvement may take some time to realize in the ongoing planning and
leasing processes.
Ted f~;~ ~^ _~
~ __ ~ ~ _ _ ¢_ _
1~ ~WlllllllLL~ llama 11O 111111 V~51b for estimating the costs and agency
staff needs that would be required to implement its recommendations. Land
use plans such as that for the Bridger-Teton National Forest, a relatively
complex and costly plan, can cost on the order of $3 million. Only a
portion of the cost of such plans, which generally devote considerably
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more attention to other resources, concerns planning related to oil and
gas exploration and development. Furthermore, the costs may decline as
the new planning requirements become more familiar. The committee's
recommendations would place some additional burden on the planning
process and add marginally to the cost of land use planning.
Bidders and lessees are also likely to incur some additional costs
for data collection and analysis if the committee's recommendations are
adopted. These would add marginally to the already substantial costs of
evaluating federal land areas for possible exploration and development.
~ be weighed against the additional governmental and industry plan-
ning costs are the costs to the public of continued stalemates in oil and
gas leasing on some federal lands. These, too, are costs for which the
committee is unable to provide estimates. But resolving the contentious
environmental and oil and gas development issues, to which the commit-
tee's recommendations are directed, Is intended to reduce these costs to the
public. The committee believes that the most cost-effective and equitable
way to resolve these issues is through strengthening the role of planning in
the leasing process, and making some adjustments in the leasing process to
make planning more effective.
Finally, the committee has not examined closely whether the agencies
have authority to implement these recommendations under existing law,
or whether legislation is necessary. In one case committee recommen-
dation six, that consideration be given to shortening the lease term for
noncompetitive leases-legislation would clearly be necessary. With other
recommendations, the matter is not so clear. Ultimately, the legal questions
involved are up to the agencies and, if necessary, Congress or the courts to
decide.
REFERENCE
Forest Service. 1989. Oil and Gas Resources Proposed Rule. Fed. Reg. 54(13~:3326-3339.
Representative terms from entire chapter:
federal lands
