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OCR for page 17
Setting
The setting for the issues analyzed in this report is the federal lands
and resources, including minerals, administered by the Bureau of Land
Management of the Department of the Intenor, and the Forest Service of
the Department of Agriculture. This chapter describes those lands, their
significance for oil and gas exploration and development, the impacts of
federal land management on states and Indian tribes, and the relationship
of federal lands to the oil and gas industry.
FEDERAL IANDS
Of the 2.3 billion acres of land in the United States, 1.8 billion acres
was at one time held for the United States by the General Land Office, the
predecessor of the BLM. The remainder comprised lands either in the 13
original states or in Texas. By 1988, 1.1 billion of those public domain lands
had been distributed to states, homesteaders, veterans, railroad companies,
miners, and other public and private parties to whom Congress directed or
authorized land conveyances.
Portions of the public domain lands that were retained in federal
ownership were set aside by acts of congress and executive orders for
specific public purposes. These lands include Indian reservations, military
reservations, national parks, and national wildlife refuges. The lands that
remain open for various uses include lands in the first permanent federal
land reservation system the National Forests under the jurisdiction of the
17
OCR for page 18
18
Forest Service and the remaining unreserved public domain under the
jurisdiction of the BLM.
Today about one-third of the land area of the United States, 724 million
acres, is federally owned. Approximately 64 percent of those federal lands,
or 460 million acres, is managed by the BLM and the Forest Service.
The Forest Service became an agency before it had lands to adminis-
ter. The Division of Forestry was created in the Department of Agriculture
in 1881. Congress authorized withdrawal of the Forest Reserves in 1891,
enacted the Organic Administration Act (16 USC 3101) for their admin-
istration in 1897, and transferred them to the Division of Forestry from
the Department of the Interior in 1905. The division had been renamed
the Forest Service, and the Forest Reserves renamed the National Forests,
by 1907. The lands of the National Forest System were acquired by reser-
vation of public domain land, principally in the West, under the Forest
Reserve Act of 1891 (26 Stat. 1095), and by acquisition of private land,
principally in the East, under the Weeks Act of 1911 (16 USC 480~. Idday,
the Forest Service manages 191 million acres of National Forest System
land, 163 million acres reserved from the public domain and 28 million
acres of acquired land. The Forest Service administers most of these lands
under statutory multiple-use management and planning mandates, although
some of them are specifically designated for special management as units of
the wilderness, wild and scenic river, national trails, or other conservation
systems.
Although mineral exploration and development were not among the
uses specified by Congress for multiple-use management by the Forest
Service, in recent years the agency has included these uses in its land
use plans. The agency's 1979 planning regulations, promulgated to imple-
ment the planning requirements of the National Forest Management Act
(NFM.4) of 1976 (16 USC 1600-1604), gave explicit direction to the agency
to take minerals into account in its planning (36 CFEt 219.22, as amended
in 1982~. As discussed in Chapter 3, full statutory authority to ensure
implementation of planning decisions relating to oil and gas exploration
and development was granted to the Forest Service in the Reform Act.
The Bureau of Land Management is a more recent institution with an
older heritage. It was created in 1946 by the merger of two predecessor
agencies, the General Land Office (1812-1946) and the Grazing Service
(1934-1946~. Congress provided the BLM with its organic act in 1976
by enacting the Federal Land Policy and Management Act (FLP MA) (43
USC 1701-1782~. That act established the policy that the remaining public
domain lands under the BLM's management were to be retained in federal
ownership and to be planned and managed by the BLM under multiple-use
principles. The BLM manages some 270 million acres of public lands,
including 93 million acres in Alaska and 177 million acres in 29 other states
OCR for page 19
19
(BUM, 1989a). The agency also manages an additional 67 million acres of
mineral rights reserved to the federal government when the surface estate
was patented to public and private parties (BLM, 1989a). Finally, subject
to the concurrence of the Forest Service, the BLM manages leasing on the
National Forest System lands for oil and gas exploration and development.
The federal lands administered by the BLM and Forest Service are
among the nation's greatest assets, affecting the economic, environmental,
and social well-being of all Americans. They contain more than 50 percent
of the softwood sawtimber in the United States and are the source of about
25 percent of the annual wood volume harvested. They furnish three-
quarters of the West's water supply and a good share of the East's. They
contain more than 274 million acres of grazing lands, which sustain large
populations of livestock, wildlife, and wild horses and burros. They provide
habitat for more than 60 percent of the animal species in the country,
including more than 166 threatened or endangered species. They contain
more than 215,000 miles of fishable streams, 2.2 million acres of lakes and
reservoirs, 27.7 million acres or approximately 80 percent of the countries
designated wilderness (outside of Alaska), and support nearly 300 million
visitor-days of outdoor recreation a year. They include 66.5 million acres
under lease for oil and gas, and more than 400,000 acres of leased federal
coal (BLM, 1989a; Forest Service, 1989~.
The significance of these varied economic and noneconomic resources
to the nation and to the states in which they are located makes planning of
their use a formidable task for the land management agencies.
The Forest Service and the BLM will play a major role in shaping the
future not only of the federal lands, and Me industries that rely on their
resources, but also of many of the states in which the federal lands are
located. This role stems from the dominant position of the federal lands
in those states. In eleven states, the federal lands comprise more than 30
percent of the land base. In the five Rocly Mountain states in which oil
and gas exploration interest on federal lands is highest, the percentages of
federal ownership are Colorado 36, Montana 31, New Mexico 31, Utah 64,
and Wyoming 50 (see Able 1.1, p. 9~.
OIL AND GAS RESOURCES ON THE FEDERAL LANDS
Among the most significant uses of the federal lands are the exploration
for, and the development of, oil and gas.
No readily available calculation exists of the federal acreage available
for oil and gas leasing. The Office of Technology Assessment (OTA)
estimated that, in 1975, about 375 million acres of federal land, including
land in Alaska, was available for oil and gas leasing (see OTA, 1979, Able
Beg. This amount has shrunk in recent years because of the passage
OCR for page 20
20
I 100 1 1,000 1 1.0,000 1 100,000 11,000,000 1lO,OOO,OOOIAcres
I daho
Iowa
Kansas
Mississippi
Alabama Competitive Leases1,167
Non Cornet i t i ve Leases154, 926
Produc i ng Leases1, 781
Arizona Competitive LeasesO
Non Competitive Leases805,846
Produc i ng LeasesO
Arkansas Competitive Leases64,885
Non Conpet i t i ve Leases428 303
Producing Leases88 259
California Competitive Leases 13,588
Non Cornet ~ t ive Leases 1, 035, 680
Produc i ng Leases 72, 932
Colorado Competitive Leases 134,887
Non Competitive Leases 8 126 979
Producing Leases 2 783 977
Florida Competitive Leases O
Non Conpetitive Leases 255,432
Produc ~ ng Leases 4, 497
Georg i a Compet ~ t ive Leases O
Non Competitive Leases 4,474
Producing Leases O I
Competitive Leases O |
Non Cornet i t i ve Leases ^^^ '^^
Produc i ng Leases
I 11 inols Competitive Leases
Non CoTpetitive Leases
Produc i ng Leases
Compet i t l ve Leases
Non Competitive Leases
Produc i ng Leases
Competitive Leases
Non CoTpetitive Leases
Produc i ng Leases
Kentucky Conpetit ive Leases
Non Competitive Leases
Produc i rig Leases
Louisiana Competitive Leases
Non Comets t ive Leases
Produc ~ ng Leases
Maryland Competitive Leases
Non Competitive Leases
Producing Leases
Michigan Competitive Leases
Non Conpet i t ive Leases
Produc i ng Leases
Minnesota Conuetit)ve Leases
Non Con~eti tive Leases
Produc i ng Leases
Co pet i t i ve Leases
Non Cornet i t i ve Leases
Producing Leases
Missouri Competitive Leases
Non Conpet i t i ve Leases
Produc i ng Leases
Montana Competitive Leases
Non Conpetitive Leases
Produc i ng Leases
Nebraska Conpet i t i ve Leases
Non Cornet i t i ve Leases
Produc i ng Leases
·~e
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·~.
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·~.
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·~e
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·~eaneeaneaeneeaneneeaeeeanenea.~eanea.~e
·~e
A
A
909,499
a
430
320
350
o
460
a
14, 335
27, 143
63, 507
987
51, 670
20, 080
11,879
196 011
62 329
a
10,800
2,105
4,137
446, 221
17,467
a
17,146
° 1
19, 220 ·~eaeaa.~e
671, 575 ·~.aaanea.~e
52, 204 ·~aaaanaeeeane.~e
1 329
' 384
1, 329
95, 594
7,095 571
738 568
3 960
61 716
6,347
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A
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A
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A
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A
FIGURE 2.1 Federal lands under oil and gas lease, effective as of September 30, 1988.
SOURCE: Bureau of Land Management (1989a).
Of the Alaska National Interest Lands Conservation Act (16 USC 3101)
(converting over 100 million acres of federal land in Alaska administered
by the BLM and Forest Service into National Parks, wildlife refuges, and
wilderness areas), ongoing implementation of the Alaska Statehood Act (48
USC note preceding Section 21) (granting federal land to the state), the
enactment of the Alaska Native Claims Settlement Act (43 USC 1601 et
seq.) (transferring some 40 million acres of federal land in Alaska to Native
organizations), the designation of new wilderness areas, the withdrawal of
most other wilderness study lands from leasing, and other occurrences. On
OCR for page 21
21
100 1 1,000 1 10,000 1 100,000 11,000,000 1lO,OOO,OOOIAcres
Nevada
Compet i t ~ ve Leases
Hon Con~etitive Leases
Produc ~ ng Leases
New Mexico Competitive Leases
Non Con~et i t ive Leases
Produc i ng Leases
New York Coopet i t i ve Leases
Non Conpeti tive Leases
Produc i ng Leases
N. Carol ~ na Con~et i tive Leases
Hon Conpet i t 1 ve Leases8, 596
Producing Leases0
N. Dakota Conpetftive Leases31,111
Non Conpetitive Leases843,931
Produc i ng Leases396, 582
Conpet i t i ve Leases3 902
Non Conpetitive Leases19 830
Producing Leases9 470
Oklahoma Competitive Leases40 933
347,840
107,425
o
872,248 .
. O
477
2,802
6, 677
o 1
19,851
o 1
8,465
732, 165
53, 478
o 1
49, 307 ·~
o 1
10,142
235,654
35,476
189,233
6,439,460
778,442
1,120
230, 760
2,165
o 1
710,461
o 1
2,278
285, 667 ·~
1 03, 803 ·~e
o 1
95, 573 ·~-~e
o 1
674, 283
16, 018, 588
2, 621, 067 ·~.
Ohio
Oregon
Non Ca~etitive Leases
Produc i ng Leases
Conpet ~ t ive Leases
Non Coopetitive Leases
Produc i ng Leases
Pennsylvan] aCon~et l t l ve Leases
Texas
Utah
non con~etitive Leases
Produc ~ ng Leases
S. Caro l i na Con~et i t i ve Leases
Non Competitive Leases
Produc i ng Leases
S. Dakota Con~etitive Leases
Non Conpetitive Leases
Produc i ng Leases
Tennessee Co~npet~tive Leases
Non Compet i t ive Leases
Produc t ng Leases
Compet ~ t 1 ve Leases
Non Colipetit ive Leases
Produc ~ ng Leases
Conpetitive Leases
Non Con~et i t ive Leases
Produc 1 ng Leases
Virginia Con~etitive Leases
Non Co~pet i t i ve Leases
Produc i r~ Leases
Hashington Conpetitive Leases
Non Competi tive Leases
Produc i ng Leases
It. Virginia Con~etitive Leases
Non Calpet it ive Leases
Producing Leases
Wiscons i n Competi tive Leases
Non Conpet i t ive Leases
Produc i ng Leases
Hyomi ng Conpet i t i ve Leases
Non Con~etitive Leases
Produc ~ ng Leases
TOTALS Competitive Leases
Non Conpetitive Leases
Produc i ng Leases
FIGURE 2.1 Continued.
3, 672
6, 797, 950
13,447
392, 397
8, 654, 962
4,802,072
1, 382
7, 287
o 1
o 1
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2,286,139 acres ( 7,547 leases)
64,494,544 acres (73,023 leases)
12,908,598 acres (19,434 leases)
the other hand, a few previously withdrawn lands (e.g., some military lands)
have been made available for leasing since 1975. Rough calculations based
on these subsequent developments suggest that perhaps 250 million acres
of BLM and Forest Service land outside of Alaska is available for oil and
gas leasing today.
As of September 1988, approximately 66 million acres was covered by
approximately 80,000 federal onshore oil and gas leases in 41 states (Figure
2.1~. About 74 percent or 59,000 of these leases were located in the five
Rocky Mountain states of Wyoming, New Mexico, Colorado, Montana, and
OCR for page 22
22
Utah, with Wyoming having 34 percent of all leases (Figure 2.1~. As of the
end of fiscal year 1988, more than 19,000 leases were either producing or
capable of producing.
During fiscal year 1988 production from federal lands outside of Alaska
totaled 138.2 million barrels of oil and 873 billion cubic feet of natural gas
(see Figure 2.2~. Oil production has declined steadily since 1985. While
natural gas production has increased since 1986, it is still below production
levels of 1976-1985 (Figure 2.2~. Although the number of producible and
service wells for oil and gas has increased 1-3 percent per year since 1985
(see Figure 2.3), there has been considerable variation in the numbers of
approvals of Application for Permit to Drill (APD) and of wells drilled,
completed, or plugged. A comparison of production figures confirms that
while the number of wells capable of production on federal lands has
increased, the average production per well decreased in the period 1985-
1988 (Figures 2.2 and 2.3~.
Federal oil and gas leases remain a significant source of revenues to
the federal government and states. As indicated in Able 2.1, while bonuses
paid when leases are sold have fluctuated, federal royalties paid upon
production have declined steadily since 1984. Over $580 million in federal
revenues was generated from oil and gas lease bonuses, rents, royalties, and
fees in fiscal year 1988 (General Accounting Office, 1989~. Under Section
35 of the Mineral Leasing Act of 1920 (30 USC 181-287), 50 percent of
all federal lease revenues, except fees, are paid to the 41 states in which
the leases are located (30 USC 191~. Priority uses of those state-share
mineral lease monies are for planning, construction, and maintenance of
public facilities, and provision of public services in communities socially
or economically impacted by the presence of mineral-related production
(30 USC 191~. In addition to lease revenues, many states also receive
significant revenues from taxes on federal lands, oil and gas production,
and related operations such as severance (Bible 2.2), sales, and corporate
franchise taxes.
Although fiscal year 1988 was the first year of implementation of the
Federal Onshore Oil and Gas Leasing Reform Act of 1987 (101 Stat.
1330-256), a number of the changes in the leasing system intended by that
statute were achieved. During the five years prior to the enactment of the
Reform Act, approximately 85 percent of all onshore oil and gas leases
were issued noncompetitively either by the simultaneous oil and gas leasing
system the lottery (mostly for parcels that had previously been leased)-
or by over-the-counter application (for previously unleased parcels). The
remaining 15 percent was issued competitively through a sealed bidding
process (BLM, 1983-1988~. The Reform Act required that all parcels be
offered initially through a competitive oral bidding process.
OCR for page 23
23
1.04
1.00
o
- 0.~e -
._
0.84
0.80
Gas Production
A
-\
/
~ 0.96
C) _
- 0.92 - \ / \
V
170 _
160
120
Oil Production
A
In 150- ' ~ - -- 6< _
D
D
-
140
o
-
-
~ 130
r
-
\
\
1 976 1 977 1 978 1 979 1 980 1 98 1 1 982 1 983 1 984 1 985 1 986 1 987 1 988
FIGURE 2~2 Oil and natural gas production from federal lands, onshore continental
United States, 1976-19~. SOURCES: Bureau of Land Management (1977-1983~; Minerals
Management Service (1988~; 1988 data courtesy of the Bureau of I>nd Management and
the Minemls Management Senace.
The resultant change was significant, as shown by comparing the pre-
Reform Act leasing statistics from fiscal year 1987 and the first part of
fiscal year 1988 (FY 1987/1988) with the post-Reform Act leasing statistics
from the latter part of fiscal year 1988 (FY 1988~. The percentages of
noncompetitive leases decreased from 92 percent during pre-Reform Act
FY 1987/1988 to 42 percent during post-Reform Act FY 1988 (BLM, 1989c).
The average revenues per acre derived from the changed leasing system
did not differ as dramatically as the types of leases issued. The average
revenue per acre was $9.96 for all acreage leased under the Reform Act in
fiscal year 1988, compared to $8.49 during fiscal year 1987 (BLM, 1989c).
Total lease sale revenues declined by less than 1 percent between FY
1987 and FY 1988 (BLM, 1989c). A more significant change was seen ~
OCR for page 24
1
o -
1
x
x
x
x
x
x
x
- ~
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Excludes Alaska
1 98S 1 986 1 987 1 988
V/l 1\\1 15///? K\\ ~
APDs New Holes Producible Plugged and Producible
Approved Started Completions Abandoned and
Service Wells
FIGURE 2.3 Oil and gas drilling activity, onshore continental United States, 1985-1988.
SOURCE: Bureau of Island Management (1986-1989~.
TABLE 2.1 Revenues from Oil and Natural Gas Production from Federal Leases, Onshore
Continental* United States, Fiscal Years 1978-1988
. . .
Bonuses freon
Oil Natural Gas Oil and Gas
Year Royalties Royalties Leases
1978 $180,195,273 $120,224,013 $ 12,705,965
1979 236,739,377 165,102,136 7,597,171
1980 408,651,338 2~)9,037,121 22,048,947
1981 593,364,744 . 264,983,101 ~103.,314,389
1982 531,605,614 336,232,740 23,950,711
1983 512,512,369 ~335,492,897 25,426,256
1984 513,489,455. .364,265,104- - 38,287,948
1985 487,363,560 317~739,073 41,838,444
1986 265,968,601 213,699,482 26,643,088
1987 286,332,579 175,717,447 33,345,494
1988 229,537,219 177,547,956 -51,208,736
SOURCE: Courtesy of Minerals Management Service.
*excluding Alaska
OCR for page 25
25
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OCR for page 26
26
competitive lease sale revenues. The average per-acre bids for competitive
leases declined between FY 1987 and FY 1988 (Table 2.3 and 2.4~.
RELATIONSHIP OF FEDERAL LAND MANAGEMENT TO
STATES AND INDIAN LANDS
As previously noted, because of the large area of federal lands within
some states and within or adjacent to some Indian Reservations, federal
management of oil and gas activities has a significant impact on those
states and Indian tribes. The interests of states and tribes can be generally
considered in three categories: land and resource manager, royalty owner,
and regulator. Furthermore, in the case of Indian lands, the federal
government's trust responsibility for Indian affairs can also significantly
affect the development of Indian resources.
Impact on States
As a land manager, a state is concerned with prudent management of
all lands, including BLM and Forest Service lands, and related resources
within the state. Although states with a major federal land base have from
time to time planned for specific development, such as pipeline corridors,
water projects, and recreational facilities, in the majority of cases the federal
government has taken the lead in land use planning. Where federal lands
constitute a significant presence in a state (see Table 1.1, p. 9), federal
planning decisions may directly or indirectly limit options for planning
the adjacent nonfederal lands and inholdings. For example, where state
School Must Lands occur as inholdings within a designated National Forest
wilderness area, the lack of economic access may preclude a state from
deriving maximum economic benefit from those Must Lands.iAlso, the
ability of a counter to manage its resource base for a variety of reasons,
including lack of revenues, is often severely curtailed by the size of, and
planning decisions for, the federal landholdings within its boundaries.
The process of planning for, and protection of, a state's wildlife re-
sources is distinct from timber, mineral resource, or rangeland management.
A state wildlife agency generally owns or exerts direct management author-
ity over only a small portion of total wildlife habitat. Except in the case
of threatened and endangered species, the ability of the state or agency
to ensure protection of wildlife habitat is dependent on its ability to use
~ State School llust Lands are lands that were granted to the state by the federal govern-
ment at the time of statehood. The lands generally include specific sections scattered within
federal landholdings and/or other specific land grants. These lands are managed in trust by the
state, with revenues dedicated to support the state's school system.
OCR for page 27
27
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OCR for page 28
28
reliable wildlife data in decisions concerning land use planning, leasing,
and development. The importance that the state and its citizens place on
wildlife, timber, oil and gas, and other resources is critical in establishing
wildlife priority in the planning process.
The governor, as well as the legislature, counties, and citizens, have
opportunities to comment on proposed federal land use plans under a
variety of statutes including NEPA (National Environmental Policy Act),
FLP MA, and NFMA Furthermore, in Granite Rock v. California Coastal
Commission (480 US 572 [19873), the court confirmed the states' rights to
enforce environmental regulations on federal lands, absent a clear conflict
of federal law.
A state not only may suffer a loss of control under aggressive federal
planning programs, but also may be harmed by the consequences of poor
federal planning.
. .
Administrative or judicial suspension of oil and gas
activities stemming from an inadequate land use plan will have the same
impact as an overly restrictive plan: no oil and gas leasing, exploration,
or development. Therefore, the state has an interest in ensuring that
the federal land planning and management are comprehensive, accurate
rip -- -=
balanced, workable, and timely.
As previously noted, under the Mineral Leasing Act, the states receive
50 percent of all bonuses, rentals, and royalties from the leasing and
production of federal minerals within their boundaries. In fiscal year
1988, the states received more than $229 million from federal oil and
gas leasing and production (Bible 2.1~. As a royalty owner, the state is
best served by orderly development and maximum, efficient extraction and
sale of federal oil and gas. Conservation and maximum recovery of oil
and gas from state lands may be dependent on coordinated recovery from
adjacent federal lands. From the state's perspective, any planning decision
that limits leasing or exploration and development may result in lost state
royalty revenues as well as federal lease revenues. Although this revenue
sharing gives the states a powerful fiscal incentive to support oil and gas
leasing and development on federal lands, states may also sometimes favor
restrictions on such activity in order to protect other values and resources
(e.g., wildlife that is generally subject to state authority).
The state's role as a regulator has become increasingly important in
the last 15 years and presents a significant opportunity for the state to
influence operations on federal lands within its boundaries. States have as-
sumed primacy for environmental programs governing air, water, and solid
or hazardous wastes, as well as delegated authority for auditing, inspection,
and enforcement of federal oil and gas operations. The Clean Air Act,
Safe Drinking Water Act, and Resource Conservation and Recovery Act
are enforced through permits or other compliance measures during explo-
ration, development, and reclamation. These delegated federal authorities
OCR for page 29
29
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are, in addition to legislatively mandated regulatory authority, generally in-
terpreted to apply to all lands within the police power of the state. Federal
primacy programs set a floor on regulation through state program require-
ments that are "no less effective than," "as eDective as," or "equivalent
to'' federal regulations. However, the state sets the regulatory ceiling and
establishes and enforces regulations, unilaterally and in coordination with
federal agencies.
Most states have an approval process for APDs, although each state's
interpretation of its authority over approval as opposed to acceptance-
of the application on federal lands varies. Most states have authority to
establish shell spacing on nonunitized federal lands. Most states regulate
the use of water, although the degree of regulation and the roles of the
state land management agencies may vary. Furthermore, state and county
health departments are responsible for compliance with health codes on
federal lands. All states with a significant federal land base require bonding
of oil and gas operations, and most have agreements with federal agencies
that alleviate the need for duplicate bonding. While oil and gas well bonds
in the past were principally well-plugging bonds, current bonding practices
of the BLM, Forest Service, and most states extend the bonding to cover
surface reclamation.
The effectiveness of federal land management from the states' per-
spective is reflected in a balance of resource management, royalty and
tax revenues, energy development, recreational use, wilderness, Must Land
values, wildlife values, and local government needs. Where problems have
developed In the process of balancing these varied interests, they appear to
be the result of insufficient or inaccurate data bases, mechanisms that are
not mandatory and are poorly coordinated for factoring specific resource
management information during planning and leasing, and federal resource
priorities that differ from state, county, or citizen priorities for federal and
adjacent nonfederal lands.
Impacts on Indian Lands
Native Americans are also affected by oil and gas activities on federal
lands. They are often concerned with the impacts of exploration and
development on surface resources such as wildlife and sacred or ceremonial
sites. They are also primary beneficiaries of oil and gas leasing when it
takes place on lands where they enjoy full rights to subsurface resources or
derive revenue from permits for surface occupancy. However, the impacts
of federal land use planning and leasing actions on lands with surface
or subsurface Indian tribal or allottee ownership and Indian reservations
reflect important distinctions in federal actions and responsibility.
The federal government has a trust responsibility to tribes and allottees
OCR for page 31
31
(e.g., see United States v. Mitchell, 463 US 206 [1983]). Where federal
planning and leasing on federal lands impacts operations on Indian lands,
federal actions may be further constrained by the government's fiduciary
duties trustee.
There is no federal planning responsibility, per se, governing Indian
lands. However, the federal government, through the Department of the
Interior (BLM and Bureau of Indian Affairs), is responsible for NEPA
compliance and regulation of oil and gas exploration and development
on Indian lands. The tribe sets the standards and procedures for leasing
and establishes the terms of the lease. However, because the federal
government plans for federal lands adjacent to Indian lands, Indian tribes
often find themselves in a position similar to that of the states, where
planning for federal lands becomes de facto planning for the nonfederal
lands. The converse is also true in that some Indian tribes can assert treaty
rights for use of federal lands for the taking of wildlife or for sacred or
ceremonial sites. These rights are often contested, along with Native claims
to the land itself, when their exercise would inhibit other planned uses of
the federal lands.
THE OIL AND GAS INDUSTRY AND ITS FUTURE
ON THE FEDERAL LANDS
Onshore federal land management has had an important, but far from
dominant, role in the development of the oil and gas industry in the United
States. Over the years, the industry has been shaped by broad economic,
political, international, and technological factors that entirely overshadow
federal land policies and programs. 1b a large degree these factors will
dictate the industry's future interest in, and activities on, the federal lands.
Recently, the percentage of the nation's daily consumption of oil sup-
plied by imported crude oil and product rose above 50 percent a situation
that has significant national security, balance of payments, and other eco-
nomic implications. Additionally, recent rig counts in the United States
have been below or near historic lows, indicating diminished domestic ex-
ploration. Although no expert pretends that onshore federal lands outside
Alaska may be the answer to the country's increased dependence on for-
eign oil, they remain an attractive area for further exploration and may
contribute significantly to domestic production.
~day, federal onshore lands outside of Alaska provide 4.6 percent of
the nation's oil production and 5.0 percent of the its gas production. These
proportions have declined slightly since peak production years (1969 for
oil, 1982 for gas) from onshore federal lands: from 5.9 percent for oil in
1969, and from 5.8 percent for gas in 1982. Overall, and with the exception
of some parts of Alaska and the Outer Continental Shelf, the United States
OCR for page 32
32
has been more thoroughly explored for oil and gas than any other region
of the world. It is what geologists describe as a "mature province" for oil
and gas exploration. Most observers agree that where future oil and gas
reserves will likely be found in the contiguous 48 states is now generally
known. Of course, their precise locations and volumes can be ascertained
only by exploration, but major surprises are unlikely.
The economic factors of prime importance in stimulating oil and gas
exploration have been the prices of crude oil and natural gas. As long as
domestic oil supplies were plentiful and crude oil prices were low, profits
for the major oil companies were made in processing and marketing.
The prices of crude and refined oil products were essentially controlled by
market conditions in the United States. With the ascent of the Organization
of Petroleum Exporting Countries (OPEC) and the shifting of control
over price to overseas, prices were first (1972-1982) escalated sharply,
encouraging investment in improved oil recovery methods in onshore fields.
Then (1982-1987) prices fell so low that several efficient recovery methods
became uneconomic and many old wells were abandoned with substantial
amounts of oil remaining in the reservoirs. While crude oil prices have risen
in the last two years, unpredictability has made the financial community
reluctant to make long-term investments in oil properties, thus restricting
the drilling activities of the independent producers, the segment of the
industry most dependent upon borrowed money.
In addition to impacts from price fluctuations, natural gas producers
have faced concern about the ability of domestic gas fields to meet gas
demand at adequate rates. Some industry observers believe that price
increases could have a more immediate impact on gas production because
the financial community might find the greater predictability of natural gas
prices and markets more to its liking than the foreign controlled prices for
oaf.
In recent years, government policy on supply of energy resources has
been noninterventionist, with diminishing control of natural gas prices.
Increased natural gas production may result from legislative efforts to
improve air quality by reducing sulfur dioxide and nitrogen oxide emissions
and the resultant need of fixed site energy consumption for cleaner fuels,
as well as the natural gas shortage apparently developing in California.
Any substantial shift toward greater natural gas consumption likely will
entail some increase in the price of domestic natural gas, an expansion
in exploration for new gas fields in the United States, and a greater
dependence upon foreign (mainly Canadian) sources of natural gas.
If oil and gas prices increase the same relative amount, industry funding
for new domestic exploration will probably focus on efforts to find new gas,
rather than oil, fields. Funds for oil are more likely to be channeled into
improved recovery of oil from existing fields. To prominent factors favor
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33
expending new money in old oil fields and new gas fields. First, there is
very limited engineering potential for improved recovery from many gas
fields, making enhanced recovery largely an enterprise in existing oil fields.
Second, the geochemical conditions for generation and preservation of
oil and gas underground favor oil fields at relatively shallow depths and
gas fields at greater depths. Because, in most of the United States the
shallow rock horizons have been intensively explored and the deeply buried
formations have not, the chances for-findin~ new fields are greater at denths
that are more prone to contain gas.
~ ~ ~. . . . .
D - ~By' ~r ^^-
wattle recem projections suggest the largest undiscovered onshore
resenes of natural gas occur in Alaska and the Gulf Coast (U.S. Geological
Survey and Minerals Management Service, 1989), the exploration for new
domestic gas fields will include the Rocky Mountains. Key Rocly Mountain
geologic provinces for natural gas resources include federal lands in the
Overthrust Belt of Utah, Idaho, Wyoming, and Montana-a region that
also has highly significant surface values. According to the U.S. Geological
Survey and the Minerals Management Service (1989). un to 30 Percent
~. ~. .
~ 1 ~ ~
or fine region s reserves have been produced. Of course, such estimates
are highly speculative. The National Research Council is studying the
methodologies used in these assessments and will issue a report on the
subject in the spring of 1990. In general, much of the land base of the
Rocly Mountain states, and most of the relatively unexplored lands are
federally owned, making gas exploration a significant future use of the
federal lands.
The likelihood that new exploration and development on federal lands
will favor gas over oil is of significance to future onshore oil and gas leasing
and the environmental impacts of leasehold activities. For example, gas
fields are usually developed on a spacing pattern of one well per 160-640
acres, whereas oil fields are developed on patterns of much more closely
spaced wells, generally one well per 20 or 40 acres. This lower density
of gas wells has the potential of reducing the magnitude of environmental
impacts from developed fields. It should be noted, however, that such
considerations do not rule out the. geologic fact that a lessee often does
not have a choice as to whether to develop oil or gas.
The profile of companies actively exploring and developing the federal
lands may also change. Onshore federal lands, especially those in the Rocly
Mountains, increasingly are becoming the domain of the independent oil
and gas companies. The expected more modest size of future discoveries
on federal lands is likely to attract more independent operators than the
major companies. The major companies are increasingly spending their
exploration funds overseas where the likelihood of discovering large fields
is greater, where costs and conditions may be more conducive to drilling,
and where nations often offer price guarantees, tax incentives, or other
OCR for page 34
34
financial inducements. Some industry observers believe that although major
companies may retain inventories of onshore federal leases, the bulk of the
leases that experience active exploration and development will be held by
independents.
At the same time, some of the problems encountered during ex-
ploration and development may be of greater concern to independent
companies. Some federal lands, particularly those in the Overthrust Belt
in the Rocky Mountains, present very difficult and costly conditions for
exploration and development. The topography is rough and the geology is
complex. Under natural limits and federal lease restnctions, surface activi-
ties are eliminated altogether in some areas and can take place only during
certain seasons or at certain times in other areas. Some independents may
find it more difficult to fund the high front-end costs associated with these
restrictions.
Certain natural gas reserves in the Rocly Mountain region are sour
(high sulfur content) and need special equipment for processing that is
costly and requires added time for installation. The committee saw one
such natural gas processing facility for the Riley Ridge gas field located
mainly on federal lands in Wyoming, which was being developed in a
joint venture involving one of the major companies. The higher capital
and operating costs for such operations may discourage participation by
independent operators.
Nonetheless, many independent producers are strongly dedicated to
finding and producing oil and gas on the federal lands. If oil and gas
resources on these lands are to be developed In the near future, that
development likely will be accomplished primarily by the independents.
The BLM and the Forest Service must be cognizant of the interests,
capabilities, and concerns of independents, as well as the major operators,
in framing their decisions on planning and leasing for, and development of,
oil and gas on federal lands.
REFERENCES
Bureau of the Census. State Tax Collections in 1970, State lax Collections in 1975, and
State lax Collections in 1980.
Bureau of Land Management. 1977-1983. Public Land Statistics, 1976-1982.
Bureau of Land Management. 1986-1989. Public Land Statistics, 1985-1988.
Bureau of Land Management, Department of the Interior. 1983-1988. Public Land Statistics
1982-1987.
Bureau of Land Management, Department of the Interior. 1989a. Public Land Statistics,
1988, Vol. 173.
Bureau of Land Management, Department of the Interior. 1989b. Competitive Sales by
BLM Offices, FY 1987 and FY 1988 (draft).
Bureau of Land Management, Department of the Interior. 1989c. Onshore Oil and Gas
Leasing Report, Fiscal Year 1988, BLM Facts.
OCR for page 35
35
Forest Sentence, Department of Agriculture. 1989. Report of the Forest Service, Fiscal Year
1988.
General Accounting Office. 1989. Mineral Revenues, Implementation of the Federal Onshore
Oil and Gas Leasing Reform Act of 1987. GAO/RCED~ 108. May.
Minerals Management Service. 1988. Mineral Revenues: The 1987 Report on Receipts from
Federal and Indian Leases.
Office of Technology Assessment. 1979. Management of Fuel and Nonfuel Minerals in
Federal Lands, Appendix B. p. 336.
U.S. Department of the Treasury. 1981. The Outlook for Severance lax Collections and the
Intestate Allocation of Revenue Sharing (Office of State and Local Financed.
U.S. Geological Survey and Minerals Management Service. 1989. Estimates of Undiscovered
Conventional Oil and Gas Resources in the United States-A Part of the Nation's
Energy Endowment.
Representative terms from entire chapter:
leases produc
