Energy Policy Reform and Revitalization Act of 2007, Title VII of H.R. 3221: Summary and Discussion of Oil and Gas Provisions

Order Code RL34111

Energy Policy Reform and Revitalization Act of

2007, Title VII of H.R. 3221: Summary and

Discussion of Oil and Gas Provisions

Updated February 29, 2008

Marc Humphries

Analyst in Energy Policy

Resources, Science, and Industry Division

Energy Policy Reform and Revitalization Act of 2007,

Title VII of H.R. 3221: Summary and Discussion

of Oil and Gas Provisions

Summary

The conflict between environmental concerns and the need for increased

domestic energy production from public lands continues to be a major policy issue.

The Energy Policy Act of 2005 (EPAct 2005, P.L. 109-58), enacted several

provisions that were aimed at expediting the development of oil and gas on public

lands. Title VII (The Energy Policy Reform and Revitalization Act of 2007), of H.R.

3221 (New Direction for Energy Independence, National Security, and Consumer

Protection), most of which was originally introduced May 16, 2007, as H.R. 2337,

would repeal or amend several of EPAct’s provisions related to oil and gas

development on federal lands. Below are major provisions in H.R. 3221 related to

oil and gas development on federal lands approved by the House Natural Resources

Committee on June 13, 2007, by a vote of 26-22. The House approved H.R. 3221

on August 4, 2007, by a vote of 241-170. Selected provisions in Subtitle F —

Additional Provisions, not included in the earlier version of H.R. 2337, are also

discussed below. In a recent development, the House amended and passed (235-181)

the Senate-passed version of energy policy legislation (H.R. 6) on December 6, 2007,

but without the oil and gas provisions contained in Title VII of H.R. 3221 discussed

below. Those oil and gas provisions in Title VII were not enacted into law (P.L. 110140).

Subtitle A would repeal subsections 365(g) and 365(i) of EPAct 2005 regarding

recovery of permit processing costs. It would require the Secretary of the Interior to

impose fees on the oil and gas industry to recover costs associated with the

streamlining of permits during the pilot project established by EPAct to improve

federal permit coordination. A new 45-day deadline would be imposed for the

consideration of applications for permits under section 366 of EPAct 2005. Section

369 of EPAct would be amended by removing two deadlines related to oil shale

research and development and the preparation of a final environmental impact

statement for commercial oil shale and tar sands leasing on public lands. H.R. 3221

would limit section 390 of EPAct, which allows for a rebuttleable presumption

regarding the application of categorical exclusion under the National Environmental

Policy Act (NEPA) for oil and gas exploration and development activities, and

adhere to the regulations issued by the Council on Environmental Quality.

Subtitle B would require a minimum of 550 audits annually, and increase fines

for royalty payment violations under the Federal Oil and Gas Royalty Management

Act of 1982 (FOGRMA). Surface owner protection would be enhanced under split

estates where the federal government owned and leased minerals. Additional

requirements for the protection of water resources are included and new fees would

be assessed to lessees of federal lands. Onshore oil and gas reclamation requirements

would become more stringent.

Provisions in Subtitle F would establish an Oil Shale Community Impact

Assistance Fund and prohibit surface occupancy on federal leases on top of the Roan

Plateau, Colorado.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Oil and Gas Leasing on Public Lands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Cost Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Extension of Deadline for Consideration of Applications

for Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Oil Shale and Tar Sands Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

NEPA Categorical Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Best Management Practices (BMP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Fines and Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Amendments to Federal Oil and Gas Royalty Management Act

of 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Surface Owner Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Onshore Oil and Gas Reclamation and Bonding . . . . . . . . . . . . . . . . . . 6

Protection of Water Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Due Diligence Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Oil Shale Community Impact Assistance . . . . . . . . . . . . . . . . . . . . . . . 6

Roan Plateau, Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Energy Policy Reform and Revitalization Act

of 2007, Title VII of H.R. 3221: Summary

and Discussion of Oil and Gas Provisions

Introduction

The conflict between environmental concerns and the need for increased

domestic energy production from public lands continues to be a major policy issue.

The Energy Policy Act of 2005 (EPAct 2005, P.L. 109-58) enacted several provisions

that were aimed at expediting the development of oil and gas on public lands. Title

VII (The Energy Policy Reform and Revitalization Act of 2007), of H.R. 3221 (New

Direction for Energy Independence, National Security, and Consumer Protection)

most of which was originally introduced May 16, 2007, as H.R. 2337, would repeal

or amend several of EPAct’s provisions related to oil and gas development on federal

lands. Below are major provisions in H.R. 3221 related to oil and gas development

on federal lands approved by the House Committee on Natural Resources June 13,

2007 by a vote of 26-22 and approved by the House on August 4, 2007, by a vote of

241-170. Selected provisions in Subtitle F — Additional Provisions, not included

in the earlier version of H.R. 2337, are also discussed below. (For a discussion of

provisions in Subtitle E — Royalties Under Offshore Oil and Gas Leases, see CRS

Report RS22567, Royalty Relief for U.S. Deepwater Oil and Gas Leases, by Marc

Humphries, and for a discussion of renewable energy provisions in the bill, see CRS

Report RL33831, Energy Efficiency and Renewable Energy Legislation in the 110th

Congress, by Fred Sissine, Anne Gillis, and Mark Gurevitz.)

Significant amounts of technically recoverable oil and gas resources are

estimated to be on federal public lands. The most recent study, required by the

Energy Policy and Conservation Act (EPCA) of 2000,1 concluded that on the 99.2

million acres of federal lands surveyed, there are an estimated 20.6 billion barrels of

undiscovered technically recoverable oil resources and 182 trillion cubic feet of

undiscovered technically recoverable natural gas. Further, the study found that 24%

of the federal land surveyed is accessible under standard lease terms, 30% accessible

with restrictions, and about 46% of federal land is not accessible under current law.

The lands not accessible contain an estimated 51% of the oil and 27% of the natural

gas undiscovered and technically recoverable.2 Energy development on some of

these lands has been restricted because they are considered environmentally sensitive

or unique. Such restrictions include leasing with no surface occupancy, areas

1

2

P.L. 106-469 §604 as amended by the Energy Policy Act of 2005, P.L. 109-58 §364.

Scientific Inventory of Onshore Federal Lands’ Oil and Gas Resources and the Extent and

Nature of Restrictions or Impediments to Their Development, Departments of Interior,

Agriculture, and Energy, 2006.

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generally off-limits with the exception of directional drilling; leasing with timing

limitations, which protect wildlife during certain times of the year; and leasing with

controlled surface use, which requires a mitigation plan for specific areas under the

lease.

Environmentalists have supported public land withdrawals3 and other

restrictions because of concern that the Mining Law of 1872 and then the Mineral

Leasing Act of 1920 provided inadequate environmental protection. Recently,

ranchers and other groups have expressed similar concerns, specifically about the

impact of energy development on water and land. Conversely, development

supporters contend that numerous environmental laws are now in place to regulate

oil and gas development on public lands. They note that the federal government must

comply with the National Environmental Policy Act (NEPA) in leasing oil and gas

and that the oil and gas industry must comply with applicable requirements of the

Clean Water and Clean Air Acts, Safe Drinking Water Act, the Resource

Conservation and Recovery Act, and state and federal reclamation standards, among

other laws. The industry complains that environmental and other reviews often

create long delays in drilling exploratory and production wells on leased lands.

Industry sources claim some of these lease stipulations are so stringent that they

constitute “de facto” closures to oil and gas development. However, development has

proceeded under some of these stipulations.

Oil and Gas Leasing on Public Lands

Leasing of onshore federal public lands for oil and gas development is based on

multiple-use/sustained yield Resource Management Plans (RMPs) developed by the

Bureau of Land Management (BLM) in the Department of the Interior (DOI). In

accordance with those land-use plans, tracts of public land with oil and gas potential

are offered for competitive leasing each quarter. After a lease is awarded, a drilling

permit is required for each exploratory or production well. Industry has long

complained that this process is too lengthy.

One of the major reasons for past delays in the issuance of drilling permits cited

by both BLM and the Independent Petroleum Association of Mountain States

(IPAMS) is the need to rewrite outdated RMPs because the surface disturbance

anticipated under approved activities may exceed the limits in the old plan. This may

occur because of increased natural gas leasing and development. In these cases, oil

and gas leases may have been awarded under an old RMP that must be revised before

a drilling permit can be issued. According to the BLM, there are several such plans

currently being revised.

3

Under 43 U.S.C.A.§1702(j), FLPMA defines a withdrawal as “withholding an area of

Federal land from settlement, sale, location or entry under some or all of the general land

laws for the purpose of limiting activities under those laws in order to maintain other public

values in the area or reserving the area for a particular public purpose or program; or

transferring jurisdiction over an area of federal land from one department, bureau or agency

to another department, bureau or agency.”

CRS-3

In 2001 testimony before the House Committee on Resources, IPAMS asserted

that rewriting RMPs can take as long as three years, when less than a decade earlier

the average time was less than one year. The Association contended that the

usefulness of an RMP had dropped to seven years, when in the past they may have

been in place for as long as 20 years.4 The rapid pace of coalbed methane (CBM)

development, in particular, has generated new land use concerns that some argue

have not been previously incorporated in the RMPs. Environmentalists contend that

20-year-old plans are not a good basis for land management decisions.

In April 2003, BLM announced new strategies to expedite the Application for

Permit to Drill (APD) process. These include processing and conducting

environmental analyses on multiple permit applications with similar characteristics,

implementing geographic area development planning for an oil or gas field or an area

within a field, establishing a standard operating practice agreement that identifies

surface and drilling practices by oil and gas operators, allowing for a block survey of

cultural resources, promoting consistent procedures, and revising relevant BLM

manuals.5 Under EPAct requirements, the BLM implemented its final rule for

processing APDs on April 6, 2007 (see Federal Register, v. 72, no. 44, p. 10308,

March 7, 2007).

Legislation

Below is a summary of selected provisions in Title VII of H.R. 3221 (New

Direction for Energy Independence, National Security, and Consumer Protection Act)

related to oil and gas development on federal lands. The House approved H.R. 3221

on August 4, 2007, by a vote of 241-170. However, in a recent development, the

House amended and passed (235-181) the Senate-passed version of energy policy

legislation (H.R. 6) on December 6, 2007, but did not include the oil and gas

provisions contained in Title VII discussed below. Those oil and gas provisions in

Title VII were not part of the final bill (H.R. 6) enacted into law (P.L. 110-140).

Cost Recovery. Section 7101. Repeals subsections 365(g) and 365(i) of

EPAct 2005. Under section 365, a federal permit streamlining pilot project program

was established to improve federal permit coordination. Under section 365(g) a

BLM Permit Processing Improvement Fund was established to receive the federal

portion of the rental revenue. Rental revenues from energy leases on federal lands

averaged about $58 million annually over the last four years.

EPAct section 365(i), also proposed for repeal, prohibits the Secretary of the

Interior from raising permit fees during operations of the pilot program. H.R. 3221

would require the Secretary to impose fees on the oil and gas industry to recover

costs associated with the streamlining of permits during the pilot program. The

4

Testimony of Marc W. Smith, Independent Petroleum Association of Mountain States

(IPAMS), Public Lands Advocacy, before the U.S. House Committee on Resources,

Subcommittee on Energy and Mineral Resources, March 7, 2001.

5

DOI/BLM Instruction Memorandum No. 2003-152, Application for Permit to Drill (APD)

Process Improvement #1 — Comprehensive Strategies, April 14, 2003.

CRS-4

Committee-passed bill would require an interim fee of $1,700 per application until

the Secretary establishes a permanent fee.

Extension of Deadline for Consideration of Applications for

Permits. Section 7102. Section 366 of EPAct 2005 gives the Secretary 10 days

after receiving an application for a permit to drill (APD) to notify the applicant that

the application is complete or missing information, then 30 days to either issue the

permit or defer the decision. Previously, the law required a 35-day window to make

a decision, but the average turnaround time was much longer — 137 days according

to the Independent Petroleum Association of Mountain States (IPAMS). H.R. 3221

would require 45 days for the Secretary to act on an APD. Opponents of the current

law argue that a 30-day deadline is arbitrary, creates a rushed process, and approves

APDs at an alarming rate without appropriate attention on inspection and

enforcement. Supporters of current law counter that the new requirements help

expedite development of domestic oil and gas on federal lands and are consistent

with the Bush Administration’s National Energy Plan. According to the BLM’s

Automated Fluid Minerals Support System (AFMSS), the number of APDs

approved increased from about 4,000 in FY2004 to nearly 8,000 in FY2006.

Oil Shale and Tar Sands Leasing. Section 7103. Section 369 of EPAct

promotes the research and development of oil shale, tar sands, and other strategic

unconventional fuels in the United States. H.R. 3221 would amend section 369 by

removing a 180-day deadline for making land available for research and development

purposes and an 18-month deadline for a final programmatic environmental impact

statement. It would require an Oil Shale and Tar Sands Leasing and Development

Strategy and an alternative approaches report. Opponents of current law contend that

extraction technology is not proven and may be years away from commercial-scale

deployment. The Administration states that section 369 does not require the

Secretary to conduct a commercial lease sale but rather to establish a framework for

future commercial lease sales including the preparation of “final” regulations for a

leasing program.

NEPA Categorical Exclusions. Section 7104. This would limit the

rebuttable presumption in EPAct section 390 for categorical exclusion (CX) of

certain oil and gas exploration and development activities under NEPA and adhere

to regulations issued by the Council on Environmental Quality (CEQ). The rebuttable

presumption applies to, among other things, individual surface disturbance of less

than 5 acres totaling no more than 150 acres per lease with a completed NEPA

analysis, or oil and gas drilling where previous drilling has occurred within five years

prior to the date of spudding the well, and placement of a pipeline within a corridor

approved within the previous five years. Opponents of the current law argue that it

allows for certain oil and gas development activities to be categorically excluded

from NEPA reviews even under “extraordinary circumstances,” such as unique

geographic characteristics and wilderness status.6 This section, opponents argue,

would require BLM to consider extraordinary circumstances before granting a CX.

In addition, opponents claim that the CXs reduce or eliminate public comment from

6

Fact Sheet - H.R. 2337, The Energy Policy Reform and Revitalization Act of 2007, The

Wilderness Society, et al., June 2007.

CRS-5

the process. According to DOI, categorical exclusions are limited, and when BLM

uses a prior NEPA analysis to approve a permit, it doesn’t sacrifice environmental

safeguards or exclude the application of other environmental protection measures.

Best Management Practices (BMP). Section 7105. This provision would

amend BMP guidelines for oil and gas development on federal lands and require

BLM to allow for public and state wildlife agency review and comment before

waivers are granted. Supporters of this provision claim that current BLM guidelines

allow for too many waivers of lease stipulations put in place to protect the

environment. The Administration claims that this provision would hinder field staff

who apply BMP on a case-by-case basis. And, in some cases, public comment and

review might be “overly burdensome and inefficient.”7

Audits. Section 7201. This section would require the MMS to conduct a

minimum of 550 audits annually of oil and gas leases beginning in FY2009. MMS

currently conducts random and targeted audits and compliance reviews to enforce

rules and regulations of lease terms.8 According to the MMS, audits and compliance

reviews were completed on 72.5% of revenues in FY2006, up from 46% of revenues

in FY2003. For every dollar spent on compliance reviews from FY2003 through

FY2005 it collected $3.27, and for every dollar spent on audits during the same

period it collected $2.06, according to MMS.9 A DOI Inspector General report

concluded that compliance reviews should only be used in conjunction with audits

to assure more comprehensive enforcement.

Fines and Penalties. Section 7202. This section would increase fines and

penalties related to oil and gas royalty payment violations under the Federal Oil and

Gas Royalty Management Act of 1982 (FOGRMA).

Amendments to Federal Oil and Gas Royalty Management Act of

1982. Sections 7211-7215. These provisions would amend various sections of

FOGRMA, including several definitions, estimated payments, interest on amount of

underpayment, obligation period, tolling agreements, and liability for royalty

payments.

Surface Owner Protection. Section 7221. Under current law, there are

specific policies and procedures that must be followed by the mineral estate holder

in order to develop minerals in “split estate situations.” Minerals owned by the

federal government under lands held privately creates a “split-estate.” Under current

law, for oil and gas, a federal lessee must meet one of the following conditions: a

7

Statement of Herri Bisson, Deputy Director, Bureau of Land Management, and Walter

Cruickshank, Deputy Director, Minerals Management Service, Before the House Committee

on Natural Resources on H.R. 2337, The Energy Policy Reform and Revitalization Act of

2007, May 23, 2007, p. 12.

8

According to MMS, compliance reviews help determine the “reasonableness” of the

company-reported production and royalty data on federal lands. Audits, on the other hand,

provide an in-depth analysis of company reports and follow “Government Auditing

Standards” to help uncover any violations of lease terms or laws.

9

Ibid., p. 13.

CRS-6

surface agreement; written consent or a waiver from the private surface owner for

access to the leased lands; payment for loss or damages; or the execution of a bond

not less than $1,000.10 About 11% of the public lands are under the split-estate

category. However, in Wyoming 50% of the lands are split-estate and in Montana

about 57%.11

Under section 7221, exploration and drilling may not be authorized by the

Secretary of the Interior unless there is a written “post-lease” surface use agreement

between the surface owner and the lessee (operator) on federal lands in cases where

the subsurface is owned by the federal government and the surface owned privately.

The agreement shall include limits on surface use, accommodations for the operator’s

right to develop oil and gas resources, reclamation of the site, and compensation for

damages. Procedures for an agreement would be established, which include

notification of the surface owner by the operator interested in making an agreement

and a time frame within which to reach an agreement. Surface owner participation

in bond levels and inspections, among other things, would be required, but under

certain circumstances the Secretary could authorize the operator to conduct oil and

gas development without an agreement. Further, the surface owner could petition the

Secretary for payment as a result of damages resulting from the operators.

Onshore Oil and Gas Reclamation and Bonding. Section 7222. This

section would amend section 17 of the Mineral Leasing Act (30 U.S.C. 226) by

establishing new and more stringent reclamation requirements and a reclamation

bond.

Protection of Water Resources. Section 7223. This section would amend

section 17 of the Mineral Leasing Act (30 U.S.C. 226) to require an operator to

replace any water supply that became contaminated or interrupted because of oil and

gas development. A water management plan consistent with state water laws would

be required to protect the quality and quantity of water affected by the operator.

Due Diligence Fee. Section 7224. A due diligence fee of $1/acre per year (on

top of the current rental rate of $1.50/acre per year for years 1-5 and $2/ acre per year

each year thereafter) would be established for lands leased for oil, gas, and coal but

not in production for the year. Supporters of this provision see this fee as an

incentive to get lands in production.

Oil Shale Community Impact Assistance. Section 7601. An Oil Shale

Community Impact Assistance Fund, administered by the Secretary of the Interior,

would be established. A portion of the revenue from commercial oil shale leases

would be deposited into the Fund. Royalty payments into the Fund from commercial

oil shale leases would be limited to ten years after the first payment. Funds, subject

to appropriations, would be paid to the county in which the oil shale lease was

10

This information was provided in a BLM Instructional Memorandum, No. 2003-131. Also

see 43 CFR 3104, 43 CFR 3814 and 48 FR 48916 (1983) for further details.

11

Public Lands, Onshore Federal and Indian Minerals in Lands of the U.S., Appendix 7, Sie

Ling Chiang, Bureau of Land Management, DOI, December 1, 2000.

CRS-7

located and would be used for planning, construction, and maintenance of public

facilities.

Roan Plateau, Colorado. Section 7604. Leases on top of Plateau on federal

lands designated as Naval Oil Shale Reserves 1 and 3 would contain a prohibition of

surface occupancy for oil and gas development. Congress would require a report

from the Secretary of the Treasury detailing amounts received from leases in the

Naval Oil Shale Reserves 1 and 3. A report from the Secretary of the Interior would

also be required by Congress detailing amounts spent on environmental cleanup

activities, further actions, and estimated costs of remaining cleanup needs.