Energy Implications of Forest Service Roadless Rule

Good afternoon. My name is Edmund Segner, president of EOG Resources, Inc., one of the largest independent producers of oil and natural gas in the United States.

Thank you for inviting us to testify. I am a member of the Executive Committee of the Domestic Petroleum Council and today I am also testifying on behalf of the American Petroleum Institute, the Independent Petroleum Association of America, and Public Lands Advocacy, who together speak for thousands of oil and natural gas producing companies in the United States. I will discuss the energy implications of the U.S. Forest Service (USFS) Roadless Rule that was finalized in January 2001.

The U.S. oil and natural gas industry has a long record of providing a reliable and affordable supply of energy to American families. At the same time, the federal government has always played a pivotal role in determining how well producers meet U.S. energy needs. With U.S. energy demand now at an all-time high, it is important that government and industry develop a workable national energy policy that both protects the environment and delivers the energy to ensure continued U.S. prosperity. Both goals can be achieved.

My testimony focuses on Forest Service multiple use lands containing oil and natural gas resources that were placed off limits to exploration and production as part of the so-called "Roadless Rule." The effect of that rule is to put off limits lands estimated to hold between 3.5 and 23.1 trillion cubic feet (Tcf) of natural gas. The final rule chose to ignore such vast potential reserves despite our industry's comments highlighting those energy implications.

Today, we import 57 percent of our crude oil. Last year's gasoline price volatility was due in part to a cutback in production by foreign oil producing countries even as demand grew rapidly. While we cannot eliminate our dependence on imported oil, there are many things that can be done to offset it. And one of them is to do all we can to encourage greater production in this country of all kinds of energy.

Unlike crude oil, most of the natural gas we use comes from U.S. sources. According to a study by the National Petroleum Council (NPC)-an Energy Department advisory group-U.S. natural gas demand will rise by more than 30 percent by the year 2010, and by 60 percent to an estimated 36 Tcf by 2020.

We will need an additional seven trillion cubic feet of natural gas annually by the end of this decade, and 14 Tcf a year in additional supplies in less than 20 years. Almost half of that will be needed to produce electricity because many new power plants are predicted to be powered by natural gas.

The 1999 NPC study that produced the numbers on natural gas demand also found that producers will have to invest almost $660 billion in new capital to meet that increased need for energy over the next quarter century. The study also concluded the United States is capable of meeting this additional demand, but only if energy companies are given greater access to available federal lands that are now off limits or severely restricted as a result of discretionary federal actions.

There must be a new policy permitting companies to explore for, and produce in multiple-use federal lands, including some of those placed off limits by the USFS.

The Effects of the Final Rule

A recent study conducted for the Department of Energy in the last days of the Clinton Administration on the energy implications of the Roadless Rule estimated that the new rule would completely close to development 9.4 Tcf of the total 11 Tcf of natural gas found on the lands covered by the initiative.

The study also illustrates the casual disregard given to energy values in the USFS Rule. More than 80 percent of the predicted 11 Tcf of natural gas is located on just five percent of the land covered by the Forest Service rule on roadless construction. In other words, if the Forest Service had left out that five percent, it would have made available the vast majority of the natural gas beneath USFS lands in the Rocky Mountain region. It is precisely this type of cavalier dismissal of energy values in federal land use decision-making that has aggravated our current energy difficulties.

Specifically, the new rule bans road reconstruction, thus effectively creating new roadless areas in lands that have previously been available for multiple use. As a result, the Forest Service is circumventing congressional intent, and bans activities that are consistent with multiple use.

Moreover, the Rule effectively withdraws more public lands from oil and gas development without justification, to the detriment of the nation's domestic energy supply. It also exacts costs from local economies in affected states and causes a decline in federal revenues from bonus bids, rents and royalties on exploration and production on federal lands.

When the Forest Service devised its long-term strategic plan in 1990, under the Resource Planning Act, its stated petroleum leasing strategy was designed to "meet most demands for access to explore and develop mineral resources, except when doing so would pose unacceptably high risks to other resources."

This goal was articulated by the agency in the aftermath of a 1988 controversy in which the Forest Service admitted that it paid "little attention... to minerals while making land use decisions that restrict mineral exploration access." Since that time, the managers of the National Forests have paid minimal attention to mineral resources in drafting their land-use plans. As a result, a vast amount of Forest Service acreage had been placed off-limits to oil and gas leasing prior to the final Roadless Rule.

In the last administration, the Forest Service asserted that its policies and road construction bans were based on goals that have changed over the years, from a system "largely funded and constructed to develop areas for timber harvesting and to allow the development of other resources. In the last two decades, interest in the appropriate uses of the resources... has shifted toward recreation and wildlife."

This shift away from development of the natural resources on federal lands, without a balanced assessment of competing uses, is of great concern to the oil and gas industry. From 1983 to 1996, oil and gas leasing on National Forest and Bureau of Land Management lands in eight western states declined by a drastic 72 percent, from 114.2 million acres to 32.6 million acres. Across the entire National Forest system, lands in Designated Wilderness Areas, which are barred from petroleum leasing, increased substantially-from 9.3 million acres in 1964 to 35 million acres in 1996. Moreover, nearly 6.1 million acres of Forest Service lands remain in limbo as Wilderness Study Areas. The Forest Service decisions regarding potential Wilderness were made as a result of the Roadless Area Review and Evaluation (RARE) I and II processes, and what industry terms RARE III, which was conducted as part of the Forest Service land and resource management planning process completed between 1985 and 1990.

It is evident that the real issue at stake is expanding wilderness acreage throughout the entire National Forest System. The first Wilderness designated by Congress in 1964 totaled 9 million acres. Since then, an additional 100 million federal acres have been designated as Wilderness nationwide. In addition, other categories, including the Forest Service's "further planning" areas, recommended Wilderness Areas, and Wilderness Study Areas (designated by the agency and Congress), amount to more than 27 million acres. Combined with other set-asides, such as national parks and refuges, native claims selections in Alaska, and special management areas, more than 50 percent of federal lands-some 300 million acres-are already completely off-limits to oil and gas leasing and exploration. Of the federal lands available to leasing, more than half are subject to severely restrictive land classifications or lease stipulations. The cumulative effects of this expansion have major consequences for those whose role in the economy depends on important resources located on federal lands and for the nation.

Technology

Any discussion of increased access to natural gas reserves inevitably turns to the technology used in the 21st century to find and remove the gas.

A 1999 Department of Energy report entitled, Environmental Benefits of Advanced Oil and Gas Exploration and ProductionTechnology had this to say about the industry's approach to protecting the environment:

"...innovative E&P approaches are making a difference to the environment. With advanced technologies, the oil and gas industry can pinpoint resources more accurately, extract them more efficiently and with less surface area and with less surface disturbance, minimize associated wastes, and, ultimately, restore sites to original or better condition.

(The industry) has integrated an environmental ethic into its business and culture and operations...(and) has come to recognize that high environmental standards and responsible development are good business."

These advances in technology apply to exploration and production on hundreds of millions of acres of lands owned by the federal government. However, the domestic producing industry is not asking to drill on parklands or in wilderness areas set aside by Acts of Congress. Rather, we seek access to lands designated as "multiple use" by Congress on Forest Service lands so that so that exploration and production can take place in an environmentally compatible manner.

Critics often portray the industry as careless about environmental concerns. They have probably never visited a rig where safety and environmental protection are the central concerns, regardless of their location, and where our obligations with the government require us to return the land to its original status once oil or gas production ceases.

Economic Impacts

The Roadless Rule continues the trend toward less development of the natural resources beneath federal lands. No new leases of Forest Service lands could be granted where roads must be constructed to achieve the purposes of the lease. The resulting decrease in petroleum activities will have a significant impact on jobs. Drilling activities for a single well require as many as 20 workers for up to three months, generating some $150,000 in wages. Another $1 million must be expended on equipment, goods and services for a typical well. Most of this money is spent in the local area where a well is drilled-for severance taxes, production royalties, payments in lieu of taxes (PILT), income taxes and so forth, where previous decreases in oil and gas activity have already had a significant economic impact.

Moreover, the withdrawal of these lands from leasing will have a seriously negative impact on the U.S. Treasury. Under the competitive leasing system, the federal government receives a minimum bid of $2 an acre to lease these lands for petroleum development. By imposing this moratorium on roads-which are essential to oil and gas development-the Forest Service is foregoing a potential for at least $66 million in leasing revenues. If there is more than one company interested in leasing in a parcel of land, the high lease bid in the past has gone up to as high as $1,000 an acre or more. Bonus bids amounting to the first year's rent are also paid at the time a lease is sold. In addition, the Roadless Rule not only diminishes lease rentals and bonuses, but also production royalties that would be paid during the life of production of the lease.

Petroleum reserves and federal ownership of lands are extensive in the West and oil and gas are important sources of state revenues. In Montana, for example, oil and gas producers and refiners paid nearly $100 million in state and local taxes in 1996. In Wyoming, the oil and gas production industry paid $378 million, and in North Dakota, $53 million. In Utah, the state severance tax on oil and gas produced $46 million in 1983-but only $12 million in 1996.

Revenues, in these and other states, will steadily decrease if currently producing oil and gas leases on Forest Service lands are not augmented by new leases and subsequent development. The Roadless Rule will discourage, delay and very likely eliminate further petroleum activity on Forest Service lands.

Road Maintenance Costs

One argument advanced by proponents of the Roadless Rule is the high cost of maintaining roads. In the proposed rule, the Forest Service claimed a $10 billion backlog for maintenance and reconstruction of existing roads on its lands. However, it should be noted that the oil and gas industry funds the private construction, maintenance and reclamation of the roads needed to find and produce oil and gas from beneath Forest Service lands. It does not depend on assistance from the federal government. Moreover, if a prospect turns out to be a "dry hole," the industry removes the road and reclaims the land. The only time the petroleum industry leaves intact a road that it has constructed is when the Forest Service requests it. Thus, the Forest Service is only required to maintain roads for public use. Ironically, while road maintenance payments to the Forest Service have declined in recent years, it is the decreasing access of commercial users, including the oil and gas industry that has led to this decline.

Multiple Uses

It is also important to note that oil and gas development does not prevent leased land from being used for other purposes or by other users. Under the terms of a federal oil and gas lease, the operator cannot construct housing, farm the land, or remove any minerals other than oil and natural gas. The Forest Service is free to grant permits for non-petroleum uses to others or allow activities which require roads but do not require permits, such as mountain biking, cross-country skiing, fishing, hunting, sight-seeing or picnicking.

The oil and gas industry supports reasonable measures to protect fish, wildlife and environmental resources. This industry has repeatedly demonstrated its commitment to operating in an environmentally compatible manner, with vigilant consideration given to sensitive resource values. This record should provide a basis for a policy that does not prevent oil and gas activity in the unroaded areas. Moreover, the Forest Service's authority under current policies gives the agency almost complete control over how surface resources are managed, providing additional assurance that exploration and production will be conducted with respect for environmental values.

Conclusion

This industry is very concerned that the Roadless Rule has placed 60 million acres in de facto wilderness withdrawal without a balanced assessment of the energy implications of such a decision. These lands have repeatedly been found not to meet the 1964 Wilderness Act criteria, and were released to multiple use during the comprehensive RARE I and II processes and the Forest Service planning process. This Rule appears to be an alternate method of prohibiting activities that are consistent with congressionally mandated multiple-use. The Rule imposes high costs on many people-severe economic impacts on local communities, effects on the price and availability of oil and gas, hardrock minerals, lumber and paper products and other goods and services. Moreover, there is also a cost in more limited recreational opportunities to the public. The gain-preserving unroaded acreage with the National Forest System-does not appear to equal the cost.

We urge Congress to carefully review the Forest Service's Final Roadless Rule. A new plan can be developed in these unroaded areas without halting all activities on these lands so that a projected 11 trillion cubic feet of needed domestic natural gas can be produced in an environmentally compatible manner.

We must find a way to eliminate government obstacles and regulatory complexity so that our companies will be better able to produce the enormous amounts of energy that will be required over the next decade and beyond. That includes the Forest Service's capricious rule banning new road construction on multiple use Forest Service lands that are most promising for oil and gas exploration.