MMS Director to Headline Interior Budget Hearing

Don't be surprised if more criticism of the Minerals Management Service's oil and gas royalty program overwhelms a House hearing on the Interior Department budget this week.

The Energy and Mineral Resources Subcommittee hearing tomorrow will focus on the fiscal 2008 budget requests for MMS, the Bureau of Land Management, the Office of Surface Mining and the U.S. Geological Survey. The hearing will also examine the minerals and geology program of the U.S. Forest Service, which is an arm of the Agriculture Department.

With MMS Director Johnnie Burton scheduled to appear, more fireworks over the costly Clinton-era mistakes related to deepwater Gulf of Mexico oil and gas leases are likely. Leases issued in 1998 and 1999 are not subject to "price thresholds" that suspend royalty waivers when oil and gas prices are high.

The mistake, left uncorrected, could cost the Treasury an estimated $10 billion. Around a half-dozen gulf producers have already agreed to inclusion of the price thresholds on production from October 2006 into the future. But several dozen other companies have not renegotiated their contracts, prompting criticism that MMS is doing too little to correct the mistakes.

House legislation that passed last month would effectively force companies to renegotiate. It would deny them future offshore leases unless they agree to the thresholds or pay other fees.

The Bush administration opposes this approach, arguing it erodes the federal government's reliability as a business partner. Interior has said producers should be provided incentives to come to the table, suggesting Congress should allow extended lease terms in return renegotiation.

MMS has also been plagued by charges that it does not vigorously ensure full payment from producers. MMS has defended its program while vowing improvements and taking steps such as appointing an independent panel to review royalty compliance.

Interior's proposed fiscal 2008 budget envisions $297.2 million for the Minerals Management Service, around $16.2 million above the continuing resolution for fiscal 2007.

The proposed budget includes $161.5 million in direct appropriations, which is $3.2 million higher than the continuing resolution but $2.1 million below the fiscal 2007 request, according to MMS. The rest of the MMS budget comes in offsetting collections, such as lease payments.

The budget includes $4 million in new money to implement the upcoming 2007-2012 offshore leasing program and $1.3 million to help manage the growth in ultra-deepwater development at depths greater than 5,000 feet.

The request also includes $940,000 for a new "adjustment line monitoring" initiative. This would ensure the company's royalty adjustments are made "within allowed time frames and in compliance with laws and regulations," according to the MMS budget plan.

Other agencies under review The subcommittee will also review the energy- and mining-related aspects of several other agencies. BLM's proposed $1 billion budget includes $3.1 million in new funds to bolster inspections and monitor oil and gas operations.

BLM says this will help ensure that energy development is done in an "environmentally sensitive way" and enforce permit terms. The new money would allow almost 1,600 more inspections by 2009, with over 500 additional inspections occurring in 2008, the agency said when announcing its budget plan this month.

Interior is also proposing to reverse an Energy Policy Act of 2005 provision that blocked BLM from increasing fees industry pays for oil and gas drilling permit applications. Repealing the EPAct provision would bring in over $20 million annually, according to the budget request.

BLM is also asking for an additional $2 million to ensure increased hardrock mining occurs in an "environmentally responsible" manner. The money would be offset by higher mining claim maintenance fees, according to BLM's proposed budget.

The Office of Surface Mining would receive $168 million in fiscal 2008 under the budget proposal, about a $124 million decrease from the past two years. The sharp cut is due primarily to the shift of abandoned mine lands funds from discretionary to mandatory funding that Congress approved at the end of the last session.

The Forest Service's minerals and geology management program, which manages energy and mining on the service's lands, would receive $70.8 million under the budget request, a cut of roughly 15 percent.

The program focuses in part on reducing the backlog of oil and gas lease nominations and drilling permit applications. There are around 5 million acres leased for oil and gas on forest service lands, according to budget documents. Other elements of the program include groundwater protection and restoration of abandoned and inactive mines.

The U.S. Geological Survey would receive $975 million under the budget request.

Schedule: The subcommittee will meet tomorrow at 2 p.m. in 1324 Longworth.

Witnesses: Johnnie Burton, director, MMS; Jim Hughes, acting director, BLM; Mark Myers, director, USGS; Brent Wahlquist, acting director, OSM; Fredrick Norbury, associate deputy chief, National Forest System, U.S. Forest Service.

Copyright 2007 E&E Daily. All Rights Reserved. Visit E&E Daily for a free trial.

Company: Minerals Management Service (MMS) more info
 - Obama Names New Head of MMS (Jun 15)
 - Abbey Implements New Drilling Requirements (Jun 07)
 - MMS Chief Resigns (May 27)