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1 [1] (February 6, 2015)

handle is hein.crs/crsuntaagha0001 and id is 1 raw text is: Con res ionai Re e rch Service I forn g he legi ~Iati ~ debat ince 1914 S February 6, 2015 Energy and Mineral Development on Federal Land Back round Energy production on federal lands accounts for a significant amount of total U.S. energy production. For example, in FY2013, approximately 27% of crude oil, 18% of natural gas, and 41% of coal production came from federal lands. Geothermal electric generating capacity on federal lands represents 40% of U.S total geothermal capacity. Solar and wind energy potential on federal lands is growing and based on Bureau of Land Management (BLM) approved projects, there is potential for 5,000 megawatts (MW) of wind and nearly 8,800 MW of solar energy annual capacity on federal lands, although currently the level of generation is low. The volumes and value of non-fuel mineral production on federal lands are uncertain because there are no reporting requirements, but could be high, especially for gold, the primary mineral mined (by value) on federal lands. Three royalty debates may be revived in the 114th Congress: (1) whether to increase the statutory minimum rate for onshore federal oil and gas leases from 12.5% to 18.75%, (2) whether to enact revenue sharing laws for Outer Continental Shelf (OCS) leases to include all coastal states, and (3) whether to charge a royalty on hardrock locatable minerals produced on federal public domain lands. Minerals (fuel and non-fuel) are an exhaustible resource; when extracted today they are unavailable for extraction at a later date. The miner must decide whether to produce now or in the future. If production occurs now, the miner must consider the value of foregone future production. A mineral royalty is a payment to the resource owner for the extraction of the mineral. In the mining industry the royalty is typically based on production ($/ton) or income (percent of gross or net income). For federal oil and gas leases, royalties are assessed on the gross value of production minus allowable deductions. House and Senate bills in the 113th Congress proposed to raise the minimum rate from 12.5% to 18.75% on oil and gas produced on federal leases, provide for revenue sharing of OCS revenues, and establish a gross proceeds royalty on federally owned locatable mineral production. Onshore Oil and Gas Development of oil and gas on federal lands is governed primarily by the Mineral Leasing Act of 1920 (MLA) (30 U.S.C. § 181). Leasing auctions and implementing activities are administered by the Bureau of Land Management (BLM) for all federal lands. The MLA authorizes the Secretary of the Interior-through the BLM-to lease the subsurface rights to virtually all BLM and Forest Service (FS) lands that contain fossil fuel deposits, with the federal government retaining title to the lands. The MLA authorizes both competitive and noncompetitive bidding processes for oil and gas exploration and production leases. In a competitive lease sale, a bonus payment is required to win the lease. Non-competitive leases are initiated by an application process. Rents are then paid on a per-acre basis prior to production. The revenue associated with the onshore leasing process is collected and disbursed by the Office of Natural Resource Revenues (ONRR). Another controversial issue is the permitting process and timeline, which the Energy Policy Act of 2005 (EPAct05) revised for oil and gas permits. Although the time it takes BLM to process applications has decreased since FY2006, the time it takes applicants to respond and resolve issues with the applications has increased over the same time period. EPAct05 also authorized a pilot project to improve efficiency of processing oil and gas permits through FY2015. After three years of implementation, a 2008 BLM report described improved interagency communication and a reduction in the time needed for BLM to review and process permit applications in the pilot locations. The Administration has proposed to extend the pilot, while some Members of Congress have proposed to make the pilot program permanent. There is language in EPAct05 that requires the Secretary of the Interior to make a recommendation to the President regarding whether the pilot project should be implemented throughout the United States. Raising the Onshore Oil and Gas Royalty Rate A mineral royalty is a payment to the resource owner for the extraction of the mineral. Typically, in the mining industry the royalty is based on production ($/ton) or income (percent of gross or net income). For federal oil and gas leases, royalties are assessed on the gross value of production minus allowable deductions. There is precedent for raising federal oil and gas lease royalty rates. Under the Bush Administration in 2008, Interior Secretary Dirk Kempthorne raised the deepwater rate for new leases from 12.5% to 16.67%. Then, in 2009, Secretary Ken Salazar of the Obama Administration increased the royalty rates for new offshore leases to 18.75%. The lower federal onshore royalty rate (12.5%) for oil and gas may be viewed as an incentive rate to encourage bidding on federal lands. Coal As a result of high volumes of coal production on federal lands, there are several congressional concerns, such as how to balance coal production against other resource values for federal lands. Other concerns include how to assess the value of the coal resource, what is the fair market value www.crs.gov 7-5700

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