In response to your question about Secretary Salazar's decision: The Royalty-in-Kind (RIK) program, which collected $6.6 billion in oil and gas deliveries in fiscal 2008, is one of the government's largest sources of non-tax revenue. It is a straightforward method of paying royalties due on the production of U.S. oil and natural gas, and even Interior's Minerals Management Service (MMS) acknowledges that it brings in more money to the Treasury than it otherwise would have received if the royalties were paid in cash. The RIK system allows the government to aggregate huge volumes of oil and natural gas and negotiate better transportation and processing contracts, which provide the government the opportunity for larger net revenues.

Terminating the royalty-in-kind method of handling royalty payments could raise the government's administrative costs and add layers of paperwork for government workers. The MMS itself noted the administrative efficiencies provided by the RIK program and pointed out that RIK also has reduced the number of costly lawsuits tied to product valuation.

The MMS was expected to issue a proposed rule for the promulgation of effective, detailed regulations for the RIK next month. Had the rule been issued, the government would have had an excellent opportunity to receive input from all stakeholders and the public on the effectiveness of the program. But this fair and transparent process was circumvented when Secretary Salazar announced his intent to end the program prematurely.

We urge Secretary Salazar to carefully weigh the impacts his "fundamental restructuring" of the royalty system could have on U.S. production of oil and natural gas, American jobs, and revenue to the government. America's oil and natural gas industry is ready to work with the administration to improve the royalty-collection system so Americans enjoy the benefits of increased domestic development. Raising the cost of bringing much-needed domestic energy supplies online in the United States is not the way to achieve energy and economic security.

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In Congressman Nick Rahall’s (D-WV) response Monday to “Does Mineral Policy Law Need Reform?,” the chairman of the House Natural Resources Committee suggests that his legislation – the CLEAR Act – will secure “a reliable and sustainable supply of American energy.” In truth, though, Mr. Rahall’s bill would actually restrict American oil and natural gas development, making our domestic energy supplies more scarce and unavailable at a time when they’re most needed.

The CLEAR Act (H.R. 3534) would place restrictive and unnecessary burdens on independent energy producers, who are responsible for 9 out of 10 wells produced in America. Like the massive tax increases on energy producers included in this year’s budget, these restrictions are a disincentive to produce domestic energy and could cripple many small businesses and compromise America’s energy security. And worse, eliminating the royalty-in-kind program will do nothing but decrease royalties and revenues to the US treasury and increase our dependence on energy from some of the most unstable regions of the world.

America needs a balanced plan that encourages the production of all forms of energy – wind, solar, hydro, oil, natural gas – and helps ensure that we are using our resources more efficiently and effectively. Unfortunately, Chairman Nick Rahall’s bill does not meet this goal and will lead to fewer good-paying jobs, less American energy, and more unstable energy prices.

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America’s mineral leasing system is long overdue for reform.

Despite the economic downturn, over 60,000 oil and gas wells were drilled in the United States last year - the most wells drilled in nearly a quarter century.

The ‘fast and cheap’ drilling policies of the last few years have only served to distort the energy discussion. But even if we throw out recent experience, the system that manages public resources has been predisposed toward the extraction of fossil fuels over other considerations.

And it is no wonder considering that the law currently governing drilling was established in 1920. Given the anachronistic nature of the current system, substantial reform--such as the model being proposed by Congressman Rahall--is urgently needed.

But the need for reform goes far beyond the traditional tensions that have typified the polemics of fossil fuels. Real reform of the mineral leasing system needs to also acknowledge the unprecedented threat presented by a globally warming world. One of the noteworthy elements of H.R. 3534 is its intent to create new mechanisms that will bring parity to renewable energy development. The acknowledgement that the leasing of solar and wind resources should be managed in a consistent and prudent manner is a positive step forward in changing the way the nation approaches the management of its energy resources.

In addition, Chairman Rahall’s call for dedicated funding of the Land and Water Conservation Fund is also an invaluable measure that will address the fact that natural landscapes will have a fundamental role in mitigating for climate change while providing additional resiliency for stressed ecosystems.

We are also heartened by the leadership shown by Sec. Salazar and Chairman Rahall in abolishing the royalty-in-kind program, considering that the program was universally derided as a ‘fox guarding the hen house’ situation. It’s elimination is essential in order to begin rectifying the fundamental flaws within a system that put extraction needs before the trust of the American people.

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The most troubling aspect of Chairman Rahall’s misguided proposal – besides the fact that it will make American energy more expensive and less available at a time when Americans are demanding more, affordable energy – is that it’s based on flawed intelligence. The basis for the “use it or lose it” portion of the bill, for instance, is that energy companies have been “sitting on 68 million acres” (while paying millions of dollars in rent for those acres) in order to keep prices high. And that 68 million acres, according to a widely cited report produced by Chairman Rahall’s staff last year in response to Americans’ calls to end the government’s self-imposed offshore energy embargo, “could produce an additional 4.8 million barrels of oil and 44.7 billion cubic feet of natural gas each day”. The Institute for Energy Research thoroughly debunked that manufactured canard, as did the Interior Department and the American Association of Petroleum Geologists, so this time it’s being sold under the guise of “efficiency” and “accountability”.

Specifically, Chairman Rahall’s bill would create a new, duplicative and unnecessary government leasing agency and add more red tape to already lengthy federal leasing process, while cutting in half the length of time a company has to wade through the process – and the protests and litigation anti-energy groups file each step of the way – to get to a point where they can “diligently develop” the lease. The trouble here is two-fold. For starters, the Chairman seems to be contradicting himself as he voted for legislation in 1992 that increased the lease period from 5 years to the current 10 years. And it certainly hasn’t gotten any easier to develop energy on federal lands in a timely manner. In fact, according to data from the Bureau of Land Managemen (BLM), protests filed by anti-energy groups at various stages of the leasing process have increased from an average of 167 per year from 1997-2000 to 1,180 per year from 2001-2007 – a 706% increase. And in July 2008, when the BLM held a quarterly lease sale involving 78 parcels, 100% of the tracts that were bid on received protests. Every one of them. Unfortunately, the Chairman’s legislation does nothing to hold these groups “accountable” for their “efficiency” in delaying any progress toward the diligent development of federal leases.

But perhaps the most striking premise behind this legislation -- and the multiple actions the Administration has already taken to restrict and reduce energy development on taxpayer-owned lands -- is that the Bush Administration was too “cozy” with “Big Oil” and leased an inordinate amount of federal lands for energy exploration. The rarely reported truth, however, is that the Bush administration offered far fewer acres for lease than did the Clinton Administration. President Bush also made offshore energy development drastically more expensive and less likely by increasing the royalty rate on offshore energy leases by 50%, an increase Chairman Rahall’s legislation would apply to onshore oil and gas leases. So if Chairman Rahall and Secretary Salazar truly want to correct President Bush’s energy failures, they ought to reconsider their efforts to double down on the actions he took to make domestic energy scarce and more expensive.

But if the goal is to ratchet down the amount of energy we produce here at home and further increase our dependence on imported energy, this big-government, no energy legislation will do wonders to further that agenda.

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Though the bill's been improved from earlier drafts, it falls well short of what's needed for energy. It's all about process, reorganization, added costs and new bureaucracy. Instead of producing more energy, the bill would:

• Create a new tier of government decision makers (regional councils), potentially increasing energy delays;

• Establish arbitrary deadlines on leases that could lead to premature forfeiture and less energy production;

• Impose a smorgasbord of unnecessary rules, fees and penalties, including a provision to keep interest owed companies on royalty overpayments; and

• Repeal provisions in the Energy Policy Act of 2005 that eliminate redundant environmental reviews.

Delaying oil and gas development is unwise. It could mean less energy produced, fewer jobs and reduced government revenues. A preliminary study of the impact of a two-year delay in developing unconventional natural gas resources onshore shows an 18 percent drop in production and a $37 billion loss to the economy.

We need -- and the American people support -- more development of the nation's oil and gas. This bill misses the mark. Almost a year has passed since the offshore moratoria expired, yet we still don't have progress opening the door to more oil and gas production.

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I’d like to take a moment to respond specifically to some of the issues discussed here about H.R. 3534, the relevancy of the legislation and a positive way forward on American energy production.

First of all, the Democrats’ bill actually won’t help speed American energy development on federal lands. In fact, it doesn’t contain a single measure that will lead to more American energy. Instead, H.R. 3534 will roll out more red tape and expand big government bureaucracy by creating a new federal office, creating new regional councils, and mandating new fees and taxes on production. Rather than streamlining the current system, these measures create more roadblocks on the path to domestic energy development and will actually further delay greater wind, solar, oil and natural gas production and job creation. Please check out my recent press release to learn more about the specific big government bureaucracy provisions in the bill.

Second, when 9.7% of all Americans are out of work, overhauling the federal royalty system should not be our Committee’s top priority. Instead, we should work to expand American energy development and create new energy jobs. Unfortunately, Democrats in the Administration and Congress remain focused on passing legislation like H.R. 3534 that will erect more roadblocks to all-of-the-above energy development and the Waxman-Markey National Energy Tax that will spike energy costs and eliminate millions of jobs.

Third, Republicans have a better way forward that would expand American energy development and create all types of new energy jobs – including wind, solar, oil, natural gas and nuclear. In June, we introduced the American Energy Act to help responsibly use our natural resources to create new energy and make our environment cleaner. This all-of-the-above energy solution includes specific measures to encourage development of renewable energy sources, such as wind, solar, hydropower, nuclear and biomass, while also producing more American-made oil and natural gas. Democrats Leaders should provide Congress with an opportunity to consider and vote on the American Energy Act so that we have an energy policy that helps Americans by protecting our environment, providing affordable energy, and creating new high-paying jobs.

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This bill as proposed will add a great deal of regulatory burden and costs on the energy industry. At a time in our country when we need access to all energy resources readily available, and when we need to pay special attention to the economic hardships that consumers are currently experiencing, this is the wrong approach.

The U.S. House Natural Resources Panel recently met to discuss pending bipartisan legislation that aims to increase domestic offshore energy exploration and production. Their approach – one that eases decades old restrictions on American energy production -- is the right approach. Their approach takes into consideration the current economic climate in which we are operating, while also helping to pave the way for an economic rebound.

Legislation that includes provisions for accessing domestic offshore energy sources, without overly burdening the industry, translates into legislation could help create millions of jobs, billions in local revenue and pave the way for long-term energy affordability.

Last year, upon lifting the moratorium on oil and gas drilling in the Outer Continental Shelf (OCS), Americans were handed an opportunity to explore the vast potential of our public energy resources in offshore waters.

In the months that followed, I led a series of oversight hearings in the House Committee on Natural Resources in an effort to take a look at the current state of the Nation’s offshore drilling policy and determine where our efforts would be best focused. I stood by my longstanding commitment to ensuring the American people are fairly compensated for the oil and gas resources that are extracted from these federal lands and waters. And, I have been reassured that the Obama Administration and Secretary of the Interior Ken Salazar share my concern for attending to these important issues.

Simply put, our oceans and the natural resources they contain are too important for us to move forward plans for development without taking the time to do so in a responsible fashion.

As such, last week I introduced legislation – the Consolidated Land, Energy, and Aquatic Resources (CLEAR) Act of 2009 (H.R. 3534) – to further the Nation’s goals of securing a reliable and sustainable supply of American energy. This legislation lays the groundwork to ensure those resources are developed as efficiently and expeditiously as possible so that domestic oil and gas can begin flowing from those newly opened areas.

The CLEAR Act would make several important changes to current law in an effort to create greater efficiencies, transparency, and accountability in the development of these public energy resources. Among many important reforms, this legislation would consolidate the federal energy and mineral leasing programs, currently under the purview of the Minerals Management Service and the Bureau of Land Management, into one bureau to provide greater efficiencies in lease sales, inspection, enforcement, and revenue collection. The bill also proposes reforms to the onshore oil and gas leasing program in order to provide a more coordinated, efficient and competitive use of federal oil and gas resources. It also outlines essential changes to the federal royalty collection program, including elimination of the scandal-ridden Royalty-in-Kind program.

Multiple reports, audits, and investigations over the years from the Interior Department’s Inspector General and the Government Accountability Office have uncovered a host of problems related to the management and development of federal energy resources, and reinforce the need for the reforms contained in the CLEAR Act. Now is not the time to sit back and watch, as multi-national companies swoop in to reap the benefits of drilling in the newly opened OCS. Planning and taking careful steps now to lay out the groundwork for managing and developing these resources will ensure that we do not have to take costly steps in the future to correct mistakes made in haste.

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Although Congressman Rahall has a good legislative reputation, this proposal looks like a solution in search of a problem. Why does Congress have to tell DOI how to best organize to improve efficiency and oversight? This is akin to the Board of Directors telling the CEO how to operate departments in his/her company. If the Secretary of Interior doesn’t already have the authority to reorganize and impose best practices, he should be given it. And, if he does have it, then there may be a larger problem.

Over the past several years, there have been allegations that oil companies were not diligently developing their leases. At a time of high oil prices, these allegations defied logic and there was scant real evidence to support them. If the incentive structure is right, market forces will do a better job than more legislation and regulatory mandates.

There is a major energy policy issue that is not addressed by this legislation: what can be done to reduce the growth in oil imports?

Legislative and regulatory actions that would accelerate leasing and avoid unnecessarily increasing the cost of production would lead to an increase in both onshore and offshore oil and gas development. This move is in our national interest. And, as we have seen with Brazil, there is a great deal of oil to be discovered and produced offshore.

We are probably importing upwards of 2 million barrels of oil a day that we could replace with domestic production. No only would that improve our balance of payments but it would lead to an increase in good paying jobs here.

Ending the royalty is kind provision in existing law, won’t eliminate dishonest people who have exploited it. The dishonest only find other ways to cheat and steal. Royalty in kind oil can be used to add to the strategic petroleum reserve without putting increased demand pressure on the market as has happened in the past.

Changing the royalty program will change incentives. The royalty relief program lead to increased deep water exploration and production and increased bonus bids. So, actions have consequences. Before dismantling a program that worked, there should be a close examination of what that will do to incentives and how changing them will impact exploration and production.

The question for Congress and Mr. Rahall is will the proposed changes in incentives lead to more or less oil and gas exploration and production? Instead of using royalty money for a conservation fund, why not increase the percentage of royalty money going to coastal states? If they received a larger reward from offshore exploration, they would probably show greater interest in development off their coasts.

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