Hearing of the Commiittee on Energy and Natural Resources to Receive Testimony on President's Proposed FY 2006 Budget for Department of the Interior

STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR FROM ALASKA

Senator Murkowski. Thank you, Mr. Chairman.

Welcome to you, Madam Secretary. Now, the chairman has suggested that we need to be smiling as we grill you this morning, and I have to tell you that I can give you a genuine smile because I am pleased that the President has included in his budget again this year the estimates for the oil and gas leasing up in ANWR, the Arctic coastal plain. I know that there has been some discussion in the media and apparently on the House side as far as the estimates that you have included in that budget.

In my opening statement, which I will ask to be included in the record, I guess I am backing you up in the sense that we too believe that these numbers are reasonable. In fact, we figure that they are probably a bit conservative, given the current prices of oil, given what we conclude is the amount of economically recoverable oil in the North Slope when we are finally able to move forward with that program, and also recognizing that the comparison needs to be made to Federal leases as opposed to some of the more current State leases.

So I am pleased to see you discuss that in your opening statement this morning and to again address that and include that in the budget. We will have an opportunity to go up to ANWR at the end of this week. I was just up north yesterday and it is cold up there. It is 35 below. Yes, surprise. They say it is supposed to get warmer, but I was talking to the Slope workers as they were going up on the flight yesterday morning and they guarantee me that it is going to be colder. So we will make sure that we have gotten your bunny boots ordered and that you will be taken care of.

A couple questions for you, and I wanted to reiterate some of the concerns expressed by my colleagues here about PILT and the Land and Water Conservation Fund. I had to step outside for just a few minutes to meet some constituents from the community of Ketchikan and they had no idea what we were taking up in here. They said: You need to make sure that we are okay on PILT; we rely so heavily on this. I said: I will convey the concerns of Alaskans to you.

I think it was Senator Salazar that had requested this OMB report that did address some of the concerns. I too would be curious in looking at that. I guess it was Senator Thomas, you had mentioned that. But we would like to take a look at that.

A little bit about ANWR. There was a somewhat interesting article in The New York Times about a week ago and they were questioning the interest of some of the larger oil companies in bidding on ANWR leases. I found the article interesting or bemusing, I guess, because I thought that we were proposing to open ANWR to promote America's energy independence and not necessarily to enhance the operation of the oil companies.

I guess I would ask your opinion or your feelings about whether you feel the industry will show up to bid on the leases when we are successful in opening up ANWR to exploration and development?

[The prepared statement of Senator Murkowski follows:]

Prepared Statement of Hon. Lisa Murkowski, U.S. Senator From Alaska

Secretary Norton, it is a pleasure to see you again before this committee. While I will have a number of questions for you concerning the future of funding for several Alaska programs in the President's proposed FY '06 budget, let me start on a brighter note.

I want to congratulate the President and you for again including revenues to be gained from oil and gas leasing in the Arctic coastal plain in Alaska in your budget for next year.

I know that some recently questioned the Administration's estimate that initial oil and gas leasing in the coastal plain of the Arctic National Wildlife Refuge will bring in a total of $2.4 billion in FY '07, and more revenue two years later. That is solely from leasing bonus bids, not from royalties or taxes from actual oil or gas production, which will come on line more than five years after leasing begins. I noted, in your prepared testimony, that you defended the estimates, noting that the Congressional Budget Office is predicting leasing revenues of about $4 billion.

I would like to say that I also believe the revenue estimates from the Office of Management and Budget are conservative, and that I expect the CBO estimates may also prove conservative given the advantages that ANWR offers to find, conomically produce and market oil and gas.

First, we both know, that according to the U.S. Geological Survey that ANWR offers the best chance onshore for a major oil discovery in America.

Given current world oil prices, well above $25 per barrel, your agencies have predicted that roughly 90% of the technically recoverable oil will be economic to produce. And the estimates for technically recoverable oil range from a low of 5.7 billion barrels to a high of 16 billion, with a 50-50 chance of finding 10.4 billion barrels on the Arctic coastal plain.

And those estimates are based on ANWR allowing recovery of only 35% of the oil. At the nearby Prudhoe Bay oil field we likely will be able to recover about 65% of the oil. If a similar level of recovery occurs at ANWR, we will be looking at a range of from 10 to 27 billion barrels of oil recovered, with a mean recovery of 18 billion barrels.

There is no place on land in America that is anywhere close to as prospective. Even with the conservative estimates, the Energy Information Agency predicts there is from $125 billion to $350 billion of oil likely to be produced from the Arctic coastal plain. Given that rate of return, common sense would say that bidding $2.4 billion to earn a gross return of 50 to 150 times that amount would be good business.

Secondly, some of my colleagues on the House side last week cited statistics that implied that companies generally bid only a few hundred dollars per acre for oil leases in Alaska. They looked only at state lease sales, generally for less prospective step-out leases, not at the federal experience.

The last time there was even remotely close to as prospective a tract up for oil leasing in Northern Alaska was in October 1982 when tracts in the Beaufort Sea were on the federal auction block. Companies 23 years ago, when oil was selling for less than half of its current price, bid $2.055 billion for 121 blocks of federal leases during Lease Sale 71--ten times what companies bid for a state sale in 1996.

Given that experience, and the experience the federal government had in leasing tracts in 1988 in the highly speculative Chukchi Sea frontier area, where bids reached nearly a half billion dollars for leases a thousand miles from the nearest means to get any oil to market, I have no concerns about the government realizing its current estimates for leases on shore, where all the technology is already perfected and where a transportation system--the trans-Alaska oil pipeline--is literally eight dozen miles away.

I'm looking forward to traveling with you, Secretary Bodman and a number of Senators this weekend to visit ANWR, to inspect the newest technology in use at fields in NPRA and to view the original Prudhoe Bay field and to meet with residents at Kaktovik, the only village in ANWR. It was a bit chilly on the North Slope over the weekend with lows hitting minus 35, but the forecast calls for a considerable warming trend by this weekend, so hopefully it will be a bit more pleasant than during your last winter trip to ANWR four years ago.

Thank you for being here and I will have a number of questions for you during the question rounds.

Secretary Norton. Well, first of all, Senator, I agree with you that it is the American government and the American public that needs to be concerned about America's domestic production and our reliance on foreign oil. The multinational oil companies can look wherever they want to around the world for their sources. So having our own domestic supply is a uniquely American concern.

I think one thing people need to understand about our leasing process is that at the time we actually do leasing, first of all, this area would be open and so the legal situation would be clear. Second, we would have some additional seismic information on which the bidding would take place. So the companies would presumably evaluate that information. If there are large resources appearing to be present from additional work, then I certainly anticipate the companies will have tremendous interest. If the seismic work shows there is nothing there, then the concerns people have about the effects on the area will clearly fade away.

Senator Murkowski. Until we get in there to explore, we are not going to know for certain. So that is why it is so important that we move forward. I appreciate your willingness to work with us on this, the President's support on this issue, and your willingness to come up North next week.

Moving to some legislation that I had introduced last year and the President has signed into law, this is the Alaska Land Transfer Acceleration Act. This legislation was designed to facilitate the transfer of lands that the Federal Government owes to the State, to our native corporations, and to native allotment applicants by the fiftieth anniversary of Alaska's
statehood, which will be in 2009.

As we were working through this legislation last year, we all recognized that in order to accomplish this goal of transferring these lands it was going to take a very focused effort. It was my understanding that the Department was prepared to commit the resources necessary to achieve this objective. But in looking at the budget, there is a proposal to cut the appropriation for BLM's Alaska conveyance program by $9 million. In looking at your briefing book, you state that the rationale is to return the pace of the program to the more sustainable level, which confuses me.

It does not make sense because we passed the Land Conveyance Act prior to the formulation of the 2005 budget. So I guess what I need to know is that you are still committed to achieving the goals set forth in the Land Transfer Conveyance Act and whether we can do it if we are going to cut the budget in this area?

Secretary Norton. We are still committed to moving forward with transfers and do still support the act. Our funding level is getting us to the same level that the administration requested last year, as our current funding. We have through the act that was passed some tools that now make the process more efficient, and so we should be able to function in a more
efficient way.

Senator Murkowski. Well, we do recognize that we did put in place those tools to create efficiencies. But we also recognize that we have got about 89 million acres that have yet to be conveyed. We have some considerable survey issues, as you know. The complicated land ownership makes this process more cumbersome. If it takes additional people, if it takes
additional funding for surveys, we need to do what it takes.

The promise to us at statehood was that we were going to get these lands. We figure 50 years is plenty of time to make these conveyances and we want to know that we will have that assistance from the Department to make that happen.

Secretary Norton. We will work with you on that, and we will work to see that things like the ability for our Department and native corporations to establish a boundary without need for a survey, that that sort of tool will be utilized so that we can move forward.

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