Background

As you are aware, the MMS consists of two major programs: the Royalty Management Program and the Offshore Energy and Minerals Management Program. As such, all mineral revenue management functions for Federal (onshore and offshore) and Indian lands are centralized within MMS. Further, the leasing and oversight of mineral operations on the OCS is also centralized within the bureau. Together, these programs contribute significantly to the Nation's economic well-being and its energy security. For example, approximately $4 billion in mineral revenues are collected and distributed on an annual basis from Federal and Indian lands, and OCS natural gas and oil production account for roughly 24 and 15 percent, respectively, of our Nation's domestic energy production.

In its role as manager of the Nation's OCS energy and non-energy mineral resources, the bureau's long-term strategy is to assess those resources; determine, in consultation with affected parties, if they can be developed in an environmentally sound manner; and, if leased, to regulate activities to ensure safety and environmental protection. This long-term strategy affects the way MMS manages OCS resources and the way MMS faces the challenge of maintaining a "balance" between providing energy and protecting the Nation's unique and sensitive environments and other natural resources.

An integral element in this long-term strategy is the ability to determine the most promising areas of the OCS for the occurrence of natural gas and crude oil accumulations and to quantify the amounts of natural gas and crude oil that may exist in these areas. However, since much of the OCS has not been thoroughly explored, we must deal with the uncertainty that these resources may or may not exist in these most promising areas. We must also develop indicators of the economic viability of these resources under a variety of economic and price scenarios and costs associated with exploration, development, and production activities for the specific areas where the resources may occur. Within MMS, these functions are performed through the Resource Evaluation (RE) Program component of the Offshore Energy and Minerals Management Program.

MMS Resource Evaluation Program

The RE Program is focused upon the acquisition and analysis of geologic, geophysical, petroleum engineering, and economic data and information related to the minerals potential (predominately natural gas and crude oil) of OCS lands. The primary source of this data and information is the oil and natural gas industry which conducts exploration, development, and production activities on OCS lands. MMS acquires this data under terms of lease agreements or permits. Hence, the data and information is considered "proprietary" by MMS and generally not available for public release.

RE Program functions encompass all cycles of OCS program activities and provide technical data and information supporting a wide array of program and regulatory decisions affecting Offshore Energy and Minerals Management-- including OCS leasing decisions, bid adequacy determinations, environmental analyses, royalty-relief considerations and a myriad of related issues and decisions that must incorporate specific knowledge about the amounts of natural gas and crude oil resources and reserves.

In performing these functions, MMS personnel must constantly update the information databases to reflect new data produced by current drilling and seismic activities performed by industry as well as update production data from known fields as natural gas and crude oil are produced from OCS fields. There are several "by-products" that result from our ongoing geologic, economic, and engineering analyses. For example, MMS publishes annual reports that update the estimates of proved reserves for Gulf of Mexico and Pacific OCS fields. Additionally, MMS submits biennial reports to Congress in accordance with the provisions of the section 606(c), (d), and (e) of the OCS Lands Act, as amended (P.L. 99-367, section 2(c)). These reports provide updated estimates of the undiscovered natural gas and oil resources that may exist on OCS lands as well as updated reserves estimates.

OCS Resource Assessments

As background to discussing any resource estimates of natural gas and crude oil accumulations on the OCS, it is important to understand the differences between the terms "undiscovered resources" and "known reserves."

"Undiscovered resources" are quantities of natural gas and crude oil that geologic data and information suggest may exist in areas outside of known oil and natural gas fields. However, verification of the existence of natural gas and/or crude oil can only be determined from exploratory drilling activities and verification of the ultimate number and sizes of fields is only truly known after an area has been thoroughly explored, developed, and all discoveries produced-- a timeframe generally covering decades.

"Known reserves" are those natural gas and crude oil deposits that have been discovered and determined to be economically viable to develop and produce. Estimates of known reserves are reported in two categories by MMS: "Proved" reserves are those accumulations that have existing production and transportation facilities or regulatory commitments for installation of such facilities. "Unproved" reserves are those accumulations that have been discovered, but lack sufficient geologic and economic studies by MMS and OCS lessees to determine whether such discoveries can be commercially developed.

Finally, MMS resource estimates address conventionally recoverable natural gas and crude oil quantities--that is, estimates do not include deposits of "heavy oil,"oil shales, gas hydrates, coalbed methane, or similar continuous-type hydrocarbon deposits.

OCS Reserve Estimates

As of January 1, 1995, MMS estimates of "proved" reserves for the Gulf of Mexico region are 2.5 billion barrels of oil (Bbbl) and 29.3 trillion cubic feet (TCF) of natural gas. "Proved" reserves for the Pacific region are estimated at 0.7 Bbbl of oil and 1.6 TCF of natural gas. Additionally, MMS estimates of "unproved" reserves for the Gulf of Mexico region are 0.9 Bbbl of oil and 4.7 TCF of natural gas and 0.6 Bbbl of oil and 0.8 TCF of natural gas for the Pacific region.

Previous OCS Resource Assessments

Since its creation in 1982, MMS has completed two systematic assessments of Federal OCS undiscovered oil and natural gas resources. The results of the first resource assessment and the methodologies used to develop these estimates were published in a 1985 MMS report entitled Estimates of Undiscovered, Economically Recoverable Oil and Natural Gas Resources for the the Outer Continental Shelf as of July 1984. Following release of the 1985 MMS report, MMS agreed to join the U.S. Geological Survey (USGS) in conducting a joint, concurrent resource assessment of the United States (both onshore and offshore) in order to provide the Department of the Interior, Congress, and other public and private organizations with estimates reflecting consistent timeframes.
The results of this "National Assessment" were published in 1989 in a joint MMS/USGS publication entitled Estimates of Undiscovered, Conventional Oil and Gas Resources in the United States - A Part of the Nation's Endowment. Subsequently, MMS reported a more detailed set of results from this joint assessment in 1990 in an MMS report entitled Estimates of Undiscovered Oil and Gas Resources for the Outer Continental Shelf as of January 1987.

Following the first MMS assessment, a National Academy of Sciences (NAS) panel reviewed MMS resource assessment and resource estimation methodologies and recommended certain changes for future assessments. Similarly, a NAS panel also reviewed MMS procedures employed in its second resource assessment and additional recommendations were published.

In view of the importance of such estimates to outside private and public interest groups, additional reviews of the MMS (and USGS) methodologies and reporting procedures were conducted by the Association of American State Geologists (AASG), the Energy Information Administration (EIA, U.S. Department of Energy), and the American Petroleum Institute (API). The AASG and EIA reviews resulted in published reports with technical recommendations for enhancing the methodologies employed by both MMS and USGS, while the API review resulted in private recommendations to the Department.

In preparation for conducting its third systematic OCS resource assessment, MMS not only took into account the technical recommendations of NAS and others but also looked internally at other ways to improve on its past efforts. Because the results of the resource assessment would be used by different customers, each with different information needs and levels of technical sophistication, the bureau devoted considerable time and attention to improving on the way the estimates are made and how they
are reported. Customers (user groups) surveyed include:

• MMS/DOI decisionmakers;
• Federal and State Agencies and Congress;
• Oil/Gas and related industries;
• Geologic and scientific communities and academia; and
• General public.

Armed with the technical recommendations and the realistic conclusion that the needs of our customers (including ourselves) could be better met, MMS embarked on an effort in 1991 to revise our resource estimation and reporting procedures. Our specific goals were to establish a method for estimation that:

1. maintained the strong points of earlier methodologies;
2. utilized the extensive amount of proprietary geological and geophysical data within MMS databases to the fullest extent; and
3. provided MMS geologists flexibility to use their judgment to capture a broad range of possible geologic interpretations to address specific areas.

• Produce functional/understandable results;
  
• Reflect the high quality science inherent in the MMS activities addressing resource assessment and estimation;
• Ensure that estimates reflect geologic potential (known and unknown) as well as reflect risks and uncertainties;
• Separate determinations of economic viability from the process of estimating geologic potential; and,
• Report estimates and related information to a broader audience.

The Probabilistic Resource Estimation Offshore (PRESTO) model, developed by MMS and used in its 1987 assessment, was modified to accept the assessed output of GRASP at the pool level to determine the economically recoverable resources at the geologic basin level and higher. Unlike the 1987 resource assessment, where economic resources were estimated for only two sets of distinct oil and gas prices inflated over time, the present assessment depicts the uncertainty of assessed results by providing a continuous series of resource values over a range of prices (price supply curves) for each geologic basin, province, and area.

In addition to adopting revised geologic modelling approaches and computer models in its current resource assessment, the MMS also opened up the process of developing estimates for the OCS by holding public workshops for industry, academia, and other interested parties to discuss MMS geologic interpretations and assumptions to be used in the estimation process. We also retained the services of two outside experts in the petroleum assessment community, both of which served on NAS panels reviewing previous MMS assessments, to provide technical advice to MMS scientists.

Finally, we are planning to publish the results of our third OCS resource assessment in a format that will allow for more openness in OCS resource management decisions--reporting maps of the most promising plays, estimates of the number and sizes of accumulations that may exist within these areas, price-supply curves for examining the impacts of uncertain future oil and natural gas prices on the economic viability of the resources, and a substantial amount of supporting assumptions and underlying geologic information.

Status of Current MMS Resource Assessment

MMS's third systematic OCS resource assessment is currently underway and is expected to be completed later in 1996. The overall assessment will contain both a "geologic assessment" section and an "economic viability" section. In view of the extensive amount of data and information we envision making available when our resource assessment is completed, MMS plans to issue an "Executive Summary" of its OCS resource estimates as well as provide technical, in-depth results through three regional reports (Gulf of Mexico/Atlantic Region, Pacific Region, and Alaska Region). Further, regional offices may release interim reports that provide more detailed information than that published in the "Executive Summary" prior to release of the regional reports.

Since we are still in the process of completing our most recent OCS resource assessment, we are unable at this time to provide the Subcommittee with a detailed discussion of our results or conclusions. At this stage, we are still extensively reviewing data and outputs based on the methodology and assumptions we have employed to conduct the assessment. However, please be assured that as soon as the results are finalized we will promptly share them with the Subcommittee. Further, should you so desire, we will be pleased to provide an in-depth briefing on these results and their underlying assumptions to any interested Members or staff.

Conclusion

In conclusion, we believe our current resource assessment methodology, and thus the resulting information, will be far superior to previous MMS assessments and look forward to a peer-review of the geologic, engineering and economic data and assumptions used in the assessment. We also believe that the extensive amount of materials to be released through our regional reports and the format of such reports will more readily meet the needs of the extensive public and private audiences for such information--thereby contributing to efforts to develop balanced resource management policies with regard to OCS resources. While reliable resources estimates are only one of many factors to be considered when making OCS resource management decisions, they are an important component and should be based on high quality science. We are confident that our new methodology will produce results that meet that high standard.

Mr. Chairman, this concludes my prepared remarks. However, I will be pleased to answer any questions which Members of the Subcommittee may have.