ones who, presumably, get quicker approvals, better inspections, better protection for their environment and less problems down the road. can you comment about how you're ensuring these fees are being used well and wisely? >> yes, sir. the fees are focused on our safety program, primarily our field operations and our permitting operations. the expense of these operations is mostly in the cost of our workfor workforce. we're increasing the size of the workforce at a pretty steep rate for a small agency. we have already increased the numbers of inspections -- inspectors by a significant number. we started at about 55 and i think we're up to 91 now. we're headed up over 100 into

about the 150 range that we're going to need for inspectors and as you increase your number of inspections, you also needs helicopters to get those inspectors offshore which are costly as well. and then turning to the permit side, we're adding, almost, 100 engineers. people who are plan reviewers for the information submitted to get a permit. and they are a combination of structural engineers, petroleum engineers and some geophysicists and geologists to review those permitting applications. so we're still challenged to bring those people into the work force but we have an aggressive outreach program. we did get some incentives for requiring these people in the 2012 appropriations which will

be very valuable to seem optimistic about that program. >> a quick because my time has expired. the initial feedback from the industry, sit positive in terms of the more expeditious permitting process? a better sense of the profession, skill of the inspections. is that what you're sensing? >> well, my experience is that the industry is looking at the bottom line. how quickly can they get a permit. but they are, also, focused on the competencies of our people. i haven't heard any disparaging remarks about our competencies. on the permitting side, i think there's been a combination of efforts on -- by the industry to provide more comprehensive, better-prepared applications than say a year ago. and in the besse side, we're also better at doing these new

safety standards at reviewing it. and the numbers kind of bear this out. just between last march and september, our average was about 97 days to get a permit processed. that was the argue average. and then between september and today, it's gone down to 62 days. so it's right around two months right now and i think we can probably make more improvements but as i said in my opening statement i'm not about the number of days it takes. i'm about safety and environmental protection. >> thank you very much. senator mckurkowsmurkowski. >> i want to better understand some statistics out there. yesterday the president released his -- or he discussed the one-year progress within the administration. he called it his blueprint for secure energy future and in that report, he notes that oil production is up overall. that's the statement that his certainly been made. he doesn't disclose where that

increased production comes from. whether it's on federal lands, private, state. i mentioned in my opening comments the department of interior's own numbers would seem to indicate that onshore oil production, down 14% from last year, offshore production down 17%, and, yet, yesterday when secretary salazar commented on the president's blueprint, he stated the fact of the matter is we're producing more from public lands, both oil and gas and both yankee shore as well as offshore than any time in recent memory. so i'm trying to understand our data here. because i think that this is important. people really do want to understand what the situation here is in this country. so i guess we've got a situation where either the data from

department of interior is wrong or it has not been communicated adequately or appropriately to the secretary. so the question that i have is -- who's right here? are we -- when you peel this back, are we seeing an increased production on federal lands and offshore as well? or not? >> let me take a stab at this, senator murkowskmurkowski. no doubt the statistics show u.s. oil and gas production is up. last year, more oil was produced in this country than at any time since 2003, according to -- >> do we dissect that as to state, federal. >> i can. no doubt, the aggressive dwomgt of shale gas and oil has led to a shift to private lands in the east and to the south where there is less amount of federal mineral estate in those sections

of the country. as far as natural gas, last year there was more natural gas produced from blm-managed mineral estate than in decades. oil production was down somewhat last year. but we're moving forward, again, offering up additional parcels for leasing. we're processing more applications for permits to drill than in the past several years. and so we should see an increase in production of both oil on public lands as well as natural gas. but again -- the products was up. >> right. so i'll grant you that and i also recognize that where that natural gas production is primarily coming from is in the state on the private side. is it an accurate statement, then, to state that 14% onshore -- 14% decrease onshore from last year and offshore down 17% for oil?

>> again, the statistics speaks for itself. >> this is where the confusion is. the statistics are being used to suggest that there's this incredible increase in oil and gas production. but we all know you have oil production and you have gas production. and we're seeing remarkable, remarkable opportunities with natural gas within our shale formations and that's good. i support that absolutely. what i'm trying to understand is whether or not our oil production offshore and onshore, up or down? >> the oil production for i don't know shore federal minerals was down last year from previous years. where the industry decides to produce or where they decide to develop is up to them. for example, we have approved 7,000 applications for permits

to drill that are not being drilled. we have over 25 million acres of lands that we've leased that are not being developed. so it's a decision that's being based by the market. >> i understand that and in my next round here, i'll ask about some of those incentives or disincentives we impose that kind of pushes the -- those in the exploration and production business to go from federal lands to state lands. i want to ask, very quickly, and this is to you, director abby. i mentioned it to the secretary last week. a couple different times. this relates to the legacy well situation alaska. for members of the committee, it's an interesting situation. back in about 40 years ago, there was exploration by the government by the navy, primarily, in the national

petroleum reserve. they drilled some 137 different wells looking and. and then moved on. the problem that we face is they moved on without properly abandoning and 'caring for those wells. now decades afterwards, we're having some of the casings collapse. we've got erosion issues coming in. and it's not only unsightsly, but it's an environmental scar and it's something that has been difficult for alaskans to accept because on the one hand, the standards for the environmental standards are exceptionally high and i think, appropriately so. we want to make sure we're taking care of the land there. but on the federal government side, they can come in. they can explore. they can leave. and their environmental responsibility is not attended to. if you were on the private side

you would be fined, i think the fines that we're talking about could be in the realm of $40 million. the revenues that have been received from the national petroleum reserve, alaska, are certainly sufficient to help clean this up. but we're on track for cleaning up these at about the rate of one per you're. it's going to take us another 135 years to clean it up which is certainly not acceptable, so i ask the secretary and i would ask you, director abby, whether or not we can get a commitment blm and the alaska oil and gas conservation commission, to not only provide the commission with an inventory of the exact number, the associated cost force plugging them, and then, a plan. an action plan so that we can have a reasonable level of

assurance that we'll move forward, that the government will move forward in keeping their commitment to alaska and to the land up there. >> my response would be similar to what the secretary shared with you. we're committed to working with the state of alaska to identify where the highest priority needs are for cleanup. we've spent millions of dollars to date in cleaning up some of those legacy wells. >> and they're expensive, we acknowledge. >> very much so. this year we're -- we have sufficient funds to clean up an additional three, but as you suggest. and i will admit, that's a pretty slow progress toward dealing with the challenge that we face. >> we need to be working on the together so i appreciate that. thank you, mr. chairman. senator tester? >> thank you, mr. chairman and thank you all for being here. as i mentioned in my opening statement, the number of rigs operating in the u.s. this year is the highest number in probably eight or ten years.

the u.s. has more rigs operating right now and correct me if i'm wrong, than the rest of the world combined. our domestic production is at an all-time high. and you know, maybe the public lands is down some. and i want to get into that a little bit. but the fact is, if it's up on state and private, we got more rigs operating in the u.s. than the whole rest of the world combined and i talked to a person in montana today where they have a bunch of permits and can't get any rigs because they're all tied up. i don't know, you know, i want to get your perspective on all this because there's about 32 million acres of federal land leased right now and as you pointed out, i think there's 7,000 applications for permits to drill that have been issued and not drilled.

can you give me some insight into why that is? insight into what you're seeing as trends on the federal lands. >> well, senator, i'll be happy to. again, there's a lot of factors that come into play relative to a decision made by the industry on where they choose to drill. as it relates to the number of applications for permits to drill, we issued 4200 last year. that was above what the number that were submitted by the industry. we had a little backlog from the previous year and we were able to address the backlog. but we issued 4200 applications for permits to drill. at the end of the year we had over 7,000 not being drilled. as i mentioned there are several factors for that. sometimes it's financing. another factor that comes into play is that the industry, the sales have chosen to drill elsewhere where it's more economical but it's a choice they have to make and a choice

that they make every day. we're moving forward as expeditiously as possible to streamline our review processes without foresaking the need to ensure safety as e as well as environmental diligence on the drilling operations. we're increasing our inspections. much of the easy plays are located right now the private mineral estate. >> and this goes to i think, senator murkowski's last question. that is, as we push to open up lands in responsible way, not sacrificing one resource for another, we also have to consider things like the casing. how it's cemented in. and i hope we're thinking about what happens when the wells

usefulness is gone. i hope we're thinking about that up front. so, can you give me some sort of trouble on o idea of the thought process to make sure the land is being leased responsibly and the development is being done in a responsible way so we don't have a bunch of wrecks like senator murkowski was talking about? >> let me start by saying in 2009 when secretary salazar and i both came into our new positions and the program was on the virge of collapse. i say that because over 50% or close to 50% of all the parcels being leased were being protested or litigated. that's unacceptable. literally, hundreds of leases had been awarded by the department of interior specifically the bureau of land management, were tied up in protests in litigation. the millions of dollars we collected from the oil and gas companies for their leases that they purchase were placed in

suspend add counts until this could be resolved and again, that was unaccepted. the rules in place to govern the oil gan oil and gas operations and to insure them being exf extracted from the public assets were over 20 years old. technology had advanced significantly in that 20-year period updating the rules. we had epa and other federal agencies criticizing the analysis being eperformed by the bureau of land management as it related to air quality documents. public land stakeholders criticizing the leasing everywhere and anywhere mentality going on at the time and certainly, very much a part of the blm's culture. there were concerned environmental damage that was occurring as a result of not doing a good job of looking at the lands before we committed those lands through leasing.

so we took it upon ourself to ignore the problem but to address them. one of the ways we've been able to address them is to insure that there's a better opportunity to look at these lands prior to committing them through leasing. we've done that lieu our leasing refo reforms. the primary purpose for our leasing reform is to make sure that the lands that we're going to be leasing are the right ones to lease. and they have the greatest chance to be developed in a timely manner. >> did you say that 50% of the leases when you took over were being either litigated or protested? is that what i heard you say? >> close to 50%. >> where are you now? >> close to 50% of the parcels we were offering were being protested or litigated. at this point in time it's around 35%. >> my time is up. we'll save some for the next round. >> thanks very much.

>> >> there were a significant number of leases capable of being drilled or not being drilled and those are decisions of private entrepreneurs and the companies onshore. offshore, is it the same situation where you have a significant number of leases already approved and, yet, the drilling activities are not commencing? >> yes. that's correct. there were by the interior department offshore that are not currentry subject to an exploration or development plan. and we tried to develop boat through our leasing process and post leasing processes to try to encourage prompt and diligent development in those leases. to bring them into exploration and bring them into production. as director abby indicated, there's a number of ccts that w

e to drill. we're trying to line up our leasing process and our decisions so that we can have prompt development. >> thank you. and director abby, in the present budget we mentioned there is a request for additional onshore fees that will be increases that we've provided to besse and director issues and watson is improving can you indicate how you can improve your program with these fees? >> i'd be happy to. it's a -- thank you for the it is senator tester alluded to, it's important if we're going to be leasing these parcels of public lands for oil and gas development that we have sufficient inspections to insure that it's being done responsibly. it is our goal to inspect drilling operations that are

considered a high risk and those ost violations but also, those that are producing the most volumes of gas or oil. we test for blowout preventer equipment, setting and cementing casings. we also test for plugging operations and well completion operations. the additional moneys that we would get from the inspection fee would provide us sufficient funds to add another 46 inspectors to our work force that would again allow us another opportunity or a greater opportunity to be on site when the drilling is actually taking place. >> thank you. the new technology, the fraking technology has raised at least issues which are being evaluated by state authorities, by other agency, and it's i would think something that you're looking at more cleesly now in terms of your inspection program. is that accurate? >> it is.

you know, fraking is not new by any means. about 90% of the wells that are being drilled today on public lands are using the fracturing technology. so our inspections have always included looking at the fraking operations as they were occurring. but again, the additional fees would provide us opportunities to be on site more often than where we are right now. >> the secretary has also indicated cently that his intention to raise the on shore royalty rate from 2.5% to 18.75%, can you tell me how these rate, the present rate and proposed rates compare to state rates? or state rates is probably the comparable point. >> well, it varies somewhat. let me just suggest our primary goal is to make sure the american taxpayer is receiving a fair return for the assets that are being developed. that's the least we that we can do. at the same time, as we go forward and we are -- we have

analyzed what some of the states -- or many of the states actually are charging relative to royalty for production that are occurring within our own state lands, we've also done some analysis of what some of the other countries are charging relative to royalties or sla type of fees that are assessed oil and gas dpaens. companies. even though our budget was based on assumption that an increase in royalties would go to 18.75% for both oil and natural gas, let me just reassure members of this committee that that decision has not been reached. we're continuing to look at the full range of statistics prior to making any decision to increase the royalties of oile public lands. >> thank you very much. and i know senator mikulski is

going to get into this, but even though the lease is being made available it's not being utilized. can you tell us the number of rigs? insufficient number of rigs? >> well, no doubt -- i don't have the rigs, but i do know the availability of rigs is an evasion that comes into consideration by the companies relative to where they're going to be developing or drilling. let me just say right up front, it is quite -- it is a lot cheaper to drill on private lands than it is on public lands. all they have to do is cut a deal with the private landowner. when you come with a proposal to drill on public lands, there is a lot of factors that we do evaluate. again, we have to look as to the

appropriateness of leasing certain parcells for oil and gas development. we have to adhere to nepa. we have to adhere to consultation, not only with native americans but fish and wildlife services to ensure the proposals before us can be adequately mitigated. so there are an awful lot of rules and regulations that companies would have to adhere to. but each of those rules and regulations are intended to make sure that the production goes forward to the degree that it can be allowed as appropriate. but also the leasing reforms that we have applied is to provide greater certainty to the industry themselves that if they lease a parcel of land that they're going to be able to develop that parcel of land. and i can tell you in 2009, that was not the case. >> thank you. my time has expired. >> i'll follow on because you've given me a little bit of assurance by saying that the

decision has not been made on this issue of increasing the royalty rates on shore. you have stated, and rightly so, that it is more costly to develop on the public lands, and so as we look to a royalty rate increase, as has been suggested, that, too, then adds to that cost. and again to my earlier point, i think it causes developers to look to develop on state and in private before they would turn to our public lands. i do think that it's important to recognize the study that was commissioned by a department to look at the royalty rate structures on our federal lands and compare them to other states, as you have noted, to other countries. there is a consensus coming ouft of the report that says that a

rate increase is not warranted. they compare wyoming to other on shore areas. they conclude that wyoming's edge is on shaky ground. lower royalty rates encourage development. so i really hope that the department is looking very critically at your own analysis and working to ensure again that we are not putting additional hurdles in place for development on federal lands. additional costs on top of the costs that are already in place. so i am glad to hear the statement that it has not been -- a conclusion has not been teached. do you have any idea when you might make that determination? where you're going with that?

>> senator, we really don't, or at least i don't at this point in time. i do know that we had conversations as recently as yesterday with the office of management and budget regarding proposed rules as it relates to royalty increases. you know, wyoming is doing quite well. you cited that this study said they're losing their competitive edge. >> your study, not mine. >> but nonetheless, there are a lot of factors that we have taken into consideration relative to what we will ultimately propose for any royalty rate increase. i will say this, too, that the 12.5% royalty rate that's in place right now for both natural gas and oil has been in place for decades. and so i do think that it was prudent that we conducted this study, that we are doing the analysis to determine what is a fair return to the american taxpay taxpayer.

>> let me ask you about the timeliness of ocs permitting. i guess i'm bring you into the conversation, director watson. can you tell us how the department is doing hiring the personnel and process the permits. as i mentioned in my statement, in the last interior bill, we move forward the new fees to help with this effort, provide additional authorities to not only increase the level of competition, but really to try to get additional funds for those personnel responsibilities. where are we with that? i'm still hearing from folks that they feel that the agency is still understaffed and that is causing what they consider to be ongoing delays. where are we? about 60

inspectors and a modest number of engineers that do the permitting. and we have a target that is bhased on where the industry is projected to go in terms of the number of applications that we would expect to get. plus all of the new standards that we've implemented and the workload that's required. and it comes out to, you need about a total of 150 inspectors and you need about 230 engineers. so we are on a process of hiring inspectors and engineers. and in the area of inspectors we've gone up to about 60 last year to 91 this year. and on the engineers we've added about 10%. so we're needing t a