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 so our inspections have always included looking at the fraking 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 oil and gas production on these 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? >> we began with 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 to add more -- >> so you've got a long ways to go? >> we do have a long ways to go in engineers. but as you know, the

appropriation just came out in december. it was vital that we had some ability to incentivize those engineers to work for the u.s. government instead of for the oil companies. they're paid very well by the oil companies, especially when the price of oil is what it is today. so we are in the process of implementing that pay incentive. and we also are doing some aggressive outreach to connect with new graduates from the engineering schools. we're also working with organizations to assist us with those people that may want to work for the government because of some of the benefits and perhaps stability that we can provide that typically the

industry doesn't. i'm optimistic. it will take a couple of years for us to reach our goal, but i think we will make a big stride this year. >> as you all know, the congressional intent was part of these fees be used to expand the capacity so that we could expedite the orderly development of offshore there. and i do appreciate the time lines and i recognize we can't just snap our fingers and have these folks in place. but you can count on me to inquire how we're doing. not only to get the bodies in this position, but again make sure that it's going towards the goal which is a more orderly and expedited processing for these ocs permits.

so it's not only getting the bodies in, but making sure that we're seeing greater movement there. my time has expired, mr. chairman. >> thank you very much, senator mikulski. >> i want to talk about fraking far little bit. there's too many cooks in the kitchen. the doe, epa are all in the process of studying fraking. i've heard there's as many as ten agencies involved in the process. i think the budget gives $13 million to usgs. i think it's about $45 million for fraking research in total in the different budgets. duplication is something that i'm always worried about, people doing the same work in different agencies. we can get a little better bang for the buck. i just want to get your perspective on the research effort. is there coordination between agencies so there isn't

overlapping research? >> again, duplication is always a concern for all of us, i believe as we go forward during these lean times. i'm aware of two studies we're assisting with. one study by epa, and then a second study being conducted by the usgs within the department of interior. our participation is fairly limited to providing statistics and data that they are then taken into account as part of their analysis. as it relates to the bureau of land management. we are proposing a new rule relative to fraking. the components of that rule is based upon the three primary recommendations that came to us from the department of energy task force. the three components we're focused on is public disclosures of the chemicals that are being used. drilling operations on public lands. many states have such disclosure

policies in place right now. and we want to make sure that the standards that are going to apply to public lands are similar to what's being applied on state lands. the second component of our proposed fraking rule will address well bore integrity. to make sure that the casings that are being used during the drilling operation are secured. they're going to protect ground water. and then the third component is water management. both looking at the source of the water being used, because there's a significant amount of water used in fraking operations in most circumstances. and then second, what occurs with the disposal of that waste water after a fraking operation ceases. making sure the disposal is consistent with local and state law, not federal law, but local and state law. so those are the three components we've incorporated into our proposed rule. we anticipate releasing a draft rule pertaining to fraking as

early as april. >> i want to take it one more direction. and that is, when i talk to the industry, the industry says fraking is going on so deep that it can't impact the potable water up above. when i talk to other folks, they say their water is being impacted by the fraking. i don't know which is the truth. usgs has estimated that some k auqifers are losing one to two feet per year due to energy production. i don't know why that is, if it's because of fraking or some other reason, but water is very, important. and i just wondered, can you give me any idea on what, if the a auqifers are losing that kind of -- if they're being

diminished by one to two feet a year. secondly, why is that? and thirdly, is there something we can do about it? >> well, i would refer you to usgs for the answer to your specific question relative to what's causing that depletion. i do know many fraking operations require an extensive am of water. that water has to come from somewhere. so energy companies are securing water rights wherever they're operating in order to have access to such water so they can continue with their fraking operation. but i will also give acknowledgment to the industry, for they understand the potential impact and certainly the long-term impacts of continuing the operations that are currently taking place with the amount of water. and they're proposing stood a better job of reusing water. and actually treating water on sites so it can be used there on additional or new fraking operations. >> well, it is a big issue.

i mean, there was an amendment on the fwloor yesterday that i think failed because some people didn't want to encourage more fraking. we're getting natural gas because we have the ability to frak. we like to see it done, but by the same token, ten years from now, we don't want to look back and say oh, my god, what have we done? i would hope the research is that's being done is being done in a coordinated fashion and very timely. i want to talk about closure for blm wells. could you compare the procedure to what happens on state or private lands in a state like montana when it. co-s to well closure? >> well again, we take plugging and abandonment quite seriously, because it's the last time we to look down the hole before the cement is placed. we give that one of the highest priorities as part of our inspection program. when there is going to be a well that's going to be closed and abandoned that we have our

inspectors out there almost 100% of the times to make sure that the process is completed based upon the engineering that had gone into that design and approval process. >> can you give me any idea what goes on on state and private lands as far as well closures? >> i really don't. some states do a better job of prioritizing inspections than others. i won't cite any examples, but nonetheless, you know, we are responsible for managing these wells on federal lands and that's where our focus is right now. >> all right, thank you very much. >> i have a few more questions then an obviously recognize our colleagues for their questions. i understand that you're going to use a new auction process format for offshore wind,

alternate energy unlike what you do for oil and gas in the gulf, for example. raise the question of why the different auction procedures, first question. second, we've got to get that information out to potential applicants in a very expeditious way. otherwise, they might not be prepared when the auction occurs. and, you know, frankly, they also, i think, deserve the opportunity to sort of evaluate and comment on the procedures to ensure they are fair to all potential parties. so could you comment on the wherein reason for the new procedures and also commit to getting the proposal out quickly so that relevant parties can participate? >> yes. the reason for the new

procedures is that strictly speaking, offshore wind energy development is fundamentally different than oil and gas. you have a finite area that is being made available. you want to make sure that you get as much efficiency out of that area as possible. unlike oil and gas where you purchase a parcel, you assume the risk for the parcel, you drill the well. if it's a dry well, you go some place else. here, we have a number of interested companies. we have a number of interests that we need to take into account in considering how to lease the finite area. that includes the efficiency of their project, the likelihood that that particular operator can actually bring a viable project online. and the best configuration of

multiple projects in a limited area. so that creates a little more complex process. that said, we are very actively evaluating alternatives for this leasing process. with the idea of while addressing those multiple factors that distinguish from oil and gas, keeping it as simple as possible. and there's a number of reasons for that. we have gone through an exextensive process to make this area available. we want to encourage the development of offshore wind. so we want to keep our auction process as simple as possible, while at the same time, getting the area into the hands of operators who will be able to stand is up real projects. with respect to the option fro sesz and similarity among operators with that process, you're absolutely right. that is essential. we put out a description inspection request last fall and

had a comment period provided that a for two operators and we got a lot of useful fedback from operators about the different factors and alternatives we could employ in the auction format. so we've been extensively engaged with operators through that process. and we are planning into the run-up of coordination with operators to make sure they understand exactly how a lease process will unfold, exactly what will be expected of them with we want an efficient lease sale and we want it to work and we want it to work right out of the box. >> do you have an idea of when you will be prepared to sort of publish your final for comment proposal? >> yeah. so we've done all of the comment. so now we're work on finalizing what the auction format will be. now, each auction will have to be tailored a little bit to the

region. but we hope to have all of that in place for competitive leasing later this year. >> very good. now, assuming you've got turb e turbines and transmission lines operating in the water, will employees conduct the inspections or will bessie step in and take over? >> in the fear term, part of what we're trying to do is hire structural engineers who can help us evaluate construction and operation plan, which ask a key component down the road. eventually when those operations are up, steel is in the water, bessie will have a role in conducting safety inspections and compliance with respect to those operations. >> and director watson, you're collaborating right now for the handoff, i presume? >> yes, sir. you know, this is just a recently created two bureaus, but we have a lot of interdependcies, and there's still evolution going on.

this is a perfect example of, i think, right now our priority is with the oil and gas safety and establishing our environmental enforcement division. but we'll be ready when it comes to take on the final wind work. >> you don't have the same danger with the oil rig damage, et cetera. have we clearly set out the explodi exploding et cetera, but you responsibility for the have the problems with hurricane leaseholders in terms of their obligation to repair and to remediate? there's no oil fund for this process, i presume. >> that's right. there's other mitigation factors around impacts on avian resources, marine mammals. that is why we're doing these environmental analyses so we can develop mitigation measures and requirements to ensure that one, the operations go up that can provide energy from renewable sources.

but two, we're managing the potential impacts. >> thank you very much. >> i want to add a couple more questions from the inquiry from senator chester on fraking. one of the concerns i'm hearing from folks is that the concern that these will be overlapping or duplicative rigs that are coming out of blm on top of what they already face in the states. can you speak to that issue? give me some assurance that we're not just adding on additional federal regulation on top of what the states are doing, and how you will work to eliminate any such redundancy. >> again, as i mentioned earlier, there's going to be three components of our fraking rule. disclosure of, wl

bore integrity, and water management. the similarities that exist would be in the disclosure of chemical mps many states are requiring as part of fraking operations for companies to disclose what chemicals are being used as part of their operations. we will be requiring that, but we also -- >> will that information be shared publicly, or will there be provisions for allowing protecting any trade secrets that might exist? >> the information would be available publicly unless there's some rational and justification the company would provide us to keep that trade secret from prosecute being made public? >> so that would be considered on a case by case basis? >> yes and we have a process in place to make that type of determination. >> all right. let me ask about on shore inspection fees. currently, blmcollects $32

million for the apds and this budget proposes an inspection fee that total dl$48 million. how did you get these fees? inspection costs? where did they came from? >> basically they are based on actual costs or what our estimate of the actual costs would be. the fee itself would be implemented in accordance with the number of wells that are on a particular lease. and for example, if there's a leaseee with a lot of wells on that particular lease, they would pay more inspection fee than a smaller operator would be. >> so has there been any assessment on the impact to small businesses that may be on the federal lands. when we're talking offshore, you don't worry about that.

you don't have anybody there. but has there been any kind of assessment that looks at what the impact may be on the smaller businesses? >> we have done that analysis and assessment. and quite frankly, the highest risk we have sometimes are with smaller operators. they just do not have the capital to do everything that's required to ensure environmental protections for the drilling that's occurring, or the production that's occurring. so it's -- there's a necessity for us to get out there on the site to make sure that those operators are complying with all the laws and rules of governing their operations. so we can't ignore them, but we have taken into our analysis the economic affects or impacts to operators. >> as you have done the analy s analysis, have you looked at kind of the cumulative impact of these additional fees that we're talking about? you've got the existing apd fees. you're talking about new inspection fees, increasing royalty rates perhaps.

are you concerned what might result is lower bonus bids coming out, less production on federal lands, which then results in less revenue to the treasury, has that been factored into the analysi well.? >> it is. we understand the cumulative effects on the industry itself based on everything we're doing to ensure environmentally responsible drilling on these lands, and to make sure that we're making appropriate parcels of public lands available for such extraction. but at the same time, as we go guard, well, tlast a factor that we've also taken into account as we review the royalty rate the options going forward us. all of the actions thatwe