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Zinke Warns of 'Gap in Trust' With Energy Industry, Defends Cuts at Interior

Department of Interior (DOI) Secretary Ryan Zinke defended the Trump administration's proposed $11.7 billion budget for fiscal year (FY) 2018, and told two Senate panels that the department was "moving prudently" to fill positions in field offices while limiting hires in Washington, DC.

Zinke also warned that a gap in trust has erupted between the federal government and the oil and gas industry, and legal challenges to rules governing new sources of methane emissions would likely drag the process of rewriting the rules by several years.

"At the end of the day, the budget represents a balanced budget," Zinke said Wednesday in testimony before the Senate Subcommittee on the Department of the Interior, Environment, and Related Agencies. "It is a starting point, but it is a reflection of a balanced budget. I hope that we can work together to create income streams that we can rest against some our more priority projects, which include infrastructure and making sure that we honor our treaty obligations."

Zinke on Tuesday testified before the Senate Energy and Natural Resources Committee. Last month, the Trump administration proposed allocating $11.7 billion to the DOI, which amounts to a cut of $1.4 billion (10.9%) from FY2017.

Personnel Moves 'Far From Unprecedented'

Under the proposed budget, the Zinke said the DOI would shed about 4,000 full-time jobs.

"To accomplish this, the DOI will rely on a combination of attrition, reassignments and separation incentives," Zinke said in written testimony to both panels. "Actual attrition rates and acceptance of separation incentives will determine the need for further action to reduce staffing."

Sen. Tom Udall (D-NM), the subcommittee's ranking member, told Zinke that he was "very troubled" to hear that dozens of the DOI's senior career staff had been directed to take new assignments with other bureaus or in other regions of the country. He said it was equally troubling that he heard of the staff changes through the media, not the DOI. Udall asked Zinke to provide a list by Friday of all positions affected, and a justification for making the changes.

"It's my understanding that the scale of these changes is virtually without precedent," Udall said. "These staff members appear to have been transferred with no clear plan regarding how or whether their current positions will be filled, and I have heard that many of these changes are set to take place quickly, potentially by the end of the month. That means almost no notice to the affected staff of the affected programs, let alone to affected states or tribal governments."

But Zinke said the moves were "far from unprecedented," and added that privacy issues prevented him from providing a list of affected personnel. Still, he agreed to provide Udall with some information by Friday's deadline.

The DOI is "shifting people to either an area where their skills are better suited, or getting people out of headquarters and moving them into the field," Zinke said. "We need to...make sure that we can manage our forests and our rivers more effectively, so we're looking at pushing more resources out of Washington."

Udall also told Zinke that he had not received answers to 11 letters over issues at the DOI. Zinke promised to review the letters, but said "if the requests are [regarding] pre-decisions and involves executive privilege, I will talk to you about it personally."

Udall countered, "as far as I know, none of these have to do with executive privilege and they're overdue."

'Gap In Trust' with Industry

Sen. Lisa Murkowski (R-AK), who chairs both panels, pointed out that Wednesday was also the day the DOI's Bureau of Ocean Energy Management (BOEM) had scheduled an oil and gas lease sale in the Cook Inlet offshore Alaska. Specifically, the BOEM is offering 224 lease blocks in the Outer Continental Shelf (OCS).

Murkowski asked Zinke to provide an update over the DOI's plans to rewrite the 2017-2022 OCS leasing plan. The secretary said the rewrite could take up to three years, much shorter than the usual five.

"We looked at rearranging it," Zinke said. "Rather than having the standard 'everything in sequence,' which pushes the time out, we can do things simultaneously in many cases."

Zinke also warned that a "gap in trust" had opened between the federal government and the oil and gas industry. Case in point: the misfortunes of Royal Dutch Shell plc in the Arctic Ocean. The major, once one of the biggest leaseholders in offshore Alaska, decided in May 2016 to abandon all but one of its leases in the Arctic's Chukchi Sea after disappointing drilling results and an "unpredictable" regulatory environment.

"When Shell commits $3.1-3.5 billion to a lease, and the U.S. Fish and Wildlife Service moves them out to unproductive waters and they dig a dry hole, there's a little lack of trust there," Zinke said. "When compensatory mitigation forces companies to pay millions to get a permit, there's a little bit of breach of trust in that.

"We have to make sure that as partners we hold industry accountable, that we're transparent in what we're doing. But there's a reason why our revenue went from $18 billion to $2.6 billion, and not all of it is oil and gas price, although that's some of it. A lot of it is we weren't a good partner. Our rules became arbitrary, permits were difficult to deal with, and at the last minute something else would be thrown in [like] compensatory mitigation. In some circles that's known as extortion. That has had a real chilling effect in our ability to be good partners."

Methane Rule Rewrite ‘Painstakingly Slow'

Last week, DOI said the Bureau of Land Management (BLM) would postpone the compliance dates for its Waste Prevention, Production Subject to Royalties, and Resource Conservation Rule, aka the venting and flaring rule. One month earlier, the Republican-controlled Senate invoked the Congressional Review Act (CRA) to review the rule but narrowly failed to pass a bill to repeal it.

"I'm going to follow the law," Zinke said in response to a question by Sen. John Hoeven (R-ND) over DOI's plans to rewrite the rule. "I think the rule should have been in a CRA. It would have been easier to rewrite it. My intent is to go through the process, although it's going to be painstakingly slow. I'm going to go through the process of rewriting it to make sure we incentivize capture [and] use, and de-incentivize waste.

"As a public steward, I think it's wasteful to flare, but you've got to give incentives to make sure that there's capture systems and it can be used for beneficial use. I look at it as a holding within public land, and it's better to provide incentives either to inject, move or store [natural gas] rather than just to flare, and the rule will march along that line."

When Hoeven asked for a timeline over the rewrite, Zinke said, "Well, I got sued six times on the first morning I was at the DOI, so I would imagine I'm going to be in court over it. What should take six months will probably take a couple years. But we'll go through the process. We'll do it legally and transparently. There's going to be a number of periods, as there should be, of public comment."

Under the final rule, to be implemented in stages, oil and gas producers would be required to use currently available technologies and processes to cut gas flaring by half at oil wells on public and tribal lands. Operators would also be required to periodically inspect their facilities for leaks and replace outdated equipment that vents large quantities of gas into the air. Other parts of the rule require operators to limit venting from storage tanks and to use best practices to limit gas losses when removing liquids from wells.

The Independent Petroleum Association of America and the Western Energy Alliance (WEA) filed a lawsuit against the rule last November. Montana and Wyoming filed a separate lawsuit three days later, and North Dakota and Texas subsequently joined as petitioners. The two lawsuits were combined at the end of November.

During his opening remarks, Udall said "I simply don't understand why it's a bridge too far to ask the oil and gas industry to implement common sense measures to ensure that natural resources from our federal lands are not being wasted."

APD Backlog

Hoeven also asked Zinke about a backlog of about 3,000 applications for permits to drill (APD) at the BLM.

Overall, said Zinke, some of the APD backlog “is because we don't have personnel and there's additional money in the budget to address that. And some it is just the process. When the process becomes arbitrary -- when you request a permit in the same basin, where it's been consistently been done before, and that permit is viewed as a new start -- that probably is not appropriate. So we're looking at making sure that the process is fair, it's transparent and appropriate."

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