Small oil and natural gas operators took their complaints about the Interior Department’s Bureau of Land Management (BLM) to Capitol Hill Thursday, blaming a slowdown of oil and gas activity on public lands on a sluggish approval process for applications for permits to drill (APD).

But not everyone was critical of the BLM. Historically low natural gas prices and a shortage of drilling rigs are also factors, said Mark Squillace, professor of law and director of the Natural Resources Law Center at the University of Colorado Law School, during a hearing by the House Small House Business Committee’s Subcommittee on Investigations, Oversight and Regulations.

“I certainly don’t defend unreasonable delays on the part of the agencies in issuing permits,” he said. But because many of the APDs are categorically excluded from having to undergo environmental review, “environmental assessments can’t be blamed for all of the problems [that] we’re seeing with APDs.”

Squillace said operators are having to wait up to six months for rigs. “It’s very difficult right now to get a rig.” In addition, there are 7,000 APDs that are in producers’ hands but have never been drilled.

Kimberly J. Rodell, regulatory project manager for Banko Petroleum Management Inc. in Englewood, CO, believes BLM is the culprit. “I am currently working a project [in] a federal unit which has 37,000 acres…We did everything necessary, including meeting with BLM,” to win APD approval. However, six months later the permit was returned to the company unapproved.

“At this point [those] 37,000 acres of federal minerals are locked up,” she said.

Due to the reportedly slow processing pace at BLM, “I don’t see any appetite whatsoever right now in terms of new development on public lands,” said subcommittee Chairman Mike Coffman (R-CO).

Operators are looking elsewhere. “Certainly there is more quick opportunities and smoother planning ability when state and fee land minerals are pursued,” said Tim Barber, supervisor of environmental/federal regulatory for Yates Petroleum in Gillette, WY.

The restrictive regulatory environment “definitely turns them away from operating on public lands,” Rodell said. She said 11 federal agencies are currently targeting oil and natural gas companies. It turns away investors. “No rig company will sign a contract with [an] operator that does not have [an] approved permit.”

Activity on BLM-owned lands would increase greatly if the agency adhered to existing deadlines for APDs, Barber said. “The singular issue from my perspective that we could do [to improve things] is actually…get BLM back to the point where federal minerals wells, APDs are processed in the time line that’s called for in the [existing] regulation.”

Current regulations require BLM to notify an operator if an application is incomplete within 10 days of an APD being filed, but Barber said only some of the agency offices meet this requirement. He said BLM has 10 days to schedule an on-site inspection, but he said that deadline is rarely met. And BLM has 30 days from the day an APD is filed to issue a decision. “That in my experience is almost never met,” Barber said.

With respect to APD deficiency letters sent out by the BLM, “the consensus of the industry [is] that these are just obstructionist moves to keep these permits locked up,” Rodell said.

She believes consolidating some of the BLM field offices might help to hasten APD processing. It “might be a start to the solution,” she said.

Squillace decried the unitization process of BLM, which allows oil and gas producers to bypass the limits on acreage that they can hold in a single state and on lease terms. He said in January 2011 Encana Corp. bragged that it held 869,000 acres in the Piceance Basin in Colorado, essentially the entire basis. “That’s more than three times the federal limit.”

He asked that the subcommittee direct the General Accountability Office to “do a study of some of the problems that exist with the practices that…harm small operators.”

The operators further said some of the tax reforms advocated by President Obama — rescinding the intangible drilling cost deduction in addition to not allowing depreciation rates — could put some of them out of business.

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