Indian Country Energy Development

TESTIMONY OF

JODI GILLETTE

DEPUTY ASSISTANT SECRETARY INDIAN AFFAIRS

UNITED STATES DEPARTMENT OF THE INTERIOR

BEFORE THE

SENATE COMMITTEE ON INDIAN AFFAIRS

UNITED STATES SENATE

ON

ENERGY DEVELOPMENT IN INDIAN COUNTRY

FEBRUARY 16, 2012

Good afternoon, Mr. Chairman and Members of the Committee. My name is Jodi Gillette, and I am the Deputy Assistant Secretary - Indian Affairs at the Department of the Interior (Department). I am accompanied by Karen Atkinson who is the Director of the Office of Indian Energy and Economic Development within Indian Affairs. Thank you for the opportunity to present testimony today concerning economic development opportunities available for American Indian and Alaska Native communities through energy resource development.

The Department believes that environmentally responsible development of tribal energy resources is critical to the economic viability of many American Indian Tribes and to the sustainability of many Alaska Native villages. Energy and mineral development represents a near-term solution for many Tribes to promote economic development, small business, capital investment, Indian-owned businesses, and job creation for their tribal members.

Overview

The Department holds in trust 55 million surface acres and 57 million acres of subsurface mineral estates and assists Tribes and Indian allottees in managing these lands and resources throughout Indian Country. In consultation with tribes, the Office of Indian Energy and Economic Development (IEED) under the Assistant Secretary-Indian Affairs have assisted Tribes and allottees in the exploration and development of 2.1 million acres of active and 15 million acres of potential energy and mineral resources. This activity includes collection of exploratory data and identification of energy resources, funding of and assisting in feasibility studies, market analyses and other resource development initiatives, as well as overseeing leases and agreements for oil, natural gas, coal and industrial mineral deposits located on Indian lands.

Under the Assistant Secretary-Indian Affairs, the Bureau of Indian Affairs (BIA) is responsible for developing, implementing and reviewing bureau-wide policies, plans, processes, environmental impact studies, industry leasing and development activities, and other functions related to development and production of energy and mineral resources on Indian lands. The Assistant Secretary-Indian Affairs is also responsible for regulations related to Indian Country.

On June 21, 2011 DOI published "The Department of the Interior's Economic Contributions."1 This report documents the critical role that energy and mineral development plays in creating jobs and generating income throughout Indian Country.

1 See http://www.doi.gov/ppa/upload/DOI-Econ-Report-6-21-2011.pdf.

2 See http://www.gpo.gov/fdsys/pkg/FR-2011-11-29/pdf/2011-29991.pdf.

Highlights include:

• BIA, Bureau of Indian Education (BIE), and IEED have an estimated economic impact of $14.45 billion.
• 85 percent ($12.3 billion) of this impact is derived from energy and mineral development on tribal lands.
• The economic impact created by BIA, BIE and IEED create an estimated 136,761 jobs.
• 88 percent (120,934) of these jobs are directly associated with energy and mineral development on tribal lands.

Surface Leasing Regulations

The Department has proposed a new rule to remove federal roadblocks to economic development and to restore greater control to tribal governments in business and residential leasing, including wind and solar energy projects. The reform underscores President Obama's commitment to empower Indian Nations and strengthens their economies by expanding opportunities for Indian landowners and tribal governments. The Department published proposed rules for Federal surface leasing covering Indian trust lands on November 29, 2011.2 The public comment period for the rules ended on January 31, 2012. These rules constitute the most significant and comprehensive reform to Indian land leasing rules in 50 years. We included surface leasing provisions for wind and solar energy development in addition to other business and residential leasing and streamlined the process.

Provisions for wind energy leasing include a new two-step process whereby developers first obtain BIA approval of a short term lease which covers installation of equipment to evaluate the resource. This is followed by a second step, a wind resources lease which allows installation of turbines. The environmental review conducted for the short-term lease, which would only evaluates the impacts of the equipment, may be rolled into the environmental review conducted for a lease for full development of the project. This two-step process allows for quicker review for an evaluation lease and provides a basis for further environmental review when the wind energy equipment is to be installed.

The proposed rules also set out a nationwide process for approval of mortgages, amendments and assignments to ensure consistency across BIA regions and set deadlines for BIA review. Under the proposed rules, appraisals of tribal land are not required unless a tribe requests appraisal. The tribe negotiates rentals and authorizes rates and BIA defers to a tribe's valuation for fair market value, thus reducing the time period for approval of business leases.

We conducted tribal consultation meetings in Indian Country for the proposed rules, then incorporated comments and again conducted consultation for the proposed rules in Rapid City,

South Dakota; Palm Springs, California; and Seattle, Washington. Following review of the comments and necessary revisions, we expect to publish final rules by June of this year.

Carcieri

The Department strongly supports Congress' effort to address the United States Supreme Court decision in Carcieri v. Salazar, 129 S. Ct. 1058 (2009). In Carcieri, the Court's majority held that section 5 of the Indian Reorganization Act permits the Secretary to acquire land in trust for federally recognized Tribes that were "under federal jurisdiction" in 1934. The decision upset the settled expectations of both the Department and Indian Country, and led to confusion about the scope of the Secretary's authority to acquire land in trust for federally recognized tribes – including those tribes that were federally recognized or restored after the enactment of the Indian Reorganization Act. The ability to take land into trust is critical to creating an environment that is conducive to economic development and attracting investment in Indian communities. This includes energy planning and improving energy development capacity. Trust acquisitions allow tribes to grant certain rights of way and enter into leases that are necessary for tribes to negotiate the use and sale of their natural resources. In addition, acquisition of land into trust is essential to tribal self-determination.

In April 2011, the United States Government Accountability Office (GAO) stated that the uncertainty in accruing land in trust for tribes, as a result of the Carcieri decision, is a barrier to economic development in Indian Country.

The Department continues to believe that legislation is the best means to address the issues arising from the Carcieri decision, and to reaffirm the Secretary's authority to secure tribal homelands for federally recognized tribes under the Indian Reorganization Act. In addition, the President's 2013 budget request includes language reaffirming the Secretary's authority to take land into trust status for all federally recognized Indian tribes.

Office of Indian Energy and Economic Development (IEED) - Energy and Mineral Development

In the last 25 years, Congress has provided about $83 million in funding to the Department, for projects to assess and help develop energy and mineral resources information on Indian trust lands.

IEED is working with tribes to provide them the technical assistance they need to proceed to the development and job-creation phase. IEED is further defining these resources by the use of detailed exploration, market studies, business plans, economic analysis, and lease negotiations that reflect the tribes' economic, environmental and social needs.

This proactive approach has helped tribes to proceed with development and realization of economic benefits from their energy and mineral resources. Today, our major objective is sustainable resource development focusing on Indian employment and income to the Indian mineral owner. This goes further than resource assessment which is the identification of the quantity and quality of mineral resources. This proactive focus on resource development has 4

provided an informed decision-making process for their resources that provides a springboard to the development and realization of the potential economic benefits.

We are providing tribes with access to state-of-the-art knowledge and geo-scientific-based analysis of their energy and mineral resources to allow them to perform the following critical functions:

• strategic planning;
• formulation of economic and energy policies;
• evaluation of federal lands;
• development of sound environmental policies; and
• negotiation of sound Indian Mineral Development Act (IMDA) agreements with energy and mineral industry developers.

IEED also has accumulated a significant repository of industry-confidential exploration data (e.g., seismic data, well data). We have been actively providing technical assistance to various tribes by purchasing, reprocessing and interpreting thousands of miles of 2D seismic data as well as hundreds of square miles of 3D data. These studies have identified numerous prospects, some of which are essentially ready to drill. Some of the prospects still require additional data collection and evaluation to more accurately identify exploratory and development targets. These evaluations yield prospects that enhance the marketability of Indian lands and results in better economic terms of an agreement.

• Oil and natural gas production in Indian Country has been significant and has even greater future potential. To date, more than 2 million acres of Indian lands have already been leased for oil and natural gas development. These lands account for about 10 percent of the oil and natural gas production from federally regulated onshore acreage. Based upon the latest data available from the Office of Natural Resources Revenue (ONRR), production of energy mineral resources generated about $550 million in royalty revenue paid to Indian individuals and tribes in 2011 and the royalty income trend line is rising. As demonstrated in the chart below, since 2002, annual income from energy mineral production increased by more than 113 percent and this trend is expected to continue for the foreseeable future.

Data from Office of Natural Resources Revenue (ONRR) website www.onrr.gov/ONRRWebStats/Home.aspx

The economic potential of future energy and mineral resources in Indian land has enormous possibilities. We estimate that an additional 15 million acres of undeveloped energy and mineral resources may exist on individual Indian and tribal lands, which if fully developed could result in billions of dollars in revenue for those tribes and individual Indian landowners over the period of production.

As tribes and development companies create more sophisticated energy and mineral development agreements under the Indian Mineral Development Act (IMDA), comprehensive energy and mineral information is required to understand, evaluate and negotiate these agreements. By having a more thorough understanding of the geotechnical data and economic information, tribes can confidently enter into complex agreements knowing they have a sound economic and business arrangement. In addition, if a tribe wants to take advantage of the opportunity to develop Tribal Energy Resource Agreements with the Department, we must ensure that the tribe has identified resources and land title information, and the technical and administrative capability to develop those resources.

For energy and mineral development in Indian Country, IEED provides advice and data concerning geotechnical, economic, and land-use issues to tribes and Indian landowners who are seeking to manage and develop their energy and mineral resources. IEED also provides assistance in negotiating beneficial working agreements with developers and guidance through the often complex and time-consuming regulatory approval process.

Since 2008 IEED has assisted Indian mineral owners in the negotiation of 48 IMDA leases for oil, gas, renewable energy, and aggregate totaling approximately 2,750,000 acres and about $45

million in bonuses (upfront payments). These leases have the potential to produce over $20 billion in revenue to the Indian mineral owner over the life of the leases through royalties and working interests.