oversight

Domestic Energy Resource and Reserve Estimates--Uses, Limitations, and Needed Data

Published by the Government Accountability Office on 1977-03-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                              DOCUOENT RESUME

00182 - [A1051721]

Domestic Energy Resource and Reserve Estimates--Uses,
Limitations, and Needed Data. B-178205; .MD-77-6. March 17,
1977. 35 pp. + 5 appendices (21 pp.).
Report to the Congress; by Rotert F. Keller, Acting Coptrcller
General.

Contact: Energy and Minerals Div.
Budget Function: Natural Resources, Environment, and Energy
    (300); Natural Resources, Environment, and Energy: Energy
     (305).
Organization Concerned: Department of the Interior; Energy
    Research and Development Administration; Federal Energy
    Administration.
congressional Relevance: Congress; House Committee on Interstate
    and Foreign Commerce; Senate Committee on Energy and Natural
    Resour es.
authority: Energy Policy and Conservation Act (42 U.S.C. 6201
     (Supp. V)). Energy Conservation and Production Act (P.L.
    94-385). Mining and Minerals Policy Act of 1970 (30 U.S.C.
    21a). Energy Reorganization Act of 1974 (42 U.S.C. 5801
     (Supp. V)). Energy Supply and Environmental Coordination Act
    of 1974. Federal Coal Leasing Amendments Act of 1975.
    Federal Energy Administration Act of 1974. Federal Nater
    Power Act. Nitural Gas Act, 15 U.S.C. 717. 15 U.S.C. 761
     (Supp. V). 15 U.S.C. 772(f) (Supp. V). 16 U.S.C. 791. 30
    U.S.C.   '.   43 U.S.C.   31.

         The usefuilness of resource and reserve estimates of the
Naticn's primary energy fuels, including oil, gas, coal, and
uranium, can be greatly improved. These estimates are prepared
and reported on by Federal agencies. Findings/Conclusions: The
estimates prepared have been an attempt to measure the potential
short- and long-term domestic supplies of these fuels. Review of
the reported energy resource and reserve estimates demonstrates
that there is a raed fcr more data to assess resources and
reserves and a need for more reliable resource and reserve
estimates. In order to increase the usefulness of reserve
estimates for decisionmaking purposes, information is needed on
the effects of cost-price relationships on energy source
recoverability. Recommendations: The Secretary of the Tnterior
should direct a geological exploration program which would
provide for the development and implementation of a systematic
plan for appraising Outer Continental Shelf oil and gas
resources. The Energy Research and Development Administration
should expedite the work and report of its National Uranium
Resource Evaluation Program. The Administratcr of the Federal
Energy Administration should obtain additional information
concerning the effects of cost-price relationships on the
recovery of energy rescurces, the quantities of recoverable coal
reserves, and the ownership and control over energy resources.
(Author/SC)




              ©11
IJ



C=)        RrREPORT TO THE CONG.RESS

      ..   BY THE COMPTROLLER GENERAL
           OF THE UNITED STATES




           Domestic Energy, Resource
           And Reserve Estimates--Uses,
           Limitations, And Needed Data
           This report examines the Government's data
           on domestic resources and reserves of crude
           oil, natural gas, uranium, and coal. Estimates
           of resources and reserves of these fuels can be
           greatly improved.
           Addilional information should be obtained
           concerning
                --the oil and gas in Outer Continental
                  Shelf areas,
                -- the availability of economically    re-
                  coverable U.S. uranium resources,
                --the effects of cost-price relationships
                  on the recovery of energy resources,
                --the quantities of recoverable coa; re-
                 serves, and
                --the ownership and control over energy
                  sources.




           EMD-77-6
                                                    ~AA      H I,-7, 1. 7 7
                COM`PTROLLER GENERAL OF THE UNITED ETATE!
                           WVASHINGTON. D.C.   SUP




B-178205




To the President of the Senate and the
Speaker of the House of Representatives

     This report focuses    on the usefulness of resource and
reserve estimates of the    Nation's primary energy fuels--oil,
gas, coal, and uranium.     The estimates examined are being
prepared and reported on    by Federal agencies.
     The examination was made pursuant to the Budget and
Accounting Act, 1921 (31 U.S.C. 53), and the Accounting and
Auditing Act of 1950 (31 U.S.C. 67) and because of the im-
portance of energy resource and reserve estimates in plan-
ning for the Nation's energy future.

     Copies of this report are being sent to the Director,
Office of Management and Budget; the Secretary of the In-
terior; tfe Administrator, Federal Energy Administration; the
Administrator, Energy Research and Development Administration;
the Chairman, the Federal Power Commission; the Chairman,
Senate Committee on Energy and Natural Resources; and the
Chairman, House Committee on Interior and Insular Affairs.




                         ACTINGComptrolle r General
                                of the United Stat.es
COMPTROLLER GENERAL'S                    DOMESTIC ENERGY RESOURCE AND
REPORT TO THE CONGRESS                   RESERVE' ESTIMATES--USES,
                                         LIMITATIONS, AND NEEDED DATA

            DIGEST
            As the oil embargo in late 1973 showed, our
            Nation depends on petroleum product as a
            primary energy source. Domestic energy supplies
            are declining---annual estimates of oil and
            gas reserves have decreased since 1970, and
            studies show that uur petroleum production is
            declining. Our Nation is faced with dependence
            on potentially unreliable foreign sources of
            oil unless development of U.S. energy sources
            is escalated and/or an aggressive energy con-
            servation program is pursued. (See p. 1.)

            The future energy demand, the combination of
            fuels which will best meet that demand, and
            the possible impact of energy conservation ef-
            forts are uncertain. However, the Government
            can effectively plan for and shape the Nation's
            energy future. In doing so, decisions concern-
            ing various supply options must be based on a
            better understanding of the potential future
            supplies of domestic fuels, who owns and con-
            trols them, and the costs associated with
            developing each fuel. (See p. 4.)

            Resources, in geaeral, are quantities of a sub-
            stance estimated to exist and be recoverable
            either now or in the future. A reserve, on the
            other hand, is that portion of resources
            which is estimated to be recoverable based on
            current technology and economic conditions.
            Estimates of our Nation's domestic resources
            and reserves of the primary energy fuels--crude
            oil, natural gas, coal, and uranium--are impor-
            tant in,assessing the current energy situation
            and planning for our energy future.  (See p. 54)
            The comments expressed in this report by Execu-
            tive branch agencies were obtained by GAO under
            the previous Administration. It is uncertain
            as to what the current Administration's views
            and judgments may be on the issues discussed
            in this report.




TLr ShWt. Upon removal, the report   i                      EMD-77-6
cover dtF should be noted hereon.
DOMESTIC RESOURCES

The potential availability of oil and gas in
the Outer Continental Shelf could be determined
better if a systematic plan to assess Outer
Continental Shelf resources was developed and
implemented by the Federal Government. The plan
should include a timetable for providing minimum
levels of stratigraphic test drilling. The
data obtained would provide a better basis for
continually assessing the role of the Outer Con-
tinental Shelf in supplying future energy needs
and giving precedence to major areas for future
leasing.

In implementing the resource appraisal plan,
private industry should be encouraged to con-
duct the stratigraphic test drilling called
for in the plan. However, to iinsure full imple-
mentation of the plan, GAO believes the Federal
Government should finance stratigraphic tests in
areas where private industry does not plan to
drill.   (See p. 20.)

In an earlier report, "Outer Continental Shelf
Oil and Gas Development--Improvements Needed
in Determining Where to Lease and at What
Dollar Value" (RED-75-359, June 30, 1975),
GAO recommended that the Secretary of the
Interior direct a geological exploration pro-
gram, which included stratigraphic drilling,
in Outer Continental Shelf areas. At that
time the Secreta j of the Interior stated that
the recommendation did not consider the cost
effectiveness of such a program and questioned
the use of a Government financed drilling
program. (See pp. 20 and 21.)

 In commenting on this report, the Department
 of the Interior said that it
 --had promptly made difficult and necessary
   decisions using the best information avail-
   able.

 -- considered data coverage in areas offered
    for lease to be sufficient for a technically
    sound determination of fair market value,
    and

 --considered ongoing industry-financed
   stratigraphic tests to be generally
                      ii
               well placed and adequately tested to
               furnish valuable data.  (See p. 21.)

             The Federal Energy Administration, in com-
             menting on this issue, stated, in essence,
             that stratigraphic drilling is a major expense
             of any exploration effort whether carried
             out by the Government or by private industry
             and that the amount of drilling necessary
             to provide information to adequately evaluate
             tracts before they are leased to insure that
             the public receives a reasonable returp could
             he extensive. The Federal Energy Administra-
             t on pointed out that the minimum levels of
             exploratory coverage recommerded may not
             coincide with the coverage necessary to ade-
             quately evaluate tracts before leasing.   (See
             p. 21.)

             Concerning the Department of the Interior's
             comment that it considered its data coverage
             in areas offered for lease to be sufficient
             for a technically sound determination of fair
             market value and considered the 3ndustry-
             financed stratigraphic tests to furnish valu-
             able data, it was not within the scope of
             this report to address tract evaluation.  (See
             p. 21.)

             Concerning the amount of stratigraphic dril-
             ling, GAO agrees with the Federal Energy
             Administration that the minimum level of
             drilling necessary for adequate resource
             appraisal may not coincide with the coverage
             necessary to adequately evaluate tracts before
             leasing. The amount of stratigraphic drilling
             GAO is proposing, as part of a systematic
             resource appraisal program, would be much less
             extensive than that required for comprehensive
             tract evaluation and should be that level of
             drilling which the Department of the Interior
             determines is needed to provide minimum levels
             of subsurface data coverage in major Outer
             Continental Shelf geologic basin areas. (See p.
             22.)

             Concerning the financing of stratigraphic
             drilling, GAO concurs with the Department of
             the Interior's comment that a totally
             Government-financed drilling program may not be


ITeeaLSlin                        iii
appropriate.  GAO is proposing that a plan for
a systematic apprai3al o£ the Outer Continental
Shelf's resource potential be developed which
would identify, among other things, those
specific areas where the Department of the In-
terior determined stratigraphic drilling should
be performed. GAO believes that private indus-
try should then be encouraged to perform the
planned stratigraphic testing to the extent that
it is willing to do so.  However, GAO believes
that the Government should finance any addi-
tional drilling needed to fully carry out the
resource appraisal plan.  This approach will
provide better information to more realisti-
cally assess the oil and gas potential of Outer
Continental Shelf areas.  (See p. 22.)

Concerning the cost effectiveness of such a
program, the cost cannot be determined until
the Department of the Interio; develops a re--
source appraisal plan, identifies the levels
of stratigraphic drilling needed to assess
major Outer Continental Shelf areas, and deter-
mines the extent to which private industry is
willing to perform such drilling.   The bene-
fits of stratigraphic drilling, although dif-
ficult to quantify, could be measured by in-
dustry's willingness to undertake such efforts
under a positive comprehensive program devel-
oped by the Department of the Interior.   In
addition, benefits from such a program include
obtaining information to enable policy makers
to formulate broad energy policy and giving
precedence to Outer Continental Shelf areas
for leasing purposes.  (See p. 22.)

The Government has limited knowledge of its
uranium resources.  An aggressive, accelerated
effort is needed to define the availability of
economically recoverable U.S. uranium re-
sources.

GAO believes that the Energy Research and
Development Administration's National Uranium
Resource Evaluation program should be expedited
to the extent practicable.  GAO also believes
that tie costs and benefits of an exploratory
drilling program, including suitable levels of
private and Government financing, should be
thoroughly evaluated.  (See p. 24.)


                     iv
           The Energy Research and Development Administra-
           tion agreed that its National Uranium Resource
           Evaluation program should be expedited to the
           extent practicable and believed this approach
           would result in a better appraisal than all ex-
           tensive drilling program.  (See p. 24.)

           The Department of the Interior stated that an
           intensified drilling program would lead to a
           more accurate assessment of undiscovered uranium
           resources. However, the Interior believes that
           the costs and benefits of an exploratory drilling
           program should be evaluated.  (See p. 24.)
           In view of the differing points of view regard-
           ing the uranium exploratory drilling program,
           GAO believes the Energy Research and Develop-
           ment Administration and the Department of the
           Interior, under the general direction of the
           Federal Energy Administration should under-
           take a joint effort designed to identify the
           costs and benefits of such a program, in-
           cluding suitable levels of private industry
           and Government financing, and report the
           results of that effort, with appropriate
           recommendations, to the Congress.  (See p. 25.)
           DOMESTIC RESERVES

           Estimates of reserves of certain energy sources
           can be greatly improved, not only for explicit
           Federal leasing decisions but also for energy
           policy formulation involving choices and tim-
           ing among alternative sources of supply.
           Specifically, information is needed on (1) the
           effects of cost-price relationships on the
           recovery of fuels, (2) the quantities of re-
           coverable coal reserves, and (3) the owner-
           ship and control over energy sources.  (See
           pp. 25 through 32.)

           The Federal Energy Administration, and the De-
           partment of the Interior generally agreed
           that information on the effects of cost and
           price on reserve estimates is desirable and
           important. The Federal Power Commission
           pointed out that obtaining this information
           is complicated and time consuming. The Federal
           Energy Adminstration pointed out that ways



                                v
IAjL~qbt
of developing such information wculd be quite
uncertain.   (See p. 27.)

The Energy Research and Development Administra-
tion also suggested that information on chemical
composition and washability of coal be included
in any additional analysis of coal seams.
(See p. 29.)

The Federal Energy Administration and the Fed-
eral Power Commission believe information on
ownership and control over energy sources is
important.  According to the Federal Energy
Adminis;zation, an analysis of ownership would
be difficult and complex but could be manage-
able by developing data froin major companies
owning or controlling significant quantities
of resources.  (See pp. 31 and 32.)

GAO recognizes that the effects of cost-price
relationships on energy source recoverability
and the question of ownership of energy sources
are complex issues.  However, because of the
importance of this information in planning for
the Nation's energy future, GAO believes that
this information should be obtained by the
Federal Government.

RECOMMENDATIONS

In its June   ,30,1975, report, "Outer Conti-
nental Shelf Oil and Gas Development--Improve-
ments Needed in Determining Where to Lease and
at What Dollar Value" (RED-75-359), GAO rec-
commended that the Secretary of the Interior
direct a geological exploration program. This
program would provide for the development and
implementation of a systematic plan for apprais-
ing Outer Continental Shelf oil and gas resources,
including selective stratigraphic test drilling.
GAO continues to endorse this recommendation and
believes the plan should identify the level of
stratigraphic drilling necessary to provide a
minimal level of data coverage for major Outer
Continental Shelf areas. After the plan has
been developed, the Department of the Interior
s.hould encourage private industry to conduct
the drilling identified in the plan. After
the extent of industry participation is known,
if any data gaps still exist, the Department


                     vi
            of the Interior should take the necessary
            actions, including public financing of stra-
            tigraphic drilling, to obtain the needed data.

            GAO also recommended in its July 3], 1975,
            issue paper, "The Liquid Metal Fast Breeder
            Reactor:  Promises and Uncertainties" (OSP-
            76-1), that the Energy Research and Develop-
            ment Administration expedite the work and
            final report of its National Uranium Resource
            Evaluation program currently scheduled for com-
            pletion in 1981. GAO continues to endorse this
            recommendation and also recommends that the
            Energy Research and Development Administration
            and the Department of the Interior, under the
            general direction of the Federal Energy Admin-
            istration, undertake a joint effort designed
            to identify the costs and benefits of a uranium
            exploratory drilling program, including suit-
            able levels of private industry and Govern-
            ment financing, and report the results of that
            effort, with appropriate recommendations, to
            the Congress.

            In addition, GAO recommends that the Administra-
            tor, Federal Energy Administration:

                 -- Determine the ownership and/or control
                    over domestic energy fuels by major
                    companies.

                 -- Obtain from coal producers estimates
                    of recoverable domestic coal reserves,
                    using appropriate verification tech-
                    iques, and develop plans to regularly
                    update these results, including the
                    effects of cost-price relationships on
                    recoverability.

                 --Work with the appropriate Federal de-
                   partments and agencies to fulfill the
                   informational requirements of section
                   13(f) of the Federal Energy Adminis-
                   tration Act of 1974, 15 U.S.C. 761 (Supp.
                   V, 1975), including close monitoring
                   of the Department of the Interior's
                   implementation of the comprehensive
                   exploratory program authorized under
                   the Federal Coal Leasing Amendments
                   Act of 1975.


Tear Shet                        vii
-- Update regularly the estimates of oil
   and gaE reserves, including the effects
   of cost-price relationships on recover-
   ability.




              viii
                         Contents

DIGEST

CHAPTER

   1       INTRODUCTION
               Definitions of resources and reserves     4
               Scope                                     5
   2       GOVERNMENT AND PRIVATE INVOLVEMENT
             IN ESTIMATING RESOURCES AND RESERVES        6
               U.S. Geological Survey                    6
               Bureau of Mines                           7
               Energy Research and Development Ad-
                 ministration                            7
               Federal Energy Administration             7
               Federal Power Commission                  8
               American Petroleum Institute and
                 American Gas Association                8
   3       DEVELOPMENT OF ENERGY RESOURCE AND RESERVE
             ESTIMATES                                  10
               Coal                                     10
               Crude oil and natural gas                12
               Uranium                                  16
   4       ANALYSIS OF FEDERAL ENERGY RESOURCE AND
             RESERVE ESTIMATES                          18
               Resource estimates                       18
               Reserve estimates                        25
               Need for information on ownership of
                 energy sources                         30
               Energy Conservation and Production Act   32
   5       CONCLUSIONS AND RECOMMENDATIONS              34
APPENDIX

   I       Letter dated August 13, 1976, from the
             Chairman, Ad Hoc Task Group, Federal
             Inter-Agency Council on Energy In-
             formationi.                                36

  II       Letter dated August 13, 1976, from
             John A. Eill, Deputy Administrator,
             Federal Energy Office                      38
APPPENDIX                                                    PaE


 III        Letter dated July 20, 1976, from
               Kent Frizzell, Under Secretary,
               Department of the Interior                     40

  IV        Letter dated July 27, 1976, from
              M. C. Greer, Controller, Energy
              Research and Development Administration         48

  V         Letter dated July 9, 1976, from Richard L.
              Dunham, Chairman, Federal Power Commission      52

                              ABBREVIATIONS

AGA         American Gas Association

API         American Petroleum Institute
BOM         Bureau of Mines

ERDA        Energy Research and Development Administration
FEA         Federal Energy Administration

FPC         Federal Power Commission

FTC         Federal Trade Commission

GAO         General A-counting Office

IOCC        Interstate Oil Compact Commission

NURE        National Uranium Resource Evaluation

OCS         Outer Continental Shelf

LMFBR       liquid metal fast breeder reactor
                          CHAPTER 1
                        INTRODUCTION
     During 1973 the United States was obtaining its principal
energy needs from the following sources: crude oil and nat-
ural gas, about 77 percent; coal, about 18 percent; uranium,
about 1 percent; and hydropower, about 4 percent. About
35 percent of the oil being consumed was obtained from for-
eign sources.

     The oil embargo in late 1973 demonstrated the importance
of the Nation's dependence on petroleum products as a primary
energy source. Coupled with this realization is the additional
threat of apparently declining domestic supplies of oil and
gas; this is indicated by decreases in annual estimates of oil
and gas reserves since 1970 and studies which show that the
Nation is in the decline phase of oil and gas production. Thus
the Nation is faced with a continued high level of dependence
on potentially unreliable foreign sources for oil unless
development of U.S. energy sources is escalated and/or an
aggressive energy conservation program is pursued.

     The President arl the Congress have initiated actions in
the past 2 years in response to the 1973 embargo. Major ac-
tions have included the establishment of the Federal Energy
Administration (FEA) and the Energy Research and Development
Administration (ERDA), the preparation of the Project
Independence report and its revision (1976 National Energy
Outlook), various national energy plan proposals, enactment
of the Energy Policy and Conservation Act, 42 U.s.C. 6201,
(Supp. V, 1975), and the Energy Conservation and Production
Act, (Public Law No. 94-385). Despite these actions, in March
1976 the United States imported, for the first time, more than
50 percent of its petroleum requirements.

     Within this framework national energy goals and support-
ing energy policy objectives have been identified. Former
President Gerald Ford, in his 1975 State of the Union message
and his 1976 energy message, stated the following three goals:

     -- To halt our growing dependence on imported oil during
        the next few critical years.

     --To attain energy independence by 1985 by achieving
       invulnerability to disruptions caused by oil import
       embargoes, specifically, by reducing oil imports to
       3 to 5 million barrels a day, with an accompanying
       ability to offset any future embargo with stored
       petroleum reserves and emergency standby measures.


                              1
     -- To mobilize technology and resources to supply a
        large share of the free world's energy needs beyond
        1985.

     These broad goals are supported by, and to be realized
through, seven national energy policy objectives or principles:

     -- Reduced dependence on imported energy.

     -- Reduced growth in energy demand.

     -- Adequate energy supplies.

     -- Increased domestic energy production with protection
        of the environment.
     --A smooth transition to commercial availability of
       advanced technologies.

     -- Stable energy prices.

     --Federal, State, and local cooperation to attain these
       objectives.
     The Nation's energy goals and policy objectives can only
be realized if appropriate actions are taken by the Federal
Government in conjunction with the private sector. The de-
cisions necessary to implement this process must be based
on a clear understanding of (1) the Nation's potential domestic
supplies of the primary energy fuels--crude oil, natural gas,
coal, and uranium--and (2) how this enercy will be used.

     There have been numerous studiesl/ on the future
domestic energy supply and demand picture and scenarios on
the mix of energy sources necessary to meet future demand.
These studies demonstrate the type of analysis that must be
made if the Nation is to adequately meet its energy needs in
the future. The results of these studies differ depending on
the various assumptions made (e.g., to hold imports to 10 per-
cent of energy consumption). However, two points are clear.


l/These studies include FEA's "1976 National Energy Outlook";
  ERDA-48 "A National Plan for Energy Research, Development &
  Demonstration: Creating Energy Choices for the Future"; "A
  Time to Choose: America's Energv Future" by the Ford
  Foundation; "Achieving Energy Independence" by the Research
  and Policy Committee on the Committee for Economic Develop-
  ment; and the Bureau of Mines' "United States Energy Through
  the Year 2000 (Revised)."
                                2
First, even with a reduction in the growth rate, U.S. energy
demand will increase significantly between now and the year
2000. Second, there will have to be an increase in the role
of coal and uranium (nuclear) relative to oil and gas. To
illustrate, ERDA in its Scenario I forecasted a growth in
energy demand of about 29 percent between 1973 and 1985 (from
75 to 97 quads 1/ and a growth of over 63 percent between 1973
and the year 200 (to 122.4 quads). To meet these increases
in demand, the relative role played by oil, gas, coal, and
nuclear power would greatly change.

     Oil would play a less important role in meeting future
energy demands of the Nation. According to ERDA's projection
for the years 1985 and 2000, the oil demand in 1985 would
increase 2 percent over 1973's demand, and an increase of
18.5 percent over 1973's demand is projected for the year
2000. Projections of the role of natural gas by the years
1985 and 2000 indicate an increase in gas demand of 10.4 per-
cent by 1985 and a decrease from 1973 demand levels of 5 per-
cent by the year 2000.

     Coal has played a less important role in supplying energy
for the Nation in recent years. However, because of the domes-
tic oil and gas situation, coal consumption is expected to
increase greatly. In ERDA's Scenario I projection, domestic
coal consumption would have to increase over 1973 by more than
42 percent in 1985 end over 76 percent for the year 2000.

     The use of uranium as a domestic fuel source has increased
in -ecent years and has accounted for about 2.4 percent of the
total domestic energy consumption in 1975. In the next
25 years, the use of nuclear fuel is projected to increase
considerably to about 17 percent of total energy consumption
by Lhe year 2000, according to ERDA's Scenario I. However,
because of uncertainties concerning the development and com-
mercialization of new technologies expected to use uranium
much more efficiently, such as the liquid metal fast breeder
reactor, the availability of uranium for use in conventional
reactors becomes a critical variable.
     The role of other potential epergy zources, such as solar
and geothermal, is expected to become increasingly important
by the year 2000. ERDA's Scenario I estimates that these two
sources would provide 5.9 quads nf energy by the year 2000.
However, projections as to their future impact are particularly



1/A quid is equal to 1 quadrillion British thermal units (Btu's)
  or the amount of energy produced by 180 million barrels of
  oil.
                               3
uncertain because of technological, environmental, and
economic questions that must be overcome.

     The role of energy conservation in closing the gap between
domestic energy sup-plies and projected demand will be crucial
in years to come. Eliminating energy waste and inefficiencies
in energy use should be an integral part of any national
approach in meeting future energy needs because such elimina-
tion is necessary to alleviate shortages, preserve the envir-
onment, and stretch out the supply of finite resources. ERDA's
Scenario I projected a savings from energy conservation of
10.3 quads by 1985 and 43 quads by the year 2000.

     In summary there is a great deal of uncertainty with
respect to future energy demand, the mix of fuels which will
best meet that demand, and the possible impact of energy con-
servation efforts.  However, the Federal Government can effec-
tively plan for and shape the Nation's energy future. The
decisions the Government makes concerning various supply
options must be based on a better understanding of potential
future supplies of domestic energy sources, who owns and con-
trols these fuels, and the costs associated with development
of each fuel.

DEFINITIONS OF RESOURCES AND RESERVES

      The terms "resources" and "reserves" have been defined
in a number of ways to provide a measurement of the certainty
wit'h which quantities of energy fuels are known to exist.   In
recent years various estimates of resources and reserves of
the Nation's primary energy fuels have been prepared and pub-
licized by Government and private concerns and individuals
which have been considerably different.   This situation has
highlighted differences of opinion in estimating such quanti-
ties and has raised questions concerning the Federal Government's
knowledge about the future availability of domestic energy
sources.   An understanding of the definitions used is essential
in analyzing this issue.   To maintain consistency in this
rtport, the Department of the Interior's U.S. Geological Survey
and Bureau of Mines' definitions of resources and reserves will
be used.

     Resources are concentrations of naturally occurring solid,
liquid, or gaseous materials in or on the earth's crust in
such form that economic extraction of a commodity is currently
or potentially feasible. A resource is either identified or
undiscovered. An identified resource is a specific accumula-
tion of economic resources whose quality and quantity are
estimated from geologic evidence supported, in part, by
engineering measurements.  An undiscovered resource is a


                              4
 quantity of a resource estimated to exist outside of known
 fields on the basis of broad geologic Knowledge and theory.

     A reserve is defined as that portion of an identified
resource which can be economically extracted. A critical
element in escimating a reserve is economics (the cost to
extract the fuel and the market price of the fuel).

     Much information is available on the quantities of
resources and reserves of crude Gil, natural gas, coal, and
uranium. This report focuses on the usefulness of such
resource and reserve estimates being prepared by the Federal
Government as a basis for decisions on the Nation's energy
future. Chapters 2 and 3 are essentially descriptions of
the Federal agencies and private organizations involved in
making resource and reserve estimates and the methodologies
used by them. Chapter 4 highlights the problems and data gaps
in Federal resource and reserve estimates. Chapter 5 contains
our conclusions and recommendations.
SCOPE OF REVIEW

     Because of the importance of the primary energy fuels--
crude oil, natural gas, coal, and uranium--in meeting the
Nation's future energy demands, we examined the data existing
in the Federel Government on the resources and reserves of
these energy sources. Although oil shale is also expected to
play an important role in meeting the Nation's future energy
demands, we have not discussed oil shale in this report be-
cause of uncertainties about its economic and technological
recoverability.
     The comments in this report by Executive branch agencies
were obtained by GAO under the previous Administration. It is
uncertain as to what the current Administration's views and
judgments may be on the issues discussed in this report.

     We made our examination at the following Federal agencies
located in Washington, D.C., and various field locations in
the United States:

     -- Bureau of Mines (BOM), Department of the Interior.
     -- U.S. Geological Survey, Department of the Interior.
     --ERDA.
     --FEA.
     -- Federal Power Commission (FPC).
     At each of these organizations, we interviewed officials
and reviewed selected documents, reports, maps, and data files
related to energy resource and reserve data. Additional
visits were made to the offices of energy companies and var-
ious State organizations.

                              5
                            CHAPTER 2

             GOVERNMENT AND PRIVATE INVOLVEMENT IN

               ESTIMATING RESOURCES AND RESERVES

     Federal agencies which have been involved in developing
resource and reserve estimates of crude oil, natural oas,
coal, and uranium include the Department of the Inteior's
Geological Survey and BOM, ERDA, FEA, and FPC.  In addition
to the Federal effort, many other institutions have developed
and reported resource and reserve estimates of some of these
fuels.l/  However, the Federal Government has placed particular
reliance over the years on petroleum reserve estimates pre-
pared by the American Petroleum Institute    (API) and the
American Gas Association (AGA).

     A description of each organization's activities relating
to energy resource and reserve estimates is discussed in the
fellowing paragraphs.

U.S. GEOLOGICAL SURVEY

      The Geological Survey was established by the act of
March 3, 1879 (43 U.S.C. 31).      This act charged the Survey
with  the  responsibility   for classifying  public lands and ex-
amining   the  geological  structure, mineral  resources, and pro-
ducts  of  the  national  domain.  As part  of its functions, the
Survey makes geological surveys and investigations to deter-
mine and appraise the mineral and mineral fuel resources of
the United States.

     The Survey is involved in activities to determine the
domestic resources of current and potential energy sources.
The Survey's Office of Energy Resources, as part of its func-
tions, prepares resource estimates for oil, natural gas,
coal, and, to a lesser extent, uranium.      The Survey estimates
resources from raw  geological  data  obtained  from private
companies, State geological  surveys,   and  geological surveys
performed by its own  geologists.    These  estimates may be
limited to selected  geographic  areas  or  may include the  entire
United States.



 i/Potential Gas Committee, Potential Supply of Natural Gas
   in the United States (as of Dec. 31, 1972); National Academy
   of Sciences, Mineral Resources and the Environment, Washing-
   ton, D.C., 1975; and M. King Hubbert, personai estimate) U.S.
   Energy Resources, a review as of 1972, pt. 1, in a national
   fuels and energy policy study, 1974.
                                 6
     The Survey is also responsible for obtaining reserve
data on Federal leases.

BUREAU OF MINES

     BOM was established by an act of Congress on May 16,
1910 (30 U.S.C. 1).  A more recent act, the Mining and Minerals
Policy Act of 1970 (30 U.S.C. 21a), states that the Federal
Government has a role in fostering and encouraging private
enterprise in the orderly economic development of domestic min-
eral resources and reserves. It requires the Secretary of the
Interior to include in his annual report to the Congress a
statement of the trend in using and depleting mineral resources
but it does not refer specifically to a mineral fuel reserve
assessment function.

     BOM compiles and publishes reserve estimates from data
supplied by the mineral and energy materials industry and by
the Survey and other governmental agencies. Although BOM has
been primarily involved in compiling estimates of coal re-
serves, it does maintain information on crude oil and natural
gas reserves.

ENERGY RESEARCH AND DEVELOPMENT ADM.T ISTRATION

     ERDA was established pursuant to the Energy Reorganization
Act of 1974, 42 U.S.C. 5801 (Supp. V, 1975).  Under the act,
certain functions of selected Federal agencies were transferred
to ERDA. Among the transferred functions was the Atomic Energy
Commission's responsibility to assess the uranium supply sit-
uation in the United States.

     ERDA's activities include the development and reporting
of U.S. uranium resource and reserve estimates.  These
estimates result from information supplied principally by
private companies and special geological studies th t ERDA
undertakes.

FEDERAL ENERGY ADMINISTRATION

     FEA was established pursuant to the Federal Energy
Administration Act of 1974, 15 U.S.C. 761 (Supp. V, 1975).
Under the act, FEA is to assess the adequacy of energy re-
sources to meet demands in the immediate and long-range
future for all sectors of the economy and for the general
public. Additionally, as provided in section 15(b) of the
act, FEA is to

     "* * * provide a complete and independent analysis
     of actual oil and gas reserves and resources in the
     United States and its Outer Continental Shelf* * *.

                                7
     In November 1975, FEA released the final results of its
study of oil and gas resources and reserves. The resource
portion of the report was developed from information obtained
from the Survey and the reserve portion was developed fr-a
information obtained from an oil and gas industry question-
naire and independent analyses of selected oil and gas fields.

     FEA is also charged, under the Energy Supply and
Environmental Coordination Act of 1974 (Public Law 93-319),
with developing quarterly reports of energy information,
including information on domestic reserves and production of
crude oil, natural gac, and coal.     These reports ha;e been
prepared and p.lblisiied by FEA sinc:e ctie third quarter of
1974. The Energy Policy dnd Conbrv.ition Act extended this
responsibility until December 31,        '

FEDERAL POWER COMMISSION

     The Federal Power Commission (FPC) was established in
1920 by the Federal Water Power Act (16 U.S.C. 791).  The
Natural Gas Act (15 U.S.C. 717), passed in 1938, expanded FPC's
responsibilities to include jurisdiction over companies which
transport and sell natural gas interstate.

     FPC is vested with broad information gathering powers
and obtains natural gas reserve cdta from interstate pipelines
and gas producers.  In addition, 'PC made an appraisal of the
proven gas reserves of the United States during 1972.

     The National Gas Reserve Study was undertaken because
FPC believed it would help accomplish the objectives of the
Natural Gas Act.  FPC was assisted in its study by other
Federal agencies. The results of the study were released in a
May 1973 report and was revised in September 1973.

AMERICAN PETROLEUM INSTITUTE AND
AMERICAN GAS ASSOCIATION

     The American Petroleum Institute (API) and the American
Gas Association (AGA)--industry trade associations--report
aggregate oil and gas reserves data.  Estimates for individual
reservoirs or fields were kept confidential until 1975 when
API and AGA published reserve estimates for the 100 largest
oil fields and the 50 largest gas fields.

     API has published annual estimates of domestic crude oil
reserves since 1946. The API committee responsible for pre-
paring such estimates is basically composed of representatives
from U.S. oil companies.



                              8
     The AGA has published annual estimates of domestic
natural gas reserves since 1945.  The AGA committee respon-
sible for preparing such estimates is composed mainly of
individuals from natural gas production and transmission
companies.

     API and AGA have been the recognized sources of nation-
wide crude oil and natural gas reserve statistics.   Industry,
Government, and the general public have relied on the statis-
tical information prepared by these organizations.   The re-
serve estimates are developed by geologists and engineers  who
(1) represent various segments of the producing  industry,
(2) have broad experience in estimating reserves, and (3) have
an intimate knowledge of the areas assigned to them.




                              9
                            CHAPTER 3

       DEVELOPMENT OF ENERGY RESOURCE AND RESERVE ESTIMATES

     Federal agencies have developed specific procedures and
methods for preparing estimates of domestic energy resources
and reserves.  The procedures and methods developed attempt
to account for the lack of complete knowledge about the
occurrence and distribution of domestic energy sources.  As
will be shown, assumptions and geologic inference are crucial
factors in the methodologies used for assessing domestic
energy resources and, to a lesser extent, reserves and have
been primarily responsible for differences in estimates for
the same energy source.

     The following sections will describe, in general terms,
how resource and reserve estimates are developed by Federal
agencies for coal, crudte oil, natural gas, and uranium.

COAL

      The Survey. through its Branch of Coal Resources, pre-
pares estimates of the coal resources of the United States.
BOM prepares estimates of domestic coal reserves.     Such esti-
mates  have  been developed and revised from  time to time and
have been   reported In bulletins, circulars,  and other papers.

     Estimates reported in 1975 are 3,968 billion tons of
resources and a reserve base of 437 billion tons.  Domestic
coal production in 1974 amounted to 611 million tons.

Resource estimates

     The current estimate of domestic coal resources prepared
by the Survey includes quantities based on mapping and ex-
ploration (identified resources) and on geologic inference
(hypothetical resources).    The quantities included in these
categories have been  limited  by thickness and depth restric-
tions.  The restrictions   are used so that only coal which is
believed to be potentially recoverable would be included in
the resource estimate.    For example, coal existing in beds
less than 14 inches  thick  or existing more than 6,000 feet
below the surface is  not  included in the resource estimate.

     The quality of coal may also limit its inclusion in a
resource estimate.  For example, coal with an ash content
greater than 33 percent generally is not included in modern
estimates.

     The Survey's coal r source estimates have resulted from
data supplied by State geological surveys, maps and drill

                               10
records from mining companies and others, private records
of individuals, and the Survey's own studies of coal-bearing
areas.

      The estimate of identified resources is made by deter-
miining, from physical observations or subsurface drilling
information, the thickness of coal beds, the area (in acres)
the coal encompasses, and the approximate weight of the coal.
In estimating identified resources, generally only coal that
is believed to exist within 3 miles of a physical observa-
tion is considered.   Once the three factors are determined,
the thickness of the coal is multiplied by the number of
acres the coal encompasses, which, in tern, is multiplied by
the weight of the coal; the result is the identified resource.
This procedure has been followed for all geographic areas
where there are physical observations of coal. The sum of
the coal in all such areas is the total identified resource.

     Hypothetical resources are estimated by a process of
extrapolation from nearby areas of identified resources. They
are made because in most States many areas of coal-bearing
rock were omitted from the estimate of identified resources
due to the lack of specific information about the occurrence
and thickness of the coal.  These estimates are based on an
understanding of regional geology sufficient to project
resources beyond those already identified.

Reserve estimates

     There are no Federal estimates of total recoverable
domestic coal reserves because recoverability, which i.
normally estimated by considering existing economic conditions
and technology, is not included in existing Federal coal re-
serve estimates.  BOM, however, does estimate the demonstrated
reserve base of domestic coal by reclassifying coal resource
estimates.  The demonstrated reserve base reflects the quantity
in relatively thick beds near enough to the surface to mine
by conventional surface or underground methods.  However, the
demonstrated reserve base also includes coal which, because of
economic or legal restictions, may not be recoverable.   For
example, coal which meets the thickness and depth criteria,
but exists under manmade features (such as roacs) or natural
features (such as lakes), is included in the reserve base.

     According to BOM, the proportion of coal that can be re-
covered from an individual deposit (the reserve) varies from
40 to 90 percent according to the characteristics of the coal-
bed, the mining method, legal restraints, and the restriction
placed on mining because of natural and manmade features.
Mining experience in the United States has indicated that, on
a national basis, at least half of the inplace coal can be
recovered.

                             11
     Raw data from which demonstrated reserve base estimates
are derived are resource estimates classified by the thick-
ness of coalbeds, depth beneath the surface, and reliability
of estimate. The demonstrated reserve base estimate is de-
veloped after certain restrictions are placed on these
resource classifications. For example, coal is not classi-
fied as a reserve by BOM if its depth beneath the surface is
greater than 1,000 feet (except at an operating mining site
where coal is being recovered at greater depths).
CRUDE OIL AND NATURAL GAS

     The Survey's Branch of Oil and Gas Resources prepares
estimates of crude oil and natural gas resources. Recent
estimates of the Survey, which were prepared for FEA, were
part of a continuing resource appraisal program. FEA, as
required by section 15(b) of the Federal Energy Administration
Act of 1974, recently prepared independent estimates of crude
oil and natural gas reserves.

     Recent Survey estimates of oil and gas resources (as a
range) and FEA estimates of reserves of oil and gas are shown
in the following table.

                         Reporting
                           date       Crude o0l     Natural gas
                                     (billions of   (trillions of
                                       barrels)      cubic feet)
Identified
  resources (note a)        1975       182-202         529-554
Undiscovered resources
  (Survey)                  1975        94-238         362-737
     Total resources                   276-440        891-1291
Reserves (FEA)              1975        b/42.1           240.2
a/Includes reserve estimates of the API and AGA.

b/Includes 4.1 billion barrels believed to be economically
  recoverable when additional recovery methods are installed
  in some fields.
Oil consumption during 1975 was about 6 billion barrels where-
as natuLal gas consumption in 1975 was about 20 trillion
cubic feet.



                              12
Resource estimates

     Although the Survey prepares estimates of the total
domestic resources of oil and gas (as shown above), its esti-
mates of the undiscovered recoverable resources of these
materials have been given the greatest level of attention.
Such estimates attempt to measure that quantity of a fuel
which has not been discovered but which is assumed to be dis-
coverable and recoverable under conditions represented by
price-cost relationships and technological trends prevailing
at the time of the estimate. As such the estimates are made
on the basis of relevant experience concerning recovery fac-
tors, geology which has, historically, been favorable to the
occurrence of producible materials, and the size and type of
deposits which have previously been found, developed, and
produced.

     Resource estimates reported in 1975 were developed after
a detailed analysis by the Survey of 102 individually appraised
geologic petroleum provinces. Data for the appraisals was
obtained from three main sources: verbal and written contri-
butions from Survey geologists; published references consist-
ing of geological information, exploration, and production
history data and maps; and unpublished Survey materials. The
appraisals involved an estimate of the value of potentially
prospective rock, generally to depths of 30,000 feet. Follow-
ing the appraisal specific resource estimation techniques were
used to arrive at an estimate of the oil and gas resources.
Specific techniques included an extrapolation of information
from substantially tested areas into untested areas with
similar geology, comprehensive comparisons of all known pub-
lished estimates for each area being appraised, and the use
of subjective probabilities. Recovery factors of 32 percent
for oil and 80 percent for gas--national averages for actual
recovery of these fuels--were used to arrive at estimates of
the amount of oil and gas which would be recoverable.

     The Survey prepared four estimates of undiscovered
recoverable oil and gos resources in the last 12 years;    in
1965, 1972, 1974, and 1975.

                    Crude oil and
    Year         natural gas liquids         Natural gas
                (billions of barrels)   (trillion cubic feet)
    1965                 264                     1,080
    1972                 450                     2,100
    1974              200 to 400            1,000 to 2,000
(as a range)
    1975               61 to 149              322 to 655
(as a range)


                              13
     The above table reflects the great uncertainties
associated with recent resource estimates and also raises
questions concerning estimating techniques. The above esti-
mates differed noticeably in (1) geographic areas being
measured, (2) estimating techniques, and (3) quantity and
quality of available raw data.

     The method used for the 1965 estimate involved classify-
ing adequately explored geographic areas into categories of
oil and gas potential in terms of barrels for each 1,000 square
miles. The categories were then applied to the inadequately
explored areas to arrive at an estimate of the undiscovered
recoverable oil and gas resources. Much of this procedure was
based on available factual data, but the geologic analyses of
the explored and inadequately explored areas are very subjec-
tive, as is what constitutes adequate exploration.
     The 1972 estimates reported by the Survey were prepared
using the same basic methodology used in the 1965 estimates.
However, the 1972 estimates included analyses of offshore
areas to water depths of 8,200 feet, whereas the 1965 estimate
included offshore areas to depths of 660 feet. The 1972 es-
timate was over 70 percent greater than the 1965 estimate.
     The 1974 estimates were made using new raw data to
supplement existing data and a modified geologic analysis
approach that was previously used. Tho concept of a range of
estimates was introduced to account for the possibility that
unexplored areas may contain less oil and gas than explored
areas with similar geology. The analysis also included the
assumption that an oil recovery factor of 30 percent for the
conterminous United States and 40 percent for offshore areas
and Alaska were reasonable. Offshore areas were included to
water depths of 660 feet.

     In reviewing past Survey estimates, it should be noted
that, as the quality and quantity of raw data increased over
the years, the resource estimates apparently became more
refined. In addition, the potential exists for increased
future supplies of crude oil through technological advances
in secondary and tertiary recovery methods as evidenced by
the general recovery rate for oil. Furthermore, limiting
offshore areas considered in resource estimates to those with
water depths less than 660 feet may have resulted in a con-
siderable lowering of resource estimates.
Reserve estimates

     FEA completed the first comprehensive Federal analysis
of uomestic oil and gas reserves in October 1975 and released
the final results of its analysis in November 1975. FEA's

                              14
 reserve study consisted of two parts; a survey of all
 and gas field operators and engineering analyses of   oil
                                                     a selected
 sample of major oil and gas fields.

     For the survey over 22,000 questionnaires were
asking the operators for, among other things, their mailed
                                                     estimates
of the oil and gas reserves for each of the properties
they were the operator. Operators were not required      where
reserves for those fields in which they produced less to  report
20,000 barrels of oil or 100 million cubic feet of gas than
Final results from the survey were adjusted to account   in 1974.
                                                         for the
operators who did not respond or who failed to respond
                                                         ade-
quately. Of the 22,000 questionnaires mailed, about
were not used because potential respondents (1) were  10,000
                                                      out of
business, (2) did not respond, (3) could not be located,
(4) returned unusable information. The nearly 12,000       or
used represented 97 percent of oil and 95 percent of   responses
gas production in the Nation for 1973.                natural

     The engineering analyses of a selected sample of major
oil and gas fields were undertaken  as a check on the operator
survey results. The sample was drawn from a list of
125 largest oil fields and the 25 largest gas fields the
United States in terms of 1973 production. A total in the
                                                     of
and gas fields were selected for analysis representing 59 oil
                                                        half
the Nation's proved crude oil reserves and about 30 percent
of U.S. natural gas reserves. The engineering analyses
these fields were made by the Survey, BOM, FEA, and      of
contractors.                                         private

      FEA directed thl contractors
reserve estimation they believed totobeselect the method of
                                         most appropriate for
each individual field. They were also responsible for
                                                         se-
lecting the data and the data sources used in their analysis.
In most cases the field studies were prepared after
of available interpretive information. In only some reviews
                                                       cases
was additional interpretative information obtained from
                                                          op-
erators although in most cases additional factual information
was obtained. Both the respondents to the operator survey
and the field study teams based their answers and analyses
the oil and gas prices and the recovery methods being         on
of December 31, ]974.                                   used  as

     The results of FEA's reserves study were reasonably
compatible with the information reported by API and AGA.
FEA estimate for oil was 11 percent higher than the API    The
                                                         es-
timate, whereas FEA's natural gas estimate was 3 percent
higher than the AGA estimates.

     In summary, FEA's approach in carrying
included a direct survey of oil and gas fieldout its study
                                               operators and

                              15
an independent analysis of reserves in selected oil and gas
fields. This approach offered FEA the opportunity to obtain
reserve estimates from those responsible for producing the oil
and gas while also obtaining independent assessments of raw
data to arrive at reserve estimates in selected fields.  In
view of the nature of the study and the relatively short time
in which to complete the study (1 year), we believe FEA's ap-
proach was reasonable.

     In May 1976, at FEA's initiation, the Ad Hoc Committee
on Oil and Gas Reserves Survey was established. The Committee
comprises representatives of FPC, the Interior, FEA, and the
Office of Management and Budget.  The purpose of the Committee
is to address petroleum reserve data needs of the Federal
Government and data collection alternatives.  One of the
issues to be studied is how often oil and gas reserve data
should be collected.

     We believe the Committee's efforts to develop a plan for
obtaining useful oil and gas reserve information to meet the
needs of the Federal Government is appropriate and necessary.
we also   'ieve that any plan developed by the Committee
should re. ire that oil and gas reserve data be updated on a
regular and recurring basis.

URANIUM

     Both ERDA and the Survey have prepared estimates of
domestic uranium resources. However, in December 1975 the two
agencies agreed that the Survey would provide raw data to ERDA
and prepare uranium resource reports only on specific areas.
Thus, the Survey no longer makes estimates of total domestic
uranium resources.  In the past these agencies generally lim-
ited their estimate to geographic areas in the Western United
States. The last Survey estimate, made in 1965, was reviewed
during 1974, and no changes were made.

     ERDA also develops estimates of domestic uranium reserves
and reports them annually. The recent domestic uranium re-
source and reserve estimates reported by ERDA in April 1976,
were 2.92 million tons of resources and 640 thousand tons of
reserves.   These estimates are based on a cutoff cost of $30 a
pound or less.   The cutoff cost includes estimated operating
costs and those capital costs not yet incurred.   Profit and
costs already incurred, such as expenditures for property
acquisition, exploration, and mine development, are not in-
cluded.   Domestic uranium production during 1975 was
11,600 tons.




                             16
ERDA resource estimates

     The National Uranium Resource Evaluation (NURE) program,
initiated in 1973 and conducted by ERDA, is intended to ex-
pand the coverage of previous estimates by assessing total
domestic uranium resources. The firsc comprehensive report is
scheduled for 1981. Preliminary results reported in July 1975
and June 1976 indicated that the United States possesses more
uranium resources than previously estimated.

     ERDA obtains basic data used to estimate uranium
resources from private companies (on a voluntary basis); the
Survey; private contractors; universities; BOM; State geolo-
gical surveys; and, to a lesser extent, ERDA's own explora-
tory work. The basic data includes information from industry
drill holes, drill-hole maps, and geologic studies.
     ERDA's computation of uranium resources is based on the
assumption that the uranium potential of a geographic area
could be comparable to a thoroughly explored area if certain
key favorability characteristics are similar. Judgment is
used in assigning values to the favorability characteristics.
Values are assigned based on the similarity of the unexplored
area to an area where a uranium deposit is known to exist.

Reserve estimates

     ERDA prepares uranium reserve estimates from data
supplied voluntarily from private companies. The majority of
this information is subsurface information obtained from
analyses of drill holes.

     The procedure used to arrive at the reserve estimates
is to (1) covert the raw data to computer readable information,
(2) analyze the data using computer programs to determine the
size and grade of the uranium deposit, and (3) perform an eco-
nomic analysis to determine the forward cost for recovery.
Economic analyses are made possible because many of the major
uranium producers voluntarily provide cost data to ERDA.




                             17
                           CHAPTER 4

             ANALYSIS OF FEDERAL ENERGY RESOURCE
                     AND RESERVE ESTIMATES

     The concepts of energy resources and reserves have
                                                    since the
received much attention in recent years, especially estimates
oil embargo in late 1973. Since that time,  various
have been made of the domestic resources and reserves of coal,
oil, natural gas, and uranium.  The estimates prepared have
                                                    long-term
been an attempt to measure the potential short- and
domestic supplies of these fuels.
                                                         energy
     In conjunction with and as a result of reportedformed
resource and reserve estimates, opinions have    been
                                                      reserve es-
about (1) the need for more reliable resource and            and
timates, (2) the need for more   data to assess  resources
               (3) the role such  estimates can  and  should  play
reserves, and                                                 The
in decisions relevant to the domestic energy    situation.
                                                     and reserves
following sections put the concepts of resources
in perspective and identify problems in the current Federal
data base for energy resources and reserves.

RESOURCE ESTIMATES
     Resource estimates include components which are estimated
                                                      existence
from various degrees of knowledge about a material's knowledge
and recoverability. The component based on the most      re-
is the reserve. Beyond this the identi.ied subeconomic       can
source is the next most certain component. Tt.ls component
                                    on favorable economic or
be reclassified as a reserve based operations.
technological changes  in recovery

     The remaining major resource component, based on the
                                                    resource.
least amount of information, is the undiscovered
                                       between  undiscovered  re-
This component is further  subdivided
coverable resources and undiscovered   subeconomic resources.
Increased knowledge  about a material's  existence can cause
these resources to be reclassified as identified.
                                                           a wide
      Estimating undiscovered resources can result from
                                                           resources
range of basic data. For example, an estimate of such
                                                             or on
can be based entirely on geologic judgment and inference
                                                   (such as  seismic
a considerable amount of subsurface information
                                         drilling  information),
readings and, particularly, subsurface
which may not prove that a material exists but    which greatly
                     of certainty  about  the material's  existence.
 increases the level
      Projections of serious limitations in the future availabil-
 ity of crude oil and natural gas and indications of potential

                                18
 limitations in the future availability of uranium to provide
nuclear energy without advanced breeder reactors have focused
attention on estimates of undiscovered recoverable resources
of oil and gas and potential resources of uranium. These esti-
mates indicate that great quantities of these fuels can be
discovered and recovered. Consequently, major actions have
been initiated and/or continued to increase future supplies
of these energy sources. For example, the Interior recently
offered and received bids on tracts to be leased on the
Atlantic OCS for oil and gas. Furthermore, ERDA is pursuing
its program to develop and commercialize advanced fast breeder
reactors which have the potential to use uranium resources
much more efficiently than is currently done.

     These decisions, however, have been partly based on es-
timates of undiscovered recoverable resources of oil and gas
and potential resources of uranium which were prepared without
the benefit of subsurface data in many potentially favorable
areas. Such data would greatly increase the level of certainty
concerning the likelihood that these materials exist and pro-
vide a better basis for analyzing future energy supply options.

Need fot data on oil and qas
potential of OCS areas
      In the past we have reviewed a number of issues concerning
the oil and gas development of offshore areas. These efforts
were designed to help illuminate both the issues and opportuni-
ties associated with implementing a national energy policy. A
major problem identified in two previous reports 1/ was the
need for better data on which to base Federal leasing deci-
sions. An additional problem, which is discussed below, is
the need for an adequate assessment of the potential of oil
and gas resources in many offshore areas. Currently, data
concerning the subsurface geology of certain OCS areas, in-
cluding Aliska, is limited. However, these areas--the Atlantic
and Pacific OCS and the Alaskan OCS--are estimated to contain
about 26 percent and 12 percent, respectively, of domestic
undiscovered recoverable oil and gas resources. These esti-
mates were prepared, for the most part, without the benefit
of data obtained from drilling.



l/"Outlook for Federal Goals to Accelerate Leasing of Oil and
  Gas Resources on the Outer Continental Shelf" (RED-75-343,
  Mar. 19, 1975); "Outer Continental Shelf Oil and Gas Develop-
  ment--Improvements Needed in Determining Where to Lease and
  at What Dollar Value" (RED-75-359, June 30, 1975).



                               19
     Both Government and industry officials agree that drilling
stratigraphic holes would greatly improve the geologic know-
ledge about potential petroleum accumulation. From deep
stratigraphic test results, scientists can determine the nature
of various rock layers and the ability of the rocks to trans-
mit and retain oil and gas.

     In 1974 the Department of the Interior established a pro-
gram to afford private industry an opportunity to obtain permits
to drill stratigraphic holes in OCS areas and Alaska. Since
the program started two such wells have been drilled off
Texas--one has been drilled on the Alaska OCS, a fourth was
drilled off Southern California--and deep stratigraphic test-
ing is being carried out in the Atlantic. The Survey obtains
the data from test wells a; they are drilled.   The data is
made available to the public after 5 years or  60  days after
the issuance of the first Federal lease within  50  miles of
the well, whichever is earlier.

     The program is aimed at obtaining scientific data about
the geology of the OCS to provide better and more complete
information to evaluate potential resources.   In addition,
the test wells provide useful geologic  information  as an aid
in evaluating tracts to be offered in  tentatively  scheduled
lease sales.  According to the Interior, the program helps
the Federal Government to respond to the need for fundamental
scientific data prior to any decision concerning leasing.
Under this program drillllg has heen done for the most part
at private industry's preference without Federal involvement
or direction to insure adequacy of data coverage.

     We pointed out in our June 30, 1975, report, "Outer
Continental Shelf Oil and Gas Development--Improvements Needed
in Determining Where to Lease and at What Dollar Value," that
the Government should initiate the development and implemen-
tation of a systematic exploration plan for resource appraisal,
including a timetable for providing minimum levels of explor-
atory coverage in Shelf areas and the collection, analysis,
and mapping of resource data. We stated that the Interior
should encourage industry to conduct additional stratigraphic
drilling tests similar tD those off south Texas, as part of
implementing such a plan.  However, to insure that the plan
is fully implemented, the Federal Government should finance
stratigraphic tests in those areas where private industry does
not plan to drill.

     In commenting on a recommendation in that report to
implement a geological exploration program including strati-
graphic drilling, the Interior stated that the recommendation
did not consider the cost effectiveness of such a program and
questioned the use of a Government-financed drilling program.


                              20
     The Inter )r, commenting on a draft of this report,
stated that i aad made difficult and necessary decisions in
a timely fashion using the best information available. In
addition, the Interior said that it considered its data cov-
erage in areas offered for lease to be sufficient for a tech-
nically sound determination of fair market value and considered
the industry-financed stratigraphic tests generally to be
well placed and adequately tested to furnish valuable data.

      FEA, in commenting on this issue, stated that the concept
that more and better data would enable better resource ap-
praisal is correct, but the procedures suggested to develop
such data are questionable. According to FEA, stratigraphic
drilling is a major expense of any exploration effort whether
executed by the Government or private industry, and the amount
of drilling necessary to provide information to adequately
evaluate tracts before they are leased to insure that the
public receives a reasonable return could be extensive. FEA
pointed out that the minimum levels of exploratory coverage
in OCS areas recommended may not coincide with coverage nec-
essary to adequately evaluate tracts before leasing. FEA
also stated that the concept of establishing minimum levels
of exploration in a given area is a good one but that grant-
ing exclusive exploration rights to any single entity is
dangerous.

     Concerning the Interior's comment that it considered its
data coverage in areas offered for lease to be sufficient for
a technically sound determination of fair market value and
considered the industry-financed stratigraphic tests to fur-
nish valuable data, it was not within the scope of this report
to address tract evaluation. However, in our review of the
Interior's OCS Sale #35, we found that the data available to
the Interior in 211 of 231 tracts appeared to be less than
adequate to determine the fair market value.

     In considering other agency comments on this section, we
believe further clarification of our views on this issue is
warranted. We believe that existing resource appraisals of
the oil and gas potential in many OCS areas can be greatly
improved by developing and implementing a systematic resource
appraisal program which includes minimum levels of strati-
graphic drilling. We believe also that data obtained from
stratigraphic drilling is essential because it provides spe-
cific information on various rock layers and the ability of
the rocks to transmit and retain oil and gas. Seismic
information does not provide this information.

     Agency comments on this issue centered on three basic
points; the amount of stratigraphic drilling that would be


                             21
needed, the financing of that drilling, and the costs and
benefits of such a program.

     Concerning the amount of stratigraphic drilling, we
agree with FEA that the minimum level of drilling necessary
for adequate resource appraisal may not coincide with cov-
erage necessary to adequately evaluate tracts before leasing.
The amount of stratigraphic drilling we are proposing, as
part of a systematic resource appraisal program, would be
much less extensive than that required for comprehensive
tract evaluation; and it should be that level of drilling
which the Interior determines is needed to provide minimum
levels of subsurface data coverage in major OCS geologic
basin areas.

     With regard to financing stratigraphic drilling, we
concur with the Department of the Interior's comment that a
totally Government-financed drilling program may not be ap-
propriate. We are proposing that a plan for a systematic
appraisal of OCS resource potential be developed which
would identify, among other things, those specific areas
where the Interior determined that stratigraphic drilling
should be performed.  Private industry should then be en-
couraged to perform the planned stratigraphic testing to
the extent it is willing to do so, and the Government should
take the necessary actions, including the financing of any
additional drilling needed to fully carry out the resource
appraisal plan.  Such an approach will provide better infor-
mation to more realistically assess the oil and gas potential
of OCS areas.

     Concerning the cost effectiveness of such a program, the
cost to the Federal Government cannot be determined until the
Department of the Interior develops a resource appraisal plan,
identifies the levels of stratigraphic drilling needed to
assess major OCS areas, and determines the extent to which
private industry is willing to perform such drilling.  The
benefits of stratigraphic drilling, although difficult to
quantify, could be measured, to some extent, by industry's
willingness to undertake such efforts under a positive compre-
hensive program developed by the Interior.  In addition,
benefits to be realized from such a program include informa-
tion to enable policymakers to formulate broad energy policy
and to give precedence to OCS areas for leasing purposes.

     We believe that a program for resource appraisal of OCS
areas as described above is necessary to provide a more rea-
sonable basis to evaluate the role of the OCS in supplying
future energy needs.  In addition, the information obtained,
if used in conjunction with the results of available environ-
mental information involving the same geologic areas, would


                             22
provide a better basis than now exists for evaluating
resource development potential and potential environmental
impacts both within and between geologic areas.

     One way to initiate a drilling program could be through
a notice in the Federal Register encouraging industry to
conduct the needed drilling to the greatest possible extent;
the information developed should be shared with the Interior
on a confidential basis. After the extent of industry partici-
pation was known, if any gaps then existed, the Interior
should take the necessary actions, including public financ-
ing of stratigraphic drilling, to obtain the needed data.

     This seems to us to be at least one possible version of
a positive drilling program, initiated and directed by the
Interior, with the potential for major public benefits.
The Department of the Interior has never undertaken such a
program for the purpose of assessing the OCS resource poten-
tial. Although this report does not address the issue of
track evaluation to determine the fair market value in the
Federal leasing program, the information gathered from the
program we recommend would be useful in such evaluations.

Need for a more complete
araisa- of uranium resources

     Projections of the role of uranium in providing nuclear
fuel to the Nation in the future indicate that nuclear fuel
can provide a greater source of energy through the introduc-
tion of advanued breeder reactors and an expansion of the
use of light water reactors.  If breeder reactors are not
introduced when projected, it becomes questionable whether
the Nation can provide uranium to meet projections, beyond
the year 2000, using commercially available reactors and
based on uranium currently known to be available.

     ERDA is attempting to resolve problems in its develop-
ment and commercialization of the liquid metal fast breeder
reactor (LME'BR), its priority breeder program. In our
July 31, 1975, issue paper, "The Liquid Metal Fast Breeder
Reactor:  Promises and Uncertainties" (OSP-76-1), we pointed
out that problems involving development and commercializa-
tion of the LMFBR, such as safety, safeguards, and environ-
mental impacts, have not been adequately resolved. A key
concern surrounding whether LMFBR or other breeder tech-
nology will be needed before the year 2000 and, if so, how
soon, is the amount of economically recoverable uLranium which
the United States possesses.




                             23
      The Federal Government has not completely assessed U.S.
uranium resources. Recent uranium resource estimates have
generally been limited to appraisals of the uranium potential
in the Western United States, although a preliminary evalua-
tion of the potential for uranium deposits in areas other
than the Rocky Mountain area was released by ERDA in June
1976.

     In June 1974 the Survey estimated that thoroughly apprais-
ing the U.S. uranium resource base would take from 5 to 10
years and would probably cost about $523 million. Virtually
all of the cost--$500 million--would be for exploratory drill-
ing and supporting services. Because much of this work
would not yield a direct dollar return in a short time, the
Survey noted that it probably would have to be done by the
Federal Government.

      We believe that an aggressive, accelerated effort is
needed to define the availability of economically recoverable
U.S. uranium resources. Consideration should be given to
expediting the ork and final report of ERDA's NURE program
.and to the Survey's alternative approach of thoroughly ap-
praising the U.S. uranium resource base through extensive
exploratory drilling by the Federal Government. Obtaining
such information in a shorter time frame would be useful
for decisions on commercializing new breeder reactors and
on the future role of nuclear energy as a supply option.
     ERDA, in commenting on a draft of this report, agreed
that the NURE program should be expedited to the extent
practicable. ERDA pointed out that the program is being
rapidly expanded and should provide adequate information
for more long-term planning. Concerning a Federal Govern-
ment sponsored exploratory drilling program, ERDA believes
its approach will result in a better appraisal than an
extensive drilling program carried out in relatively few
selected areas.
     The Interior stated that an intensified uranium drill-
ing program would lead to a more accurate assessment of
undiscovered uranium resources. The Interior also said
that even if the results of such a program were largely
negative, that in itself would be useful information.
However, the Interior felt that the costs and benefits of
this program should be evaluated before recommending such
a program.




                             24
     We continue to believe that the Federal Government should
eliminate significant data gaps in its knowledge of uranium
resources so it can realistically determine when new tech-
nologies, such as the fast breeder reactors, will be needed.
Such knowledge will also provide a basis for analyzing future
energy supply alternatives.

      In view of the differing points of view regarding a ura-
nium exploratory drilling program, we believe ERDA and the
Interior, under the general direction of FEA, should undertake
a joint effort to iPentify the costs and benefits of such
a progjram, including suitable levels of private industry
and Government financing and report the results of that effort,
with appropriate recommendations to the Congress.

RESERVE ESTIMATES

     In general a reserve is that portion of an identified
resource which can be economically extracted.  Important
factors which differentiate a reserve estimate from identified
subeconomic resource estimates are economic conditions and
existing technology at the time of the estimate.  Therefore,
reserve estimates are likely to change as economic conditions
change or as new technologies for recovery are introduced.
The change would result from reclassifying subeconomic
resources.

     We believe the usefulness of reserve estimates of certain
energy sources which have been reported by Federal agencies
can be greatly improved not only for explicit Federal leas-
ing decisions but also in terms of energy policy formulation
involving choices and timing among alternative sources of
supply.  To assess the future availability of different
energy fuels, additional information is needed (1) concern-
ing the effect of cost-price relationships on the recovery
of fuels, (2) on the quantities of recoverable coal reserves,
and (3) on energy sources in the public domain and in the
control of individual private companies.

Need for cost and price
information on reserves

     Generally a measured reserve is an assessment of expected
ultimate recovery of a fuel under economic and technological
conditions prevailing at the time of the estimate.  Thus a
change in economic conditions or a technological advance would
necessarily change the assessment of expected ultimate recovery.
In order to increase the usefulness of reserve estimates for
decisionmaking purposes, information is needed on the effects



                             25
of cost-price relationships on energy source recoverability.
                                                      such
Such information would provide a basis for assessing
                                                and develop-
things as the desirability of Federal research
                                                        of
ment into new recovery techniques and the feasibility needs.
realizing various energy supply options to meet  future

      Cost-price relationships have generally been excluded
                                                          estimates
from reserve estimates of fuels, although reserve
for uranium include assessments     indicating   the  general
quantity of uranium expected to be available under differ-
ent cost conditions. Specific studies have also attempted
to analyze the effects of price on energy source recover-
ability. For example the Interstate Oil Compact Commis-
sion (IOCC), under contract with FEA's Office of Energy
Resource Development, analyzed the effect that price     from
 increases would have on ultimate recovery of oil
wells using enhanced recovery     techniques.     This  study,
                                                              pric-
dated February 1975,.indicated the effect of various
                                    recovery   of  fuels.    It
 ing levels on expected ultimate                           the sell-
concluded, among other things, that decontrolling
 ing price of oil produced by enhanced      recovery   methods
 could rosult in a projected increase in ultimate recovery
 of 10 billion barrels. In addition Lewin andthe     Associates,
              contract with  FEA,  also   studied       effects
 Inc., under                            fields   in three   States.
 of price on oil recovery   for major
                                    concluded   that   with  prices
 Their report, dated April 1976,
                                        barrels   would  be  econom-
 at $11.25 per barrel, 30.5 billion                             with
 ical to recover through enhanced    Lecovery   techniques;
                                      5.2  billion  barrels   would
 prices at $5.25 per barrel, only
 be economical to recover.
      The FEA Act required FEA to submit a report to the
Congress on domestic oil and gas reserves and resources
within 1 year.   The Congress desired information on the
extent that reserves would fluctuate    under various cost-
price relationships; however, FEA   did  not obtain such in-
rormation. Although FEA recognized     the need for this infor-
mation, FEA officials believed   that  obtaining  cost-price
information from respondents would    have delayed  the survey.
                                                    particularly
In additWon FEA believed that many respondents,provide
                               the expertise  to           accurate
smaller ones, would not have                                of its
 information. According to   the IOCC  engineer  in charge
                                         operators  are the  best
study, however, oil well and gas well
sou:ce to provide reserve estimates    under various  cost-price
 relationships.
      Ultimate recovery of an energy source may f lctuate
 considerably because cL changes in cost-price relationships.
                                                      deci-
 Therefore, we believe that economically sound policy sources
 sions with respect to development of domestic energy


                                   26
and assessments of the relative importance and timing of
various supply options can only be made by assessing the
Availability of various fuels under different cost-price
relationships. In addition we believe that FEA should take
the neces:ajry actions to obtain information on the effects
of cost-price relationships on the recoverability c£ oil,
gas, and coal.

      FEA, in commenting on this issue, stated that develop-
ing accurate reserve estimates to reflect cost and price
relationships is desirable and important but complicated.
Developing such estimates based on future governmental
regulations and environmental constraints would also be
desirable. FEA pointed out that estimates of the effect
of such variables would have a high degree of uncertainty.
We believe that uncertain data is be:ter than no data at all.
We realize that work dealing with fiture actions or alterna-
tives other than existing actions are, by necessity, uncer-
tain.

     The Interior, which is studying the economics of fuel
availability, pointed out that BOM has done considerable
costing work in the energy field.
     FPC chose not to debate GAO's position on the need for
cost and price information on reserves. FPC pointed out,
however, that estimating resource availability under various
economic conditions would be complicated and time consuming.
According to FPC, the degree cf uncertainty dramatically in-
creases as alternate economic criteria are specified. In
addition, since the commonts accepted definition of proved
reserves does not include variable economic and operating
conditions, new estimation procedures would have to be de-
veloped and their testing would require several years. Thus,
FPC believes the procedures would remain highly controver-
sial, limiting their usefulness as policy inputs for some
time. Although we do not disagree that estimating reserves
under various economic conditions may be complicated and
time consuming, in our view, this should not preclude obtain-
ing the information.
     ERDA pointed out that in order to plan its enhanced
oil and gas recovery programs, detailed knowledge of the
magnitude and characteristics of identified oil and gas
resources is required. According to ERDA, this informa-
tion would contribute greatly towards the need to better
assess the availability of various energy fuels under
different economic conditions. In addition ERDA pointed
out that confidentiality of information collected by other
Federal agencies has been a problem in carrying out these
programs.
                             27
     While this report does not address the issues of con-
fident_,ity of information, we did discuss this problem in
earlier reports. 1/ In essence we believe that the ternms
"confidential" and "proprietary," as relateJ to energy in-
formation, have been overused and that steps should be taken
to restrict confidential data to the absolute minimum. Our
general view is that the burden of proof should be on those
who argue that energy-related information is proprietary
and should be withheld from the public.
Need for information on
the availability of coal

     As pointed out previously BOM prepares estimates of the
demonstrated reserve base of coal. This base is simply an
assessment of those domestic coals estimated to exist in
physical settings which are minable by conventional i.-ethods.
These estimates are based principally on resource estimates
prepared by the Survey and State geological surveys. While
BOM has a useful way for identifying physical amounts of
coal, until economic factors and technology are related to
its recoverability, such estimates have limited usefulness
for assessing the need for Federal actions to meet goals
of increased coal production.
     Demonstrated coal reserve base estimates do not take
into account important factors which will limit ultimate
recovery. Of the coal included in the demonstrated reserve
base, large tonnages are unavailable for mining because re-
moval would conflict with other land uses, such as coal
beneath towns or highways and under rivers or railroads.
Other portions of coal are not minable because they are in
beds closely overlying mined-out coalbeds and, therefore,
are dangerous and expensive to mine.

     FEA is charged, under the Energy Supply and Environ-
mental Coordination Act of 1974, with preparing, on a
quarterly basis, an energy information report which in-
cludes information on domestic reserves and production of
coal. Yet the quarterly reports issued through the fourth
quarter of 1975 did not include an estimate of domestic



1/"Actions Needed to Improve Federal Efforts In Collecting,
  Analyzing, and Reporting Energy Data," B-178205, February 6,
  1974; "Improvements Still Needed In Federal Energy Data
  Collection, Analyses, and Reporting," OSP-76-21, June 15,
  1976.



                              28
coal reserves.  FEA was intending to rely on information
on coal reserves being collected by the Federal Trade Com-
mission (FTC).  However, the FTC survey is limited in scope
and will not provide a complete assessment of domestic coal
reserves.

     In its quarterly report for the first quarter of 1976,
FEA included an estimate of remaining coal reserves as of
March 1976.  However, this estimate was derived from the BOM-
demonstrated coal reserve base estimate by applying standard
recovery factors of 50 percent for deep-mined coal and 80
percent for surface-mined coal and by adjusting these figures
for coal production for 1974, 1975, and the first quarter
of 1976.

     We believe information on those quantities of coal
currently considered recoverable should be obtained from
coal producers by FEA.  This information is important for
determining the need for additional coal leasing by the
Federal Government and for assessing the need for Federal
actions to initiate production of coal on Federal lands
already leased but where coal development and production
is not taking place.

     The Interior, in commenting on this issue, stated
that efforts should be made to update coal reserve infor-
mation.  It said that there is no great sense of urgency
for national updating because coal reserves and resources
are obviously many times greater than production requires now
and for the next 10 to 15 years.  It believes that canvass-
ing coal producers for reserves on a national basis would
yield uneven results due to local variations in development
practice and the amount of coal that operators feel is neces-
sary to keep in front of the working area.

     On this issue, FPC suggested that information on Btu
and sulfur content be included in any effort to obtain coal
reserve information from coal producers.  ERDA generally
agreed that there is a need for better estimates of econom-
ically recoverable coal reserves and suggested that infor-
mation on chemical composition and washability of coal be
included in any additional analyses of coal seams.

     ERDA also pointed out that consideration should be
given to developing a coal resource and reserve data base
that would classify coal suitable for in situ processing.




                             29
     We believe that information on coal reserves obtained
from coal producers is necessary to evaluate the quantities
of coal expected to be produced from existing mines.  This
information will allow the Federal Government to assess
further actions which may be needed to meet goals of in-
creased coal production, including the need for further
leasing of Federal coal lands.  We believe also that infor-
mation on Btu and sulfur content and chemical composition
and washability of coal should be included in sucI an effort,
as suggested by FPC and ERDA.

NEED FOR INFORMATION ON OWNER-
SHIP OF ENERGY SOURCES

     The Federal Government has limited information about
ownership and control of domestic energy sources and, there-
fore, has incomplete information on (1) the extent of energy
sources currently under the control of private industry with
potential for early development and (2) those energy sources
which the Federal Government owns or controls and for which
direct action would be needed by the Federal Government to
initiate development.  Although some assessments are made of
specific Federal land areas, no special effort is made to
isolate and assess all Federal land.

     Section 13(f) of the Federal Energy Administration Act
of 1974, 15 U.S.C. 772 (f) (Supp. V, 1975), states that:

       "The Administrator shall collect from departments,
       agencies and instrumentalities of the executive
       branch of the Government (including independent
       agencies), and each such department, agency, and
       instrumentality is authorized and directed to
       furnish, upon his request, information concern-
       ing energy resources on lands owned by the Govern-
       ment of the United States.  Such information shall
       include, but not be limited to, quantities of
       reserves, current or proposed leasing agreements,
       environmental considerations, and economic impact
       analyses."

     Concerning this legislative requirement the FEA Admin-
istrator has stated that information on the quantities of
energy resources on Federal lands is unavailable and that
evaluations of energy reserves on Federal lands are usually
made before offering tracts for lease.

       Adequate knowledge about the ownership and control of
U.S.   energy sources is important in developing appropriate



                               30
policies and programs to foster the orderly development and
use of all energy fuels.  This information would aid the
Federal Government in its assessment of the need for and
effectiveness of Federal leasing programs to increase the
:omestic supply of energy fuels.

     As we pointed out in our report on, "Role Of Federal
Coal Resources In Meeting National Energy Goals Needs To Be
Determined And The Leasing Process Improved" (RED-76-79,
April 1, 1976), the Department of the Interior had given
little attention to adequately valuing coal lands and has
leased coal under conditions of great uncertainty about the
quantity and quality of coal resources. We recommended
that the Secretary of the Interior direct a coal-drilling
program which would provide data for developing and imple-
menting a systematic plan for appraising coal resources
(on Federal lands).

     Beyond the public/private distinction, additional
information should be obtained concerning large quan-
tities of energy sources controlled or owned by individual
companies or industries and which may not be available to
the general domestic supply of energy. As stated in a
report prepared by Federal Trade Commission staff in
March 1974, such information is necessary if Government
agencies are to estimate the price and availability of
fuels in the future and if antitrust agencies are to
evaluate the competitive impact of an actual or proposed
interfuel merger. We believe the FEA, using information
gathering authorities granted to it under the Energy
Supply and Environmental Coordination Act and the Federal
Energy Administration Act of 1974, should obtain such in-
formation.

     The Interior, in responding to a draft of this report,
stated that although no effort was being made to access all
Federal lands, the Survey has an ongoing program to define
those areas in western coal basins where workable coal units
are definitely known to exist.  In addition the Survey is
compiling all available data on those lands and supplement-
ing that data with drilling.

     FEA, in commenting on a draft of this report, stated
that data on ownership is important but that an analysis of
ownership would be difficult and complex. According to FEA
the royalty owners throughout the United States own about
15 percent of these resources and many have no means of
determining their reserves.  FEA stated that the task could
be more manageable by developing the data for major



                             31
companies owning or controlling significant quantities of
resources.

     FPC said that it was in the advanced stages of imple-
menting a data collection program, applicable to jurisdic-
tional companies and their affiliates, which will provide
an annual reporting, by owner, of a large portion of the
Nation's proved reserves of natural gas; and any effort to
obtain oil and gas reserve data on an ownership basis should
take advantage of FPC's natural gas reserves reporting pro-
gram. FPC concluded that this body of information would
assist in the meaningful and important analyses necessary
to support national energy policy formulation and imple-
mentation.

     We agree that FPC's program to obtain natural gas
reserve ownership information should be relied on, to the
greatest extent, in developing and implementing a program
to obtain ownership information for all energy sources.
     On August 4, 1976, the Federal Coal Leasing Amendments
Act of 1975, Public Law No. 94-377, was enacted. Under the act
the Secretary of the Interior is authorized and directed to
conduct a comprehensive exploratory program, including stra-
tigraphic drilling, to evaluate the extent, location, and
potential for developing coal resources on Federal lands.
This legislation, if effectively implemented, should pro-
vide the data necessary to adequately appraise the coal
resources on Federal lands.

ENERGY CONSERVATION AND PRODUCTION ACT

     On August 14, 1976, the Energy Conservation and Pro-
duction Act, Public Law No. 94-385, was enacted. This act,
among other things, established a national Energy Infor-
mation System in the newly created Office of Energy Infor-
mation and Analysis within FEA. The System is required to
contain information to provide a description of and facil-
itate analysis of energy supply and consumption within and
affecting the United States.
     According to the act, the System is to include energy
information necessary to define and analyze

     -- the institutional structure of the energy supply
        system, including patterns of ownership and
        control of mineral fuel and nonmineral energy
        resources; and the production, distribution, and
        marketing of mineral fuels and electricity; and


                             32
     -- the sensitivity of energy resource reserves,
        exploration, development, production, transpor-
        tation, and consumption to economic factors;
        environmental constraints, technological im-
        provements, and substitutability of alternate
        energy sources.
     To meet partial requirements of the System, information
will be necessary on (1) the effects of cost-price relation-
ships on the recoverability of oil, gas, and coal; (2) the
availability of coal; and (3) the ownership and control of
energy sources. We believe it is imperative that FEA obtain
such information and also monitor the Interior's implementa-
tion of the comprehensive exploratory program authorized
under the Federal Coal Leasing Amendments Act of 1975.




                             33
                         CHAPTER 5

              CONCLUSION AND RECOMMENDATIONS

     In recent years there has been an increased awareness
of the need for better information on domestic energy re-
sources and reserves.  As a result certain Federal agencies
have taken actions to improve the Federal Government's knowl-
edge in this area.  However, our examination of Federal data
on resources and reserves of oil, gas, coal, and uranium
has indicated that certain information is missing which should
be obtained to strengthen the basis for decisions about the
United States' energy future.  Specilically, we found that

     --data on the oil and gas potential of certain OCS
       areas is severely limited,

     -- a complete appraisal of domestic uranium resources
        is needed to better assess ongoing research and de-
        velopment programs,

     -- information to better assess the availability of
        various energy fuels under different economic condi-
        tions is lacking for most energy fuels,

     -- information on quantities of coal currently consi-
        dered recoverable is lacking, and

     -- information on ownership and/or control of domestic
        energy resources and reserves is severely limited.

     In our June 30, 1975, report entitled "Outer Continen-
tal Shelf Oil and Gas Development--Improvements Needed in De-
termining Where to Lease and at What Dollar Value" (RED-75-
359), we recommended that the Secretary of the Interior direct
a geological exploration program which would provide for
the development and implementation of a systematic plan for
appraising OCS oil and gas resources, including selective
stratigraphic test drilling.

     We continue to endorse this recommendation and believe
that the plan should identify the level of stratigraphic
drilling necessary to provide a minimal level of data
coverage for major OCS areas.  After the plan has been de-
veloped, the Department of the Interior should encourage
private industry to conduct the drilling identified in
the plan.  After the extent of industry participation is
known, if any data gaps still exist, the Department of the
Interior should take the necessary actions, ir.'1gir; g


                                34
public financing of stratigraphic drilling, to obtain the
needed data.

     We also recommended in our July 31, 1975, issue paper,
"The Liquid Metal Fast Breeder Reactor:  Promises and Uncer-
tainties" (OSP-76-1), that ERDA expedite the work and final
report of its National Uranium Resource Evaluation program
currently scheduled for completion in 1981. We continue
to endorse this recommendation and also recommend that ERDA
and the Department of the Interior, under the yeneral direc-
tion of FEA, undertake a joint effort designed to identify
the costs and benefits of a uranium exploratory drilling
program, including suitable levels of private industry and
Government financing, and report the results of that effort,
with appropriate recommendations, to the Congress.

     The establishment of an Office of Energy Information
and Analysis within FEA has placed additional responsibil-
ities on that agency in the area of energy data collection
and analysis. To effectively carry out the requirements
of that office, as set forth in the Energy Conservation
and Production Act, it will be necessary for FEA to obtain
additional information on domestic energy resources and
reserves. Based on our examination and this new require-
ment, we recommend that the Administrator, Federal Energy
Administration:

     -- Determine the ownership and/or control over domestic
        energy fuels by major companies.
     -- Obtain from coal producers estimates of recoverable
        domestic coal reserves using appropriate verifica-
        tion techniques and develop plans to update the re-
        sults of this effort on a regular and recurring
        basis, including the effects of cost-price relation-
        ships on recoverability.

     -- Work with the appropriate Federal departments and
        agencies to fulfill the informational requirements
        of section 13(f) of the Federal Energy Administra-
        tion Act of 1974, including monitoring of the
        Department of the Interior's implementation of the
        comprehensive exploratory program authorized under
        the Federal Coal Leasing Amendments Act of 1975.

     -- Update on a regular and recurring basis, estimates
        of oil and gas reserves, including the effects of
        cost-price relationships on recoverability.



                             35
APPENDIX I                                       APPENDIX I


  FEDERAL INTER-AGENCY COUNCIL ON ENERGY INFORMATION
        C/O NATIONAL ENERGY INFORMATION CENTER
            1200 PENNSYLVANIA AVENUE, N.W.
                   WASHINGTON, D.C.    20461

                        AUG ; 3 1976

Mr. James Duffus III
Assistant Director
United States General
  Accounting Office
Washington, D.C. 20548

Dear Mr. Duffus:
Thank you for the opportunity extended to the Federal Inter-
Agency Council on Energy Information (FICEI) to comment on
your draft report to the Congress on "Federal Energy Re-
source and Reserve Estimates -- Uses, Limitations, and Data
Gaps." Since four of the most energy-intensive agencies
which are members of the Council are commenting on the draft
report and the available time is inadequate to provide
detailed comments fully representative of Council viewpoints,
an ad hoc task group of six Council members is providing the
following general comments. Those comments should not be
interpreted as being the personal viewpoints of any individual
Council member or his organization. The corporate comments
of the Council Ad Hoc Task Group follow:

     o    Your report will be an extremely important document
with a major influence on critically important and essential
energy legislation over the next few years. Developed by
your independent organization, it will enjoy credibility
not associated with documents from the Federal Energy Office
or any other agency. Accordingly, the final product should
be a superior document.
     o    The Council is particularly active in the area of
standardization and is especially sensitive to the need for
absolute precision in defining such terms as "resources,"
"reserves," and related classifying terms. Your choice of
the Department of Interior terms as a standard is an excel-
lent one, but we recommend adherence to exact definitions
rather than the close paraphrase used in the draft report.
Each following reference to resources and reserves or their
subclassifications should rigorously adhere to precise
definitions.


                                 36
APPENDIX I                                           APPENDIX I




                 [See GAO note.]



     o    It must be recognized that reserves and production
are not immediately responsive to price/cost changes and
that the lead time to stabilize the relationships must be
taken into consideration. Accordingly time is an important
parameter. Factors such as policy stability, corporate
decision time, capitalization, and the like would have to be
analyzed in each case to determine the appropriate lead time
for stabilization of the effect to be measured.
We tzust that your finished report will be an authoritative
document reflecting the objectivity, accuracy, and precision
needed to support positively the development of energy policy
and legislation. Please do not hesitate to call on the Council
if we can be of further service in reaching that goal.

                          Sincerely,


                              Hlertn4.  .    rLi
                          Chairman, Ad Hoc Task Gr




GAO note:    Deleted comments, which refer to the draft report,
             have been considered in this report.




                              37
                                                      APPENDIX II
APPENDIX II



                                         OFFICE
              FEDERAL ENERGY aWVAIfiM             k
                      WASHINGTON, D.C.   20461

                                                      DEPUTY ADMINISTRATOR

                          AUG 131976




 Mr. Monte Canfield, Jr.
                                Division
 Director, Energy and Minerals
                General Accounting Office
 United States
 Washington, D.  C. .20548

 Dear Mr. Canfield:
                                  to your letter of
 Mr. Zarb has asked me to respond
                               review  of and comments on
 June 11, 1976, requesting our
                                      Energy Resource and
 your draft report entitled "Federal
                                        and Data Gaps."
 Reserve Estimates--Uses, Limitations,
                                            agrees that much can
  In general, the Federal Energy Office           our reserves and
                              area of  assessing
  and should be done in the
                                             In fact, the Federal
  resources of primary energy supplies.
                                     an Ad Hoc interagency task
  Energy Administration initiated
                                                 and Budget, to
  force, chaired by the Office of Management
                                     and gas reserves data.
  address issues in regard to oil
                                                Office have been
  Representatives of the General Accounting
                                              effort, and were in
  involved in all stages of this planning
                                         on May 27, and July 22,
  attendance at public meetings held               This task force
                                    the public.
  1976, to solicit comments from
                                             collection and
   is developing a plan for the continued           which will
                            reserves   information
   ar,-lysis of oil and gas
                                     all agencies and the public
   incorporate the requirements of                           Your
                                         and cost prudent.
   to the extent which is justifiable                contribution
                                       an important
   suggestions and comments will be
                   and will be  carefully  considered in devel-
   to this effort
   oping the plan.




                                    38
APPENDIX II                                           APPENDIX II


With respect to your report, I would like to make the
following additional points:
                                                            to
1.    The energy supply situation in the country continues
      deteriorate, and our vulnerability to a supply dis-
      ruption continues to worsen.  While we need to obtain
      better information on which to base our policies, we
      also must create and implement a sound energy policy
      which addresses the national energy problems we are now
      facing.

2.    It would be a mistake to have a single government
      agency explore and condemn Outer Continental Shelf
      acreage.  A program that encourages a variety of
      interpretations and technologies (both public and
      private) is desirable to assure active participation of
      the market mechanism and the full utilization of the
      best talents available.
                                                         cost
3.    Developing accurate reserve estimates to reflect
      and price relationships is  desirable and  important but
                    Developing  such estimates  based on future
      complicated.
      governmental regulations and environmental constraints
      would also be desirable.   Of course, estimates of the
      effect of these variables  would have a high degree of
      uncertainty.

 4.   Acquiring data on ownership of resources is also
      important but complex.  The task could be more man-
      ageable by developing the data for major companies
      owning or controlling significant quantities of these
      resources.

 I am enclosing a copy of cur comments which discuss these
 and several other areas of concern.   Again, I wish to
 emphasize the report is tre'ly and  helpful to our planning
 efforts.

                              Sincerely,




                               John A. Hill
                               Deputy Administrator

 Enclosure [See GAO note.]



GAO note:     The deleted material contained general and tech-
              nical comments on our draft report which have
              been incorporated into this report where appro-
              priate.
                                 39
APPENDIX III                                                     APPENDIX    III




                 United States Department of the Interior
                            OFFICE OF THE SECRETARY
                             WASHINGTON, D.C. 20240



                                                 JUL 2 01976
    Mr. Monte Canfield, Jr.
    Director, Energy and Minerals Division
    United States General Accounting Office
    Washington, DC 20548

    Dear Mr. Canfield:

    This letter is in response to your proposed report to the Congress on
    "Federal Energy Resource and Reserve Estimates-Uses, Limitations and
    Data Gaps." The Department is in general agreement with the main theme
    of the report -- that more and better information on reserves and
    resources is desirable. However, the development of detailed informa-
    tion on the physical and economic availability of resources which lie
    beneath the surface of the earth and the ocean is a long, tedious and
    expensive process. This process has been accelerated by the Department
    of the Interior, ERDA and FEA. The cost of further acceleration, as
    suggested by GAO, would be great and the amount of information added
    would be small relative to the substantial body of data which is now
    available for the formulation of long-term energy policy.

     Several general issues and the GAO recommendations are discussed in
     more detail in the enclosed statement. Also specific coa -ets  listed
     by chapter and page are given.
                                           Sincerely yours,



                                           Under Secretary

     Enclosure




                                      40
APPENDIX III                                                           APPENDIX III


                      DEPARTMTNT OF THE INTERIOR STATEIENT
                                      ON
                           GAO REPORT TO THE CONGRESS
                                   ENTITLED

"Federal Energy Resources and Reserve Estimates--Uses,       Limitations and
Data Gaps."


I.   General Issues

     1.    A misunderstanding of the nature of the terms "resource" and "reserve".

     The report states that resource and reserve estimates are inadequate because
     1) there are data gaps (SEE GAO NOTE 1. P. 47) the economic criteria used in the
     estimates are not varied with time (SEE GAO NOTE 1) they show considerable
     change over time (as in estimates of oil and gas resources cited on pg 28).

     There always will be data gaps. A major part of resources are undiscovered.
     Estimation of either resources or reserves is a predictive process, not a
     counting process. Reserves, which are apparently viewed by GAO as solid
     numbers subject to change only due to economic forces, are subject to a
     variety of other factors, especially production rates, multiple-use decisions,
     and not the least of all, chance, as seen in equipment failure, or mine ex-
     plosion or fire. A view of reserves moving up and down in direct relation-
     ship with price is too simplistic.

     Estimation of resources must consider these factors and a different set of
     geotechnological data than used in reserves. The evaluation of resources
     has shown considerable change over the last several decades. It should be
     stressed that this reflects a continual closing of data gaps and increasing
     awareness of the economic aspects of exploration and production. The high
     cost of exploration and production of deep reservoirs or remote OCS areas
     renders Large amounts of oil and gas subeconomic. In all commodities we now
     can assess change in 'association with ongoing exploration.

     We agree that resource and reserve data are inadequate for firm and detailed
     long-range planning, but they are adequate to tell policymakers some very
     important things. For oil and gas, for example, all the estimates--high and
     low--show that a lot more oil is to be found if exploration is encouraged.
     Frontier areas have great promise, oil remaining in the ground now is a
     very important target for improved recovery, and yet no matter how lucky we
     are in all these potentials we will have to shift to other sources for our
     major supplies of energy in a matter of two or three decades.

      2.   Obsolescence of the rJport in terms of what actions have already been
           taken or at what stages various programs are in.




                            [Sep GAO note 2, p.       47.]




                                           41
APPENDIX III                                                     APPENDIX III




                             [See GAO note 2, p.       47.1



3.   Lack of documentation of cost and effectiveness of reckmsendations.

The recommendations offered by GAO which affect the Geological Survey pro-
grams have been considered before by several levels of Government, includ-
ing the Congress. Partial implementation of the recommendations is meating
the immediate needs of the Federal leasing program at an acceptable fund-
ing level. The Geological Survey is presently spending about $10 million
a year on geophysical data collection for oil and gas in the OCS, and a
million dollars for coal drilling.
                             [See GAO note 2, p.        47.]
Analysis of the cost of each recommendation has shown that filling data
gaps by drilling is quite expensive. The cost estimates for various bills
proposed in Congress are as follows:

     H.R. 6721 (passed both houses and forwarded to White House on
     June 22, 1976, for signature). The cost for 160-acre systematic
     and comprehensive coal drilling program with updated maps cover-
     ing 6.5 million acres of Federal coal lands would be $190 per
     acre. The total cost would be $1.235 billion. The speed at which
     the program would be implemented would determine the annual budget.

     H.R. 6218 in an early version would require the Secretary to imple-
     ment an exploration plan to determine the presence of oil fields,
     the extent of each field and determine the reserves. The cost
     based on 475 wells, geophysics and personnel costs, is estimated
     to be about $10.7 billion per year.

Other programs have been suggested, but these awe largely variations on the
two just outlined. Basic problems such as the availability of rigs for
these massive programs have not been investigated.




                                          42
APPENDIX III                                                         APPENDIX III


II.   GAO Recommnndations:

      That the Administrator, Federal Energy Administration

      A.     -- take the necessary actions to obtain information on the
                effects of cost/price relationships on the recoverability
                of oil, gas, and coal.

      Coamant

      The use of the terms "Price-Cost Relationships" is not clear.         If   the
      authors of the report mean to give economic content to the "McKelvey
      Box," then what they desire is a supply function for the various fuels--
       uad this is a difficult concept to quantify. There are limitations in
      the available statistical data and much data required is not available.
      More precision in defining "Price-Cost Relationships" is required, as
      is more detail in explaining what is sought from these relationships.

      The Bureau of Mines has done considerable costing work in the energy
      field. A few of the publications in this area are:

      Petroleum

           IC 8557. Offshore Petroleum Studies, composition of the Offshore
              U.S. Petroleum Industry and Estimated Costs of Producing
              Petroleum in the Gulf of Mexico.

           IC 8561. Engineering Cost Study of Development Wells and Profit-
              ability Analysis of Crude Oil Production.

           IC 8593. Determining Discounted Gas Flow Rate of Return and Payout
              Time for Onshore Development Wells.

           IC 8652. Profitability Analysis of Producing Crude Oil by Water-
              flooding Using a Similation Technique.

      Coal

           IC 8535. Cost Analysis of Model Mines for Strip Mining of Coal in
              the United States, 1972.

           IC 8641. Basic Estimated Capital Investment and Operation Costs for
              Underground Bituminous Coal i .ies, Mines with annual production
              of 1.03 to 3.09 million tons from 48 inch coal beds, 1974.

           IC 8689. Same title as above, revised 1975.

           IC 8682. Basic Estimated Capital Investment and Operating Costs
              for Underground Bituminous Coal Mines, Mines with annual produc-
              tion of 1.06 to 4.99 million tons from a 72 inch coal bed, 1976.

           IC 8703. Basic Estimated Capital Investment and Operating Cost for
              Coal Strip Mines, 1976.




                                            43
  APPENDIX III                                                        APPENDIX III

 The Geological Furvey is currently initiatirg studies directed toward
 the relationship of cost/price ratios to oil and gas resource assess-
 ments. The first necessary step is the development of price/cost
 ratios with respect to each of the commodities, in a time series
 extending back to a least 1960 and projected into the future to at
 least 1990.


 That the Administrator, Federal Energy Administration

 B.   --determine the ownership and/or control over domestic energy
        fuels by individual cpmpanies.

Comment

The Federal Energy Administration has developed adequate data on oil
reserves by ownership within U.S, during the last year. FPC has developed
data on reserves of natural gas in interstate commerce trade and has main-
tained these for many years.

That the Administrator, Federal Energy Administration

C.    --obtain from coal producers, as soon as possible, estimates of
        domestic coal reserves using appropriate verification tech-
        niques, and develop plans to update the results of this effort
        on a regular and recurring basis.

Comment

Efforts should certainly be made to update coal reserve information.
There is no great sense of urgency for national updating, however,
because coal reserves and resources obviously are many times present
production requirements and indeed many times any level of coal pro-
duction foreseeable for the next 10 to 15 years.

The GAO recommendation should also consider noneconomic factors. However,
the legal and environmental problems of coal development are extremely
complex. It is dubious that any appreciable understanding of multiple-
use problems of coal could be developed on a national scale without an
extremely manpower-intensive study including reviews of State, county,
and municipal environmental and land use and development laws, and an
extensive survey of private landowners controlling coal rights.

Canvassing coal producers for reserves on a national basis would yield
uneven results due to local variations in development practice and the
amount of coal operators feel necessary to keep in front of the working
area. It should be stressed that this type of survey would represent
only reserves under operators control and would not include unleased
reserves.




                                     44
APPENDIX III                                                       APPENDIX   III

It should be pointed out that the Geological Survey has responsibility
for obtaining reserve data on Federal leases under the 211 regulations
 (section 211.20) and that FEA's effort should be confined to obtaining
reserve data for non-Federal sources to avoid unnecessary duplication
of effort.


That the Administrator, Federal Energy Administration

D.   -- update on a regular and recurring basis estimates of oil and
        gas reserves.

Cowaent

The development of reserves data useful to all involved agencies and the
public is now being discussed by the Oil and Gas Reserves Working
Coamittee chaired by OMB. The Geological Survey is the only organization
having sufficient data to estimate and update reserves on Federal OCS
lands. The proposed FY 1977 budget includes an expansion of the OCS
Reserve Inventory. The Geological Survey plans to continue its coopera-
tion with FEA or other agencies in providing aid in this area.

Oil and gas reserve estimates are currently prepared by industry on an
annual basis. Adequate means can be developed for auditing such reserve
estimates and for conducting operator surveys to further assess their
reliability. There is no obvious reason why oil and gas reserve estimates
should be made more frequently than is done at present.


Z. That the Secretary of the Interior develop and implement a syste-
   matic plan for resource appraisal or Outer Continental Shelf areas
   which would include sufficient drilling of str&tigraphic tests to
   develop data on the geology of these areas for the purposes of pre-
   sale tract evaluation and to fill data gaps.

Com
  _nt

Deep stratigraphic drilling, as now done before frontier area lease sales,
facilitates the basic appraisal of each general area under consideration,
and does permit the development of a more rational long-range leasing
program. Stratigraphic drilling can increase or decrease tne discovery
prospects of certain sectors of the OCS, but it does not provide defini-
tive information on either reserves or resources. Considerable exploratory
drilling is required to determine roughly the amount of recoverable oil
or gas in a given field. Extensive production data are necessary to
determine recovery factors.




                                        45
APPENDIX III                                                     APPENDIX III

'he Geological Survey has just signed a contract for a limited amount of
,rilling to 1,000 feet to supplement existing deep stratigraphic data and
geophysical data on the Atlantic OCS. However, in view of industry's
willingness to undertake deep stratigraphic drilling it has no plans to
duplicate that effort.

The basic question posed by the GAO report is whether the Federal Govern-
ment should assume the responsibilities of a petroleum exploration company
operating on its own lands. This is not a scientific or even a technological
problem. It is political in nature and the ultimate decision rests with
the Congress and the American people.




                          [See GAO note 2,      p.   47.]




G.   ... That ERDA expedite the work and final report of its National
     Uranium Resource Evaluation Program,' ... "and that the Congress ex-
     plore with ERDA, the Geological Survey, and the Federal Energy Adminis-
     tration the feasibility of establishing a program to thoroughly
     appraise the U.S. uranium resource base by having the Federal Govern-
     ment conduct or sponsor extensive exploratory drilling, including
     such program and financing authorizations as may "e needed."

Coement

The Geological Survey maintains a close relationship with ERDA in the
development of uranium resource data and will continue to support their
work as our expertise is applicable and available.




                                        46
APPENDIX III                                                   APPENDIX        III


    With respect to uranium it is true that an intensified drilling
    program would lead to a more acculrate assessment of undiscovered
    uranium resources.   Even if th,. results of such a program were largely
    negative, that in itself woulid be useful information. But GAO falls
    to consider explicitly in its recommendations for uranium drilling
    programs the high cost and the probable near impossibility of getting
    the Congress to approve sufficient funding for a comprehensive drilling
    program. Before making such recommendations, the GAO should carefully
    evaluate the cost and benefits of the program, something it apparently
    has not done.

    It takes time, not solely money, to develop resource estimates that
    have value. Further, resource estimates are dynamic in nature and
    ZRDA's 1981 estimate will be only the estimate as of that date and
    will need to be kept up to date after 1981. Input from other agencies
    probably would speed and improve ERDA's work. Annual estimates in-
    corporating new data could be made between now and 1981 and would
    prove useful if it is understood that the estimation procedure is an
    ongoing process.




                       [See GAO note       2]




GAO notes:
    1.  Deleted page references refer             to a draft of
        this report.

    2.   Deleted comments, which refer to the draft re-
         port, have been considered in this report.




                                      47
APPENDIX IV                                                        APPENDIX IV



                                   UIITED STATES
                  ENERGY RESEARCH AND DEVELOPMENT ADMINISTRATION
                                WASHINGTOI,   D.C. 2146

                                               JUL 2 7 1976

   Mr. Monte Canfield, Jr., Director
   Energy and Minerals Division
   U. S. General Accounting Office
   Washington, DC 20548

   Dear Mr. Canfield:

   Thank you for the opportunity to comment on the draft report antitled
   "Federal Energy Resource and Reserve Estimates - Uses, Limitations, and
   Data Gaps."

   The report discusses coal, oil and gas as well as uranium; however, conments
   concerning availability of reserve end resource information frequently
   contain the implication that they apply equally to all fuels, whereas in many
   cases the deficiency mentioned is not applicable, or only partly applicable,
   to uranium.

   Energy reserves are defined as that portion of energy resources which are
   not "minable" due to high cost factors or lack of adequate technology. It
   is suggested that environmental restrictions should also be considered as
   a parameter which constrains total utilization of reserves.

   The report also indicates that more accurate estimates of energy reserves
   are needed to deal with both near-term decisions for Federal land leasing
   and long-range decisions on energy alternatives.  The accuracy of informa-
   tion required for each of these needs differs, as does the scope. For
   example, more accuracy may be required to deal with leasing Federally
   held lands than is required to deal with long-range decisions on alternative
   fuel development.

   Regarding the statement [See GAD note 1, p. 51.] "GAO believes an
   estimate of those quantities of coal considered to be recoverable should
   be made", it is our understanding that this is published information.
   However, with respect to coal data that is being collected we agree with the
   necessity of developing better estimates of economically recoverable
   reserves. Data and methodologies should be developed to determine reserve
   levels as a function of available min'ng technologies and costs, market
   prices of coal, and regulatory policies. We would suggest that the report
                                                                          m
   recognize the trade-offs involved in extensive coal exploration progra    to
   map reserves on Federal lands. Additional   information gained from large
   exploration programs may not be worth the cost compared to information obtained
   from more modest but well-targeted programs. Chemical composition of coals
   and information on washability of coal should be included in additional analyses




                                              48
APPENDIX IV                                                        APPENDIX IV


of coal se&=.    This would allow estimates of coal available for synthetic
fuels and p'aysical and chemical desulfurization of coal. An additional
suggestion is for Federal agencies to examine the variety of coal data bases
and develop plans to make data files as compatible as possible. For
example, coal data bases from the Bureau of Mines and Geological Survey
could provide good information on the potential for future coal use if
information on resources and reserves were in similar formats. Reorganizing
axisting information is inexpensive compared to gathering new data, and
desirable for increasing data analysis capabilities and identifying data gaps.

It is felt that an important aspect of energy resource data and its impact
on ERDA has been overlooked. ERDA must plan research and development programs
to encourage the utilization of a greater percentage of fossil energy
resources in an economical and environmentally safe manner. Specifically
with regard to oil and gas, ERDA's objectives include adding to reserves
through the use of enhanced recovery techniques.   These reserve additions
would be from the category referred to in the report as "identified"
resources. In order to properly plan our enhanced oil and gas recovery
programs, ERDA must be able to assess t.e potential for adding reserves
through enhanced recovery and the sensitivity of that potential to economic
and institutional variab.es. This requires detailed knowledge of the
identified resource --   its magnitude and characteristics.    In recent
planning efforts, ERDA has found that the necessary resource data is scattered,
insonoistent and incomplete. FEA's engineering analyses of 59 oil and gas
fields represents a good first step toward gathering and developing this
resource data, but this GAO report might properly include an analysis of the
desirability and feasibility of collecting data on identified resources
(e.g., oil in place and reservoir and fluid characteristics).     This data
would contribute greatly towards the need "to better assess the availability
of various energy fuels under different economic conditions ... " s stated
in the report.

Current views of in situ coal gasification suggest that seams thicker
than four to five feet, at any angle of dip, to depths of 3,000 feet
could be eventually classified as a reserve base for th.s processing
technique. This option should be mentioned in the report to stimulate
future work in developing a coal resource and reserve base for in situ
processing.

The report does not consider estimates of oil shale resources and reserves.
Oil shale is one of the major fossil energy resources in the U.S. but
little is known of how the base of economically recoverable reserves
will change as a function of prices of competing fuels, the state of
technology used to recover shale oil and environmental regulations.
Further exploration of resources may have a large payoff in providing
energy from shale in future years.




                                          49
APPENDIX IV                                                          APPENDIX IV
An additional coment concerns the confidentiality of information
collected by Federal agencies. We have found in our recent analyses on
enhanced oil and gas recovery that some of the required data has been
collected by other agencies from individual companies under agreements of
confidentiality. This problem of sharing such confidential data among Federal
agencies was not addressed in the report end it should be regarded as one
of the limitations of the present system. While we have been able to arrange
agreements with other agencies on a case-by-case basis, a comprehensive
and consistent program of data-sharing would be much preferred to the current
patchwork system.




                     [See GAO note     2, p.   51.]




                                      50
APPENDIX IV                                                         APPENDIX IV



We agree with the GAO recommendation that the NURE program be expedited
to the extent practical. The NURE program is being rapidly expanded and
should providi, adequate information for more long-term planning. However,
with respect to the recoumendation on page 5 regarding extensive Federal
Government sponsored exploratory drilling, we wish to reiterate our
previous comments regarding this recoumendation.    In essence, we believe
that the ERDA approach will result in a better appraisal than the USGS
proposal in which eltensive government drilling would be carried out in a
relatively few selected areas. We believe the appropriate and moet
effective role of government to be that of providing the leading edge to
an expanded private exploration program and that NURE in conjunction
with the private effort will provide a better appraisal in a shorter period
of time; equally or more important, it will result in a more expeditious
development of the resources that do exist.




                                      frController
Enclosure:
Press Release No. 76-94      [See GAO note 3. ]




GAO notes:
    1.  Deleted page references refer to a draft on this
        report.

     2.      Deleted comments, which refer to the draft report,
             have been considered in this final report.

     3.      Press release has been deleted from this report.




                                         51
APPENDIX V                                                       APPENDIX V


                          FEDERAL POWER COMMISSION
                             WASHINGTON, D.C. 20426



                                                          JULt   1976

     Mr. Monte Canfield, Jr., Director
     Energy and Minerals Division
     U. S. General Accounting Office
     Washington, D. C. 20548

     Dear Mr. Canfield:

          Thank you for the opportunity to comment on your draft
     report "Federal Energy Resource and Reserve Estimates -- Uses,
     Limitations, and Data Gaps". FPC technical staff has
     reviewed the report and I have enclosed their conments and
     suggestions.

          The Commission does indeed have an active interest and
     need for reliable, consistent energy resource and reserve
     estimates, particularly with respect to fossile fuels and
     uranium.  If possible, I would like to receive a copy of
     the final report.

          Please contact me if I may be of further help to you
     in this matter.
                                             Sincerely,




                                             Richard L.     Dunham
                                             Chairman

     Enclosure




                                      52
APPENDIX V                                              APPENDIX V


              Federal Power Commission Staff
                   Comments on the Draft
                Report to Congress by the
         Comptroller General of the United States
           "Federal Energy Resource and Reserve
       Estimates -- Uses, Limitations, and Data Gaps"




                    [See GAO note   2. p.   56.1




                               53
APPENDIX V                                                APPENDIX V




                        [See GAO note   2, p.   56.]




GENERAL COMMENTS

     In discussing the need for resource and reserves data on
an ownership basis, the 6AO report does not recognize that the
FPC is in the advanced stages of implementing a data collection
program, applicable to jurisdictional companies and their
affiliates, which will provide an annual reporting, by owner
of a large portion of the Nation's proved reserves of natural
gas on a reservoir by reservoir basis. 1/ The development of
Form 40 required approximately two and one-half years.

I/ FPC Order Nos. 526 (2-25-75) and 526-A (8-18-75). Natural
   Gas Companies Annual Report of Proved Domestic Gas
   Reserves: FPC Form 40. These orders were vacated and remanded
   to the Commission in Union Oil Co. of Calif., et al. v. F.P.C.,
   Nos. 75-2891, et al. (-thCir-.Jine-Z,--r7)   bbase--on a finding
   that the recorTcmpiled by the Commission did not support
   the conclusion reached.




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APPENDIX V                                               APPENDIX V


Comments rendered by some 77 private parties were incorporated
wherever possible. and the GAO gave extensive study, prior to
its approval of the Form, to the twin problems of minimizing
reporting burden and elimination of duplicate data filing.

     It would appear logical that any effort to obtain National
oil and gas reserve data on an ownership basis would take
advantage of the groundbreaking FPC natural gas reserves
reporting program. With minor modifications the reserve accounting
balance sheet format of FPC Form No. 40 can be converted
to gather similar data on oil, natural gas liquids, end natural
gas owned by non-jurisdictional companies.   The combination of
this data with that gathered by the FPC would then constitute
a comprehensive and independently auditable survey of the status
of the National proved domestic oil and gas reserves. This
body of information would assist in the meaningful and important
analyses necessary to support national energy policy formula-
tion and implementation.

     The FPC has, for a number of years, taken the position that
for an inventory of proved reserves to be credible, it must have
undergone audit by qualified personnel independent of those
supplying tile data. The Congress has taken a similar position.
The Form 40 program calls for this type of auditing by the FPC
staff.

     While we do not debate the merits of the GAO recommendation
that FEA take the necessary actions to obtain data on the effects
of cost/price on recoverability, it should be emphasized, never-
theless, that estimating resource availability under various
economic conditions is a much more complicated problem than the
already complex problem of estimating reserves under existing
economic conditions. The degree of uncertainty dramatically
increases as alternate economic criteria are specified. Further,
the application of price and cost ratios other than those which
exist at the ttne the reserve estimate is made is not standard
practice at the present time either within the industry or the
Government. The commonly accepted definitions of proved reserves
which, regardless of current minor problems in interpretation,
have withstood the tests of time and experience, do not include
variable economic and operating conditions.   Consequently,
entirely new estimation procedures and definitions would have
to be developed by FEA, and their testing would require several
years. They would undoubtedly remain highly controversial,
limiting their usefulness as pol4 cy inputs for some time.

     In order to maintain consistency, the GAO report indicates
that it uses the U.S.G.S. definitions of r sources and reserves. 2/
2/ Principles of the Mineral Resource Classification System of
   the U.S. Bureau of Mines and U.S. Geological Survey, Geological
   Survey Bulletin, 1450-A, 1976.




                                  55
APPENDIX V                                               APPENDIX V
     According to the U.S.G.S.   reserves are a part of the total
     resource.   However, the GAO report frequently refers to resources
     and reserves as being separate entities.   It is likely that this
     confusion stems from an attempt to distinguish reserves from
     the undiscovered resource. The specific comments below point out
     the most obvious occurrence,    but it is suggested that the use
     of these terms throughout the report be reviewed for consistency
     prior to publication.
         GAO also found information on recoverable amounts of coal
    to be lacking and recommended that FEA obtain from coal
    producers estimates of domestic coal reserves using appropriate
    verification techniques, and update the estimates on regular
    "asis. In seeking more information about the quantities of
    coal considered to be recoverable, it is suggested that an
    attempt be made to identify the reserves by Btu and sulfur
    content. Historically reserve data was maintained on a tonnage
    basis, yet one ton of fituminous coal is equal to two tons of
    lignite on a Btu basis. Furthermore, because of environmental
    restrictions on sulfur emissions, we need to knlow much more
    about our supplies of low-sulfur coai.
         Finally, it is noted that the CAO report does not treat
    hydroelectric power. Several suggested inserts concerning
    hydroelectric power are included ini the specific comments below.




                              [See GAO note]




   GAO note:     Del ted comments, which refer tc the draft
                 report, have Leen considered in this report.




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