Senate Report 115-391 - HELIUM EXTRACTION ACT OF 2017

[Senate Report 115-391]
[From the U.S. Government Publishing Office]

Calendar No. 678
115th Congress } { Report
SENATE
2d Session } { 115-391

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HELIUM EXTRACTION ACT OF 2017

_______

November 27, 2018.--Ordered to be printed

_______

Ms. Murkowski, from the Committee on Energy and Natural Resources,
submitted the following

R E P O R T

[To accompany H.R. 3279]

[Including cost estimate of the Congressional Budget Office]

The Committee on Energy and Natural Resources, to which was
referred the bill (H.R. 3279) to amend the Mineral Leasing Act
to provide that extraction of helium from gas produced under a
Federal mineral lease shall maintain the lease as if the helium
were oil and gas, having considered the same, reports favorably
thereon without amendment and recommends that the bill do pass.

Purpose

The purpose of H.R. 3279 is to amend the Mineral Leasing
Act (MLA) to promote the production of helium by taking into
account the value of helium in determining whether a Federal
oil or gas lease is producing in paying quantities for purposes
of determining whether the lease can be extended.

Background and Need

Helium is a naturally occurring element that is typically
extracted from natural gas, and then subsequently refined to
higher purity grades for applications such as magnetic
resonance imaging, semiconductor manufacturing, military
aviation, laboratory research, and a variety of other uses.
Under the MLA, the Bureau of Land Management (BLM)
administers natural gas leases on Federal lands. By statute,
the initial term of a lease is 10 years and can be extended as
long as gas is being ``produced in paying quantities.'' The MLA
also specifies that the United States reserves ownership of any
helium produced from these oil and gas leases. So long as the
processing does not ``substantially delay'' production of the
primary gas products, the BLM can enter into a separate
contract for the recovery of helium from the gas stream being
produced from a well on Federal land.
This framework places the regulation and leasing
requirements on the natural gas production which is typically
the economic driver of the operations, while any contract,
revenues and royalties from any helium produced as a secondary
product are separate. One consequence of this structure is that
no revenues from the sale of helium can be factored into
whether a well is producing in ``paying quantities'' and thus
qualifies for an extension of its initial lease term beyond 10
years. This is not a problem in high quality (high British
thermal unit (Btu)) natural gas fields where the hydrocarbon
value drives the economics, but in some cases lower Btu natural
gas resources may not be able to meet the ``paying quantities''
threshold to qualify for a lease extension despite helium
concentrations that would add substantial value to the lease.
H.R. 3279 amends the MLA to allow the value of helium produced
at these wells to be factored into the BLM's determination of
whether to extend a gas lease.
A growing number of entities are interested in pursuing gas
leases primarily for the helium resources and in reserves that
may not be viable from a hydrocarbon perspective. This interest
is being driven in part by increasing global demand and
privatization of the U.S. helium industry placing upward
pressure on helium prices, along with low natural gas prices
making additional leases unviable commercially. The need for
additional production of domestic resources to avoid import
reliance from Qatar, Algeria, and Russia, which are the main
international producers, has also been cited as a reason for
modifying the treatment of helium produced on federal lands.

Legislative History

H.R. 3279 was introduced by Representative Cook in the
House of Representatives on July 18, 2017. The bill was
favorably reported by the Committee on Natural Resources on
October 23, 2017. H.R. 3279 passed the House of Representatives
on November 1, 2017, by voice vote.
Senator Hatch introduced a companion bill, S. 1572, on July
18, 2017. The Subcommittee on Public Lands, Forests, and Mining
held a hearing on the bill on August 22, 2018.
The Senate Committee on Energy and Natural Resources met in
an open business session on October 2, 2018, and ordered H.R.
3279 favorably reported.

Committee Recommendation

The Senate Committee on Energy and Natural Resources, in
open business session on October 2, 2018, by a majority voice
vote of a quorum present, recommends that the Senate pass H.R.
3279.

Section-by-Section Analysis

Section. 1. Short title

Section 1 provides a short title.

Sec. 2. Maintenance of Federal mineral leases based on extraction of
helium

Section 2 amends the MLA to add ``and that extraction of
helium from gas produced from such lands shall maintain the
lease as if the extracted helium were oil and gas'' into the
proviso, which states that the United States retains the rights
to helium extracted from gas wells on public lands.

Cost and Budgetary Considerations

The following estimate of the costs of this measure has
been provided by the Congressional Budget Office:
H.R. 3279 would allow firms to retain federal oil and gas
leases that would otherwise expire for the purpose of
extracting helium. Using information from the Bureau of Land
Management (BLM) and industry sources, CBO estimates that
enacting the legislation would increase offsetting receipts,
which are treated as reductions in direct spending, by $9
million over the 2019-2028 period; therefore, pay-as-you-go
procedures apply. The legislation would not affect revenues.
CBO estimates that enacting H.R. 3279 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2029.
H.R. 3279 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
Estimated cost to the Federal Government: The estimated
budgetary effect of [Title] is shown in the following table.
The costs of the legislation fall within budget function 300
(natural resources and environment).

--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------------------
2019- 2019-
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2023 2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
DECREASES IN DIRECT SPENDING

Estimated Budget Authority.................................. * -1 -1 -1 -1 -1 -1 -1 -1 -1 -4 -9
Estimated Outlays........................................... * -1 -1 -1 -1 -1 -1 -1 -1 -1 -4 -9
--------------------------------------------------------------------------------------------------------------------------------------------------------
* = between -$500,000 and zero.

Basis of estimate: For this estimate, CBO assumes that H.R.
3279 will be enacted near the start of 2019.
H.R. 3279 would allow firms to retain federal oil and gas
leases beyond 10 years to extract helium. Under current law,
firms enter into agreements with BLM to extract helium from
active oil and gas leases. Those leases expire after 10 years
if they are no longer producing commercial quantities of oil or
gas, even if commercial quantities of helium are still being
extracted. In recent years, BLM has granted waivers that allow
firms to continue extracting helium on leases that otherwise
would have expired. In 2018, royalties for helium produced on
federal oil and gas leases totaled $19 million. All proceeds
from the production of helium are deposited in the Treasury.
CBO expects that, under the act, firms would be more likely
to acquire oil and gas leases containing noncommercial
quantities of hydrocarbons but high volumes of helium. Using
information from industry sources information from firms in the
mineral extraction industry, we estimate that royalties from
helium production on those new leases would average about $1
million a year. Because CBO expects that the number of firms
seeking to develop such leases over the next 10 years would be
small, we estimate that receipts from bonus bids (payments to
the government to lease public land) would be negligible.
Finally, CBO estimates that enacting H.R. 3279 would have no
significant effect on production from existing leases because
firms extracting helium on leases that may expire would
probably obtain permission from BLM to continue their
extraction of helium. In total, CBO estimates that enacting
H.R. 3279 would increase offsetting receipts by $9 million over
the 2019-2028 period.
Pay-As-You-Go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. The net changes in outlays that are subject to those
pay-as-you-go procedures are shown in the following table.

CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 3279, THE HELIUM EXTRACTION ACT OF 2017, AS ORDERED REPORTED BY THE SENATE COMMITTEE ON ENERGY AND
NATURAL RESOURCES ON OCTOBER 2, 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------------------------------------------
2019- 2019-
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2023 2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN THE DEFICIT

Statutory Pay-As-You-GoP Effect................... 0 -1 -1 -1 -1 -1 -1 -1 -1 -1 -4 -9
--------------------------------------------------------------------------------------------------------------------------------------------------------

Increase in long-term direct spending and deficits: CBO
estimates that enacting H.R. 3279 would not increase net direct
spending or on-budget deficits in any of the four consecutive
10-year periods beginning in 2029.
Mandates: H.R. 3279 contains no intergovernmental or
private-sector mandates as defined in UMRA.
Previous CBO estimate: On October 23, 2017, CBO transmitted
a cost estimate for H.R. 3279, the Helium Extraction Act of
2017, as ordered reported by the House Committee on Natural
Resources on July 26, 2017. The two versions of H.R. 3279 are
similar and CBO's estimates of their budgetary effects are the
same.
Estimate prepared by: Federal costs: Janani Shankaran;
Mandates: Zachary Byrum.
Estimate reviewed by: Kim P. Cawley, Chief, Natural and
Physical Resources Cost Estimates Unit; H. Samuel Papenfuss,
Deputy Assistant Director for Budget Analysis.

Regulatory Impact Evaluation

In compliance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee makes the following
evaluation of the regulatory impact which would be incurred in
carrying out H.R. 3279. The Act is not a regulatory measure in
the sense of imposing Government-established standards or
significant economic responsibilities on private individuals
and businesses.
No personal information would be collected in administering
the program. Therefore, there would be no impact on personal
privacy.
Little, if any, additional paperwork would result from the
enactment of H.R. 3279, as ordered reported.

Congressionally Directed Spending

H.R. 3279, as ordered reported, does not contain any
congressionally directed spending items, limited tax benefits,
or limited tariff benefits as defined in rule XLIV of the
Standing Rules of the Senate.

Executive Communications

The testimony provided by the Department of the Interior at
the August 22, 2018, hearing on S. 1572, the companion measure
for H.R. 3279, follows:

Statement of Christopher McAlear, Assistant Director, National
Conservation Lands & Community Partnerships, Bureau of Land Management,
U.S. Department of the Interior

Thank you for the opportunity to testify on the Federal
helium program managed by the Bureau of Land Management (BLM),
and on S. 1572, Helium Extraction Act of 2017. S. 1572 would
amend the Mineral Leasing Act of 1920 (MLA) to provide a
mechanism for industry to produce helium from Federal lands.
The Department of the Interior (Department) appreciates the
opportunity to review S. 1572 and supports this legislation.
We also appreciate the sponsors' interest in the BLM's
helium program and would welcome the opportunity to work with
the sponsor to improve management of this valuable commodity
and to ensure that Federal agencies retain assured access for
future national security, biomedical, and other technical
purposes.
The BLM plays a key role in the careful management and
stewardship of the only significant long-term storage facility
for crude helium in the world, known as the Federal Helium
Reserve (Reserve). Helium is a critical, non-renewable natural
resource that is important in military reconnaissance, medical
imaging, space exploration, fiber optics manufacturing,
welding, and commercial diving. Helium is a by-product of oil
and natural gas production and is usually captured by stripping
it from the natural gas. Geologic conditions in Texas,
Oklahoma, and Kansas make the natural gas in these areas some
of the most helium-rich in the United States, often ranging
from 0.5 to 1.5 percent of the gas extracted during production.
Because of helium's potential to lift military
reconnaissance devices high above battlefields, the Federal
government's interest in the resource dates back to World War
I. Recognizing this key military use for helium, the Mineral
Leasing Act of 1920 reserved to the Federal government all
helium produced on Federal lands--a reservation that remains in
effect today. After World War I, recognition of the potential
for helium recovery in the Texas Panhandle, Western Oklahoma,
and Kansas led to the development of the Federal helium program
focused in that area. In 1929, the Bureau of Mines commissioned
the Amarillo Helium Plant and Cliffside Gas Field Facility near
Amarillo, Texas, to produce helium-bearing natural gas from a
naturally occurring geologic field known as the Bush Dome
Reservoir.
After World War II, Federal use of helium shifted toward
space exploration. The 1960 Helium Act Amendments changed the
program's mandate from exclusive government production of
helium to conservation of the resource by encouraging private
natural gas producers to sell extracted crude helium to the
Federal government for storage in the Bush Dome Reservoir. In
1996, the Helium Privatization Act (HPA) required the BLM
(successor to Bureau of Mines) to make available for sale the
vast majority of the stockpile of crude helium from the
Reserve, in a manner to avoid market disruption. The BLM fully
implemented this direction. In 1996, the Bush Dome Reservoir
stored approximately 30.5 billion cubic feet (Bcf) of helium;
by April 2017, about 4.4 Bcf of Federally owned helium and
about 3.2 Bcf of privately owned helium remained in the
Reserve.
The BLM's current helium program operates not only the
original storage and pipeline system, but also a crude helium
enrichment unit, owned by private industry refiners, that
facilitates transmission of helium to private helium operations
on the BLM's helium pipeline. The BLM also conducts domestic
and, to a lesser extent, international helium resource
evaluation and reserve tracking to determine the extent of
available helium resources.
The BLM is responsible for selling helium from the Reserve
to private entities at market-based prices determined by
industry surveys and auctions. Federal users (e.g., the
Departments of Energy and Defense, NASA, and the National
Institutes of Health, among others), which primarily use helium
for research and operations, may access Federal helium at a
discounted rate through the current helium ``In-Kind'' program
managed by the BLM. The In-Kind price is calculated as a
discount from sales and auction prices. Federal agencies and
their contractors generally purchase all of their refined
helium from private suppliers who, in turn, purchase an
equivalent amount of crude helium from the Reserve. In 2016,
Federal agencies purchased about 122 million cubic feet (MMcf)
of helium through the In-Kind program.
After funding operations, the BLM returned $115 million to
the U.S. Treasury in 2016. The Federal Helium Program operates
using a revolving fund not subject to annual appropriations.
All revenue generated from the helium program is deposited in
the fund. This includes revenue derived from auctions and sales
of helium from the Federal Helium Reserve, oil and gas residue
sales from the crude helium enrichment process, storage and
transportation fees, and royalty and fees sales from helium
produced on Federal lands.
Continuing Congressional interest in privatizing the helium
market ultimately resulted in enactment of the Helium
Stewardship Act (HSA) of 2013. The HSA established September
30, 2021, as the sunset date for the Federal helium program.
For the years preceding the sunset date, the HSA created a set
of phased authorities for the BLM's management of the Reserve,
establishing a ``glide path'' by which auctions and sales from
the Reserve would draw down the amount of helium until there
remained only 3 Bcf of helium, which would be reserved solely
for Federal users.
The BLM is implementing the HSA's statutory directives to
sell helium from the Reserve to a level of 3 Bcf of recoverable
helium (not including privately stored helium) by 2021. This
will be accomplished with annual sales and auctions of
decreasing volumes through 2021. The BLM expects to reach the 3
Bcf milestone after this sale. Anyone meeting the statutory
definition of a ``qualified bidder'' may participate in the
helium auctions. A qualified bidder is a person seeking to
purchase helium for the person's own use, refining, or resale
to users.
The BLM offered helium volumes in three distinct sales in
FY 2017 for delivery in FY 2018:
The ``FY 2018 Delivery Phase B Auction,''
conducted in July 2017, of 500 MMcf in 30 lots, for
$59.7 million. The helium that was auctioned
represented over 55 percent of the total volume that
the BLM will make available from the Reserve in FY
2018. This met the 55 percent requirement mandated in
the HSA.
The ``FY 2018 Delivery Phase B Non-Allocated
Sale,'' conducted in August 2017, of 40 MMcf for $4.76
million.
The ``FY 2018 Delivery Phase B Allocated
Sale,'' conducted in August 2017, of 360 MMcf for $42.8
million.
The total volume of helium sold, excluding In-Kind helium,
was 900 MMcf, and the total revenue generated from helium sales
in FY 2017 was $107.2 million. The BLM intends to hold the next
sale and auction on August 31, 2018, for delivery in FY 2019.
At this sale, 210 MMcf will be offered at auction, an
additional 9 MMcf will be offered at the ``Phase B Non-
Allocated Sale,'' and 81 MMcf will be offered at the ``Phase B
Allocated Sale'' for a total of 300 MMcf.
Helium commonly exists as a minor component of most natural
gas plays. Natural gas typically is transported by pipeline to
a processing plant where it is separated into marketable
components, which could include helium if it is present in
sufficient amounts. Because the helium from leases on Federal
lands is reserved to the United States (i.e., there is no
authority under the MLA to lease helium), natural gas lessees
now can enter into contracts with the BLM to provide for the
processing and sale of the helium. This type of arrangement
occurs, for example, near Kemmerer, Wyoming, where helium
produced from Federal lands partially supplies an ExxonMobil
helium refinery.
Similar contracts can enable the recovery of helium as a
primary gas in combination with a BLM oil and gas lease, and is
feasible where the gas composition in a reservoir consists of
relatively higher helium concentration in a low Btu gas stream.
For example, the BLM approved an Application for Permit to
Drill (APD) for a 1,100-foot exploratory well in the Harley
Dome gas field in eastern Utah and an associated right-of-way
to transport the produced gas via a surface pipeline to a new
gas processing plant. With sufficient quality and quantity of
helium, the proponent constructed a four-inch, 7,183-foot
pipeline to a small plant where the helium is removed from the
gas stream and compressed for truck transport. The well is
located five miles west of the Utah-Colorado border on Federal
lands in northern Grand County and the helium extraction plant
is located 1.4 miles from the well on private property.
S. 1572 would amend the MLA to define helium as a natural
gas for purposes of lease extension. This would have the
practical effect of allowing helium production when there are
no economic quantities of oil and gas being produced from the
leases (which would trigger expiration of the leases under the
current MLA).
The BLM supports S. 1572 as it not only opens up public
lands to helium development but also supports the
administration's priorities to secure reliable supplies of
critical minerals, including helium.
To prepare for the sunset of the Federal helium program,
the HSA directed the Department, with other agencies, to
prepare a Report to Congress on a plan to provide for an
orderly transition to a privatized helium system by 2021. The
HSA required that the Report offer a Federal Agency Helium
Acquisition Strategy, including a description of a 20-year
Federal strategy for securing access to helium that minimizes
any potential supply disruptions for Federal users. This Report
was transmitted to the Congress on April 1, 2016. As discussed
in the 2016 Report, the BLM is on track for this transition.
When the transition to a privatized system occurs, Federal
users will no longer be able to meet their helium requirements
through the Federal Helium Reserve and the In-Kind program, and
will need to find new sources of helium. Federal defense and
research access to helium would rely on the private helium
market, and market prices. This will likely result in increased
costs to meet Federal helium requirements for defense and
homeland security uses, and in planned aerospace programs. The
Report to Congress recommends that a new Royalty In-Kind
program be created which would provide Federal agencies with an
assured source of helium into the future. Under a new Royalty
In-Kind program, rather than the royalties that BLM currently
receives, the BLM would track the equivalent helium volumes at
each refining plant. The refiner would subsequently make that
amount available to Federal agencies. Federal agencies could
then enter into contracts with refiners to obtain helium.

Changes in Existing Law

In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
H.R. 3279, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

MINERAL LEASING ACT

Public Law 66-146, as amended through Public Law 115-232

AN ACT To promote the mining of coal, phosphate, oil, oil shale, gas,
and sodium on the public domain

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled, That
deposits of coal, phosphate, sodium, potassium, oil, oil shale,
gilsonite (including all vein-type solid hydrocarbons), or gas,
and lands containing such deposits owned by the United States,
including those in national forests, but excluding lands
acquired under the Act known as the Appalachian Forest Act,
approved March 1, 1911 (36 Stat. 961), and those in
incorporated cities, towns, and villages and in national parks
and monuments, those acquired under other Acts subsequent to
February 25, 1920, and lands within the naval petroleum and
oil-shale reserves, except as hereinafter provided, shall be
subject to disposition in the form and manner provided by this
Act to citizens of the United States, or to associations of
such citizens, or to any corporation organized under the laws
of the United States, or of any State or Territory thereof, or
in the case of coal, oil, oil shale, or gas, to municipalities.
Citizens of another country, the laws, customs, or regulations
of which deny similar or like privileges to citizens or
corporations of this country, shall not by stock ownership,
stock holding, or stock control, own any interest in any lease
acquired under the provisions of this Act.
The term ``oil'' shall embrace all nongaseous hydrocarbon
substances other than those substances leasable as coal, oil
shale, or gilsonite (including all vein-type solid
hydrocarbons).
The term ``combined hydrocarbon lease'' shall refer to a
lease issued in a special tar sand area pursuant to section 17
after the date of enactment of the Combined Hydrocarbon Leasing
Act of 1981.
The term ``special tar sand area'' means (1) an area
designated by the Secretary of the Interior's orders of
November 20, 1980 (45 FR 76800-76801) and January 21, 1981 (46
FR 6077-6078) as containing substantial deposits of tar sand.
The United States reserves the ownership of and the right
to extract helium from all gas produced from lands leased or
otherwise granted under the provisions of this Act, under such
rules and regulations as shall be prescribed by the Secretary
of the Interior: Provided further, That in the extraction of
helium from gas produced from such lands it shall be so
extracted as to cause no substantial delay in the delivery of
gas produced from the well to the purchaser thereof and that
extraction of helium from gas produced from such lands shall
maintain the lease as if the extracted helium were oil and gas.

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