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

======================================================================



 
                     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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