The Interior Department will comply with a federal judge's order to take action on five deepwater drilling permits and will continue to approve proposals for shallow-water drilling in the Gulf of Mexico, agency officials told senators today.

But as deepwater permitting resumes, Interior will need a substantial increase in funding from Congress in order to ensure drilling is safe and overseen efficiently, Interior Secretary Ken Salazar told the Energy and Natural Resources Committee this morning.

While the agency will comply with U.S. District Judge Martin Feldman's Feb. 17 order to act on five deepwater drilling permits by mid-March, Salazar said Feldman's argument was wrong and that his order exceeded the court's jurisdiction.

"That will be our view in the court at the right time," said Salazar, who pointed to the 37 shallow-water permits his agency has approved since last year's BP PLC well blowout and oil spill in the Gulf.

"We will comply with the court order and make a decision up or down in the permits identified," added David Hayes, the agency's deputy secretary.

Salazar, who appeared before the committee to defend Interior's fiscal 2012 budget request, was pressed by Republicans to justify proposals to raise new fees for inspections and establish penalties for non-producing lease holders, among other revenue-raising provisions.

"Is it the position of the department that penalties for non-producing leases would be assessed if it is the agency that is holding up the production?" asked Sen. Lisa Murkowski (R-Alaska), the ranking member on the committee, who has pushed hard for oil and gas drilling in the Arctic Ocean and on the Bureau of Land Management's petroleum reserve in the state's northwest.

"I would suggest that a $5 billion investment by Shell demonstrates due diligence over a five-year period," Murkowski said, referring to a proposal by Royal Dutch Shell PLC to drill an exploratory well in the Beaufort Sea that was thwarted after its Clean Air Act permit from U.S. EPA was remanded in late December. "This is an extraordinarily important issue."

Salazar said his agency is working with the Office of Management and Budget to iron out the details of draft legislation and would take industry's concerns into consideration.

"The intent is to incentivize the beginning of activity, and if not, put it back so others can move forward with leases," Hayes said.

Sen. Mary Landrieu (D-La.), who has been an outspoken critic of the administration's handling of offshore permitting, said that drilling companies in her state have been frustrated by "mixed signals" from the agency and are still unclear about new regulations issued last October.

"They're returning [permits] to us because they are not sure of the requirements, there's uncertainty," Landrieu said.

Hayes replied that 18 deepwater permits had been received, but 12 had to be returned because they did not demonstrate the capacity to contain a possible oil spill. Now that Interior has observed two functioning containment systems by industry coalitions in the Gulf, it is looking forward to proceeding on more permits, Hayes said.

"Until literally last week, there was no containment capability shown by any of the applicants," Hayes said.

Committee Chairman Jeff Bingaman (D-N.M.) said he was generally supportive of the administration's $358 million request for the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), a $134 million bump over current funding levels, in order to strengthen oversight of offshore oil and gas development in the wake of last year's spill.

"I strongly support the president's budget request for additional funding for these purposes, including his request for increased fees from industry to fund inspections of offshore operations," Bingaman said.

Defending wild lands

Republican committee members also pressed Salazar to explain the intent and scope of his recent secretarial order for BLM field managers to take an inventory of wilderness-quality lands and consider designating them "wild lands."

"That power has always been reserved and has been used exclusively by Congress," said Sen. Mike Lee (R-Utah), whose state is more than 40 percent owned by the Bureau of Land Management.

Salazar, echoing the remarks of BLM chief Bob Abbey to a House panel yesterday, emphasized that the order does not designate wilderness and that administrative designations of wild lands can be overturned through subsequent planning efforts or project proposals.

"In my point of view, it's something that's required by law," Salazar said, citing past federal circuit court decisions affirming its agency's duty to maintain an inventory of wilderness-quality lands. Salazar also cited the Federal Land Policy and Management Act of 1976, which he said requires his agency to keep an active inventory of wilderness lands and manage some of them in their natural state.

Salazar said the 9 million acres of designated wilderness and wilderness study areas on BLM lands is only a fraction of the more than 40 million acres under lease for oil and gas. "It's a much smaller percentage," he said.

Salazar added that he included "very clear" language in his order that ensures existing rights are protected and that his agency is not attempting to usurp the authority of Congress. "That's not my job as secretary of the Interior," he said.

An interview yesterday with Abbey revealed that the agency would consider allowing limited non-wilderness activities on "wild lands," such as rangeland improvements, wildlife habitat improvements and mountain biking (see related story).

Conservation concerns

Lawmakers also weighed in on the agency's 2012 conservation priorities, including praise and criticism for a proposal to fully fund the Land and Water Conservation Fund at $900 million, a level it has only reached once since its creation in 1964, Salazar said.

"I do have to question this spending," Murkowski said of the fund, which is used to acquire and conserve new federal lands and promote recreation and wildlife protection. "Each land management agency already has a sizable maintenance backlog," she said, pointing out a $9 billion backlog at the National Park Service alone.

Bingaman, in contrast, said he supports the proposal, as he did in past bills to ensure the account sees permanent full funding.

Bingaman praised plans to pay for the implementation of Indian water rights settlement agreements and the department's WaterSMART program, but said he still has concerns with a proposal to cut funding for abandoned mine cleanups in some Western states (E&E Daily, Feb. 16).

"I'm concerned this could have very adverse impacts on states and tribes," he said.