Interior Department to revisit Bush-era oil shale plans

In response to a legal challenge by conservation groups, the Obama administration today launched a process to reconsider — and probably rewrite — a Bush-era plan for developing oil shale in the West.

At issue are decisions by former President George W. Bush’s Interior Department to open roughly 2 million acres of land in Colorado, Utah and Wyoming to commercial oil shale leasing, while also approving regulations setting royalty rates for eventual production that critics blasted as too low.

Under a court settlement filed today, more than a dozen groups, including the National Wildlife Federation and the Natural Resources Defense Council, will abandon their legal challenge to the Bush-era plans while the Obama administration reviews and revises those oil shale leasing policies.

“The Bureau of Land Management is taking a fresh look at commercial oil shale rules and plans that were issued in 2008,” BLM Director Bob Abbey told reporters on a conference call. After input from the public, those November 2008 policies may be revised “to take account for expected water demands . . . and make sure they provide a fair return to taxpayers.”

Under the Bush-era regulations, companies that successfully produced oil-like substances from shale rock initially would be forced to pay royalty rates of 5 percent to the federal government — far lower than the 12.5 percent charged for conventional oil and gas production on federal lands.

Interior Secretary Ken Salazar said the move didn’t mean the administration was turning its back on the potential for energy companies to extract the crude-like substance known as kerogen from sedimentary shale rock found primarily on federal land in Colorado, Utah and Wyoming.

“We in the West have been trying to unlock oil shale for the past century because it is so abundant,” Salazar said. “Oil shale is an important resource for the United States, and it is my view that we need to move forward and explore the possibility of developing oil shale.”

But, he stressed, it was important to proceed cautiously and ensure that the potentially high water demands of evolving techniques for extracting the petroleum-like liquids don’t hurt agriculture and wildlife in the arid West.

“The question of the impact on the water in the Colorado River basin and the agricultural economy is one that looms large,” Salazar said.

Salazar added that the 2008 policies effectively put the cart before the horse by paving the way for vast oil shale development at low royalty rates before fully studying all of the potential repercussions.

Abbey noted that commercial oil shale development is years down the road, providing a window of time to better study the issue.

“There is much yet to be learned about oil shale development,” Salazar said. “We are interested in learning as quickly as possible.”

The government estimates there are 2 trillion barrels of oil equivalent locked in shale rock, with federal land making up 72 percent of that oil shale acreage.

American Petroleum Institute upstream policy adviser Holly Hopkins said the trade group was encouraged by the administration’s interest in developing oil shale resources.

“Oil shale is an important part of our domestic energy portfolio, and API is committed to environmentally responsible oil shale development,” Hopkins said. “Our companies have made technological advancements in oil shale production and are committed to continued research and development in this area.”

But Rep. Doc Hastings, R-Wash., the head of the House Natural Resources Committee, said the decision to review rules for commercial oil shale development was “redundant” and would “delay the development of at least a trillion barrels of U.S. oil resources and prevent the creation of thousands of new U.S. jobs.”

“The current commercial rules for oil shale leasing were adopted under a rigorous and open public rule making process,” Hastings said in a statement. “There is no need to review the rules unless their intention is to halt progress on the development of our oil shale resources and create more uncertainty for companies interested in investing in new technology.”

This isn’t the first time Salazar has zeroed in on oil shale decisions made by the Bush administration.

In February 2009, Salazar suspended a Bush-era lease solicitation for companies to conduct oil shale research, development and demonstration projects on public lands. Seven months later, Salazar invited energy companies to apply for new research, development and demonstration projects on 160-acre tracts — a fraction of the 5,120 acres that would have been allowed for commercial production under the Bush plan.

Three companies have submitted nominations under that second round of oil shale leasing in October 2009, including two in Colorado from Exxon Mobil and Natural Soda Holdings, Inc., and another in Utah from AuraSource Inc.

Five other oil shale leases in Colorado issued in 2007 are held by Chevron Shale Oil Co., EGL Resources, Inc., and Shell Frontier Oil & Gas. A lease of federal land in Utah, also issued in 2007, is held by the Oil Shale Exploration Co.

Abbey said that BLM’s review of its commercial oil shale regulations and programs should have no effect on those existing research and development leases.