Salazar Seeks Probe of Bush-Era US Oil-Shale Leases
Oct. 20 (Bloomberg) -- U.S. Interior Secretary Ken Salazarsaid he is asking the department’s inspector general toinvestigate an expansion of oil-shale leases on federal landduring the last days of the Bush administration.
An additional review is needed of the circumstances andtiming of Jan. 15 “addenda” that expanded the lease areas by30,000 acres, Salazar said during a conference call today. Healso questioned whether the initial 5 percent royalty rate forthe leases was too low.
“There are serious questions about whether those leaseaddenda are legal or whether they should be rescinded,” Salazarsaid. He said the investigation would focus solely on thechanges made five days before President George W. Bush leftoffice, since the inspector general and Justice Department arealready looking into potential conflicts of interest in the oil-shale leasing program.
Royal Dutch Shell Plc, Chevron Corp. and Total SA are amongthe companies that hold or are invested in joint ventures withdomestic oil-shale leases. The U.S. may have 1.5 trillionbarrels of oil reserves in shale formations, more than the totalproved crude oil reserves held by the Organization of PetroleumExporting Countries.
The companies are testing methods to separate oil fromshale, by heating or using chemicals on the rock formations.Environmental groups say oil-shale development is harmfulbecause of the amount of water and energy needed to extract it.
Plan Rejected
Salazar also said energy companies will be invited tosubmit applications for another round of oil-shale leases,including as many as 160 acres of land, with the possibility ofexpanding by an additional 480 acres.
The new leases would be on different terms from the priorround, limiting the amount of land available and givingpreference to projects that can help answer questions aboutenvironmental impacts, water and energy use.
The American Petroleum Institute, a Washington-based groupthat represents the largest oil companies, said resuming thesecond round of leases was “a positive step.”
“We are concerned, however, with some of the new second-round lease terms, specifically the decision to reduce by 87percent the total potential commercial lease size,” the groupsaid in an e-mailed release. “Slashing the size of thepotential commercial lease diminishes the incentives forinvestment and ignores the enormous up-front costs and risksundertaken to develop these technologically complex resources.”
Public Lands
Bobby McEnaney, public lands advocate for the NaturalResources Defense Council, an environmental group, said in atelephone interview that he was pleased “that the currentadministration is trying to go back and fix those wrongs so thatwe can proceed forward in a proper manner.”
“We’d prefer not to see a second round of research,development and demonstration leases until we actually fix theproblems that plague the current program,” he said.
Salazar, a former Colorado senator, announced in Februarythat he was rejecting a Bush administration plan to expandleases for production of oil shale in Colorado and Utah. Thesecretary criticized the leases because they covered largerareas than prior leases and locked in low royalty rates.
The Bush administration had proposed 5 percent royaltyrates for the first five years on the oil shale leases, rising 1percent a year after that to a limit of 12.5 percent. Theroyalty rate now for commercial production of conventional oiland gas is 12.5 percent.
“It is questionable about how those royalty rates couldactually be set,” Salazar told reporters on the conference calltoday. The leases mean the government still doesn’t know “whatkind of technology is going to be used” and the water and powerneeds for the process, he said.
To contact the reporter on this story:Tina Seeley in Washington at tseeley@bloomberg.net.
Last Updated: October 20, 2009 15:25 EDTSource: Bloomberg
