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Feds’ offer of new oil shale leases nets 3 takers

Associated Press

By JUDITH KOHLER, 01.27.10, 05:49 PM EST

DENVER — Low interest in the latest round of federal leases to research and develop ways to tap the Rockies’ vast oil shale reserves is being pinned on new environmental and timing requirements.

Three companies have applied for 160-acre leases on federal land. ExxonMobil Corp. ( XOM news people ) and Colorado-based Natural Soda Inc. applied for one lease each in northwest Colorado, and AuraSource Inc. of Scottsdale, Ariz., applied for a lease in northeast Utah.

The Bureau of Land Management awarded six leases in Colorado and Utah in 2007 to four of the 20 companies that applied.

“It was not unexpected that it would be a limited response. I wouldn’t have been surprised if there was none,” said Glenn Vawter, executive director of the Colorado-based National Oil Shale Association, a trade group.

The size of an associated commercial lease that could be issued if a company meets the requirements was a sticking point, Vawter said. The first-round research and development leases can potentially be converted to 5,100-acre commercial parcels.

The new 10-year leases, which likely will be approved in the fall, would limit the commercial site to 640 acres.

The front-end costs of environmental analyses and development of plans led Montana-based General Synfuels to decide a lease “was not worth chasing after,” said Larry Vance, the company’s chairman.

“Little companies like ours are pretty much squeezed out of the program,” said Vance, whose company is testing its technology on private land in southeast Wyoming.

Companies likely aren’t pursuing the leases because they don’t need federal land for research and testing, said David Abelson, a policy adviser for Western Resource Advocates, a Boulder-based environmental law and policy organization. He noted that companies are working on state and private land in Utah.

And under the 2005 federal energy act, companies ready to go commercial could seek leases on thousands of acres of public land, Abelson said.

Interior Secretary Ken Salazar made changes to the second-round of oil shale leases after first withdrawing the Bush administration’s solicitations for proposals. Salazar announced the changes in October, saying he was including more environmental safeguards and benchmarks, such as applying for permits within 18 months, to show that progress is being made.

As a U.S. senator from Colorado, Salazar criticized the Bush administration for finalizing commercial oil shale regulations before the technology is proven and the potential impacts on water, air quality and communities are known. He and other Colorado Democrats won a one-year ban on using federal funds to write final regulations.

This fall, Salazar announced an investigation into last-minute changes by the Bush administration that locked in royalty rates on the existing research and development leases.

In a separate investigation, the Department of Justice is looking at whether former Interior Secretary Gale Norton used her position to steer three of the leases issued in 2007 to Royal Dutch Shell PLC ( RDSA news people ), her employer after she left the federal government.

Oil shale’s potential as a domestic energy source can’t be ignored because of the size of the deposits, Salazar told The Associated Press in December.

Government and industry officials estimate that an estimated 1 trillion to 1.8 trillion barrels of oil – up to three times the proven reserves of Saudi Arabia – are locked in rock in parts of western Colorado, Utah and Wyoming. Roughly 800 billion barrels are considered recoverable.

A plan opening about 2 million acres of federal land in Wyoming, Utah and Colorado to oil shale development was approved in 2008. State and federal permits and environmental reviews would have to be completed as individual projects are proposed.

“I think it would be a mistake for us not to have oil shale on the table,” Salazar said. “But if it’s going to be developed, it’s going to be done with full knowledge of what all these impacts are going to be.”

Efforts to squeeze the oil out of the shale in the Rockies stretch back decades. Industry officials say commercial production is likely at least a decade away.

The oil is really kerogen, a precursor to oil that wasn’t buried deeply enough or processed naturally long enough to complete the transformation to oil. Turning the shale to oil requires heating it: above ground after mining or, in the ground, a process called in situ – “in place.”

An oil shale boom in Colorado in the early 1980s went bust when oil prices dropped and government subsidies dried up. People still refer to “Black Sunday,” May 2, 1982, when Exxon shut down a $5 billion project near the West Slope town of Parachute, throwing 2,200 people out of work.

Copyright 2009 Associated Press. All rights reserved.


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