Shell drops vexing Colorado oil shale effort

Shell is abandoning its decades-long quest to extract shale oil commercially from Colorado…; Shell Oil Co., the Houston-based North American arm of Royal Dutch Shell, this week confirmed it was giving up its Mahogany project in Colorado after investing tens of millions of dollars and 31 years on the endeavor.

By Jennifer A. Dlouhy, Washington Bureau : September 27, 2013

WASHINGTON — Shell is abandoning its decades-long quest to extract shale oil commercially from Colorado, leaving just one major company betting big on the future of that unconventional crude in the United States.

Shell Oil Co., the Houston-based North American arm of Royal Dutch Shell, this week confirmed it was giving up its Mahogany project in Colorado after investing tens of millions of dollars and 31 years on the endeavor. Chevron Corp. made a similar decision in February 2012, when it said it would abandon its own federal oil shale lease in Colorado’s Piceance Basin.

The moves come against the backdrop of a surge in recoverable oil reserves that are easier to extract from dense rock formations in North Dakota, Texas and other states using horizontal drilling and hydraulic fracturing. By contrast, oil shale has defied decades of industry efforts to find a commercially viable way to distill crude from the oily fine-grained sedimentary rock found primarily on federal land in Colorado, Utah and Wyoming.

“The energy market has evolved since we first started this research in 1981,” said Shell spokeswoman Kelly op de Weegh, noting the company’s pursuit of liquids-rich shale opportunities and its long-term interests in natural gas, including the possibility of a $12.5 billion plant in Louisiana to transform natural gas into transportation fuels.

“Shell has a large portfolio of opportunities, and each one competes for capital,” she said.

Shell’s departure leaves Irving-based Exxon Mobil Corp. as the only major oil company with hopes of developing a federal oil shale lease. It purchased a 10-year, 160-acre research, development and demonstration lease in Rio Blanco County, Colo., last year. Natural Soda Holdings also holds a research lease in the region. And American Shale Oil Corp., a joint venture of France’s Total and Newark, N.J.-based Genie Energy, has started pilot tests on its 160-acre lease in the Piceance Basin.

The government estimates that U.S. oil shale rock holds 2 trillion barrels of oil equivalent, with federal land making up 72 percent of it.

Former President George W. Bush‘s Interior Department opened 2 million acres in Colorado, Utah and Wyoming to commercial oil shale leasing, and set royalty rates for eventual production that critics blasted as too low.

But the Obama administration changed course, tossing out those Bush-era contracts and creating new rules for oil shale leases. In February, then-Interior Secretary Ken Salazar signed a document limiting research and development projects to 678,000 acres of federal land.

The recent decisions have drawn complaints from the oil industry and attention from some Western state lawmakers, who said the U.S. was creating obstacles to a potential new energy source.

“As a matter of basic economics, oil shale does not make the cut,” said David Abelson, oil shale policy adviser at Western Resource Advocates, a group that opposes its development. “The technology isn’t there. And there are other opportunities.”

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