For the second time since the Obama Administration took office, the Interior Department is investigating the terms of leases issued under the Bush Administration.
This time, Ken Salazar, Secretary of the Interior, has asked the department’s Inspector General to investigate a set of favourable conditions and low royalty rates offered on January 15, 2009 - just five days before the end of the Bush Administration.
The favourable conditions and rates were offered to energy companies holding existing research, development and demonstration leases from the US government. Here is what Salazar had to say about the why the timing and circumstances of the leases merited additional review:
Taxpayers deserve answers to serious questions about why these lease addenda were granted at the eleventh hour, under what circumstances, and at what potential expense to the federal treasury. We must reform our nation’s oil shale program and ensure that the American people have the promise of a fair return from their resources.
The leases were issued in January 2007 to develop new technologies to extract oil from shale rock. Yet on January 15, 2009, the department granted the holders of the six oil shale leases the right, at the time of conversion to commercial development, to elect to have their leases governed by a set of favourable conditions and low royalty rates. The Bush Administration established an initial royalty rate of 5 per cent for commercial oil shale production, which Mr Salazar says was premature.
Before any such rate should be established, he said, the projects should have been able to report whether the technologies they were developing were viable on a commerical scale, how much water and power they required, and what the environmental impacts would be. Mr Salazar noted the department does not have the answers to those questions.
The decision to investigate bodes ill for the lease holders. For, right after taking office, the Obama Administration withdrew oil and gas leases offered in the final days of the Bush Administration on 77 parcels of US public land near “American iconic treasures” in Utah until it took a fresh look. In the end, it recommended leasing 17 of the parcels, deferring 52 parcels and withdrawing eight.
But all is not lost. Mr Salazar said that the department is offering additional opportunities for energy companies to conduct oil shale research, develop and and demonstration. Companies will have 60 days to submit applications on up to 160 acres.
If the lessees demonstrate the ability to commercially produce oil equivalent derived from shale, up to 480 additional contiguous acres could be added to the lease for commercial-scale development. Perhaps those six leaseholders under investigation should try to get in on the new round.
October 21, 2009 9:37am in Oil, Politics, Comment
