Denver Business Journal
October 21, 2009, Mark Harden

U.S. Interior Secretary Ken Salazar has launched a probe into changes to six oil-shale research leases on federal lands, mostly in Colorado, that were made in the final days of the George W. Bush administration.

The Interior Department's inspector general will investigate addenda that Bush administration officials entered into with the holders of six existing research, development and demonstration (RD&D) leases on Jan. 15, the department said Tuesday.

"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," Salazar -- a former U.S. senator from Colorado -- said in a statement. "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."

Salazar asked acting Interior Inspector General Mary Kendall to investigate "a set of favorable conditions and low royalty rates" that were offered to lease-holding energy companies five days before Bush left office. That includes a 5 percent royalty rate on any potential commercial oil-shale production.

Officials said Salazar had "determined that the timing and circumstances of the previous administration's modifications of existing RD&D leases ... merit additional review."

Five of the leases in question are in Colorado and one in Utah.

Three of the leases in Colorado are held by Royal Dutch Shell PLC, one by Chevron Corp., and one by American Shale Oil LLC, a joint venture of Total SA and IDT Corp., while a Utah lease is held by Oil Shell Exploration Co. in concert with Brazilian and Japanese partners, the Wall Street Journal reported.

In a statement, Colorado Gov. Bill Ritter hailed the investigation. "We had concerns about the process by which these amendments were developed and by a number of their terms," he said.

The RD&D leases in question were originally issued in January 2007 by the Bureau of Land Management, a unit of the Interior Department, for the purpose of developing oil-shale recovery techniques.

Interior officials offered this background on the issue:

"The existing leases limit the total initial RD&D land area to a maximum of 160 acres, but if a lessee demonstrates the ability to produce commercial quantities of synthetic petroleum derived from shale, the lessee may develop an area of up to 5,120 contiguous acres.

"On January 15, 2009, the department granted the holders of the six oil shale RD&D the right, at the time of conversion to commercial development, to elect to have their leases governed by a set of favorable conditions and low royalty rates. The previous administration established an initial royalty rate of 5 percent for commercial oil shale production, an action that Secretary Salazar has described as 'premature.'"

Separately, the Justice Department is looking into allegations of wrongdong by former Interior Secretary Gale Norton, a former Colorado attorney general. Investigators are examing whether Norton -- who served under Bush -- illegally used her position to benefit Royal Dutch Shell, the company that later hired her, the Los Angeles Times reported.