Salazar Seeks Probe of Bush-Era U.S. Oil-Shale Leases (Update2)
By Tina Seeley
Oct. 20 (Bloomberg) -- U.S. Interior Secretary Ken Salazar said he is asking the department’s inspector general to investigate an expansion of oil-shale leases on federal land during the last days of the Bush administration.
An additional review is needed of the circumstances and timing of Jan. 15 “addenda” that expanded the lease areas by 30,000 acres, Salazar said during a conference call today. He also questioned whether the initial 5 percent royalty rate for the leases was too low.
“There are serious questions about whether those lease addenda are legal or whether they should be rescinded,” Salazar said. He said the investigation would focus solely on the changes made five days before President George W. Bush left office, since the inspector general and Justice Department are already looking into potential conflicts of interest in the oil- shale leasing program.
Royal Dutch Shell Plc, Chevron Corp. and Total SA are among the companies that hold or are invested in joint ventures with domestic oil-shale leases. The U.S. may have 1.5 trillion barrels of oil reserves in shale formations, more than the total proved crude oil reserves held by the Organization of Petroleum Exporting Countries.
The companies are testing methods to separate oil from shale, by heating or using chemicals on the rock formations. Environmental groups say oil-shale development is harmful because of the amount of water and energy needed to extract it.
Plan Rejected
Salazar also said energy companies will be invited to submit applications for another round of oil-shale leases, including as many as 160 acres of land, with the possibility of expanding by an additional 480 acres.
The new leases would be on different terms from the prior round, limiting the amount of land available and giving preference to projects that can help answer questions about environmental impacts, water and energy use.
The American Petroleum Institute, a Washington-based group that represents the largest oil companies, said resuming the second 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 87 percent the total potential commercial lease size,” the group said in an e-mailed release. “Slashing the size of the potential commercial lease diminishes the incentives for investment and ignores the enormous up-front costs and risks undertaken to develop these technologically complex resources.”
Public Lands
Bobby McEnaney, public lands advocate for the Natural Resources Defense Council, an environmental group, said in a telephone interview that he was pleased “that the current administration is trying to go back and fix those wrongs so that we 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 the problems that plague the current program,” he said.
Salazar, a former Colorado senator, announced in February that he was rejecting a Bush administration plan to expand leases for production of oil shale in Colorado and Utah. The secretary criticized the leases because they covered larger areas than prior leases and locked in low royalty rates.
The Bush administration had proposed 5 percent royalty rates for the first five years on the oil shale leases, rising 1 percent a year after that to a limit of 12.5 percent. The royalty rate now for commercial production of conventional oil and gas is 12.5 percent.
“It is questionable about how those royalty rates could actually be set,” Salazar told reporters on the conference call today. The leases mean the government still doesn’t know “what kind of technology is going to be used” and the water and power needs 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 EDT
