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Oil and Gas Development
Houston Chronicle, February 25, 2009

Salazar to rewrite Bush’s oil-shale plan
By Daniel Whitten, Bloomberg News

Interior Secretary Ken Salazar is withdrawing leases the Bush administration offered for the extraction of oil from shale on federal land, and will develop a new plan with higher royalty rates.

“We are not taking it off the table for the possibility of development but we are going to be thoughtful and deliberative,” Salazar said in a conference call with reporters.

Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell Plc are among companies working on technology to extract the oil by heating the rocks. Oil-shale formations in western U.S. states could hold as many as 800 billion barrels of oil, according to a government estimate. The leases, for research, development and demonstration projects, were set at low rates by the Bush administration, Salazar said.

The decision to delay the plan represents the third time Salazar has blocked or put off an energy initiative that former President George W. Bush backed. Salazar earlier this year pushed back a plan to expand drilling for oil and natural gas in the outer continental shelf. He also nullified oil and natural gas drilling leases on about 130,000 acres in Utah.

Bobby McEnaney, of the Natural Resources Defense Council, called oil-shale development “nothing more than a dirty, expensive pipedream.”

“This administration is making smart decisions by investing in clean energy that will create jobs and reduce our dependence on oil,” McEnaney said.

The leases Salazar is withdrawing were offered on Jan. 14, for federal land in Colorado, Utah and Wyoming. Salazar didn’t say when the new leases would be offered. The department will solicit public comment on the new terms, he said.

Bush had pressed to begin work on oil-shale deposits to help reduce U.S. oil imports and respond to record energy prices.

Royalty Rates

In November, the Bush administration issued a rule setting royalty rates beginning at 5 percent for the first five years of commercial production, rising 1 percent every year thereafter until the rate reaches the 12.5 percent in place for most federal land drilling. The rule sets oil-lease acreage limits and directs 49 percent of royalty revenue to states.

“The previous administration offered their RD&D oil shale leases just days before leaving office, made the parcels four times the size of the current six RD&D leases, and then locked in low royalty rates and a premature regulatory framework for those leases,” Salazar said in a statement.

Salazar, before he joined President Barack Obama’s Cabinet, described the 5 percent royalty rate as a “a pittance,” and the Bush-proposed royalty rules “premature and flawed.”

Netherlands-based Shell has three shale pilot projects in Colorado. It had pressed the Bush administration to issue rules, saying the company needed to know what royalty rates the government would set before determining if energy production from shale is profitable.

Copyright © 2008 The Houston Chronicle

Photo © Paul S. Hamilton