BLM finalizes oil shale regulations

The US Bureau of Land Management published final regulations on Nov. 17 to establish a commercial oil shale development program on public lands in Colorado, Utah, and Wyoming.

Nick Snow
Washington Editor

WASHINGTON, DC, Nov. 18 -- The US Bureau of Land Management published final regulations on Nov. 17 to establish a commercial oil shale development program on public lands in Colorado, Utah, and Wyoming. Lease sales probably will not occur for another 5-10 years, however, a leading US Department of the Interior official said.

"We would have to make certain that there is sufficient demand. We also need to develop a [National Environmental Policy Act] document to cover those proposed lease sales. I would not expect it for at least 5-10 years," said C. Stephen Allred, assistant US Interior secretary of lands and minerals management.

The new regulations provide critical "rules of the road" for private investors considering whether to make future financial commitments to prospective oil shale projects, he told reporters in a teleconference. "They are a thoughtful, phased approach to leasing oil shale on public lands in the west, though actual development is not expected to occur for several years," Allred said.

The leasing regulations incorporate provisions of the 2005 Energy Policy Act and the 1920 Mineral Leasing Act relating to maximum oil shale lease size, maximum acreage limitations, rental, and lease diligence, BLM said in a written statement. They also establish a time-adjusted royalty rate, beginning at 5% during the first 5 years of commercial production, and then rising 1% every year afterward until the rate reaches 12.5%.

A starting point
"The 5% royalty rate is a compromise based on the approximately 75,000 comments we received," Allred said. "That's a starting point [that] reaches 12.5%, which is the standard oil and gas royalty rate."

Forty-nine percent of the royalties would be shared with the states within which BLM issues leases, BLM's announcement said. The regulations also address EPACT provisions establishing work requirements and milestones to assure diligent development of oil shale leases, it indicated. Standard lease administration and operations components of a BLM leasing program are included as well as additional NEPA documentation requirements, it said.

Oil shale development on public land in Colorado, Utah, and Wyoming potentially could add up to 800 billion bbl of oil to US reserves, Allred observed. "That is enough to meet US demand for oil, at current levels of consumption, for 110 years," he said.

Response to the prospect has been mixed in the states, however. Govs. Bill Ritter of Colorado and Dave Freudenthal of Wyoming have expressed reservations. Utah Gov. Jon Huntsman supports the concept.

The new oil shale leasing regulations were delayed when members of Colorado's congressional delegation inserted a 1-year moratorium on developing the rules into DOI's fiscal 2008 budget in early December 2007. BLM published proposed regulations on July 22. The ban expired Sept. 30, and Congress did not make it part of its continuing resolution to keep the government operating for another 6 months, Allred noted.

Additional requirements
An additional site-specific NEPA analysis would be completed on any proposed development before an oil shale lease was issued, according to BLM. It said that once a lease was issued, the lessee also would have to obtain all required permits from state and local authorities, under their respective permitting processes, before any operations could begin. Another round of NEPA analysis would be conducted before any site-specific plan of development is approved, the agency said.

BLM's approval of final oil shale development regulations followed its adoption of a final programmatic environmental impact statement on Sept. 4 to guide the use of public land containing oil shale and tar sands in the three states. Allred signed a record of decision on the PEIS on Nov. 17. The agency also has issued research, development, and demonstration leases for five oil shale leases in Colorado's Piceance basin and one in Utah.

Allred said the regulations are necessary to accommodate such commitments, which involve proprietary technologies. "The companies involved are going to spend hundreds of millions of dollars. They, as well as the general public, need rules of the road to make sure the development occurs properly. [The rules] bring certainty not only to those companies that are going to invest the money but also to those who want to make sure there's due diligence and that environmental impacts are fully considered," he said.

Other companies are working on privately-held land, but the DOI official said he is not aware of the extent of their efforts. Leasing could proceed if a state supported it, but that would depend on technologies that were developed, and projects would still have to fully comply with NEPA and other applicable federal, state, and local requirements, he said.

Contact Nick Snow at nicks@pennwell.com.

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