WASHINGTON, July 7 (UPI) -- Oil shale extraction is expected to become a more lucrative business as technology increases, the price for oil stays near an all-time high and a provision in an energy bill passed by the House June 29 offers oil companies a break on royalties.
The RAND Corp. estimates an average of 800 billion barrels of oil could be recovered from oil shale in the western part of the United States and the Bureau of Land Management says 70 percent of that is under public lands.
The Interior Secretary is supposed to set fees and rates for leases and royalties for extraction on public lands and the Deep Ocean Energy Resources Act of 2006 calls for modeling royalty schedules after an oil sand extraction program in Alberta.
The bill still needs to be passed by the Senate and signed by President Bush, but the royalty provision has sparked the interest of both opponents and proponents, as it could be a boon or bust for oil corporations, the public and the government.
Oil shale extraction, where sedimentary rock is super-heated to extract an oil-like substance, was thought to be the savior during the high oil prices of the 1970s.
As companies prepared to mine for shale in the 1980s -- a process more expensive than ordinary petroleum production -- the price of oil dropped and oil shale extraction, and the communities it was to be done in, were forgotten.
In 2005, Congress envisioned a return to oil shale as gas prices hovered high and new technologies were being developed.
The U.S. Bureau of Land Management is now conducting a study of the lands and will issue an environmental impact statement by August 2007. Heather Feeney, spokeswoman for the BLM, said the study will look at the socioeconomic impact as well.
Much of the debate is over matters that are a year off at the least. After the impact statement, the BLM will draft rules and guidelines for extraction that will be finalized after public comment, Feeney said.
Only then will the Interior secretary issue fee, land lease and royalty rates -- unless the Canada model is approved.
Jerry Bellikka, director of communications for Alberta Energy, said land is leased to the highest bidder, which is then charged in two phases for what they extract - 1 percent of gross revenue while it is paying off "capitalization costs" and 25 percent of net revenue, before taxes, once the costs are paid off.
"Some people have called this the hockey stick approach -- flat at the beginning and goes up incrementally as you start making money," said Bellikka, and the model successfully drew in oil companies to develop Alberta's oil sands, which are different than oil shale.
Investment has doubled to $200 billion with 63 oil sand mines, altogether about the size of Florida, Bellikka said. Half of those are paying the 25 percent royalty rate.
He said a crucial part of the contract is the requirement that the land isn't left as a mine.
"You have to reclaim it. It's part of the deal."
Brian Kennedy, spokesman for Rep. Richard Pombo, R-Calif., chairman of the House Resources Committee, said Canada's model has been successful.
"They've been able to attract capital investment, create jobs, make sure the development is sustainable and generate hundreds of millions of dollars in revenue for the government," he said.
But not everyone agrees.
"It's a totally unnecessary and kind of ridiculous provision," said Dave Albersworth, senior policy adviser at The Wilderness Society. He said the BLM process should determine the best way to utilize oil shale reserves and the secretary of the Interior should be allowed to set the royalties, not forced into them.
"It's premature for Congress at this point to jump in and propose a royalty scheme on their yet to be determined oil shale program," he said.
The Senate Committee on Energy and Natural Resources will now take up the House bill. If passed, unchanged by the full Senate and signed by the president, the Interior secretary presumably will be ordered to enforce the same 1 percent/25 percent royalty schedule.
The Canada option worries Bob Randall, staff attorney for Boulder, Colo.-based Western Resource Advocates.
He said he fears local governments will lose out on money. The House bill also forces royalty fees to drop in conjunction with lower petroleum prices -- 10 percent if Light Sweet Crude drops below $50 per barrel and 80 percent if it drops below $30.
"At this point, I don't think we know what the companies would be paying in royalties if the price were to drop," Randall said.
The RAND study highlights developments in technology that could make oil shale extraction more cost-effective but warns "development should proceed at a measured pace."
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