BLM revises oil shale royalty rates

The Obama administration on Tuesday released new oil shale regulations establishing that royalty rates set in 2008 are now a minimum rate, with the discretion of the Interior secretary to set higher rates on a lease-by-lease basis.

The administration acted with just days left before President Obama leaves office. Conservation groups had been hoping for the regulations’ release while Obama was still president, and U.S. Sen. Michael Bennet, D-Colo., wrote Interior Secretary Sally Jewell in October to urge that the draft rules released in 2013 be finalized before the end of 2016.

“While I understand that the Department has many priorities, Colorado communities, businesses, and energy producers have lacked clarity on the rules governing oil shale development for years,” he wrote.

The new Bureau of Land Management regulations will now provide clarity when it comes to the least amount of money companies will pay to develop oil shale deposits centered in northwest Colorado, and in Utah and Wyoming. That would be 5 percent of the value of production for the first five years of commercial development of a lease, increasing by 1 percent in subsequent years and a half percent in the 13th year, to a maximum of 12.5 percent.

But now the Interior secretary can increase that minimum rate for any given lease, prior to a lease sale. The annual escalation schedule after five years would still apply, resulting in a higher maximum rate as well.

“This approach allows the Secretary to consider all relevant factors, including geology, technology, costs, and market prices for oil and gas. Until there is a domestic commercial oil shale industry, we can only speculate about what royalty rates those factors would support,” the BLM said in the newly released rule.

The BLM rejected alternative proposed royalty approaches, including a call for a minimum 12.5 percent rate, the same rate as the agency imposes for conventional oil and gas leases. It noted in its rule the “significant differences” between oil shale mineral deposits and conventional crude oil reservoirs. Oil shale contains kerogen, which traditionally has been subject to heating to produce oil from it. However, companies have struggled for generations to try to produce oil in commercial quantities from oil shale in the United States.

The BLM said in a news release that the new regulations “also strengthen environmental protections by requiring additional environmental information and planning to be included in an oil shale development plan, including a plan to protect water resources, an airshed review, an integrated waste management plan, and an environmental protection plan.”  

The BLM agreed to consider the new rules to settle a lawsuit by conservation groups.

Ted Zukoski, an attorney with the conservation group Earthjustice, said Tuesday, “The new rule contains some common-sense measures to safeguard air and water so critical to our Western communities. But it fails to protect taxpayers because it retains low, low royalty rates meant to provide huge subsidies for this never-proven industry.”

The draft BLM rules were opposed in 2013 by groups ranging from the American Petroleum Institute to Associated Governments of Northwest Colorado due to concerns that they would create regulatory uncertainty and threaten the viability of an oil shale industry. Opponents to the new regulations theoretically could persuade the incoming administration of Donald Trump to reconsider them. Trump strongly supports fossil-fuel development.

In its new rule, the BLM said called the effects of any uncertainty about flexible royalties small compared to the financial and technical challenges of producing fuel from shale at prices competitive with conventional oil production.

The agency also said if commercial oil shale development materializes, it’s unlikely companies would avoid federal lands due to the new rules.

“Mineral development companies must go where the minerals are, and the best oil shale deposits in the U.S. are located in part on BLM lands in Colorado, Utah, and Wyoming,” the BLM said in the rules.


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