A royal(ty) battle

The royalty rates included in federal rules released this week on potential commercial oil shale development drew anguish from both sides on the energy issue.
“They’re too high!” holler proponents of oil shale development. The royalty rates that start at 5 percent and rise up to 12.5 percent over several years are too costly and may discourage development of oil shale, proponents say.
“They’re too low!” claim people like Colorado Sen. Ken Salazar and a coalition of environmental groups that described the royalty rates in the federal rules as “a gift to oil companies.”
Far be it from us to argue, “They’re just right!” In fact, we tend to agree with Colorado Department of Natural Resources head Harris Sherman that it’s difficult to set appropriate royalty fees when the actual cost of production of a barrel of oil from shale is a long way from being determined.
Even so, setting a baseline royalty rate for oil shale at least gives companies something to plug into their financial calculations as they try to determine whether commercial oil shale ventures are worth pursuing.
States would receive 49 percent of the oil shale royalties generated within their borders. And, judging by the hand-wringing on both sides, the Bush administration seems to have reached a middle-of-the-road formula for royalties.
We, like many other folks, aren’t thrilled with the Bush team releasing the rules for commercial oil shale leasing in the final months of its term, especially when nearly everyone agrees a commercial oil shale industry — if it emerges at all — is at least a decade away.
But that time frame also means these rules aren’t the final word on oil shale. Congress and the Obama administration will have plenty of time to adjust and amend the rules to get them “just right.”


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