US Department of the Interior Offering Second Round of Oil Shale Research and Development Leases; Cuts Potential Commercialization Acreage 87.5%
The US Department of the Interior (DOI) is offering additional opportunities for energy companies to conduct oil shale research, development and demonstration (RD&D) projects on public lands in Colorado, Utah, and Wyoming. (Earlier post.) Energy companies will have 60 days after publication of a Federal Register notice to submit applications for the second round of RD&D leases announced by Secretary of the Interior Ken Salazar.
Potential lessees may nominate up to 160 acres for RD&D. If the lessees demonstrate the ability to commercially produce oil equivalent derived from shale, up to 480 additional contiguous acres could be added to the lease for commercial-scale development. The allotted acreage for commercial development represents an 87.5% reduction from the potential commercialization are available through the terms of the first round of shale leasing in 2006 and 2007.
In 2006 and 2007, the Bureau of Land Management (BLM) issued six RD&D oil shale leases on lands in Colorado and Utah for the purpose of developing new oil shale recovery technologies. (Earlier post.) The existing leases limit the total initial RD&D land area to a maximum of 160 acres, but if a lessee demonstrates the ability to produce commercial quantities of synthetic petroleum derived from shale, the lessee may develop an area of up to 5,120 contiguous acres.
For the last century, Americans have been working to find the keys to the vast kerogen reserves that are locked up in Western shale. If we are to succeed in unlocking oil shale’s great potential, we must first answer fundamental questions about water use, power use, and environmental and social impacts of commercial-scale development. With this new round of RD&D leases, we hope to move closer to responsibly and sustainably developing our oil shale resources.
The RD&D nominations will be reviewed by an interdisciplinary team of BLM professionals and representatives from the State of Colorado, Utah, and Wyoming, as appropriate, and the Departments of Defense and Energy. The interdisciplinary team will consider the potential of each proposal to advance knowledge of effective technology, economic viability, and the impacts of oil shale development. The minimum quantity of commercial production to be eligible for conversion is 10,000 bbl/day.
A Federal Register notice soliciting nominations will be published in the coming days.
Secretary Salazar has also asked Interior’s Inspector General to investigate a set of favorable conditions and low royalty rates that were offered on 15 January 2009—five days before the end of the previous administration—to energy companies holding existing RD&D leases. Secretary Salazar determined that the timing and circumstances of the previous administration’s lease addenda merit additional review.
On 15 January 2009, the Department granted the holders of the six oil shale RD&D the right, at the time of conversion to commercial development, to elect to have their leases governed by a set of favorable conditions and low royalty rates. The previous administration established an initial royalty rate of 5% for commercial oil shale production, an action that Secretary Salazar has described as “premature.” Under the terms of the second round, the Secretary will determine the royalty rate at the time of commercialization.
Oil shale is a fine-grained sedimentary rock containing kerogen—a solid organic precursor to oil and gas—from which hydrocarbon gases and liquids (HCs) can be obtained through the application of heat. There are two basic approaches to processing oil shale: mining the rock and heating it in a surface retort, and heating the rock in the ground, to then pump up the resulting oil.
The United States holds the world’s largest known concentration of oil shale—nearly five times the proven oil reserves of Saudi Arabia underlies a surface area of 16,000 square miles. More than 70% of American oil shale—including the thickest and richest deposits—lies on federal land, primarily in Colorado, Utah, and Wyoming.
DOI Bureau of Land Management Oil Shale and Tar Sands