Congress OKs bill giving industry royalty breaks
By Jennifer ThalhelmAssociated Press WASHINGTON — Energy companies could potentially reap millions of dollars in royalty breaks under a House bill approved Thursday that calls for the United States to model its Western oil shale program after Canada's booming tar sands industry.
Companies in Canada are making fortunes turning sticky, tar-covered sand into oil. The United States hopes to do the same with tar sand in Utah and its cousin, oil shale, a rock that yields petroleum when heated.
Colorado, Utah and Wyoming contain an estimated 500 billion to 1.1 trillion recoverable barrels of oil from oil shale, though companies are still exploring whether it can be tapped economically.
The provision in a House energy bill, which also lifts a ban on oil and gas drilling off much of the U.S. coast, directs the interior secretary to use Canada as an example of how to shape the royalties the oil shale companies would pay for energy from public lands.Canadian tar sands producers pay little in royalties until several years into development.
"There's no need to reinvent the wheel — they've shown they can do it efficiently, fruitfully and safely," said Brian Kennedy, spokesman for House Resources Committee Chairman Richard Pombo, R-Calif., the bill's sponsor.
"That's great news — very, very encouraging," said Romit Bhattacharya, CEO of the Vernal-based Oil Tech.
Bhattacharya's company owns mineral rights on 32,000 acres of state land in Utah and is in the midst of developing a retort, or processing, site capable of producing 1,000 barrels of oil a day from shale mined south of Vernal.
On Thursday Bhattacharya was at a 24-barrel-a-day pilot retort site near Bonanza, Uintah County, showing people from the energy and investment sectors how the processing of shale works. Oil Tech is a private company funded mostly by investors from the East Coast.
Bhattacharya noted his company is not looking for financial handouts from the government. But he would like to see an expedited federal permitting procedure that allows the mining and processing of shale to move forward more quickly, while conforming to environmental standards.
As for a feared boom-bust scenario, such as a big enough dip in oil prices to drive interest away from shale oil, Bhattacharya doesn't see things in those terms.
Unlike the whirlwind romance with shale 30 years ago, today's climate is more shale-friendly with the presence of a global economy and China and India's increasing demand for energy, according to Bhattacharya.
Regardless of what happens to oil prices in the future, he added, exploiting shale as an alternative energy resource still needs to happen. The bill likely will have a tough time in the Senate. Florida senators have threatened to filibuster because of the offshore drilling provisions.
Still, conservation groups and several Western Democrats protested the House bill loudly, saying it would rush the burgeoning oil shale industry faster than it is ready to go.
Colorado Democratic Reps. Mark Udall and John Salazar tried unsuccessfully to strip the provision from the bill.
"This bill shortchanges local communities on Colorado's Western Slope," Udall said.
Opponents said the measure also would reverse a carefully crafted compromise reached in last year's energy policy act, which renewed interest in producing oil shale from federal land and required the interior secretary to determine a royalty rate that would help the industry and ensure a fair return to the taxpayers.
Many Westerners still are wary of the industry. They remember the oil shale boom and bust of the 1970s and '80s, when companies abandoned entire towns after oil prices bottomed out. "Worst case scenario, this provision would line the pockets of rogue speculators who rush in with little care for the people or the land of western Colorado," Salazar said.
Kennedy disagreed with the critics. He said the measure would help build the U.S. oil shale industry and protect companies — and Western communities — if oil prices ever drop suddenly.
"All we're doing is putting a framework in place," Kennedy said.
But even industry representatives said they are not yet ready to talk specifics about royalties.
Companies are still experimenting with their techniques. The Bureau of Land Management expects to issue leases by late summer to a handful of companies that want to try research and development projects on federal land.
"It's a little more on the back burner for us," said Jill Davis, spokeswoman for Shell's Mahogany Research Project in Colorado.
Still, she said Canada would be a good example to follow when setting policies for working with the oil shale industry.
"We do believe the Canadian incentives that were created for the oil sands there have been life changing and changing for the world and that Canada is doing a great job," Davis said.
