IV. OIL SHALE, NATIVE ASPHALT, AND TAR SANDS INTRODUCTION The oil shale and tar sands reserves in the United States represent significant potential sources of domestic energy supply. It is estimated that 80 billion barrels of shale oil could be produced using current technology from deposits in the Green River formation of Colorado, Utah, and Wyoming, and that the potential recoverable oil in the higher grade deposits averaging 25 gallons or more per ton and a minimum of 10 feet in thickness in this formation is about 600 billion barrels. About 80 percent of these deposits are owned by the Federal government. Oil equivalent reserves in known U.S. tar sands deposits is estimated to be about 30 billion barrels with nearly all of this located in Utah. Over 70 percent of these deposits are found on Federal lands. Oil shale deposits on the public domain were made subject to the leasing system by the Mineral Leasing Act of 1920. Prior to that time such deposits were locatable under the Mining Law of 1872 and the Oil Placer Act of 1897. Native asphalt and tar sands or bitumen-bearing rocks were added to the oil shale section of the Mineral Leasing Act by an amendment in 1960. In this chapter the history of oil shale activities on the public lands will be recounted briefly and the existing prototype leasing program will be described. Then the leasing systems for asphalt and tar sands will be described. OIL SHALE The Department of the Interior estimated in 1968 that nearly 80 percent of the high quality oil shale lands were covered by mining claims of record. Many of these claims were made under the Oil Placer Act of 1897 which provided that lands chiefly valuable for "petroleum or other mineral oils" (interpreted to include shale oil) could be entered and patented under the provisions of the 1872 law pertaining to place claims. Thus the patent fee for such claims was $2.50 per acre. Between 1920 and 1960, 277 such patents were issued in Colorado covering 264,093 acres. The Department is presently trying to clear the lands of the large number of invalid and abandoned claims made prior to 1920. With the passage of the Mineral Leasing Act of 1920, oil shale was removed from location and made accessible thereafter only by lease. Only a few leases were actually issued before all the oil shale lands were withdrawn from leasing by an executive order in 1930. Because this withdrawal was made by authority of the Pickett Act, these lands were still subject to location for metalliferous minerals under the 1873 Mining Law. However, such locations were in fact precluded by the Departmental policy precluding such locations in areas covered by permits or leases or known to be valuable for leasable minerals. Locations did not become possible until the Multiple Mineral Development Act of 1954 was passed. The 1930 withdrawal order was modified in 1933 to allow the issuance of oil and gas leases and again in 1935 to allow sodium permits and leases to be issued. During World War II, interest in synthetic fuels sparked the establishment of a government-run research facility to explore the commercial feasibility of oil shale development. In 1947, the Mineral Leasing Act for Acquired Lands made oil shale found on acquired lands subject to the mineral leasing laws. Because of the renewed interest in oil shale, the holders of part interests in association placers used a statutory provision whereby they could perform assessment work and then request contributions from other shareholders by newspaper. If no contribution was forthcoming a forfeiture action could be brought, the result of which would be to vest full title to the association claim in the shareholders who had done the assessment work. Between 1952 and 1962 there were forfeiture actions involving 595 claims for a total of 94,800 acres in Colorado. In 1960 the Department stopped issuing patents for lands containing oil shale and began instead to contest such patent applications on several different grounds. In 1964 several sodium prospecting permits were issued for land in the Piceance Basin of Colorado where most of the oil shale is located. In 1966 the permittees applied for preference right sodium leases for the lands encompassed by the permits. The Geological Survey certified that discoveries of valuable deposits of sodium had been made and that the lands were chiefly valuable for sodium. Issuance of the leases did not occur until 1971, however, because of the concern about whether the sodium could be mined without interfering with the oil shale. The publicity which attended this matter brought out the fact that one of the sodium minerals found in this region is dawsonite which contains 35 percent aluminum by weight. Since aluminum is a locatable mineral, a dawsonite boom followed during which large areas of the oil shale lands were blanketed with claims under the 1872 Mining Law. Subsequently, the Department determined that dawsonite is a leasable sodium mineral and not locatable as aluminum. Though this provides the legal basis for clearing the large number of claims filed for dawsonite, the Department is presently engaged in having to challenge all such claims which are not voluntarily abandoned. In 1967 and 1968 the oil shale lands were withdrawn from sodium leasing and from entry under the 1872 Mining Law for metalliferous minerals. In 1968 the Department offered three oil shale tracts for competitive lease. The terms and conditions of the lease were specified in advance. Only three bids were received and all were rejected as being too low. On June 4, 1971, President Nixon called for the initiation of "a leasing program to develop our vast oil shale resources, provided that environmental questions can be satisfactorily resolved." The basic prototype leasing program was announced June 29th. On November 2nd the Department requested nominations of leasing tracts. From the 20 that were nominated the announcement of the six that were selected two each in Colorado, Utah, and Wyoming-was made on April 25, 1972. The draft environmental impact statement was issued for public review on September 9, 1972. The final impact statement came out in August 1973. Two months later the announcement of the lease sale was published in the Federal Register. Included in the announcement was a description of the lands, the terms of the lease sale, and the lease contract itself including a set of environmental stipulations. Competitive bidding for the oil shale tracts began in January, 1974 with the Colorado C-a tract. The winning bid on that tract offered a bonus payment of over $210 million. The bids on the lease offerings in Colorado and Utah are shown in the following table: TABLE 1.-BIDS ON LEASE OFFERINGS IN COLORADO AND UTAH 1. Atlantic Richfield Co., The Oil Shale Corp., Ashland Oil, Inc., Shell Oil Co. BONUS BIDS FOR PROTOTYPE TRACTS; UTAH Tract U-a: Tract U-b: 1. White River Shale Oil: Standard Oil Co. of Ohio, Phillips Petroleum Co., Sun Oil Co 2. Geokinetics Group: Andarka Production Co., Murphy Oil Corp., Signal Oil & Gas Co.. $210, 305, 600.00 117,788,000. 36 52, 500,000.00 75,596,800.00 45, 107,200.00 11,500,000.00 $41, 319.84 34, 343.40 15, 718. 02 12, 443. 44 12, 377.94 6, 508. 30 3,214. 54 23, 123. 34 10, 306. 44 14, 765.00 4,885. 20 736.33 8,810.00 2,246. 10 No offers were made on the two tracts in Wyoming. Leases for Colorado tracts C-a and C-b were issued effective April 1, 1974. Leases for the two Utah tracts were issued effective June 1, 1974. In the fall of 1974 the Department set in motion a plan under which two tracts would be leased for development by in situ methods. The following is a description of the leasing program from Volume III of the Final Environmental Statement for the Prototype Oil Shale Leasing Program. PROGRAM IMPLEMENTATION Should a decision be reached to implement the proposed program, operations would proceed under the terms of a lease specifically designed to achieve this goal, an interlocking set of bonus, royalty, bonding, and performance provisions have been developed and are in the proposed lease given in Chapter V of this volume, an overview of which is given below. 1. Lease offerings Sealed competitive bonus bids accompanied by acceptable preliminary development plans will determine who will be granted a lease. Sealed bidding is an established market tested method for obtaining an equitable return for the resource when potential competition for the leases cannot be readily predetermined. This method is currently being used by the Department of the Interior in competitive leasing of the mineral resources on the Outer Continental Shelf. In the early stages of an oil shale industry, the number of bidders may be limited by (1) lack of an economically proved technology and (2) large investment commitments that may exceed $200 million or more for each lease to be developed. To provide for efficient development of the oil shale resources the lease will include the right to produce other minerals in addition to shale oil if any prove to be present in significant and economic quantities in the oil shale deposits on the lease tracts. Immediate payment of the full bonus bids to acquire these first leases could create an undesirable economic burden on development because of other large investment requirements in the early years of a lease operation and the lack of an established technology with accurately predictable capital and operating costs. To reduce this economic burden, the bonus will be payable in five equal annual installations. 2. Term, rental, and royalty The primary lease term is for 20 years and as long thereafter as there is production in commercial quantities. Readjustment of royalty and operating terms may be made at the end of each 20-year period. Annual rental of 50 cents per acre per year for the use of the land will be charged as required by the Mineral Leasing Act of 1920, as amended, and is creditable against royalties. Royalty is money due and payable to the lessor for the removal of the resource from the leased lands by the lessee.1 The royalty rate for shale oil under this prototype program would be 12 cents for each ton of oil shale mined for processing that contains 30 gallons of shale oil per ton of material. Under the proposed lease (Chapter V, Section A). this rate would be adjusted, depending on the actual oil content of the mined material and the market value of locally produced liquid hydrocarbons. Additional royalty would be collected on minerals other than shale oil produced under the lease. To encourage development and avoid long delays in shale oil production from the leases, payment of minimum royalties will be required. Beginning in the sixth lease year the royalty payments will be based on minimum production rates derived from the estimated recoverable oil shale reserves contained in each tract. The required minimum royalty payment will increase each year through the 15th lease year and then remain the same through the 20th year at which time the lease terms may be readjusted. For example, assuming a recoverable reserve of 2.1 billion tons of oil shale (1.5 billion barrels of shale oil) that averages 30 gallons of oil per ton, the calculated minimum production rate during the 6th year would be 3.500 tons per day of oil shale. Each year the calculated minimum production would increase a like amount to and including the 15th year (i.e. in the foregoing example, to 35,000 tons per day). 1 The proposed royalty rate is comparable to other minerals mined under the Mineral Leasing Act of 1920. Early production incentives are also provided which will permit under certain circumstances the credit of a portion of development costs incurred during the early years of a lease against bonus and royalty payments due the government. Each tract described in the chapter which follows has been evaluated for total recoverable oil shale reserves by various techniques. This information is provided in Table 2 and provides the basis for computing the minimum royalties as provided in Sec. 7 of the lease. Lease operations will proceed only under approved development plans and continued acceptable performance by the lessee. A preliminary plan for lease development by a prospective lessee must be incorporated in all lease offers submitted to the Department of the Interior. After lease issuance and before the submission of a development plan which will provide for operations other than exploratory operations on the leased tract, the lessee will be required by lease stipulations to obtain at least 1 full year of additional baseline environmental data against which the actual environmental impact of the proposed development will be measured. Baseline air and water quality data, fish and wildlife populations and movement, and detailed descriptions of the existing vegetative cover are among the most important of ambient characteristics that will be established under this stipulation. The collection of baseline data for an additional year and a monitoring program will be integral parts of the detailed development plan to be prepared before the third anniversary of each lease. These plans must provide for compliance with all of the established environmental criteria and receive Departmental approval prior to the start of operations. They must include detailed projected analyses of the amount and types of expected waste materials, the location and extent of the disposal areas, the types and amount of vegetation that will be used in land restoration, and adequate assurance to this Department that the lessee has designed his disposal-restoration systems to protect the long-run productivity of the affected areas. These plans will be subject to public hearings conducted by the Department on the environmental aspects of the proposed operations. Only after such hearings and consultation with State and local officials may the plans be approved, and then only after the Mining Supervisors are satisfied that all lease terms, stipulations, and provisions will be satisfied. The lessee will be expected to plan construction and other developmental activities in full coordination with the land use, transportation, and other plans of the counties of other local public agencies. Annual progress |