**Testimony of James V. Hansen**

**Oil Shale Exploration Company ((OSEC)**

**May 15, 2008**

**Senate Energy and Natural Resources Committee**

Mr. Chairman, Members of the Committee, my name is Jim Hansen and I am
testifying on behalf of the Oil Shale Exploration Company, more commonly
known as OSEC. I appreciate the opportunity to testify before this
Committee to discuss the most critical energy source for our nation's
future, oil shale.

**[US Oil Shale Resource]{.underline}**

The United States is blessed with many natural resources and still has
huge, untapped energy resources in its oil shale deposits. Over 70% of
the world's oil shale resources occur in the United States and the
richest deposits are in the Green River Formation in Colorado, Utah and
Wyoming. These deposits contain over 1.5 trillion barrels of shale oil.
If only 800 billion of this can be recovered, that alone would supply
all of our current domestic petroleum needs for the next 100 years or
more.

**[Elsewhere Worldwide]{.underline}**

Oil shale deposits are found in at least 15 other countries worldwide
and some countries rely on the production of these domestic resources to
meet some or all of their needs. Currently shale production is taking
place in Brazil, China, Estonia and Russia and development efforts are
underway in Israel, Jordan, Australia, and Morocco, as well as
elsewhere.

**[Past US Efforts]{.underline}**

The presence of oil shale in both the western and eastern states has
been known for over 100 years. Early oil shale operations in the eastern
US were terminated when natural oil wells were developed in Pennsylvania
in 1859. The discovery of rich oil shale in the western United States
drew attention during World War I as the shortage of oil prompted
exploration for unconventional fuels; there was a rush to develop these
western oil shale resources and the country looked to oil shale as its
future fuel supply. In 1920 the Mineral Leasing Act was passed to allow
the government to lease its oil shale land at a manageable pace. Then,
shortly thereafter, the vast oil deposits in west Texas and Oklahoma
were discovered and oil shale lost its attraction.

During World War II, oil shale was again looked upon as the answer to
our military needs and the government established an oil shale research
center at Anvil Points, Colorado managed by the Bureau of Mines.
Following the war, interest again waned and the Alaska oil fields and
imports seemed sufficient to meet the nation's needs.

The OPEC oil embargo in 1973 again forced the nation to look at its
domestic oil supplies and the government issued its first ever oil shale
leases in Colorado and Utah in 1974. The Synthetic Fuels Corporation was
established by the Carter administration in 1980 and it finally looked
as though the nation was going to do something to diminish its reliance
on imported oil. Then, the world oil prices declined in the 1980s and
all of the government programs were abolished and the dozen major oil
shale projects were terminated by 1985.

Between 1985 and 2005 the nation had no concerted effort to develop its
major unconventional fuels, including oil shale. During this same
period, Canada was developing its oil sands resources and today is
producing well over one million barrels/day, much of it exported to the
US. The oil sands industry of Canada is a tremendous success story and
production continues to increase. If the US had maintained its oil shale
program after 1985, we would be producing shale oil in this country
today.

Again, between 1985 and 2005, there was no federal oil shale program, no
significant budget, no policy and no leasing of federal oil shale
resources. Finally, the 2005 Energy Security Act offered industry an
opportunity to lease federal research parcels of 160 acres each.
Congress decided once again that it was time to consider oil shale,
especially since the government controls over 80% of the western
resource and nothing was going to happen unless the government made
federal land available.

**[Current US Programs]{.underline}**

The 2005 Energy Security Act demonstrated that the US government might
finally encourage the development of these valuable oil shale resources.
The nation's production of crude oil has been declining since the 1970s
while its demand has continued to increase, making the country
increasingly dependent on imported oil and much of the foreign supply is
controlled by nations unfriendly to the US. Oil shale is the largest
untapped domestic resource with the greatest potential to decrease our
dependence on foreign oil.

Recent reports completed by DOE and by the Unconventional Fuels Task
Force, working with DOE, DOD and DOI, clearly document the value of the
US oil shale resources and show that the nation, under the right
government programs and leadership, could be producing up to two million
barrels of shale oil by 2030.

However, there are lingering questions about our ability to produce
shale oil in this country. Most of these questions center on key issues
such as: (1) is the technology available and will it work on a large
scale?; (2) can shale oil be produced profitably?; (3) can shale oil be
produced in an environmentally responsible manner?; and (4) what are the
socio-economic impacts going to be on the local regions where these
developments occur?

The 2005 Energy Security Act set out to answer these questions and
industry has stepped forward to cooperate. The plan is to go slow and
answer those questions during an interim research program that precedes
huge commercial development efforts. There were six research,
development and demonstration leases signed in 2007; five of these in
Colorado (three to Shell, one to Chevron and one to EGL Resources) and
one in Utah (Oil Shale Exploration Company). Each of these companies has
active programs underway. There are other companies working on private
and state lands. Each of these projects is working to answer the same
crucial questions, although their technical approaches might differ.
Commercial development will not occur until investors are convinced that
the risks are manageable and that the government is supportive.

So, oil shale is again garnering some attention but not nearly at the
level justified. Industry is anxious to ramp up its research programs
but it needs the assurance that the federal government is a willing,
cooperative partner. Oil shale requires an expensive, high-risk,
long-lead time development program and the federal government controls
most of the resource and will ultimately determine whether or not shale
oil is ever produced at a level sufficient to improve our economic and
national security.

Industry was burned in the past when federal oil shale programs were
discontinued and proposed leasing programs were terminated. We can't
continue to start and stop these programs. The nation can't afford to
delay any longer; it is time to make a national long-term commitment to
oil shale and other unconventional fuels.

**[OSEC As An Example]{.underline}**

In 2007 Oil Shale Exploration Company (OSEC) was granted a BLM RD&D
lease on the 160 acres surrounding the idle White River Mine site in
Uintah County, Utah. The mine had been developed by Sun, Phillips and
Sohio on the BLM commercial prototype oil shale leases Ua and Ub granted
in 1974; when the price of oil dropped and the federal oil shale
programs were abandoned in the early 1980s, the companies relinquished
the leases in 1985 and the mine reverted back to the government. It has
sat idle for over 20 years!

OSEC has initiated an aggressive research program at the site. Its
approach is to use conventional underground mining and surface
processing of the oil shale through a retort plant. This is in contrast
to the in-situ technologies being researched by some of the other
projects in Colorado.

In September 2007 OSEC tested 300 tons of Utah oil shale in a retort
pilot plant in Calgary, Canada. The test program was very successful and
OSEC is currently securing permits to reopen the White River Mine and
continue its technology demonstration program, which is focused on
answering remaining questions on the technology, economics and
environment.

As the OSEC project matures, future expenditures will be in the hundreds
of millions of dollars for research and demonstration prior to the final
decision on whether or not to build a commercial plant at a scale of
50,000 barrels per day or more. As the level of the expenditures and the
risks increase, OSEC, like other oil shale development groups, is asking
itself where the federal government stands on oil shale.

The DOE has essentially no oil shale program at this time, even though
oil shale produces excellent transportation fuels, including crucial jet
fuels and diesel fuel important to the military. DOD is very interested
in fuels from shale oil but is getting little direction or funding. The
BLM is being told to slow down the proposed commercial leasing program
and delay issuing regulations.

Before OSEC can justify more expensive research on the federal RD&D
lease, it would like to know the terms of the preferential lease it
might secure if its research is successful, as it believes it will be.
The terms of that future commercial lease will depend on the leasing
regulations, now delayed.

**[Need for a Federal Oil Shale Program]{.underline}**

From industry perspective, it appears as though the federal government
is opposed to developing oil shale. While federal programs have assisted
research and development programs for solar, wind, biomass, ethanol,
coal bed methane, clean coal and so on, there is currently very little
being done with the unconventional fuels (oil shale, heavy oil, tar
sands, and coal-to-liquids) which have the most potential to increase
our domestic supplies and improve our national and economic security.

The world oil supplies are decreasing and world demand is increasing as
countries industrialize and populations grow. The US global leadership
position is jeopardized by the growing power of the OPEC countries that
control the world's oil supply; many of these countries are adversarial.
Their control of the world oil supply and prices threatens our standard
of living and our national security. We cannot afford to further delay
efforts to develop our domestic oil shale resources. We have already
lost the past 20 years and cannot afford to continue putting off this
decision.

While we need to consider all energy supplies, including an aggressive
energy conservation program, most of these will have only minor impacts
on our fuels shortfall, while costing huge amounts of money and
demanding extensive resources that might be better directed elsewhere.
It is time to consider the 800 pound gorilla that we have been
neglecting all too long, oil shale.

**[Domenici Bill]{.underline}**

We appreciate the fact that Senator Domenici and his co-sponsors
recognize the problem and are willing to address it head on. These are
dire times and will only get worse if the US doesn't address the energy
issue. The world is watching as the US fumbles and squanders
opportunities. It is time for bi-partisan leadership to come forth and
co-sponsor a program that will get us on the course to a meaningful
domestic energy program that is more than fancy, feel-good window
dressing. This bill can get us started in the right direction and we are
prepared to offer further suggestions and assistance. It will take many
years of dedicated, cooperative effort between government and industry.
Industry is willing to do its part if it is assured that the government
is committed and will stay the course.