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[Senate Hearing 109-602]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 109-602

                     OIL SHALE PROVISIONS OF EPACT

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   ON

THE IMPLEMENTATION OF THE OIL SHALE PROVISIONS OF THE ENERGY POLICY ACT 
                                OF 2005

                               __________

                    GRAND JUNCTION, CO, JUNE 1, 2006

                       Printed for the use of the
               Committee on Energy and Natural Resources

                                 _____

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30-202 PDF              WASHINGTON : 2006
_________________________________________________________________
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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho                JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming                DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
RICHARD M. BURR, North Carolina,     TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida                MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               KEN SALAZAR, Colorado
GORDON SMITH, Oregon                 ROBERT MENENDEZ, New Jersey
JIM BUNNING, Kentucky

                     Bruce M. Evans, Staff Director
                   Judith K. Pensabene, Chief Counsel
                  Bob Simon, Democratic Staff Director
                  Sam Fowler, Democratic Chief Counsel
                 Dick Bouts, Professional Staff Member
                Patty Beneke, Democratic Senior Counsel

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Baardson, John, CEO, Baard Energy, LLC, Vancouver, WA............    52
Cook, Kim, Chairman of the County Commission, Rio Blanco County, 
  CO.............................................................    28
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
George, Russell, Executive Director, Colorado Department of 
  Natural 
  Resources......................................................    16
Hatch, Hon. Orrin G., U.S. Senator from Utah.....................     7
Herbert, Gary, Lieutenant Governor, State of Utah................    12
McKee, Mike, Chairman of the County Commission, Uintah County, UT    33
Meis, Craig, County Commissioner, Mesa County, CO................    38
Mut, Stephen, CEO of Unconventional Resources, Shell Exploration 
  and 
  Production Company, Denver, CO.................................    44
Salazar, Hon. Ken, U.S. Senator from Colorado....................     3
Smith, Steve, Assistant Regional Director, The Wilderness 
  Society, 
  Denver, CO.....................................................    55
Treese, Chris, External Affairs, Colorado River Water 
  Conservation District, Glenwood Springs, CO....................    48

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    67

                              Appendix II

Additional material submitted for the record.....................    81

 
                     OIL SHALE PROVISIONS OF EPACT

                              ----------                              

                         THURSDAY, JUNE 1, 2006

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                Grand Junction, CO.
    The committee met, pursuant to notice, at 9:45 a.m., at 
Grand Junction City Hall Auditorium, 250 North Street, Grand 
Junction, CO, Hon. Pete V. Domenici, chairman, presiding.

          OPENING STATEMENT OF HON. PETE V. DOMENICI, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. We'll come to order. Good morning, everyone. 
My name is Pete Domenici. I'm the Senator from the State of New 
Mexico. At this time in my life, I happen to have the honor of 
chairing the U.S. Senate Committee on Energy and Natural 
Resources. We're having a field hearing in your city and in a 
little while, we'll explain some basic rules to all of you. 
That's just the way it has to be in order to conduct our 
business in an orderly manner. We hope that will be 
accommodating to you all and we're most appreciative that you 
would all take some time, some of your precious time, to join 
us here today. So once again, first of all, good morning.
    I want to thank each of you for coming today, once again. I 
want to thank, in particular, Senator Salazar for joining me 
here today. He's a member of the committee, which I have just 
enumerated to you. He's been a very valued member, although 
he's only been on the committee for a very short period of 
time.
    We have a very enviable record, that committee. In that 
short period of time, we produced the first comprehensive 
energy policy for these United States in the last 15 to 20 
years. And we believe it has set the path and set the record 
straight, for quite some time, for America's energy future.
    It was a real luxury on my part to have him as a member of 
the committee and I want to personally thank him, for the first 
time in the presence of the members of his constituency here in 
Colorado, for all the hard work he spent in putting that bill 
together and getting us to where we are today.
    He and I spent the day yesterday looking at some of the oil 
shale research projects currently underway, in this part of the 
United States. In a moment, I'll ask him to make a brief 
statement as we commence this hearing. In the short time that 
he spent in the Senate, he has proven to be a valuable part of 
the committee and I have come to value his input immensely.
    I also want to welcome a very long-time dear friend, 
Senator Orrin Hatch, who is here before us. He's sitting at the 
witness table. He could either be there or up here. I choose, 
every now and then, when I can, to put him down there.
    [Laughter.]
    The Chairman. He didn't ask me why, but that's why we're 
going to do it this way. And then, when we're finished with the 
testimony, he can come up here and join us, if he would like, 
and we hope that he will. Senator Hatch has recognized the 
urgency of our Nation's energy situation and the potential that 
this resource brings for mitigating our energy shortfalls.
    As everyone here knows, we face enormous energy problems in 
this great country of ours and many are aware of the potential 
resources found in this region. With over two trillion barrels 
of oil in place, we all understand the significance of oil 
shale.
    The subject we are considering today can affect you here in 
Colorado, and your neighbors in Utah and Wyoming, in an immense 
way. We want to be part of having that take place in a manner 
that is good for all of you, not bad for you, that it is good 
for all of us, and good for America, because we believe that is 
clearly its potential.
    Some will argue that we need to conserve more. Others think 
adding increased efficiency to our cars and trucks or switching 
to renewables is the answer. There are others who would argue 
that oil shale is a bad bet, pointing to the past boom and 
bust. I believe that it is eminently clear that things are 
different now. We are more dependent on foreign oil than ever 
before. Our world is a more fragile and unstable place than it 
was before and energy prices have soared compared to where they 
were the last two times that we ventured into oil shale. But 
it's also different in terms of what it means to you.
    We're not going to follow the mistakes of the past. We're 
going to make sure that we do this right for you, and with you, 
for your communities, and for the environment, and with your 
communities. With private citizens, and local government, and 
industry all working together as a group, we can make this work 
for America, if it is going to work at all.
    And we note some signs up here that say: ``Slow.'' I don't 
think anybody intends to go too fast successfully developing 
this vast oil shale resource. It will mean so much more to 
America than just finding one more source for energy. It could 
literally shake the world. Most are familiar with the 
traditional recovery process where the rock is mined and then 
heated in a retort. We're also seeing an exciting new and 
innovative process, such as shale's in-situ process that will 
heat the rock in the ground in order to recover the oil.
    Senator Salazar and I, and those who work with us, are very 
proud of the Energy Policy Act that we passed last year. This 
bill is already having an impact and is setting the stage for 
sound development of these resources over the next several 
years. As it relates to oil shale and tar sands, the energy 
bill directs the Secretary of the Interior to make certain 
lands available for leasing for Research and Development, 
complete a programmatic environmental impact statement for a 
commercial leasing program, issue final regulations, and 
implement a commercial leasing program in consultation with the 
States. It also directs the Secretary of Energy to establish a 
task force that will develop a program to coordinate and 
accelerate the commercial development of oil shale and tar sand 
resources, and assigns responsibility to the Office of 
Petroleum Reserves to coordinate, and evaluate, and promote the 
activities of the Federal Government.
    It's our intent here today to get a better understanding of 
the local perspective on these provisions and the potential 
development of oil shale in the region.
    Now, let me turn to Senator Salazar, a member of the 
committee, before we start with the committee process, and 
before the eminent Senator Hatch speaks.
    Senator Salazar.

          STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR 
                         FROM COLORADO

    Senator Salazar. Thank you very much, Chairman Domenici. 
Let me, at the outset, just say to all of the people who are 
here from Colorado that we are fortunate to have the Chairman 
of the Senate Energy Committee here in our State today. I thank 
him for coming to our State to listen to our issues and the 
potential that we have with oil shale, as well as with respect 
to concerns that people also have in terms of how we move 
forward.
    I will say this about the chairman, he is effective and I 
very much enjoyed my work with him in my first 18 months in the 
U.S. Senate. I think the production last year of the National 
Energy Policy Act of 2005 was a milestone in the Nation's 
national security and it would not have happened had it not 
been that Senator Domenici helped lead what became a very 
bipartisan effort that garnered 82 votes in the U.S. Senate for 
the bill that came out of his committee. So I appreciate his 
leadership, his mentorship, and his friendship. He comes from 
the Land of Enchantment, just to the south of our State, and we 
often talk about the common histories of New Mexico and 
Colorado, and I appreciate his presence here today.
    I also want to recognize and appreciate my good friend from 
Utah, Senator Orrin Hatch. We share not only the possibility of 
oil shale between Colorado and Utah, but Orrin Hatch has been 
one of the Senators who has served long in the U.S. Senate, 
making sure that we are keeping our country strong, and dealing 
with some of the toughest issues of our country.
    I want to also, just quickly, recognize some members of our 
committee and staff who have made this hearing possible here in 
Grand Junction: Bruce Evans, who is our Staff Director for the 
Energy Committee; Dick Bouts, who works on the Energy 
Committee--if you'll raise your hand, Dick?--and David Marks, 
also on the committee--David, if you'll raise your hand?--and 
Sara Zecher; and from my staff, Steve Black, who works on 
energy issues and helped write major pieces of the energy 
legislation last year; and Trudy Kareus, Mary Beth Buescher, 
Matthew McCombs, and Cody Wertz, who are also on my staff.
    I want to also recognize Derek Wagner, who is here from 
Senator Allard's office, today. Senator Allard could not be 
here today. And I want to also recognize Rich Baca from 
Congressman John Salazar's office.
    Let me, at the outset, just repeat my appreciation to you, 
Mr. Chairman, for bringing the Senate Energy and Natural 
Resources Committee here to Grand Junction today, and to the 
Western Slope. The sheer volume of potential recoverable oil 
locked up in shale is indeed, tantalizing for all of us.
    The Energy Information Service has indicated that there is 
somewhere between 500 billion and 1.1 trillion barrels of oil 
that could be recovered from the oil shale deposits in 
Colorado, Utah, and Wyoming. For a Nation that is very wary of 
the high prices that we are paying at the pump, and which is 
very worried about our overdependence on those sheiks and kings 
of the Middle East and other places, where the large global 
reserves of oil currently are held, it is important that we 
take a look at these--at this strategic opportunity for the 
United States of America.
    In fact, the amount of oil that we believe is trapped in 
the oil shales of our three States, is four times the amount of 
oil currently estimated to be beneath the sands of Saudi 
Arabia. That tells you the sheer size of the resource. 
Colorado's blessed to be home of a significant part of these 
resources and we're willing to work with our Nation, as we 
address the potential of oil shale development.
    But we are also highly aware of the challenges that oil 
shale poses and has posed in the past. We know the efforts of 
oil shale extraction in Utah into Colorado in the early 20th 
Century. We remember the energy crisis of the 1970's and the 
oil shale mania that that created. And we vividly remember, not 
so long ago, the Black Sunday of 1982. Our memories of the 
failures and successes of Western resource development are long 
and mature, but it also offers us wisdom from those lessons 
learned about how we ought to proceed in the future.
    We know that often, in the past, the non-Western interests 
sometimes have driven decisions with respect to our development 
in the West. And in the past, at times, we have not controlled 
the development or enjoyed the full benefits of that 
development. The Western communities should have a prominent 
voice in the debate of whether oil shale development is 
reasonable and responsible.
    Today's hearing is a very good start, because we will hear 
from those communities that may prosper or suffer, from those 
whose water and land could be affected, and from those who have 
stood here before and might do it differently this time around, 
based on lessons that we learned in the past.
    Our shared experiences with resource development in 
Colorado have taught us to be cautious and methodical, when 
others may be impatient and frenzied. When we rush the 
development without considering the effects of local 
communities' land and water, we sometimes end up, as we have, 
on the ground, MSEP or BLM may allow gas exploration and 
production in the midst of the watersheds of the town of 
Palisade and the city of Grand Junction.
    Before we take the bigger steps with regard to oil shale, 
we must answer several questions that are of vital importance 
to western Colorado. First, we must determine the economic 
feasibility of oil shale development. Even in small-scale 
private projects, the economic feasibility of oil shale 
extraction is still uncertain and nobody has even attempted to 
build a commercial-scale plant at this point. As part of this 
analysis, we must determine whether oil shale will be a 
sustainable and stable element in the regional economy.
    This State has endured dozens of busts, when the price of 
commodities have suddenly changed, so we need to make sure 
that, as we move forward with oil shale development, we are 
doing it in a manner that is sustainable over time.
    Second, we need to make sure we are protecting Colorado's 
land and water. The techniques we use to extract the oil should 
not place our natural heritage at risk. The land and water of 
western Colorado are just too important to the economy and our 
way of life to be compromised for an uncertain oil future. For 
that reason, the energy bill that we passed last year, required 
that we move forward in a sequential and thoughtful manner, as 
we contemplate commercial leasing of oil shale.
    Third, we must assure that Colorado's water rights are 
protected and gain a better understanding of the amounts of 
water that will be used with regard to oil shale development. 
On the Western Slope, water, we all know, is as precious as oil 
and we need to know how we will protect the very life blood of 
the Western Slope.
    Finally, I agree we must be realistic about the role that 
oil shale can play in the Nation's quest for energy 
independence. The sad truth is that neither oil shale nor any 
other domestic production can satisfy America's appetite for 
oil. We consume 25 percent of the world's oil, yet we have only 
3 percent of the world's reserves here in our country. If we 
can address all the challenges associated with oil shale 
development, oil shale can play a significant role in reducing 
our dependence on foreign oil. But it alone will not set 
America free from our dependence on foreign oil. We must also 
embrace the combined strategies of conservation, improve 
deficiency, and renewable energy resources. These are large 
steps that we can take, and are taking today, to overcome our 
national security crisis, stemming from our dangerous 
overdependence on foreign oil.
    Now, this is not to say that oil shale will not play a 
major role in our energy future, but we in Colorado have 
learned that oil shale is not an easy resource to develop. As 
we try one more time to extract oil from Western shale, let us 
be sure to act prudently to protect the land, the water, and 
the people of Colorado, Wyoming, and Utah.
    Mr. Chairman, I thank you for agreeing to hold this 
hearing. I hope there will be many, many more opportunities for 
Western communities to shape this process. The West has a 
responsibility and a right to help determine what role oil 
shale will play in our Nation's future. Thank you.
    [The prepared statement of Senator Salazar follows:]
   Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
    Thank you, Mr. Chairman. On behalf of everyone here today, and the 
great State of Colorado, I want to welcome you to Grand Junction. It 
means a lot to me that my Chairman and colleague on the Senate Energy 
and Natural Resources Committee is here to gather information about oil 
shale, its prospects for development, and what it means to communities 
in western Colorado.
    I also want to say thank you to all the witnesses who are here 
today. I look forward to hearing your testimony.
    The sheer volume of potential recoverable oil locked up in shale is 
tantalizing: the Energy Information Agency estimates that between 500 
billion and 1.1 trillion barrels of oil could be recovered from oil 
shale deposits in Colorado, Wyoming, and Utah. For a nation that is 
weary of high gas prices and anxious to kick its addiction to foreign 
oil, our oil shale resources--four times larger than Saudi Arabia's oil 
reserves--inspire hope for a more energy independent future.
    Colorado is blessed to be home to these resources and, as evidenced 
by current oil and gas development, we are willing to do more than our 
share to provide for the nation's energy needs.
    But we are also highly aware of the challenges that oil shale 
poses. We know the futile efforts at oil shale extraction in Utah and 
Colorado in the early 20th century. We remember how the energy crisis 
of the 1970's stirred an oil shale mania--a mad rush to unlock the oil 
at any cost. And, most vividly, we remember ``Black Sunday'' in 1982, 
when this oil shale speculation busted, leaving western Colorado 
communities holding the bill.
    Our memory of the failures and successes of Western resource 
development is long, mature, and offers invaluable wisdom to us today.
    We know that too often we have allowed the whims of non-western 
interests to drive our development. We neither control the pace of 
development nor enjoy its full benefits, yet we pay the greatest costs 
and assume the greatest risks.
    Western communities should have prominent voices in the debate over 
whether oil shale development is reasonable and responsible. Today's 
hearing is a good start, because we will hear from those whose 
communities may prosper or suffer, from those whose water and land 
could be affected, and from those who have stood here before and might 
do it differently this time around.
    Our shared experiences with resource development in Colorado have 
taught us to be cautious and methodical when others are impatient and 
frenzied. When we rush to development without considering the effects 
on local communities, land, and water, we end up as we have on the 
Grand Mesa, where the BLM may allow gas exploration and production in 
the midst of the watersheds of the Town of Palisades and the City of 
Grand Junction.
    Before we take big steps forward with oil shale, we must answer 
several questions that are of vital concern to western Colorado.
    First, we must determine the economic feasibility of oil shale 
development. Even in small-scale pilot projects, the economic 
feasibility of oil shale extraction is uncertain, and nobody has even 
attempted to build a commercial scale plant. As part of this analysis, 
we must determine whether oil shale will be a sustainable and stable 
element in the regional economy. This state has endured dozens of busts 
when the price of a commodity has suddenly dropped; will we suffer 
another if we invest millions in oil shale and the price of crude drops 
from 70 to 40 dollars a barrel?
    Second, we need to ensure the protection of Colorado's land and 
water. The techniques we use to extract the oil should not place our 
natural heritage at risk--the land and water of western Colorado are 
just too important to the economy and our way of life to be compromised 
for an uncertain oil future. For that reason, the energy bill that we 
passed last year requires a comprehensive programmatic Environmental 
Impact Study on oil shale development before we begin to contemplate 
commercial leasing.
    Third, we must protect Colorado's water rights and gain a better 
understanding of the amounts of water that will be consumed to produce 
oil from shale and to restore the disturbed lands. On the Western 
Slope, water is as precious as oil, and we need to know how we will 
protect Colorado water users and its compact entitlements.
    Finally, we must be realistic about the role that oil shale can 
play in the Nation's quest for energy independence. The sad truth is 
that neither oil shale nor any other domestic production can satisfy 
America's appetite for oil. We consume 25% of the world's oil, yet have 
only 3% of the world's reserves.
    If we can address all the challenges associated with oil shale 
development, oil shale could play a significant role in reducing our 
dependence on foreign oil. But it alone will not set America free from 
our dependence on foreign oil. We must also embrace the combined 
strategies of conservation, improved efficiency, and a renewable energy 
revolution--these are the large steps we can take, today, to overcome 
our national security crisis stemming from our dangerous dependence on 
foreign oil.
    This is not to say that oil shale will not play a role in our 
energy future, but we in Colorado have learned that oil shale is not an 
easy resource to develop. As we try, one more time, to extract oil from 
western shale, let us be sure to act prudently, to protect the land, 
water, and people of Colorado, Wyoming and Utah.
    Mr. Chairman, thank you again for agreeing to hold this hearing. I 
hope there will be many, many more opportunities for Western 
communities to shape this process. The West has a responsibility, and a 
right, to help determine what role oil shale should play in our 
Nation's future.
    Thank you.

    The Chairman. Thank you very much.
    Now, we're going to hear from Senator Hatch. Senator Hatch, 
we're very pleased to hear from you.
    Please proceed.

        STATEMENT OF HON. ORRIN G. HATCH, U.S. SENATOR 
                           FROM UTAH

    Senator Hatch. Well, thank you, Mr. Chairman. I'm honored 
to be here with you and Senator Salazar in this beautiful 
community in our neighboring State, the great State of 
Colorado. I'm grateful for the opportunity to be participating 
in this hearing today on the implementation of section 369 of 
the Energy Policy Act. As you know, section 369 is the result 
of the Oil Shale and Tar Sands Development Act that I 
introduced along with Senator Allard.
    Now, I appreciated your assistance, and fully appreciate it 
today, in drafting this bill and making it part of the Energy 
Policy Act. Mr. Chairman, I believe that your vision and that 
your leadership on this incredibly important issue and the 
complete energy bill is one of the great examples of senatorial 
leadership in the last many, many decades. Because of your 
leadership on this important issue, this will facilitate and 
will likely be a turning point in our Nation's ability to meet 
our energy needs in the future.
    It is important, Mr. Chairman, that Americans understand 
the truth about our global energy situation, especially as it 
relates to liquid fuels. Americans need to understand that the 
global demand for oil far outstrips the global supply. 
Historically, the world's producers have responded to this 
scenario by dipping into spare capacity and restoring order to 
the market. Americans need to understand that the world's 
energy producers are at full capacity, that global demand has 
now outgrown even OPEC's ability to respond, and that we are 
facing a very serious energy crunch on a global basis and 
scale. I am pleased that our Nation has begun a new focus on 
the use of alternative fuels and advanced vehicle technologies, 
which will help to displace our Nation's dependency on oil.
    I was the author of the CLEAR Act. That was included in the 
Energy Policy Act by you, and I'm grateful for that. The CLEAR 
Act, or clean efficient automobiles, which resulted from the 
Advanced Car Technologies Act, offers consumer tax credits to 
lower the cost of hybrid, electric, and alternative-fuel 
vehicles, as well as the cost of alternative fuels, and new 
infrastructure to support their use.
    Alternative fuels and advanced vehicle technologies play a 
critical role in our Nation's energy strategy, but these 
alternatives will not be sufficient to bridge the widening gap 
between the global supply and demand for oil. As you know, Mr. 
Chairman, there is just no escaping our need to increase 
dramatically our domestic oil production. Just as it is 
important to recognize the magnitude of our global energy 
shortage, it is equally important to recognize that North 
America has a solution that matches the scale of the problem.
    The gigantic untapped oil shale and tar sands resources 
found in Utah, Colorado, and Wyoming are sufficient to meet our 
domestic energy needs, while also contributing to the ever 
increasing global demand for liquid fuels. Experts agree that 
the United States has more recoverable oil in tar sands and oil 
shale in a small tri-State region than the entire Middle East. 
The implementation of section 369 begins a necessary shift by 
our Government from an almost complete reliance on conventional 
sources of oil to our vast unconventional resources, such as 
tar sands and oil shale.
    We've already seen this shift in focus by the government of 
Alberta, Canada. Alberta recognized the potential of its own 
tar sands deposits and set forth a policy to promote their 
development. As a result, Canada has increased its oil reserves 
by more than a factor of 10, going from a reserve of around 14 
billion barrels to its current reserve of more than 176 billion 
barrels of oil in only few years.
    Most Utahans would be surprised to learn that \1/4\ of our 
State's oil imports already come from Alberta tar sands, even 
though we have a very large resource of those same tar sands in 
our State sitting undeveloped. I've read a number of newspaper 
articles and editorials raising questions about whether there's 
enough water, whether there's enough environmental protection, 
whether it is economical enough to develop our unconventional 
resources. These are all very valid questions--Senator Salazar 
has raised some of them here today--but I believe that they 
have valid answers. I hope that this hearing will help us to 
begin to address these questions head-on. The people of this 
region deserve to have these issues fully explored and 
addressed.
    In drafting the new law, we were mindful of the environment 
and of State's water resources. We live in a different world 
than when oil shale and tar sands were first developed in the 
United States. We have now implemented several environmental 
laws, such as the Clean Water Act; the Clear Air Act; the 
Resource Conservation and Recovery Act; the Comprehensive 
Environmental Response, Compensation, and Liability Act; the 
National Environmental Policy Act; the Mining Reclamation Act; 
and the Endangered Species Act.
    Also, new technologies make the effort much cleaner and 
require much less water than in the past. I do not believe 
there is any aspect of oil shale or tar sands development that 
would not be covered by existing environmental laws and 
regulations, but the citizens living in the region deserve to 
have a high level of certainty that this new activity will move 
forward in an environmentally sound and in an economically 
sound way.
    Mr. Chairman, I know that it is your goal, and Senator 
Salazar's as well, to ensure that these issues be addressed and 
that this hearing is only one step in that process. Again, I 
want to thank you for holding this hearing in the region that 
has the greatest stake in the implementation of section 369.
    Mr. Chairman, last year I spoke on this issue at the 
Canadian Embassy and I wonder if I could submit that statement 
to the committee as part of the record.
    The Chairman. It'll be made part of the record and we thank 
you for submitting it.
    Senator Hatch. And thank you, Mr. Chairman, for the 
opportunity to give these remarks this day and for your 
leadership on this important issue. I am extremely interested 
in it as well, and thank you for inviting me to sit with you on 
this.
    [The prepared statement of Senator Hatch follows:]
   Prepared Statement of Hon. Orrin G. Hatch, U.S. Senator From Utah
     ``discovering the possibilities for north american petroleum 
                              production"
Before the Woodrow Wilson International Center for Scholars, Canadian 
        Embassy, Washington, DC.
    Thank you very much for that introduction and for the opportunity 
to address you today. Let me say that it is a pleasure to be among you.
    If you are in attendance at this conference, there is a good chance 
you are part of the small but growing group of individuals who 
recognize--not only that there is a worldwide energy crunch looming in 
our future--but that an economical and domestically available solution 
to that problem already exists in North America's vast unconventional 
oil resources, namely in the form of liquid fuel from oil sands, oil 
shale, and coal.
    You also may have recognized the profound geopolitical shift that 
will likely occur over the next decade or two as the supply of 
conventional oil begins to dwindle in the Middle East, and the 
commercial production of our unconventional resources takes off in 
North America.
    We need to recognize the implications of this shift for our region.
    And the governments of Canada and the United States absolutely 
should be taking a proactive approach to preparing for that future. 
Those who state otherwise, in my opinion, are underestimating either 
the economic viability of developing our unconventional resources, or 
overestimating the world's ability to keep up with international energy 
demand, or both.
    In the United States, our thirst for oil has increased by about 12 
percent in the last decade, but during that same time our production of 
oil has grown by less than one-half of one percent. Is it any wonder 
that we rely on foreign countries for more than half our oil needs?
    And any hope that a worldwide increase in oil production will solve 
our domestic shortage is based on an unlikely scenario, because the 
supply shortage is being felt worldwide.
    World demand for oil is growing at an unprecedented pace,--about 
two and a half million barrels per day in 2004 alone, and production is 
not keeping up. Moreover, new discoveries are certainly failing to keep 
pace.
    The United States imports 56 percent of its oil, and, if existing 
circumstances persist, that is projected to grow to 68 percent within 
20 years.
    But who says that we are trapped by existing circumstances? I, for 
one, don't. The United States Congress has spoken loud and clear on 
this subject.
    I believe the recently enacted Energy Policy Act takes a strong, 
proactive-approach to addressing our nation's future energy needs by 
actively changing the circumstances we currently face--changes which I 
believe will improve the lives of our people.
    We are willing to pay high prices for oil because it is so critical 
to our way of life. Humans initially enjoyed important advances using 
early fuels such as wood, coal, whale oil, and then gas and steam. But 
it was liquid petroleum that allowed us to advance into the Space Age 
and then the Information Age.
    For a century, we have relied on a steady supply of light crude, 
which is the easiest oil to get. Those days are not quite over, but 
their decline is in sight, and there is no upside to ignoring the fact.
    I have been a leader in Congress in promoting the use of 
alternative sources of energy. I was the author of the CLEAR ACT, which 
will promote the use of alternative fuels in our transportation sector. 
The CLEAR ACT was enacted as part of the Energy Policy Act, and I 
believe it will make a real difference.
    At the same time, I also recognize that our society will be 
dependent on liquid petroleum into the foreseeable future. It's not a 
fact that I like to admit, but it is a fact, nonetheless.
    The world has experienced tremendous growth of service sector, but 
we shouldn't let that mask the fact that the global economy remains 
dependent on abundant and affordable natural resources. Even the 
service industry must have buildings, computers, paper, transportation, 
communications, and let's not forget food. Other than our bodies and 
the air we breathe, it would be nearly impossible to find something in 
this room that is not produced from agriculture, mining, or oil and gas 
production. Keep in mind that liquid and gas fuel remains the principal 
engine driving the production of those natural resources we need to 
maintain our way of life.
    We may have dodged a bullet in the United States with our recent 
spikes in energy prices. I believe our strong economy has helped to 
diminish the economic effects of recent sharp increases in energy 
costs.
    This summer, Federal Reserve Chairman Alan Greenspan stated:

          ``Markets for oil and natural gas have been subject to a 
        degree of strain over the past year not experienced for a 
        generation. Increased demand and lagging additions to 
        productive capacity have combined to absorb a significant 
        amount of the slack in energy markets that was essential in 
        containing energy prices between 1985 and 2000.''

    I shudder to think what the effect of these high prices would have 
on our way of life if they were to occur during a serious economic 
downturn. I am also intensely aware that sustained high prices could 
themselves cause such a downturn.
    We should take note that our major oil companies, including Chevron 
and ExxonMobil, are beginning to state publicly that we may be reaching 
peak oil. And with the economic growth in India and Asia and other 
regions, it looks like we'll have high oil prices into the-foreseeable 
future.
    This is a new scenario for the world, and it forces us to shift our 
focus to our unconventional resources. Shell Oil Company has, for 
years, been preparing for such a shift. Its successful activities in 
Alberta with oil sands and their investment in new technologies to 
produce oil from oil shale are a testimony to Shell's recognition that 
unconventional oil is in our future.
    Those who doubt that unconventional fuels are economically viable 
probably are suffering from a neck ailment that keeps them from looking 
north.
    The 800-pound gorilla is sitting just above Montana, and let's face 
it, it's hard to miss.
    Alberta is now second only to Saudi Arabia in proven oil reserves 
and ninth in the world in annual oil production. This is owing mostly 
to their successful development of oil sands. In Alberta, you have 
dozens of major oil companies, using a variety of technologies and 
recovery--methods, going after very different types of oil sands 
resources, and in almost every case doing so for less than $20 a 
barrel, including during their very tough winters. It is a gigantic 
success story, and it began with Alberta's government deciding to 
promote the development of this resource and not giving up.
    Anyone watching what is happening up north will recognize that, 
before long, Canada will inevitably overtake Saudi Arabia as the 
world's oil giant. And Alberta clearly has its sights on increased 
annual production to match its growing reserve. Already at about a 
million barrels a day, Alberta's production is expected to double in 
the next five or six years.
    What does all this mean for the United States? I think it means a 
great deal.
    First, it means that the United States can enjoy a new gigantic 
source of oil from a friendly neighbor.
    Here, we have one of the largest energy producing nations sharing a 
very large border with one of the world's largest energy consumers. Our 
proximity to one another facilitates our energy relationship in 
countless ways--the most obvious being the ability to transport energy 
products cheaply through pipelines and other means.
    My state of Utah is an oil producing state, and we also have our 
nation's largest deposits of recoverable oil sands. Although we are not 
yet developing our sands commercially, one-fourth of all of our oil 
imports come in a pipeline from Alberta oil sands. It's an unlikely 
scenario, but it is possible because of the interdependence our two 
nations already enjoy.
    Alberta's success in developing oil sands is important to the U.S. 
in another way. It provides our nation with a successful model for 
developing our own unconventional resources. A number of important U.S. 
companies are very active in Alberta's tar sands, and are only waiting 
for the U.S. government to adopt of policy similar to Alberta's which 
promotes rather than bars the development of our unconventional 
resources.
    Utah has more recoverable oil in oil sands than the entire U.S. 
reserve. That's a significant number, but it is overshadowed by the 
fact that the largest recoverable hydrocarbon resource in the world 
rests within the borders of Utah, Colorado, and Wyoming in the form of 
oil shale.
    Energy experts agree that there is more recoverable oil in these 
three states than there is in all the Middle East. The U.S. Department 
of Energy estimates that recoverable oil shale in the western United 
States exceeds one trillion barrels and is the richest and most 
geographically concentrated oil shale resource in the world.
    This gigantic resource of oil shale and tar sands is well known by 
geologists and energy experts, but it has not been counted among our 
nation's oil reserve, because it is not yet being developed 
commercially. And it is not being developed commercially because, the 
U.S. government has not allowed industry access to the resource.
    Every signal from the U.S. government has been to keep this 
resource off limits. That is, until now.
    With the help of industry, government officials, energy experts, 
and the chairmen of the relevant congressional committees, I sponsored 
and was able to pass the Oil Shale Tar Sands Development Act as a part 
of the Energy Policy Act. My legislation represents a necessary shift 
by our government from an almost complete reliance on conventional 
sources of oil toward a focus on our vast unconventional resources, 
such as tar sands and oil shale.
    My legislation will establish a task force to, among other things, 
to develop a five-year plan to determine the safest and steadiest route 
to developing oil shale and tar sands. It will also establish a mineral 
leasing program in the Department of the Interior to provide access to 
this resource.
    Recognizing the tremendous national interest in this resource, my 
legislation provides a number of programs to encourage oil shale and 
tar sands development, including federal royalty relief, federal cost 
shares for demonstration projects, and advance procurement agreements 
by the military.
    Some have said that oil shale has a great future and will always 
have a great future. It's a cute saying that reflects the view held by 
a dwindling few that oil shale is just too expensive ever to develop 
commercially.
    The fact of the matter is that producing oil from oil shale is 
fairly straightforward, and there are a number of technologies that 
could be used economically to develop this resource, now that the 
government is making it available.
    Many point to the large oil shale operation in Colorado that went 
bust in the late seventies as an example of how oil shale cannot be 
commercially developed. However, that was the result of the price of 
oil dropping down to ten dollars a barrel, not of a lack of efficient 
technology.
    Last time I checked, oil prices were above ten dollars a barrel.
    To be honest that old technology could still work efficiently 
today, but fortunately many new processes have been developed since 
then, some of which have proven to be very efficient and economical.
    I was disappointed with a recent report by Rand Corporation titled 
Oil Shale Development in the U.S.; Prospects and Policy Issues. The 
report relied on 30-year-old data for its model to show that the price 
of oil would have to reach $70 a barrel before mining and surface 
retorting of oil shale would be economical.
    Of the various experts involved in the on-the-ground development of 
these technologies, none believes that the price of oil needs to be 
higher than $40 a barrel for the economic development of oil shale, and 
some of the most knowledgeable experts are confident the price could be 
even lower than that.
    I was especially disappointed that the report used its $70 a barrel 
model to argue that government should not actively promote the 
commercial development of oil shale in this country. That conclusion 
can only be made if a blind eye is turned toward the global supply and 
demand trends that are widely acknowledged to be a major concern for 
policymakers.
    The report assumes that industry will step forward without the help 
of government to develop this resource. Such a scenario is contrary to 
the successful Alberta model and ignores the fact that 80 percent of 
the resource in the United States sits on federal land, which poses 
certain regulatory impediments to major investment in the development 
of the resource.
    I recall that offshore drilling was once considered an 
unconventional source of oil too risky and too expensive to pursue. 
However, with significant government support, the cost burden was 
overcome, and offshore oil is now considered a conventional resource.
    Similarly, getting oil from oil sands in Alberta was once 
considered by some to be too--expensive and risky. Now the province is 
producing huge quantities of oil from tar sands at less than $20 a 
barrel, as a result of government support.
    I have to say the Rand report appears to be a bit out of touch with 
what is happening on the ground among the various industry groups 
actually pursuing the development of oil shale in the United States.
    I have been on the ground and seen how the newest technologies can 
work, and I have been very impressed with the advances that have been 
made in this area.
    I have no doubt that once industry is given access to our 
unconventional resources, we will quickly follow in the footsteps of 
Alberta, Canada.
    I have no doubt that the abundance of existing technology and 
continued growth in the global demand for oil will inevitably lead to a 
major shift toward the development of unconventional oil resources.
    And as this scenario unfolds, I believe the United States and 
Canada will emerge as the dominant energy powers in the world. It has 
been slow in coming, but the United States is slowly awakening to this 
fact.
    I commend our friends in Alberta for their active effort to call 
this to our attention, and their success in leading the way down this 
path.
    The United States and Canada have much to learn from one another 
and much to share with regard to meeting America's energy needs. By 
working together in this regard, we can only become stronger, and I 
have no doubt that all Americans will benefit from it.
    Again, I want to thank the sponsors of this conference for the 
chance to address you. It has certainly been my pleasure. Thank you.

    The Chairman. You're welcome. Now, I have to make a little 
statement for all of you to pay attention to, because we have 
to handle things in an orderly manner. So if you'll follow our 
rules, I think we'll get everything done in due course and 
properly. Before we get started, let me tell you the process.
    Today, the hearing is to gather a local perspective on the 
prospect for developing our Nation's vast oil shale and tar 
sand resources. Although we would like to hear from everyone 
here today, we are limited to testimony from invited witnesses 
only. I would like to encourage anyone wishing to provide 
testimony to do so by providing a written statement within the 
next 2 weeks. That means that this record will be open and the 
testimony accepted into it, just in the same manner as it's 
given, so long as you give it to us within the 2 weeks. It will 
be given the same perusal and the same review.
    I would like to remind our witnesses to summarize their 
testimony within a 5-minute timeframe. This will provide ample 
time for questions and discussions. All written testimony will 
be included in the committee's official hearing record and 
available to the public.
    I want to welcome Lieutenant Governor Gary Herbert of Utah; 
Russell George, executive director of the Colorado Department 
of Natural Resources; Commissioner Kim Cook from Rio Blanco, 
CO; Colorado Commissioner Craig Meis from Mesa County; 
Commissioner Mike McKee from Uintah County, UT; also here are 
Steve Mut of Shell Oil Exploration and Production; John 
Baardson of Baard Energy and Oil Tech; Steve Smith of the 
Wilderness Society; and Chris Treese from the Colorado River 
Water Conservation District.
    We just had Senator Hatch, so now we're going to move ahead 
with the other witnesses in the appropriate order. Having said 
that, who are the witnesses that we're going to hear from 
first?
    Mr. Russell George and the Honorable Gary Herbert, 
Lieutenant Governor of the State of Utah. Thank you both, and 
welcome. Please proceed. You know the rules.
    Mr. Herbert. Thank you.
    The Chairman. You're first.

 STATEMENT OF GARY HERBERT, LIEUTENANT GOVERNOR, STATE OF UTAH

    Mr. Herbert. Thank you, Mr. Chairman. I'm honored to be 
here. For the record, my name is Gary Herbert, Lieutenant 
Governor of the State of Utah, and I would like to extend my 
appreciation to you, Mr. Chairman and Senator Salazar, 
particularly, for welcoming me to the great State of Colorado 
and to be here with my good friend, Orrin Hatch.
    On behalf of Governor Jon M. Huntsman, Jr., I am honored to 
represent the great State of Utah this morning regarding an 
issue we feel is an important component of our public policy 
agenda.
    The primary purpose of my visit today is to ensure this 
body that the State of Utah is supportive of sustainable 
development of the oil shale and tar sand resources within 
Utah's boarders.
    The Governor and I recognize that the guiding principles 
for such sustainable development align well with the objectives 
that we hope to achieve for the State, namely, one, promote 
economic prosperity, two, encourage responsible environmental 
protection, and three, enhance the quality of life by 
addressing the social and cultural needs of the people of Utah.
    We applaud the work of the U.S. Congress for the passage of 
the Energy Policy Act of 2005 and for specifically addressing 
oil shale leasing in section 369 of the Act.
    I am here today to indicate to this committee that the 
State of Utah stands ready to support, coordinate, and 
collaborate with the Federal Government in carrying out the 
provisions section 369.
    Estimates of Utah oil shale resources potential by the Utah 
Geological Survey exceed 300 billion barrels of oil in the 
ground and possibly over 20 billion barrels of oil that's 
recoverable. Development of these resources could represent 
substantial economic benefit to the State, and therefore is of 
keen interest to the government of Utah and its people. Also, 
because over \2/3\ of the land of Utah is owned and managed by 
the Federal Government, Federal land management policy for oil 
shale development will significantly influence both the methods 
and timing for development.
    In support of Federal responsibilities for oil shale 
development, there are several organizations within our State 
government that can play various and important roles. As I've 
previously mentioned, the Utah Geological Survey performs 
research and analysis of the State's mineral resources, and the 
technical professionals of the UGS will be particularly helpful 
for assisting with the national oil shale assessment described 
in section 369.
    Also within Utah's Department of Natural Resources are the 
Division of Water Resources and the Division of Water Rights 
that manage the water resources of the State and adjudicate in 
matters of water use. These agencies will also be able to 
provide information pertaining to the demand for and 
availability of water with respect to the development of oil 
shale.
    From what we understand of current oil shale extraction 
technology, water resources will play a big part in making such 
mineral extraction feasible. The State of Utah has recognized 
this for many years, and plans were made over 20 years ago to 
consider potential water needs for oil shale development and 
how those needs might be addressed. These plans will be 
addressed anew and updated as future proposals for oil shale 
development are considered.
    Another important agency within the Department of Natural 
Resources is the Division of Oil, Gas, and Mining. This agency 
conducts the permitting and monitoring of oil shale development 
as it relates to mining and extraction operations regulated by 
the Utah Mined Land Reclamation Act. It is likely that initial 
efforts to develop Utah's oil shale resources will be mining 
activities, and DOGM will oversee both exploration and 
development operations to ensure appropriate accounting, 
accountability, bonding, environmentally sound operations, and 
final land reclamation once extraction has ceased.
    There currently are no existing or pending oil shale 
operations permitted, of record, in Utah; however, there are 13 
existing and new permits on file with DOGM for tar sand 
exploration and for tar sand mining operations, and several 
industrial representatives have contacted DOGM expressing 
interest in future oil shale development operations.
    Of particular interest to our local governments and 
communities in Utah are the impacts that oil shale development 
will have on local infrastructure, community services, water 
resources, and other multiple uses of the land. We encourage 
Federal land managers to be contemplative and cautious in their 
planning for oil shale development to ensure that such impacts 
will be, in fact, addressed. At the same time, we recognize the 
need of the private sector to proceed expeditiously with 
business plans and development activities, and we, therefore, 
urge the Federal Government to timely process leasing and 
operational applications as they are received.
    One proposal has been recently accepted for a research, 
development, and demonstration project for oil shale 
development in Utah and should contribute significantly to the 
body of oil shale knowledge for many companies developing oil 
shale. This proposal, currently undergoing environmental 
assessment, would allow the winning bidder to re-establish 
operations at the inactive White River Oil Shale Mine in Uintah 
County, UT. I look forward to consultation with the Federal 
Government, State agencies, and local governments in Utah, as 
we move forward with environmental assessment on the ultimate 
consideration of project approval.
    In order to continue to support the efforts of the U.S. 
Bureau of Land Management, the State of Utah seeks, through a 
Memorandum of Agreement, Cooperating Agency status on the 
preparation of their Programmatic Environmental Impact 
Statement that they are conducting for larger-scale oil shale 
leasing. We are anxious for the prospect that these resources 
may be responsibly developed in the near future for the benefit 
of Utah and its citizens, and for America, for that fact.
    Our cautiously optimistic view is that many bridges must be 
crossed prior to full development, and that we will assist 
companies accomplish those crossings of the environmental, 
technological, and political divides consistent with existing 
law.
    Clearly, there is significant potential for oil shale and 
tar sands resources to become one of several alternatives for 
addressing future energy demands in the United States. Along 
with the many other mineral and energy commodities that Utah 
provides for America, oil shale will be needed at some point in 
the future in order to ensure economic prosperity and domestic 
self-sufficiency of energy resources.
    Finally, let me emphasize and point out that Governor 
Huntsman and myself believe that development of these resources 
can be performed with due protection of our environment while 
enhancing the quality of life for all Americans.
    I again thank you, Mr. Chairman, for the allowing me to 
address the committee. I have brought with me Mr. Mike Styler, 
our executive director of natural resources, and John Baza, 
who's the director of our Oil, Gas, and Mining Division. And at 
the appropriate time, we'd be more than happy to answer any 
questions you have for us. Thank you again, very much.
    [The prepared statement of Mr. Herbert follows:]
      Prepared Statement of Gary R. Herbert, Lieutenant Governor, 
                             State of Utah
    Mr. Chairman, members of the committee:
    For the record, my name is Gary R. Herbert, Lieutenant Governor of 
the State of Utah.
    I would first like extend my appreciation to Senator Domenici for 
the opportunity to address this committee and to Senator Ken Salazar 
for welcoming me to the beautiful State of Colorado.
    On behalf of Governor Jon M. Huntsman, Jr., I am honored to 
represent the Great State of Utah this morning regarding an issue we 
feel is an important component of our public policy agenda.
    The primary purpose of my visit today is to ensure this body that 
the state of Utah is supportive of sustainable development of the oil 
shale and tar sand resources within Utah.
    The Governor and I recognize that the guiding principles for such 
sustainable development align well with the objectives that we hope to 
achieve for the state, namely to: 1) promote economic prosperity, 2) 
encourage responsible environmental protection and 3) enhance the 
quality of life by addressing the social and cultural needs of the 
people of Utah.
    We applaud the work of the United States Congress for the passage 
of the Energy Policy Act of 2005 and for specifically addressing oil 
shale leasing in Section 346 of the Act.
    I am here today to indicate to this committee that the state of 
Utah stands ready to support, coordinate and collaborate with the 
federal government in carrying out the provisions section 346.
    Estimates of Utah oil shale resource potential by the Utah 
Geological Survey (UGS) exceed 300 billion barrels of oil in the ground 
and possibly over 20 billion barrels of recoverable oil. Development of 
these resources could represent substantial economic benefit to the 
state, and it is of keen interest to the government of Utah and its 
people. Also, because over two-thirds of the land area of Utah is owned 
and managed by the federal government, federal land management policy 
for oil shale development will significantly influence both the methods 
and timing for development.
    In support of federal responsibilities for oil shale development, 
there are several organizations within our state government that can 
play various and important roles. As I previously mentioned, the Utah 
Geological Survey performs research and analysis of the state's mineral 
resources, and the technical professionals of the UGS will be 
particularly helpful for assisting with the National Oil Shale 
Assessment described in Section 346.
    Also within Utah's Department of Natural Resources are the Division 
of Water Resources and the Division of Water Rights that manage the 
water resources of the state and adjudicate in matters of water use.
    These agencies will also be able to provide information pertaining 
to the demand for and availability of water with respect to the 
development of oil shale.
    From what we understand of current oil shale extraction technology, 
water resources will play a big part in making such mineral extraction 
feasible. The state of Utah has recognized this for many years, and 
plans were made over 20 years ago to consider potential water needs for 
oil shale development and how those needs might be addressed. These 
plans will be addressed anew and updated as future proposals for oil 
shale development are considered.
    Another important agency within the Department of Natural Resources 
is the Division of Oil, Gas and Mining (DOGM). This agency conducts the 
permitting and monitoring of oil shale development as it relates to 
mining and extraction operations regulated by the Utah Mined Land 
Reclamation Act. It is likely that initial efforts to develop Utah's 
oil shale resources will be mining activities, and DOGM will oversee 
both exploration and developmental operations to ensure appropriate 
accountability, bonding, environmentally sound operations, and final 
land reclamation once extraction has ceased.
    There currently are no existing or pending oil shale operations 
permitted of record in Utah; however, there are 13 existing and new 
permits on file with DOGM for tar sand exploration and for tar sand 
mining operations, and several industrial representatives have 
contacted DOGM expressing interest in future oil shale development 
operations.
    Of particular interest to our local governments and communities in 
Utah are the impacts that oil shale development will have on local 
infrastructure, community services, water resources and other multiple 
uses of the land. We encourage federal land managers to be 
contemplative and cautious in their planning for oil shale development 
to ensure that such impacts will be addressed. At the same time, we 
recognize the need of the private sector to proceed expeditiously with 
business plans and development activities, and we, therefore, urge the 
federal government to timely process leasing and operational 
applications as they are received.
    One proposal has been recently accepted for a research, development 
and demonstration project for oil shale development in Utah and should 
contribute significantly to the body of oil shale knowledge for many 
companies developing oil shale.
    This proposal would allow the winning bidder to re-establish 
operations at the inactive White River Oil Shale Mine in Uintah County, 
Utah. I look forward to consultation with the federal government, state 
agencies and local governments in Utah on this environmental document 
and on the ultimate consideration of project approval.
    In order to continue to support the efforts of the U.S. Bureau of 
Land Management (BLM), the State of Utah seeks, through a Memorandum of 
Agreement, ``Cooperating Agency'' status on the preparation of their 
Programmatic Environmental Impact Statement that they are conducting 
for larger scale oil shale leasing.
    We are anxious for the prospect that these resources may be 
responsibly developed in the near future for the benefit of Utah and 
its citizens.
    Our guardedly optimistic view is that many bridges must be crossed 
prior to full development, and that we will assist companies accomplish 
those crossings of the environmental, technological, and political 
divides consistent with existing law.
    Clearly, there is significant potential for oil shale and tar sands 
resources to become one of several alternatives for addressing future 
energy demands in the United States. Along with the many other mineral 
and energy commodities that Utah provides for America, oil shale will 
be needed at some point in the future in order to ensure economic 
prosperity and domestic self-sufficiency of energy resources.
    Finally, I would be remiss if I did not point out that the Governor 
and I also believe that development of these resources can be performed 
with due protection of our environment while enhancing the quality of 
life for all Americans.
    I thank you again for the opportunity to address the committee and 
will answer any questions you may have at this time.

    The Chairman. Thank you very much, Governor, for your 
enlightening remarks.
    And now we'll proceed to Mr. Russell George.

   STATEMENT OF RUSSELL GEORGE, EXECUTIVE DIRECTOR, COLORADO 
                DEPARTMENT OF NATURAL RESOURCES

    Mr. George. Mr. Chairman, Senator Hatch----
    The Chairman. First, let me say that it was my privilege to 
be with you yesterday and to let a little bit of your wisdom 
and knowledge rub off. I wish I had more time to learn from 
you, but over time, perhaps we'll have that opportunity with 
further testimony and a further exchange of views. But thank 
you for your informed knowledge, and the information you share 
with us.
    Mr. George. Well, thank you. Mr. Chairman, Senator Salazar, 
good morning to you all and welcome to our home. I am Russell 
George, executive director of the Colorado Department of 
Natural Resources. As the lead State agency responsible for 
natural resource management, I appreciate this opportunity to 
present to you our latest thinking on oil shale, on behalf of 
our Governor, Governor Bill Owens.
    It was just about a year ago when we were last together in 
your Senate Hearing Room in Washington, DC, where I was able to 
present detailed testimony focusing on what worked and what did 
not work in the oil shale boom of the early 1980's, including 
Federal incentives, cumulative impact assessments, coordinated 
permitting, technology implications, and environmental 
concerns. It was my hope then, as now, that oil shale 
development will proceed in a fashion that will allow for 
adequate public review and comment, and regulatory oversight at 
the State and local level.
    Today, I would like to amplify those comments specific to 
the socioeconomic impacts of oil shale development, as well as 
issues related to water quantity and quality, and the need for 
power generation to development of the oil shale resource. I 
will do all of this with the caveat that many project specifics 
are unknown, and will be unknown until we see the permit 
applications in their detail.
    Now, I've already submitted much lengthier written 
testimony. I hope you have an opportunity to review it. I would 
also hope that it is soon available on your website for fellow 
citizens here and the rest of the public. So I will only 
summarize the key points in the short time that we have here.
    Let me say that Colorado, and certainly the Department of 
Natural Resources, is ready to be a full partner in the 
development of a resource that is both abundant and in the 
national interest. But of course there are buts, and here are 
some of the points that I would call standards or 
recommendations that we would like everyone to consider. First 
of all, both technology oversight and environmental oversight 
must be rigorous. We would expect development of this resource 
to use best available, best management practices at all times 
to minimize impacts. State and local needs must be anticipated 
and funded. Development on public land must be prioritized by 
resource and by region. The cumulative impact of mineral and 
energy development on both public lands and private lands need 
to be mitigated.
    The Department of Natural Resources has participated 
already in the development of the EIS for the RD&D parcels and 
will participate, either formally or informally, in the 
development of the programmatic EIS. The timeframe to meet 
Energy Policy Act requirements, as you may know, is 
extraordinarily tight. Because of potential impacts, our 
department will dedicate whatever resources are available and 
necessary to ensure that this programmatic EIS fully addresses 
the impacts to Colorado's environment.
    The Chairman. What if you don't have enough resources?
    Mr. George. I don't think that's an option, Senator. I 
think we need to marshal the resources. We need to rise to the 
occasion. This is here. It needs to be done. Colorado will do 
its part, somehow.
    The Chairman. All right. So you're telling the people that 
you have confidence that through the legislature of the 
Governor's office or elsewhere, whatever needs you think are 
necessary to do these overviews and oversights that you deem so 
important, they'll be there?
    Mr. George. I do believe that. I believe we have the 
Governor's attention and support, and we have the legislature's 
attention and support.
    The Chairman. And you also are telling this U.S. Senate 
that if it's not available, you will be the appropriate person 
to so say?
    Mr. George. And if it gets too large, I'll also come to you 
and say, please help me.
    The Chairman. That's what I'm talking about.
    Mr. George. We're in this together.
    The Chairman. That's what I'm talking about. If it's not 
there, it's not there, and you will claim it's not there; is 
that right?
    Mr. George. Of course.
    The Chairman. OK, thank you.
    Mr. George. Governor Owens has asked us to participate in 
the Department of Energy's Strategic and Unconventional Fuels 
Task Force that's in motion now. The task force will make an 
interim report to Congress on its activities to date, this 
month. A more formal plan for accelerating commercial 
development of oil shale will be delivered to Congress by the 
task force this November.
    Colorado has consistently supported the development of oil 
shale resources in western Colorado while ensuring that the 
projects are fiscally and environmentally sound, and that the 
communities do not incur extraordinary economic burdens.
    Oil shale leasing, on top of any existing energy 
development and changing land uses, which includes increasing 
tourism and recreation in an expanding urban population, all 
may put more pressure on an already fragile ecosystem and 
public temperament.
    Three things are essential: There needs to be a Federal 
statutory and regulatory scheme that provides support that is 
sustainable over an extended period of time, in order to 
encourage private sector investment; of course there needs to 
be a thorough ongoing environmental review process; and we 
think of great importance is that there exists a safety net for 
local governments that allows for growth to pay its way and 
allows front-end financing.
    Through the history of oil shale, we have learned a few 
things that we would prefer not to repeat. We should avoid 
processes that preempt or supercede local and State land use in 
the environmental permit processes. We should avoid the 
development of technologies without adequate oversight to 
ensure that public acceptance and the environmental 
compatibility exist. We should avoid a national effort that 
does not address the financial and infrastructure needs at the 
local level.
    The Chairman. I didn't get that.
    Mr. George. That at least from the national level, we 
should avoid creating financial hardship on our local 
communities. We need to build the infrastructure in the local 
communities to support the change that comes with developing 
this industry.
    The Chairman. OK.
    Mr. George. The true cost of the development of strategic 
resources, such as oil shale, must be evaluated, not only in 
the context of their technology and development costs, but also 
the costs and benefits to the community. Securing a safety net 
is the primary lesson of the last bust.
    So, we're asking that Congress consider a long-term life 
cycle of oil shale development, as it contemplates this renewed 
national oil shale effort. Only this view will portray the 
complete picture, so that the appropriate technological, 
environmental, and economic structures can be defined and 
funded for a successful long-term effort.
    I think most of us agree that there is a time for 
development of oil shale. It may be now, but I think the key 
that we want to keep in our minds is we really do need to get 
it right. If, for reasons that we could have avoided, we don't 
get it right this time, we don't take the time and deal with 
the enormous complexities it presents to us, and miss this 
chance, I would guess that we won't get another political or 
sociological chance for many decades to come.
    Over the last 20 years or so, it seems to me, we could have 
done more in anticipating what we had. A few companies did 
remain. Paraho continued their technical research, Unocal and 
Oxidental continued quietly to do their research.
    But as Federal, State, and local governments, we haven't 
done much over the last 20 years. We aren't ready for the 
demand that's here today, but we can get ready, and I think 
your energy bill gets us started. I think our willingness to be 
full partners and to help decide the right way to move forward, 
that if we'll take our time and do it right, we can really make 
this work over time and I think that's what we should do for 
our national policy.
    Thank you very much for this time.
    [The prepared statement of Mr. George follows:]
  Prepared Statement of Russell George, Executive Director, Colorado 
                    Department of Natural Resources
    Members of the Committee, Colorado Congressional members and staff, 
and local officials--welcome to Western Colorado. I am Russell George, 
Executive Director of the Colorado Department of Natural Resources 
(DNR). As the lead state agency responsible for natural resource 
management, I appreciate the opportunity to present our latest thoughts 
on oil shale development on behalf of Colorado Governor Bill Owens.
    In April 2005, I presented detailed testimony focusing on what 
worked and what did not work in the oil shale boom of the early 
1980's--including, federal incentives, cumulative impact assessments, 
coordinated permitting, technology implications, and environmental 
concerns. It was my hope, then as now, that oil shale development will 
proceed in a fashion that will allow for adequate public review and 
comment and regulatory oversight at the state and local level.
    Today, I would like to amplify those comments specific to the 
socioeconomic impacts of oil shale development, as well as issues 
related to water quantity and quality, and the need for power 
generation to develop of the oil shale resource. I do so with the 
caveat that many project specifics are unknown pending the submittal of 
permit applications.
                          background principle
    The State of Colorado has consistently supported the development of 
oil shale resources in northwest Colorado since the Arab Oil Embargo of 
the early 1970's. Our focus has been to ensure that the projects are 
fiscally and environmentally sound, and that the communities do not 
incur extraordinary economic burdens either before the boom or after 
any bust. As history has shown, if development pays its way, the 
community impacts are less if the projects do not materialize. With 
perhaps as much as two trillion barrels of oil locked in the shales of 
western states, it is important for federal, state and local 
governments to partner in the development of this vast resource.
    While we still do not know the specifics of the technologies and 
projects that may be pursued in the current research and 
commercialization cycle, we do know water availability, materials 
handling, power requirements, and transportation networks must be 
assessed in detail and the impacts mitigated in an appropriate and 
timely manner.
                           where we are today
    We have record coal production that is straining existing 
transportation networks. We have record natural gas production levels 
and ever increasing permit applications for natural gas development. 
The development of this resource has dotted the landscape, increased 
truck traffic on county roads, and access to the resource has impacted 
many private landowners where the surface and mineral estates are 
severed. Additionally, there is a growing public sensitivity to in-situ 
activities, such as fracking with ``proprietary fluids.''
    This development overlaps an area with increasing tourism and 
recreation opportunities and an expanding urban population. Oil shale 
leasing on top of this existing network of energy development and 
changing land uses may put more pressure on an already fragile 
ecosystem and public temperament.
    The federal Programmatic Environmental Impact Statement (PEIS) is 
underway, and the details will be critical. A prioritized use of public 
lands for the development of specific resources is essential. Federal 
financial support must be sustainable over several decades to encourage 
private sector investment. The environmental review process must be 
thorough. A financial safety net for local governments that allows for 
growth to pay its way, and allows front-end financing of infrastructure 
assessment tools and capital needs, is critical. Technology and 
environmental oversight must be rigorous, and developers must use the 
best available practices to minimize impacts. Environmental regulatory 
standards must be set in a way that addresses impacts in the Research, 
Development, and Demonstration (RD&D) phase as well as the commercial 
phase in order to achieve desired production levels. In addition, the 
cumulative impact of mineral and energy development on both public 
lands and private lands must be mitigated.
    DNR intends to participate either formally or informally, in the 
preparation of the PEIS. During the development of the PEIS, DNR will 
work with the BLM and other interested entities to ensure that the 
concerns expressed here are reflected and addressed in the PEIS. The 
timeframe for development of the PEIS is very aggressive because of the 
mandate established in the Energy Policy Act of 2005. This timeframe 
and the magnitude of the issue will result in additional demands on DNR 
staff. We are prepared to spend the resources necessary to participate 
in the development of the PETS because of the importance of this issue 
to the residents of Colorado.
    During the past year my department has participated in the review 
and evaluation of the Research, Development, and Demonstration (RD&D) 
proposals submitted by industry to the Bureau of Land Management. The 
evaluation group included representatives of the governors of Utah and 
Wyoming, Department of Energy, Department of Defense, and Bureau of 
Land Management. Ten of the twenty proposals to demonstrate the 
commercial viability of oil shale were located in Colorado and five of 
those have advanced to the final stages of approval by BLM.
    Our State Geologist also worked with the State Geologist of 
Wyoming, with BLM personnel, and the Utah Geological Survey to develop 
the geologic setting and Reasonable and Foreseeable Development 
scenario for the initial stages of the Environmental Impact Statement 
for the area-wide commercial leasing of oil shale mandated in the 2005 
energy bill. The Department is also providing information and working 
with BLM during the development of this PEIS. Finally, my office has 
been working with the Department of Energy Task Force on Strategic 
Unconventional Fuels.
               development impacts and carrying capacity
    A key component of the socioeconomic impact of intense and rapid 
oil shale development is the cumulative impact of growth on the 
carrying capacity of the region. Given the density of natural gas and 
coal development in some areas of NW Colorado, the need for 
recreational/wildlife habitat/undeveloped areas, and the network of 
privately held oil shale lands that did not exist in the last boom, the 
federal government must determine those areas where oil shale 
development could be accommodated in a manner that is least disruptive 
to communities and existing activities. Not all types of resource 
development can occur everywhere. The carrying capacity of the land, 
communities and infrastructure must be evaluated. That will determine 
the suitable areas for coal, natural gas, and oil shale development--as 
well as realistic production scenarios.
    One type of mineral and energy development today, may preclude or 
limit another type of resource development tomorrow. We cannot forget 
that a consequence of the oil shale pull-out of the 1980's, and the 
sustained soft energy market in the 1990's, has been the transformation 
of the NW Colorado economy from an energy base to a tourism, 
retirement, second home and recreation base--and public attitudes have 
changed as well. That cannot be underestimated if accelerated 
development is to occur.
    The Department of the Interior should provide this cumulative 
impact analysis and identification of areas suitable for oil shale 
development as an element of any environmental review, leasing plan, 
and build out over time. Existing resource management plans may also 
need to be amended and impacts mitigated.
                       cumulative economic impact
    Once the development area is determined, a procedure must be 
established to evaluate economic impacts at the local level. The 
federal government should fund, either through a bonus bid process or 
other authorizing legislation, a process to analyze the cumulative 
financial impacts of multiple and simultaneous resource development. 
This analysis would not only guide the timing of needed permanent and 
temporary community services and infrastructure, but also allow local 
governments to establish fiscal tools that would insure that growth 
could pay its own way.
    To assess the fiscal impact to individual communities and counties 
in high development areas, it is essential to model the budgets, 
revenues and expenditures of affected jurisdictions in northwest 
Colorado. The key task would be to determine what projects would cause 
what economic impacts to what jurisdictions in what years based on 
different population and development scenarios.
                      financial impact mitigation
    Another component of socioeconomic impacts is the financial burden 
to local economies to mitigate those impacts. Along with an oil shale 
lease process that generates production royalties for the federal 
government, the 1970's concept of the front end bonus bid should be 
applied to any oil shale leases.
    The federal government leased two tracts in each state--Colorado, 
Utah, and Wyoming-in the early 1970's. Bonus payments accompanied each 
of these leases that determined the winning bid for the lease. Half of 
those bonus payments were distributed back to the state. The Colorado 
General Assembly established the State Oil Shale Trust Fund and Program 
which developed planning and coordination mechanisms for federal, 
state, and local governments and provided funding for designated local 
government services and projects ($100+ million). This economic cushion 
is essential to community stability, and the ability to withstand the 
economic shock of a project termination. The federal leasing program 
should include front-end financing for infrastructure needs and impact 
mitigation--with the objective to mitigate the ``boom town'' syndrome.
    The federal government should not subsidize private investment by 
foregoing revenues that would mitigate financial impacts at the state 
and local level. If favorable tax and royalty terms in the early years 
are necessary, the federal government must identify the alternative 
source of state and local impact mitigation funds. A cumulative 
economic assessment will determine the necessary amount. This analysis 
would identify major infrastructure requirements, including roads, 
sewer, water supply and storage, schools and key government services. 
The investment of industry funds to mitigate these impacts should 
coincide with the project development schedule. Industry funds should 
also finance the local government planning and permitting requirements. 
It will also include the financial reserves necessary to maintain the 
services, facilities and infrastructure well before industry-generated 
revenues are available.
    If the federal government is willing to forego front-end revenues, 
a credit against future federal royalties for investment by operators 
in the socioeconomic and infrastructure needs identified by the 
affected state/local governments is another option. Make no mistake, 
this will still be a significant upfront investment by industry as well 
as lost federal revenue--but it would also send the money directly to 
the area in need in a timely and efficient manner. Provision of 
adequate funds should be a necessary and binding condition of any 
commercial lease.
    A condition for a project to move forward should be that no 
unfunded liabilities should exist for the affected local government. 
History has proven that low rate loans, loan guarantees and bonds are 
not practical, if the project and associated future revenues do not 
occur. Outstanding financial obligations by local entities are not an 
option. Upfront payment in full for the needed infrastructure and 
impact mitigation has been proven to be the only effective safety net 
if a bust occurs.
                     coordinated permitting process
    To fully understand the socioeconomic and environmental impacts of 
oil shale development, a coordinated and integrated permitting process 
is essential. The environmental and land use permitting process can be 
complex and time-consuming when all the local, state and federal 
requirements are considered. Coordinating the process is essential, and 
cannot be underestimated. For the requirements in place 20 years ago, 
the average timeframe to permit an oil shale project was about 42 
months. Some processes have become more complex since then--and 
certainly public interest is more organized and focused.
    As a reminder, the Colorado Joint Review process grew out of the 
concerns raised over the concept of the Energy Mobilization Board. That 
Board would have had the power to preempt local and state regulatory 
requirements in the national interest. The reaction in the west was to 
coordinate and streamline, not dismantle, the existing process. And it 
worked. Attempts in recent years to truncate the process have been met 
with public criticism and lawsuits. Such efforts have proven to be 
counterproductive to the goal of developing these important resources.
    Community acceptance is the only way to avoid what could be well 
organized and sophisticated opposition to oil shale development. 
Seeking, tracking and addressing stakeholder concerns and encouraging 
participation is essential for project implementation in the timeframe 
contemplated by Congress.
    Today's Colorado Coordinating Council is an option that the federal 
government should consider fully funding, or partially funding along 
with industry, to assure a rigorous review with adequate public input 
and consultation. A coordinated permitting process will reduce 
uncertainties by clarifying technical requirements, timeframes, lead 
regulatory agencies and public input.
    The outcome is a centralized facilitation of the permit process at 
the local, state, and federal level. The council would determine the 
timelines of the various required permits, coordinate the scoping 
process for the environmental impact statements, and facilitate public 
hearings and public comments. The overall coordination of the effort 
could allow for the application of several permits for an individual 
project to occur simultaneously.
                     power generation requirements
    According to the RAND report, an in-situ extractive type operation 
is estimated to consume 1,000 MW of dedicated electrical generating 
capacity for each 100,000 barrels of shale oil produced daily. The 
power requirements for the commercial base will be based on the 
technologies used.
    But, here is where we are today. Colorado's current permitted coal 
production capacity is about 48 million tons--about 10 million tons 
higher than current production. The Craig power Plant, at 1274 MW, uses 
5 million tons of coal annually. Therefore, the current productive 
capacity could fuel two Craig Plants. The key is rail transportation. 
We urge Union pacific and private investors to resolve those 
infrastructure needs. Increasing permit capacity at existing mines is a 
relatively routine process; construction of new coal mines--of which 
one may be in the works for northwest Colorado--could take several 
years to permit and construct.
    Xcel Energy tells us that their current system on the Western Slope 
is anticipated to be in balance for the next couple of years--with some 
supply relief when the Comanche 3 plant comes on line in 2010. The 
company intends to compensate for additional growth by buying from 
other regions--or building, if necessary.
                           water requirements
    Water will be required for communities, recovery processes, 
disposal and reclamation purposes. Requirements vary by technology, and 
will not become apparent until the RD&D applications are submitted. 
Colorado's permitting process requires a permit applicant to provide an 
estimate of project water requirements, to include flow rates and 
annual volumes for development, mining and reclamation. The applicant 
must also indicate projected amounts from each of the sources of water. 
It is yet to be determined if the public or the private sector will be 
required to develop the necessary water storage facilities if senior 
water rights are not available. It may be necessary for the federal 
government to play a significant role in defining, planning and 
constructing the necessary water storage and distribution systems.
    The U.S. Water Resource Council estimates that oil shale 
development will increase annual consumptive water use in the Upper 
Colorado Region by about 150,000 acre-feet per year for each million 
barrels (oil equivalent) per day of production, about a 3 to 1 ratio 
water to oil. The range given is 2.1 to 52 barrels of water per barrel 
of shale oil produced dependent upon the extractive technology used. 
The RAND report goes on to say that the availability of water in the 
region does not appear to be a ``constraining factor,'' but this 
statement is too simplistic. What certainly is a continuing factor is 
the water supply infrastructure.
                         air and water quality
    The permitting issues at the RD&D and commercial phases are yet to 
be determined based on the permit submittals. Probably the best 
overview of air and water quality issues is contained in the 2005 Rand 
Report. Let me summarize several of the issues that permitting agencies 
will review and applicants must mitigate.
    Air Quality. The proposed development regions are high quality 
Class II areas. Therefore, only moderate increases in ambient air 
quality pollution levels are allowed. Specially protected areas are 
within the Piceance Basin--including the Flat Top Wilderness Area.
    Oil shale operation emissions may emit pollutants currently on the 
list of air toxins by the Clean Air Act. The Rand Report recommends an 
approach in which emissions limits for initial plants are established 
so that future production can occur within the allowable PSD Class II 
and Class I increments. This could be useful input for the Programmatic 
PEIS and any work by the Air Quality Control Commission of the Colorado 
Department of Public Health and Environment.
    Water Quality. The regulatory structure for water quality is an 
evolving science for hybrid mineral and energy extraction methods such 
as those proposed in the first round of RD&D leases.
    SB 89-181 delegated authority to the Oil and Gas Conservation 
Commission and the Division of Minerals and Geology for ground water. 
Classification as a Designated Mining Operation will require an 
Environmental Protection Plan by the Division of Minerals and Geology. 
Drill hole casing requirements may be set by the Oil and Gas 
Conservation Commission for enforcement by the Division of Minerals and 
Geology. Class II, III and V underground injection wells will be 
subject to state or federal oversight depending on the type and liquids 
used. The Water Quality Control Commission will regulate surface water; 
and the Hazardous Waste Program may have oversight of waste disposal. 
So, the regulatory regime will be a function of the technology 
employed.
                               conclusion
    It is essential that Congress consider the life cycle of oil shale 
development as it unfolds its national oil shale effort. Only this view 
will portray the complete picture, so that the appropriate technology, 
environmental and economic structures can be defined and funded for a 
successful long-term effort. I look forward to working with you in the 
months ahead.

    The Chairman. OK. Thank you very much. If you have any 
questions, we're going to proceed to questions. Well first, 
you, distinguished Senator, you're first.
    Senator Salazar. Thank you very much, Mr. Chairman. Let me 
ask a question of both witnesses, Lieutenant Governor Herbert 
and Executive Director George. I would take it from your 
comments--I don't know if I'd call you Speaker George or just--
--
    [Laughter.]
    Senator Salazar. One of the big concerns is the impact to 
the local communities, and yesterday, when we were in Rio 
Blanco County, I know that there's a lot of development going 
on with respect to oil and gas in the Rio Blanco County, and I 
know that one of the concerns that I hear loud and clear from 
the commissioners in Rio Blanco County and other affected 
counties along the Western Slope is what's happening with the 
roads and what's happening with the infrastructure? And so I 
would like you to elaborate, if you can, on how it is that we 
might address some of those impacts as the oil shale research 
and development and potential commercial development moves 
forward.
    The Lieutenant Governor first, and then why don't we ask 
Mr. George as well.
    Mr. Herbert. Thank you, Senator. Before I was Lieutenant 
Governor, I was a local county commissioner, so I have a near 
and dear appreciation for local government and the challenges 
they face. And clearly, as we see this opportunity coming to us 
in Utah, some of our local communities are impacted 
significantly when it comes to the infrastructure. The big 
trucks, the rigs that come in and out of their communities are 
tearing up the roads.
    We are addressing that in Utah by a collaborative effort of 
at least, one, understanding the issue, seeing if, in fact, 
moneys can be put back into those regions, not only the regions 
where the extraction is sighted, but those regions where trucks 
and the traffic impacts are being felt, adjacent to that local 
community, whether that's a difference in realignment or a tax 
policy with mineral lease moneys, the sharing of moneys that 
are generated from this economic expansion. But put back in to 
keep the----
    Senator Salazar. Are you doing--excuse me, are you doing it 
in a manner, Lieutenant Governor, where the moneys that are 
being collected, whether they're through mineral lease revenues 
or severance stack, as you may have in Utah and I don't know 
whether you do, but those moneys are being directed to the most 
impacted of communities from the mineral development? Is that 
how you're trying to address it in Utah?
    Mr. Herbert. That's being discussed right now, as far as 
whether we need to change the tax policy in Utah, so that more 
money goes back to those regions which are directed. The 
severance tax and mineral release moneys are looked at as Utah 
moneys, but some of it goes back already. Whether there needs 
to be some additional money to go back into those areas for the 
impact that they're feeling is the discussion or the debate 
now.
    We also believe it's not just infrastructure, but it's 
impact on schools. There is the boom and bust cycle that people 
fear. We also think that money should be reinvested to broaden 
the economic opportunity, to broaden the base. Let's not just 
look at only natural resource extraction, but there's other 
areas that we can invest money into, so that when there is a 
downturn, it will be a soft landing and not such a bust that it 
hurts everybody, as has been experienced in the past 20 years.
    Senator Salazar. And that essentially is the security net 
that you were talking about, Executive Director George. Can you 
elaborate on the response to the question?
    Mr. George. Well, the Lieutenant Governor has it exactly 
right. I would add that one of the good things, one of the 
right things that we all did 20-some years ago was the use by 
the Federal Government of a bonus payment for the leases of 
public lands that were granted to the companies. That money was 
then paid, in part, to the State of Colorado. A General 
Assembly then took that money, deposited it in what we called 
the Oil Shale Trust Fund, a considerable sum of money. I recall 
something around $100 million at that time. Then the Board of 
that trust fund applied those funds to the impacted communities 
and this was mostly the towns, cities, and counties all across 
northwest Colorado. That money was then invested in the front 
end in order to build the infrastructure and did, in fact, 
provide an appropriate cushion, not knowing at the time we were 
going up when and how hard we would come down. But we did, as 
we all know. But, except for maybe one school district, I think 
virtually all of the local governments were substantially 
protected by the wisdom of how they invested those funds that 
came through those leased bonus payments administered through 
the Oil Shale Trust Fund. Some arrangement similar to that 
would be as appropriate today.
    Senator Salazar. OK. Let me ask one more quick question, 
because I know we have three more panelists to go through, on 
the issue of water. You know, I think Colorado, Utah, Wyoming, 
and New Mexico have always stood hand in hand with respect to 
our debate on water usage and allocation on the Colorado River. 
When we look at oil shale development in three of those States, 
we're looking at a significant increase in the consumption of 
water from the Colorado River Basin. Can you respond to the 
question of the sufficiency of water availability for oil shale 
development? And knowing your expertise in this, Mr. George, 
I'll ask you to respond to that question first.
    Mr. George. Senator Salazar, I think the most significant 
way I can describe what I think the water issue in the oil 
shale development is, is that the amount of water and the 
availability of water for the long-term development of oil 
shale is unknown and I think it's also unknowable. Now, that's 
pretty hard, but we can't know yet how much water is going to 
be needed for what purpose until we know what technology is 
going to used and what the water requirement for that 
technology is. We can't know about the amount of water 
necessary for reclamation until we know the extent of the 
development planned over a time period.
    So, I think it's only fair for us to call it like it is: 
it's unknown, it's unknowable. Nonetheless, we must position 
ourselves, as we do for all other things in this arid land we 
live in, to continue to be more efficient in our water use, and 
to continue to look for ways to develop storage, and therefore, 
increase the availability.
    There are a number of water districts, conservation 
districts, conservancy districts. The Colorado Water 
Conservation Board are all hard at work today for a lot of 
reasons, trying to imagine how we can increase our storage 
capacity, increase our availability of water in this part of 
the State, while not shorting our neighbors in the Upper Basin 
and in the Lower Basin, so that we can also, over the same time 
period, comply with the Colorado River Compact.
    We're bringing more and more resources at the State level 
to bear on this issue. My guess is that over time as oil shale 
develops, the need for expending resources on water storage and 
transportation structure will be greater than we can afford 
locally and with State support, and we may need Federal 
assistance and support developing those water resources over 
time.
    Senator Salazar. Maybe just a comment, more than anything 
else. You know my understanding has always been, as I worked on 
Colorado River Compact issues, that Colorado's entitlement 
still allows us to develop somewhere between 500,000 at a very 
low end, to above 1,000,000 acre-feet of water a year. That's 
Colorado's entitlement. I would assume that, as you think about 
it as executive director to the Department of Natural 
Resources, the quantum of water--that some of that quantum of 
water may, in fact, be available for oil shale development.
    Mr. George. I agree totally with your statement, Senator 
Salazar.
    Mr. Herbert. Can I just add to what Russell has said? I 
agree with what he said, from Utah's prospective, he mentioned 
we learn from history. I think we are into history and we want 
to make sure we don't make mistakes of the past. But we also 
learn from history that technology has a way of evolving to 
meet the demands and the needs of the marketplace. I know there 
is technology out there that is going to be using less water, 
maybe no water at all, and I expect that technology will be 
pressured to evolve as market pressures occur.
    I also believe that conservation is becoming much more a 
way of life, certainly in my State, than ever in the past. And 
Utahans would probably trade the less long for lower gasoline 
prices. So there's probably some tradeoff that will occur in 
the marketplace as we respond to what's available out there. 
Technology has always been our savior and I think it will be 
our savior in the future. We need to do our part with the 
conservation, but I believe that as we move proactively into 
the future, we will solve the issues working together.
    The Chairman. Let me ask you, Mr. George, I don't think 
that people quite visualize what I'm seeing up here, but I keep 
looking up like this, because I can't see his name plate and I 
hope you understand. And that's just the way they've got this 
podium constructed. Maybe that's not the way they do their 
regular meetings.
    [Laughter.]
    Senator Salazar. I think the people of Grand Junction are 
just very tall.
    [Laughter.]
    The Chairman. I mean, I served on as a mayor for a long 
time, and I wouldn't have been able to see.
    Anyway, now let me get it straight, and let's see if all 
these people out here get it straight. Sir, you're in charge of 
evaluating these various projects, programs, activities that 
relate to shale?
    Mr. George. Yes.
    The Chairman. And you just got through telling the people 
of Colorado, as the principal advisor to the Governor of the 
people, you're the one that looks at the programs and projects, 
as they appear; right? That they'll promote them and propose 
them, and you will look at them, evaluate them, and see how 
they fit with the availability of the resources for the people, 
and then you'll square with the people on the impact of the 
application, if implemented; is that correct?
    Mr. George. That is correct, Senator.
    The Chairman. All right. And so far, what you're telling 
us, everything seems OK, because you will see to it that the 
projects and the project needs, as evaluated, versus the 
availability of resources will be properly presented such that 
you will either have the resources or you won't; is that 
correct?
    Mr. George. Yes, sir.
    The Chairman. That's why you say we may have it and we may 
not, and we don't know. That's why you made that kind of 
statement, which sounds kind of like you don't know anything.
    [Laughter.]
    Mr. George. But, the matter is--
    The Chairman. You know a lot.
    [Laughter.]
    The Chairman. Thank you everybody.
    Mr. George. Senator, you probably just gave away my 
lifelong political secret.
    [Laughter.]
    The Chairman. Anyway.
    Mr. George. May I respond?
    The Chairman. Yes, please do.
    Mr. George. I agree totally with your statement and I would 
like to amplify it this way: More in this discussion than maybe 
many other things we do, we really are all in this one 
together. And I mean you folks on behalf our Federal 
Government, me here as today's spokesman for State government, 
and all of our friends and neighbors here, speaking on behalf 
of local governments, and all of us as citizens. This is going 
to happen. It needs to happen. There are all kinds of world 
reasons why this needs to happen. You're going to hear that 
again and again. You've already started the day that way. So my 
point is that of course we'll do it, that's our responsibility.
    The Chairman. Right.
    Mr. George. And we do it either as regulators, or we do it 
as partners without regulation and law, but we will, together, 
get it done right. Thank you very much.
    The Chairman. But it is not expected that anybody knows all 
of the answers yet.
    Mr. George. Thank you.
    The Chairman. That's the point. And we will hear from the 
head of a very refined project that is being developed over 
time, with a lot of resources, by Shell Oil. They're going to 
tell us how they're proceeding. They're doing it with very, 
very delicate research, so that they evaluate step by step and 
they have lots of answers. And everybody should know, their 
answers are being evaluated versus an enormous investment, so 
they're not expecting wrong answers, they're expecting right 
answers; right? Invest $50 million, you expect what the 
scientist told you is right. You expect to invest $500 million, 
you expect the answer is probably right; right?
    You know, in my opening remarks, I said it could literally, 
quote, shake the world. Did you hear that?
    Mr. George. I did.
    The Chairman. Well, I wasn't kidding. What we're talking 
about could shake the world, because if those currently 
producing energy oil conventionally find out this is going to 
work, it could shake the world; right? And I clearly don't know 
whether it's going to happen, but from what I am figuring out--
I'm not totally foolish, I think it's going to happen. And for 
those people that wonder why it didn't happen last time, I want 
to just remind you of one thing: Just remember what the price 
of oil was. That's the big difference. The price of oil was so 
cheap and now it's so high. That's a very big difference in 
terms of making it feasible, that certain things will fit.
    Having said that, unless Senator Hatch has a question, I 
have no further questions other than one last one. You said you 
will have to have continual oversight. That was a statement you 
made, I wrote it down. Again, for the record, for the Federal 
Government, as a spokesman for the people of the State of 
Colorado and working through the Governor's office, there is no 
question, in your mind, that you are provided with adequate 
resources in both professional and actual resources, to do that 
job. Even when you are working up against, and in conjunction 
with, very wealthy companies, you are not lacking in 
confidence. Is that a fair statement?
    Mr. George. Senator, we have the responsibility as the 
State regulator of this industry, to be able to meet the 
challenge and we will run as fast as we can to stay on top of 
it. That is our expectation and our promise.
    The Chairman. OK. Thank you. I don't have any further 
questions. You're excused.
    Mr. George. Thank you very much.
    Mr. Herbert. Thank you.
    The Chairman. Now, we have the county commissioners. If 
you'd please come up, we'd appreciate it. Chairman of the 
County Commission of Rio Blanco, is that Mr. Kim Cook?
    Mr. Cook. Yes, sir.
    The Chairman. Yes, sir. Mr. Cook, you're right there. And 
we have Mr. Mike McKee, chairman of the County Commission of 
Uintah County. And then, we have Craig Meis, county 
commissioner, Mesa County, Grand Junction. All right, you're 
all there. You all know the game plan? Your testimony will be 
made a part of the record as if you read it and you can deliver 
it in the time provided by the committee. Please proceed, 
starting with you, Mr. Cook.

STATEMENT OF KIM COOK, CHAIRMAN, COUNTY COMMISSION, RIO BLANCO 
                           COUNTY, CO

    Mr. Cook. Mr. Chairman and members of the committee, my 
name is Kim Cook, county commissioner of Rio Blanco County, CO. 
I am here today to present testimony on behalf of my county and 
two organizations that Rio Blanco County is a member of--Club 
20, a community-based organization representing cities, 
counties, businesses and citizens throughout western Colorado; 
and the Associated Governments of northwest Colorado, also know 
as AGNC. And AGNC represents the cities and counties in the 
five-county region of Mesa, Garfield, Rio Blanco, Moffat and 
Routt Counties.
    I would like to begin my remarks by referring back to 
comments made by AGNC before this committee last year, when we 
gave the overall impression that local governments were pleased 
with the research course that the Federal Government was taking 
during this time of oil shale development.
    In fact, not much has changed in the minds of AGNC members 
since then. We still believe oil shale presents an opportunity 
to provide a secure domestic fuel source. And since more than 
80 percent of the oil shale resource is located on Federal 
lands and since that future development is driven by national 
interests, we continue to believe the Federal Government must 
play a lead role in addressing the socioeconomic and 
environmental impacts and costs. We naturally do not want to 
see local governments and local taxpayers burdened with the 
costs of new infrastructure and the mitigation of environmental 
impacts.
    As an example, and turning to what may be the foremost Rio 
Blanco County concern, you must travel on my county's roads to 
reach all of Colorado's oil shale RD&D leases. These roads have 
no base, or at best a shale base, and they were never designed 
for the heavy energy traffic we are currently experiencing due 
to gas drilling, and expect to receive from oil shale 
development.
    To reconstruct just 1 mile of paved road so that it is 
designed to carry heavy loads currently costs approximately $1 
million per mile. And with 65 miles of paved roads in the 
Piceance Basin at present and the possible need for more 
asphalt roads in the future, that is a cost that cannot be 
borne by Rio Blanco County's 6,500 citizens.
    Another example, turning from infrastructure to personnel, 
would be State troopers. Rio Blanco County used to have four 
State troopers located in our county, two at each end. 
Currently, we have none. If you have an accident on State 
highways in my county, you're a long time waiting for a state 
trooper to come by. So our county sheriff is burdened with 
covering the State function. That's my point. There's going to 
be needs, not only with infrastructure, but with personnel. 
Whether it be additional Federal personnel at the BLM level to 
do their work, or at the State level with State troopers or 
others, there's infrastructure and personnel needs as well.
    My county is concerned that efforts to incentivize the 
unconventional fuels industry, could negatively effect state 
and local revenue streams, as well as impact funds which are 
currently utilized to mitigate conventional natural gas 
development. We are further concerned whether adequate impact 
funds would be allocated by the Federal Government for the 
mitigation of impacts which will occur as a result of 
unconventional fuel research development.
    It's our hope that efforts to streamline regulatory 
approval of projects does not circumvent the intent of the 
regulations, but focuses instead on providing adequate funding, 
staffing, and cooperation to enable the regulatory agencies to 
do the necessary work in a timely fashion. In some, we prefer a 
deliberate and reasoned approach to oil shale development, 
which avoids a gold rush of speculators and opportunists, and 
instead, leases public lands on the basis of promising 
technologies.
    Wrapping up, I would like to return to a final AGNC 
concern, and that is with regards to funds being accumulated in 
the U.S. Treasury through the oil and gas lease payments that 
are occurring at the Naval Oil Shale Reserve lands, also known 
as the NOSR lands.
    Last year, we reported to you that, according to a letter 
from the Department of the Interior, some $44 million may be 
accumulated by March 2007 in the U.S. Treasury account from the 
current national gas leases on those NOSR lands. Those lands 
were transferred by Congress from DOE to the Department of the 
Interior with a congressional price we established for natural 
gas leasing.
    Some of those funds, approximately $6 million, are 
earmarked for an environmental clean-up of the Anvil Points 
spent shale pile. Otherwise, we believe Congress has the 
opportunity for the remainder of these funds to be made 
available to address the socioeconomic and environmental 
aspects of oil shale development here in northwest Colorado.
    In the future, still more revenues should be available from 
this source and we would appreciate Congress establishing a 
priority to address oil shale and other energy development 
impacts in northwest Colorado from these leasing revenues.
    Attached to my testimony is also an oil shale policy 
resolution from Club 20. You will notice that it is a very well 
thought out and balanced policy, in spite of the cheap shot 
taken by the editorial writers in today's local newspaper. I 
think you'll see that as a policy that meshes well with the T-
shirts that you see in this audience this morning: Take It Slow 
on Oil Shale. That policy supports the RD&D leasing program and 
it appreciates the involvement and participation of local 
governments in both the DOI oil shale leasing program and the 
DOE Strategic Fuels Program.
    Thank you to the committee for holding this field hearing 
here in Colorado. I will attempt to answer questions later. 
Thank you.
    [The prepared statement of Mr. Cook follows:]
     Prepared Statement of Kim Cook, Chairman, County Commission, 
                         Rio Blanco County, CO
    Mr. Chairman and Members of the Committee:
    My name is Kim Cook, County Commissioner of Rio Blanco County, 
Colorado. I am here today to present testimony on behalf of Rio Blanco 
County and two organizations that Rio Blanco County is a member of Club 
20, a community based organization representing cities, counties, 
businesses and citizens throughout Western Colorado; and the Associated 
Governments of Northwest Colorado (AGNC), which represents the cities 
and counties in the five-county region of Mesa, Garfield, Rio Blanco, 
Moffat and Routt.
    I would like to begin my remarks by referring back to comments made 
by AGNC before this committee in April 2005, when we gave the overall 
impression that local governments were pleased with the course that the 
Federal government was taking during this time of oil shale 
development. We further commented on the need for supporting local 
governments' ability to mitigate socioeconomic and environmental 
impacts.
    In fact, not much has changed in the minds of AGNC members. We 
still believe oil shale presents an opportunity to provide a secure 
domestic fuel source. And, we still believe that since more than 80% of 
the oil shale resource is located on federally-owned public land and 
recognizing that the future development is driven by national 
interests, the federal government must play a lead role in addressing 
the socioeconomic and environmental impacts and costs. We do not want 
to see local governments (and local taxpayers) stuck with the costs of 
new infrastructure and the mitigation of environmental impacts.
    As an example, you must travel on Rio Blanco County roads to reach 
all of Colorado's oil shale RD&D leases. These roads have no base, or 
at best a shale base, and were never designed for the heavy energy 
traffic we are currently experiencing due to gas drilling, and expect 
to receive from oil shale development
    To reconstruct one mile of paved road so that it is designed to 
carry heavy loads currently costs approximately $1 million. With 65 
miles of paved roads in the Piceance Basin at present and the possible 
need for more asphalt roads in the future, that is a cost that that 
cannot be born by Rio Blanco's 6500 citizens.
    Rio Blanco County has concerns related to the initial DOE report to 
Congress on ``Development of America's Strategic Unconventional Fuels 
Resources.'' Efforts to develop ``A fiscal regime that improves 
attractiveness of capital investment through tax and royalty terms in 
the early years'' need to provide adequate compensation to state and 
local funds which would normally use these revenue streams to mitigate 
development impacts. Proposed incentives to industry relating to 
royalties, severance tax, and property tax are likely to be detrimental 
to current sources of local revenue available to mitigate impacts and 
develop local infrastructure. Allowing capital costs for unconventional 
fuels to be expensed or depreciated on an accelerated schedule could 
also have a negative effect on local taxes derived from real and 
personal property. Likewise, production tax credits could negatively 
affect severance tax revenues which contribute to the Energy and 
Mineral Impact Assistance fund--our major source of grants for impact 
mitigation.
    Funding for socioeconomic impact assessment and community 
infrastructure planning and development is very important. This needs 
to be followed up with funding for implementation of these plans and 
for the operation and maintenance of the expanded infrastructure as 
well. Much of this region lies within the public domain and has low 
population density, both of which limit the ability of local 
governments to study and finance large scale improvements. Therefore, 
establishing a federal impact fund and/or a local/regional trust fund 
for the mitigation of impacts is critical to local government efforts 
to mitigate impacts and create new infrastructure.
    Rather than cutting corners in ``streamlining'' regulatory 
processes or gutting existing processes and procedures, the integrated 
program plan should allocate funds to provide levels of staffing to 
these agencies (BLM, FERC, EPA, etc.) which are adequate to produce the 
needed throughput in the desired timeframes. Cooperation between intra-
agency regions (i.e.: BLM White River Field Office and Vernal Field 
Office) as well as between agencies should not only be streamlined but 
required. Be careful in granting regulatory agencies quasi-judicial 
powers; placing such power in federal agencies risks the loss of local 
participation in the decision making process. The Colorado joint review 
process is a model to be encouraged for interagency cooperation.
    The Colorado-Wyoming-Utah transportation network needs study and 
funding to develop efficient and time-effective routes between 
development sites, communities, and markets. Interstate traffic, even 
in the current natural gas development boom, follows inadequate and 
circuitous routes throughout this region. State funding for maintenance 
of existing roads, much less the development of new roads, is not 
sufficient for the task. Significant interstate traffic is occurring on 
county roads which were never designed for such impacts and stretch 
limited county resources to maintain. Such a regional study in 
conjunction with the development of unconventional resources should 
involve state, federal, and local governments in planning, development, 
and funding.
    The future needs of the electrical power infrastructure in the 
Piceance Basin, considering the current conventional natural gas 
development and the potential oil shale need for in-situ heating, may 
be very significant and beyond the current capacity. The demand for 
electrical power might be best addressed in conjunction with other 
unconventional resources such as a coal gasification process to 
generate electricity. Rio Blanco and Moffat Counties have significant 
coal resources, current CO2 injection in the Rangely Weber 
Sand oil field, along with the need for additional electrical power in 
the Piceance Basin.
    Rio Blanco County hopes that research park development and 
community college training programs would be housed within the 
immediate locale being affected by the resource development, as these 
types facilities help grow and diversify the local economy and provide 
for the tax base of the local governments. Any community college 
unconventional resource programs should include Colorado Northwestern 
Community College.
    Finally, a small number of corporations within the industry have 
already invested significant private funds in oil shale research and 
development. Any new federal incentives and initiatives to accelerate 
the research and development process need to respect this investment 
and avoid inclusion of those corporations or companies operating in a 
more speculative and opportunistic fashion.
    One final AGNC concern has to do with the funds being accumulated 
in the U.S. Treasury through the oil and gas lease payments that are 
occurring on the Naval Oil Shale Reserve lands
    Last year we reported to you that in a letter from the Department 
of Interior, some $44 million may be accumulated by March 2007 in a 
U.S. Treasury account from the current natural gas leases on their NOSR 
lands. These NOSR lands were transferred by Congress from DOE to the 
Department of Interior with a Congressional priority established for 
natural gas leasing.
    Some of these funds, estimated at $6 million, are earmarked for 
environmental cleanup of the Anvil Points spent shale pile. Otherwise, 
we believe Congress has the opportunity for the remainder of these 
funds to be made available to address the socioeconomic and 
environmental aspects of oil shale development in Northwest Colorado.
    In the future, more revenue should be available from this source. 
According to industry estimates, additional leasing of the NOSR lands 
could produce leasing bonuses of up to $360 million (to be shared 50% 
federal and 50% state), plus ongoing production leases of an estimated 
$32 million annually for at least 20 years. That would be another $640 
million total also to be split 50/50, federal and state. Congress 
should establish a priority to address oil shale and other energy 
development impacts in Northwest Colorado from these leasing revenues.
    However, on December 15, 2005, Colorado State BLM Director Sally 
Wisely informed AGNC that, as of November 29, 2005, the Treasury had 
accumulated $37 million.
    This leaves only $7.25 million left to be collected. With recent 
increased gas prices, royalties are averaging $1.25 million per month 
over the past 11 months. At this rate, the remaining funds should be 
recouped by June 2006, nearly a year ahead of schedule.
    The Transfer Act states that the Secretaries of Interior and Energy 
must jointly certify to Congress that the monies have been recouped 
prior to making revenue available for distribution to the State of 
Colorado. As these funds should be recouped by June, DOI and DOE should 
currently be coordinating the certification process to Congress.
    We respectfully request that the Committee monitor the activities 
of these Departments in the coming months and push for the earliest 
possible release of these funds to the states upon certification, per 
section 7439(f)(2) of the Transfer Act.
    We believe this type of funding is necessary to make sure the DOE 
research and demonstration projects can proceed without interruptions 
from fluctuations in the price of oil.
    Attached to my testimony is an Oil Shale Policy Resolution from 
Club 20, which is the coalition of individuals, businesses, and local 
governments representing Western Colorado since 1953.
    As indicated in the resolution, Club 20 supports the current R&D 
leasing program underway to test various oil shale technologies. Three 
of the leasing applicants are located in Rio Blanco County--Shell, 
Chevron and EGL. Club 20 supports the conversion of these to commercial 
scale if the technology proves out.
    Club 20 also supports a prudently paced commercial scale leasing 
program including the Environmental Impact process now being initiated 
by BLM. We believe the carrying capacity provisions being considered in 
the EIS will help protect our Western Colorado air quality, water 
resources, wildlife, and socioeconomic values. Club 20 also supports 
the establishment of a commercial scale royalty credit, proposed by 
AGNC, to encourage companies to contribute to the mitigation of 
socioeconomic and environmental impacts. These mitigation efforts are 
very important to Rio Blanco County, where most of the development of 
federal oil shale resources will occur.
    Club 20 also appreciates the involvement and participation of local 
governments in both the DOI Oil Shale leasing program (with affected 
local governments designated cooperating agency status) and the DOE 
Strategic Fuels Program (with a local government representative as a 
member of the Task Force on Strategic Unconventional Fuels).
    I would like to thank the Committee for coming holding this field 
hearing here in Northwest Colorado. I would be happy to answer any 
questions you may have.
                                 ______
                                 
                  Attachment--Club 20 Oil Shale Policy
    oil shale, development and implementation of a national strategy
    WHEREAS the U.S. Department of Energy estimates that 800 billion to 
1 trillion barrels of recoverable oil may exist within the oil shale 
deposits of the Green River Formation in Northwest Colorado, Southwest 
Wyoming, and Northeast Utah (the bulk of which is located in 
northwestern CO) and this is the largest known deposit of oil shale in 
the world and one of the largest untapped hydrocarbon resources 
available for development, and
    WHEREAS CLUB 20 recognizes the potential value of this oil shale 
resource, and we also recognize the need to realize this value while 
sustaining the other existing social, economic and environmental values 
that comprise the overall quality of life in western Colorado; and
    WHEREAS oil shale development is important for our country's 
national security to supplement our nation's growing energy demand, and
    WHEREAS, without well-conceived research and development, this 
region may someday be faced with another crisis-oriented, commercial-
scale oil shale program;
    THEREFORE BE IT RESOLVED that CLUB 20 supports research and 
development efforts leading to an environmentally sound, socially 
responsible and economically viable oil shale program that will result 
in the efficient recovery of the resource, and
    BE IT FURTHER RESOLVED that CLUB 20 supports efforts by the U.S. 
Departments of Energy, Interior and Defense, in cooperation with State 
and Local governments, to continue to develop and implement a national 
oil shale strategy and urges that this strategy include the following:

          1) Incorporate a prudently-paced commercial scale leasing 
        program to allow time for adequate demonstration and testing of 
        experimental development technologies;
          2) Provide an opportunity for ongoing participation of 
        directly impacted state agencies, specifically including the 
        Department of Natural Resources and the Department of Health, 
        and local governments by designating them as ``Cooperative 
        Agencies'' and, in so doing, provide them additional 
        opportunity to observe and comment on the development of oil 
        shale in their area in addition to continuing the opportunity 
        for public participation.
          3) Update BLM's existing ``carrying capacity'' concept which 
        is included in current Resource Management Plans for a) air 
        quality, b) water quality and quantity, c) wildlife impacts, 
        and d) socioeconomic values to assure prudent development of 
        the oil shale resource in balance with these other values;
          4) Utilize the Colorado Joint-Review Process to facilitate 
        and coordinate the federal, state and local permit process;
          5) Support the existing BLM Research, Development & 
        Demonstration (RD&D) oil shale leasing program, and 
        specifically the conversion of successful technologies 
        (technologies which are environmentally sound, socially 
        responsible, economically viable, and which result in the 
        efficient recovery of the resource) to commercial scale leases; 
        and
          6) Encourage tax & royalty structures that result in timely 
        mitigation of impacts from development, including incentives 
        for ``up front'' industry contributions to state agencies and 
        local governments through establishment of a federal royalty 
        credit for these contributions.

    Adopted 4/1105
    Amended 3/31/06

    The Chairman. Thank you.
    Please proceed.

 STATEMENT OF MIKE MCKEE, CHAIRMAN, UINTAH COUNTY COMMISSION, 
                       UINTAH COUNTY, UT

    Mr. McKee. Good morning, Senator Domenici, Senator Salazar, 
and Senator Hatch. I'll just begin by saying I have great 
admiration for each of you personally and the tremendous work 
that you're doing, and I appreciate the opportunity to be able 
to take a few minutes and give a local perspective relating to 
oil shale, tar sands, and the energy needs that we have.
    The Chairman. Thank you.
    Mr. McKee. I might just begin by stating, as you aptly 
brought up this morning, the tremendous reserves found in the 
Green River Formation. You've mentioned the two trillion 
barrels, and Senator Domenici and Senator Salazar, you've 
mentioned the 500 million barrels, on the low end, of 
recoverable oil and up to 1.2 trillion barrels of oil in the 
same reserve.
    According to the Rand Report, at a mid-level range, at 800 
billion barrels, that would be enough to--if \1/4\ of the 
Nation's current energy needs were being--that would last the 
United States for 400 years. And of course, that would be 
coming from the Green River Formation of eastern Utah, western 
Colorado, and southern Wyoming.
    Uintah County, UT, generally is in support of this 
development. Much of our economy is derived from energy 
resources. I will say, though, we do have some reservations, 
and that will be the majority of my testimony. Particularly, 
most of that has to do with the financial implications.
    Uintah County finds itself thrust into the heart of 
national energy concerns. The fact that Uintah County contains 
tremendous energy reserves will forever change the county's 
economy and the lifestyles of its residents. The resources are 
critical to national interest, the development of these 
resources are inevitable, and the county's infrastructure and 
ability to provide services will be greatly impacted.
    Uintah County stands ready to assist the Nation in meeting 
its energy needs and will be willing partners with industry and 
government to do so. We recognize that oil shale development 
will improve our Nation's energy and economic security and 
benefit the country as a whole.
    We believe that it is in the Nation's interest to assist 
counties of origin with funding needs for planning 
infrastructure development, community impact assistance, and 
adequate services. Local communities must provide the public 
infrastructure, education, community services, utilities and 
roads at a level that exceeds its funding capabilities.
    Our area has already been highly impacted because of the 
number of oil and gas wells developed in our area. Nationwide, 
the Vernal BLM Field Office has processed the second highest 
number of application permits to drill--APDs--in the country. 
In the past 2 years, it processed approximately 1,400 APDs. It 
is estimated that this year there will be an additional 1,200 
APDs, moving to 1,500 APDs the following year. In addition, 
Uintah County has some of the richest tar sands in the United 
States. We believe that commercial tar sand production may come 
on line before oil shale production, thus adding to an already 
overburdened system. To meet these needs, there must be up-
front funding assistance to the counties for the planning and 
mitigation of impacts. Currently, there is no mechanism to 
provide this up front funding.
    Several key issues: Mechanisms for obtaining funding are 
not automatic; local communities must justify--sometimes we 
feel like we beg--to community impact boards on a project-to-
project basis; and costs are being incurred now, but receipts 
don't arrive until after production.
    The county is now facing the onset of oil shale and tar 
sand development. Failure to fund such impacts will not only 
prevent the county from meeting the needs of this expanding 
development, but will also reduce our ability to fund ongoing 
conventional oil and gas impact and production.
    Businesses not directly involved in energy development 
cannot hire an adequate work force, as they cannot compete with 
wages paid in energy development. The current lack of housing, 
particularly affordable and low income, is a factor in this 
issue. Thus, energy development can have some negative impacts 
to our communities in the sectors of our economy.
    Currently, both the Forest Service and the BLM are in the 
midst of new resource management planning. Management 
prescriptions in these plans with respect to wild and scenic 
rivers management will prevent future water development to meet 
needs for domestic, agricultural, and energy development. Wild 
and scenic river desigNation will have an immense negative 
impact on energy development in our area.
    One other thing that I would mention in connection with the 
resource management plans, the resource management plan in our 
area will--there should be a record of decision by toward the 
1st of the new year and oil shale is not really being 
considered in this resource management plan. I would suggest 
that funding mechanisms begin now, to begin an amendment to the 
plan already, so that oil shale can be developed in this 
resource management plan.
    Another key issue is payment in lieu of taxes. Currently, 
PILT dollars are reduced proportionately to the amount of 
discretionary funds received from mineral lease funds. In 
effect, this penalizes counties when mineral impact funds are 
received. Legislation should be enacted to resolve this 
discrepancy. In other words, local governments do not have an 
opportunity to use mineral lease funds, if we take direct 
involvement in using PILT dollars, and that is a tremendous 
disadvantage to local governments. If we could have some 
legislation to help us with that, it would be immensely helpful 
to us.
    Congress must provide incentives to industry and to conduct 
research and development activities in order to encourage 
timely implementation of commercial production.
    In summary then, just real quickly, there are four issues 
we would like to see: Some up-front funding for 
infrastructure--we feel like that's imperative; allow local 
governments to have direct access to mineral lease money 
without forfeiture of PILT with the resource management plans' 
and wild and scenic river designations would be a disaster, if 
we want to have tar sand and oil shale development.
    Thank you for this opportunity, I appreciate the time. 
Thank you very much.
    [The prepared statement of Mr. McKee follows:]
   Prepared Statement of Michael McKee, Chairman, County Commission, 
                           Uintah County, UT
    Chairman Domenici, members of the Committee, thank you for holding 
this hearing and inviting me to testify.
    With reservation, Uintah County finds itself thrust into the heart 
of national energy concerns. The fact that the County contains 
tremendous energy reserves will forever change the County's economy and 
the lifestyles of its residents. One could argue the benefits or 
negative impacts of such changes, but the fact remains that the 
County's resources are critical to national interest, that the 
development of these resources are inevitable, and the County's 
infrastructure and ability to provide services will be greatly 
impacted.
    Uintah County stands ready to assist the Nation in meeting its 
energy needs and will be willing partners with industry and government 
to do so. We understand that oil shale development will improve our 
Nation's energy and economic security and benefit the country as a 
whole.
    We believe that it is in the Nation's interest to assist counties 
of origin with funding needs for planning infrastructure development, 
community impact assistance, and adequate services. Local communities 
must provide for public infrastructure, education, community services, 
utilities and roads at levels that exceed its funding capabilities.
    Our area has already been highly impacted because of the number of 
oil and gas wells being developed in the area. Nationwide, the Vernal 
BLM Field Office has processed the second highest number of 
applications permit to drill (APDs) in the country. In the past two 
years it processed approximately 1,400 APDs. It is estimated that there 
will be approximately 1,200 applications this year and increasing to 
1,500 next year. In addition, the County has some of the richest tar 
sands in the United States. We believe that commercial tar sands 
production may come on line before oil shale production, thus adding to 
an already overburdened system.
    To meet these needs, there must be upfront funding assistance to 
the counties for planning, and mitigation of impacts. Currently, no 
mechanism exists to provide this funding.
                               key issues
    Mechanisms for obtaining funding are not automatic; local 
communities have to justify (beg) requests on a project-to-project 
basis.
    Costs are being incurred now. Receipts don't arrive until after 
production.
    The county is now facing the onset of oil shale and tar sands 
development. Failure to fund such impacts will not only prevent the 
county from meeting the needs of this expanding development, but will 
also reduce funding and impact ongoing conventional oil and gas impact 
and production.
    Businesses not directly involved in energy development cannot hire 
adequate workforce as they cannot compete with wages paid in energy 
development. The current lack of housing, particularly low income, is a 
factor in this issue. Thus energy development is negatively impacting 
other sectors of our economy.
    Currently both the Forest Service and the BLM are in the midst of 
resource planning. Management prescriptions proposed in these plans 
with respect to wild and scenic river management will prevent future 
water development to meet needs for domestic, agricultural and energy 
development.
    Congressional oversight is needed to insure that field offices are 
adequately staffed and that their policies and procedures are 
supportive of the provisions of the Energy Policy Act.
    Currently PILT dollars are reduced proportionately to the amount of 
discretionary funding received from Mineral Lease Funds. In effect, 
this penalizes counties when mineral impact funds are received. 
Legislation should be enacted to resolve this discrepancy.
                    local participation in planning
    EPACT 2005 calls for the involvement of local communities in the 
federal oil shale program planning process and for formal participation 
on the Strategic Unconventional Fuels Task Force. We are participating 
in the deliberations of the Task Force, and we commend the Committee, 
and in particular our own Senator Hatch, for the foresight to formally 
include the local communities in this process. We see this as the 
beginning of formal mechanisms by which local communities will have a 
strong voice in the planning and implementation process. We encourage 
this Committee to continue engaging the local communities as we move 
forward.
                           needs and concerns
    There are many issues that local communities face during periods of 
rapid and unrelenting growth. I could spend much of my time talking 
about such issues as insufficient and affordable housing, overstretched 
education and medical services, escalating public service costs, drug 
problems, inadequate jail space, and infrastructure demands. For 
example, Uintah County has approximately 1400 miles of maintained 
roads. We have another 4,589 miles of unmaintained roads. But in the 
end, it all comes down to a fairly simple matter; where do the revenues 
come from to satisfy the public needs and when do they arrive?
    The current lack of adequate mechanisms for providing revenues to 
meet the public obligations concerns me. Current mechanisms and 
formulas, revenue flows are insufficient to cope with impacts; and if 
nothing is done to remedy this problem lack of funds will overwhelm our 
local communities to cope in the future:
                   deficiencies in current mechanisms
    Most of the processes by which rural communities receive funding 
depend on the state or federal governments to first receive tax or 
royalty revenues from production or other commerce. The federal and 
state governments then return a portion of the revenues generated from 
this production or commerce to the counties.
    In times of rapid growth, distribution of these funds comes too 
late to be of any use during the ramp-up period. Even in times of 
steady economies, the process does not work very well. Some funds come 
with restrictions on where the resources can be allocated, tying our 
hands to addressing pressing issues that may not have been anticipated. 
Even more problematic is that the portion of wealth that is returned is 
insufficient to fully mitigate the impacts.
    We currently have limited mechanisms to receive up-front funds, 
ahead of the growth, that can be used for planning, infrastructure 
development and impact mitigation. If I could leave the Committee with 
one thought from this hearing, it would be that lack of early funds is 
at the root of the vast majority of socioeconomic impact issues. 
Solving this one issue will be the single biggest contribution this 
Committee could make to the socioeconomic well-being of these sparsely 
populated communities that find themselves squarely in the impact zone.
                context of solution is national in scope
    To put my suggestions in context, consider that we represent very 
small communities in a region that will experience unprecedented 
impacts. By fate of nature the single largest concentration of 
hydrocarbons found on earth are found within a few hundred square miles 
of the Green River geologic formation. This area is sparsely populated 
wherein only about 3% of the US population lives in the tri-state area 
of Utah, Colorado and Wyoming. The population in the direct impact area 
is less than 0.1% (one tenth of one percent) of the US population. As a 
consequence of this low population our states and local communities are 
highly limited in their capacity to financially absorb impacts from 
energy growth.
    Because the benefits of oil shale development are National in 
scope, we believe that it is in the broader National interest to help 
with the extraordinary impact costs that will come with such 
development. Oil shale development will improve our Nation's energy and 
economic security and will benefit the country as a whole. Most heavy 
equipment manufacturing and consumption of the energy will take place 
outside of the region.
    There is some urgency to addressing the issue of domestic energy 
supply. But in responding to this pressing need our immediate concern 
is the up-front funding needed for planning and impact mitigation, as 
well as for major and minor infrastructure projects.
     guiding principles for cost sharing impacts and infrastructure
    1. Because the federal government owns much of the resource, pre-
investment of funds that will directly lead to future federal revenues 
is consistent with good public policy.
    2. To truly share in the extraordinary costs, funds provided should 
not diminish future funds allocated to states and local communities.
    3. States, and especially local communities, should not be asked to 
take financial risks for the potential failure of projects. 
Indebtedness of all kinds needs to be avoided.
    4. Care needs to be taken that incentives provided to the industry 
do not have the effect of diminishing revenues at the state and local 
community level.
    5. Mechanisms should be established that give local communities a 
strong voice in the decision-making process, including program planning 
and recommendations for administrative and legislative action.
                    suggestions for funding sources
   For Counties to fulfill their responsibilities and more 
        formally begin the local planning process Congress needs to 
        provide an appropriation of funds to the Office of Petroleum 
        Reserves (OPR), the lead DOE office in the implementation of 
        the Strategic Unconventional Fuels Program. OPR would use a 
        portion of these funds as grants to facilitate the engagement 
        of communities in the Program Planning process. It is my 
        understanding that such a recommendation is being considered by 
        the Strategic Unconventional Fuels Task Force, and I am 
        encouraging this Task Force to adopt this recommendation.
   We will soon be encountering the need for long-lead time 
        infrastructure development. Water projects, new and improved 
        road systems, upgraded airports, power utilities, and possibly 
        a regional rail spur are examples of big ticket items that we 
        must plan for. One possible source of funds for planning and 
        early implementation, suggested by our colleagues from 
        Colorado, would be to redirect royalty funds from NOSR 3, now 
        totaling nearly $40 million, to the three states on a 
        reasonable formula. These funds have accumulated from current 
        production royalties on oil shale property, for the purpose of 
        reimbursing DOE for property improvements enjoyed by the 
        lessee. These would be one-time funds, but would be substantial 
        enough to fully engage--the communities in the process and 
        initiate some meaningful infrastructure development.
   In anticipation of the need for major infrastructure 
        requirements, we suggest creating an `investment bank' through 
        the federal Mineral Lease Fund, whereby roads, dams, utilities, 
        airports, possible financing for private railroads, and the 
        like could be funded. This approach would need to be properly 
        structured, but with increasing commodity prices creating 
        increased mineral lease royalties to the federal government, it 
        seems like good policy to use some of these funds to promote 
        development of additional royalty-bearing projects. This would 
        be truly an investment to provide future income.
   We understand the desirability of reducing royalty costs in 
        the early years of development to assist industry with early 
        project payback. However, we need to caution the Committee that 
        passing those deductions to the States would impact the ability 
        to provide adequate revenues for impact mitigation. If 
        patterned after other such proposals the future federal 
        royalties could be escalated to make up for early royalty 
        forgiveness. But these swings in revenues should apply only to 
        the federal portion; States and local communities need to count 
        on a steady flow of revenues, not less in early years, and not 
        necessarily more in later years.
   Coordinate with the US DOE to develop and implement an 
        integrated local and regional infrastructure plan that will 
        support efficient natural resource development, support 
        university and vocational training to provide a skilled 
        workforce, realize synergies among infrastructure requirements 
        for various conventional and unconventional fuels, and maximize 
        state and local employment opportunities.
                            recommendations
    PILT payments compensate Counties for the loss of taxing authority 
over surface acres and surface improvements. PILT does not address the 
impacts of mineral development. To compensate for mineral development, 
revenues from mineral lease funds are utilized. However, PILT 
legislation provides that for every dollar of discretionary funding we 
receive from Mineral Lease funds we must forfeit a dollar of PILT 
monies. It is our view that such an offset does not recognize the 
impacts of mineral development. Legislation should be enacted to 
resolve this discrepancy.
    When sharing of Mineral Lease Funds with the States was set up, it 
was intent that all of the funds would go to the area directly impacted 
by the mineral development. In Utah, it has been the policy that the 
entire State is an impact area, and much of the mineral lease funds are 
used for on-going expenses that bear little relationship to impacts 
from mineral lease development.
    We believe that the on-going impacts of energy development could be 
substantially mitigated if Congress were to clarify the intent of these 
Mineral lease funds, so that all, or a greater percentage of these 
funds would flow to the Counties of Origin. Along with the removal of 
restrictions in the PILT legislation these two actions would go far to 
mitigating the long-term impacts of oil shale development.
    There may be other legislative action needed at both the federal 
and state levels to mitigate the extraordinary public costs for oil 
shale development. I trust that as we move forward that we can offer 
our suggestions and that the Task Force and this Committee will be 
receptive to our suggested policy and legislative remedies.
    America's unconventional fuels resources, if developed 
expeditiously and in a sustainable manner that respects our environment 
and protects the needs and interests of affected communities, can 
contribute substantially to improving the nation's energy security, 
stimulate economic activity and growth, and assure adequate and 
affordable energy supplies for decades to come.
    In order to insure timely development of oil shale and tar sands, 
Congress must provide oversight to insure field offices are adequately 
staffed and their policies and procedures are supportive of the 
provisions of the Energy Policy Act.

    The Chairman. Thank you very much.
    Next, sir.

         STATEMENT OF CRAIG MEIS, COUNTY COMMISSIONER, 
                        MESA COUNTY, CO

    Mr. Meis. Thank you very much, Mr. Chair. First of all, 
welcome to Mesa County, Grand Junction, and northwest Colorado. 
I hope you've learned much about oil shale, natural resources, 
and natural resource development in our community during your 
trip. And I certainly hope you understood now why it's so 
special to us.
    I was added to your agenda late yesterday, so I'll give you 
a very quick bio of myself. My name is Craig Meis. I'm a Mesa 
County commissioner, and currently, the chairman of the 
Associate Governments of Northwest Colorado and a State-
appointed local representative of the Strategic Unconventional 
Fuels Task Force. I'm also a professional engineer, a graduate 
of the Colorado School of Mines in chemical engineering, and 
have worked with the energy industry for the past 15 years.
    I would like to submit for the record this brochure on Mesa 
County, along with this Socioeconomic Baseline Conditions 
Report that was commissioned by AGNC and dated November 29, 
2005. The purpose of the report was to identify and present 
socioeconomic indicators that may be used to evaluate the 
changes that might occur as a result of the development of oil 
shale resources in northwest Colorado.
    The baseline conditions are a benchmark of existing 
conditions within the geographic area studied. The geographic 
area encompassed by this report are Garfield, Mesa, and Rio 
Blanco Counties. Garfield and Rio Blanco Counties contain 
significant oil shale resources, while Mesa County is the 
regional trade center and is the location of many industrial 
support companies that are currently servicing the natural gas 
industry and will continue to support the oil shale industry.
    You have heard from Commissioner Kim Cook from Rio Blanco 
County about the direct impact concerns of oil shale 
development such as--you've heard from Commissioner Cook about 
the oil shale operations and those direct impacts. I want to 
share with you, quickly, some information about the indirect 
impacts, such as a potential population explosion of Mesa 
County, based on my experience, from future commercial oil 
shale development.
    Mesa County has, currently, a population of about 135,000 
people. We were one of the top 10 largest counties in the State 
of Colorado and one of the fastest growing. We are also the 
only county in the top 10 West of the Continental Divide in the 
State of Colorado. Our unemployment is at 3.7 percent, a full 
percentage point better than the national average, and for the 
first time since the inception of our County Workforce Center, 
we have been trying to recruit employees from outside our 
county and even outside our State to fill hundreds of job 
openings in northwest Colorado.
    Anyone who wants a job and is willing to work has a job, 
currently. Our local wages are increasing, along with housing 
starts. In short, Mesa County and northwest Colorado are doing 
very well, and in large part, due to the emerging natural gas 
development.
    This progress, however, has not come to Mesa County and 
northwest Colorado without its difficulties. Any increased 
development, whether it is a home, a cell tower, a gravel pit, 
a gas well, et cetera, causes an impact. But we, in northwest 
Colorado, have continued to try to address these impacts by 
finding ways to mitigate them collaboratively with the various 
industries, mainly through our State and Federal jurisdictional 
agencies, and even through our own land use planning policy.
    We are hopeful considering the development of tar sands in 
places such as Fort McMurray, Alberta, Canada, that we might 
learn from their experiences on how to plan for and operate 
within a potential population boom, and sustain a thriving and 
diversified economy.
    We, in Mesa County, are limited in lands available for 
private developments; 71 percent of our county is public lands. 
This is a mixed blessing, but certainly points out the obvious 
challenges moving forward with the potential population 
explosion on the horizon. Supply and demand is going to have a 
tremendous impact on our local economy.
    It is of no surprise to this committee that in northwest 
Colorado there are many skeptics with regard to oil shale 
development, as we have been down this road before. However, we 
do realize that the circumstances behind this journey are much 
different and we will remain cautiously optimistic, as we 
recognize that you understand the mistakes that were made in 
the past, based upon the actions and comments of the Strategic 
Unconventional Fuels Task Force in this Energy Subcommittee.
    In closing, I would like to leave you with one final 
thought, and one thing that I hope you'll take back to DC. We, 
in northwest Colorado, are currently playing a key role in our 
contribution of natural gas, coal, resources to the Nation. and 
are certainly willing to increase our national contribution 
with oil shale, presuming that it can be done in an 
environmentally responsible and mutually beneficial manner. But 
we must ask this subcommittee that you encourage our coastal 
States, where drilling bans have been in place since 1981, and 
our fellow Americans in Cape Cod that oppose wind turbines, to 
put forth their energy contribution to our Nation. This energy 
crisis is too big for any one energy resource and certainly too 
big for any one area of our Nation to carry the burden.
    We, in northwest Colorado, will not be a national sacrifice 
zone for energy development, just so Representative Sam Farr of 
California can make statements. And I quote, ``People don't go 
to visit the coasts of Florida or the coast of California to 
watch oil wells.'' Well, Representative Farr, they don't come 
to Colorado for that either. Without energy, none of us will be 
going anywhere.
    I appreciate your time, thank you.
    [The prepared statement of Mr. Meis follows:]
 Prepared Statement of Craig Meis, County Commissioner, Mesa County, CO
    First of all, welcome to Mesa County and Northwest Colorado. I hope 
you have learned much about oil shale, natural resource development and 
our community during your trip. I was added to your agenda this morning 
late yesterday so I will give you a very quick bio of myself. My name 
is Craig Meis, I'm a Mesa County Commissioner, currently the chairman 
of Associated Governments of Northwest Colorado, and a State appointed 
local representative of the Strategic Unconventional Fuels Task Force. 
I also am a professional engineer and a graduate of the Colorado School 
of Mines in Chemical Engineering with over 15 years experience in the 
energy industry.
    I would like to submit for the record this Socioeconomic Baseline 
Conditions Report dated November 29, 2005 and commissioned by 
Associated Governments of Northwest Colorado and suggest anyone else 
wanting to obtain a copy of this report go to AGNC.ORG. The purpose of 
this report was to identify and present socioeconomic indicators that 
may be used to evaluate the changes that might occur as the result of 
the development of oil shale resources in Northwest Colorado. The 
baseline conditions are a benchmark of existing conditions within the 
geographic area studied.
    The geographic area encompassed by this report are Garfield, Mesa 
and Rio Blanco Counties. Garfield and Rio Blanco Counties contain 
significant oil shale resources while Mesa County is the regional trade 
center and is the location of many industrial support companies that 
are currently servicing the natural gas industry and that will support 
an oil shale industry. You have heard (will hear) from Commissioner Kim 
Cook with Rio Blanco County about the direct impact concerns of oil 
shale operations but let me share with you quickly some information 
about the indirect impacts such as a potential population explosion of 
which Mesa County might experience from future commercial oil shale 
development.
    Mesa County is currently a population of about 135,000. We are one 
of the top 10 largest counties and one of the fastest growing in 
Colorado and the only County in the top 10 west of the continental 
divide. Our unemployment is at 3.7%, a full percentage point better 
than the national average and for the first time since the inception of 
our County Workforce Center we have been trying to recruit employees 
outside of our County and even our State to fill hundreds of current 
job openings in Northwest Colorado. Anyone who wants a job and is 
willing to work has a job. Our local wages are increasing along with 
housing starts. In short, Mesa County and Northwest Colorado is doing 
very well and in large part due to the emerging natural gas 
development. This progress however has not come to Mesa County and 
Northwest Colorado without its difficulties.
    Any increased development whether it is a home, a cell tower, a 
gravel pit, a gas well, etc causes an impact but we in Northwest 
Colorado have continued to try and address these impacts by finding 
ways to mitigate them collaboratively with the various industries 
mainly through our State and Federal jurisdictional agencies and even 
through our own land-use planning policy. We are hopeful considering 
the development of tar sands in places such as Ft. McMurray in Alberta, 
Canada that we might learn from their experiences on how to plan for 
and operate within a potential population boom and sustain a thriving 
and diversified economy. We in Mesa County are limited in lands 
available for private development since 71% of our County is public 
lands. This is a mixed blessing but certainly points out the obvious 
challenges moving forward with a potential population explosion on the 
horizon. Supply and demand is going to have a tremendous impact on our 
local economy.
    It is of no surprise to this committee, that in northwest Colorado 
there are many skeptics with regard to oil shale development as we have 
been down this road before however we do realize that the circumstances 
behind this journey are much different and we will remain cautiously 
optimistic as we recognize that you to understand the mistakes that 
were made in the past based upon the actions and comments of the 
Strategic Unconventional Fuels Task Force and this Energy Subcommittee.
    In closing, I would like to leave you with one final thought and 
the one thing that I hope you take with you back to DC. We in northwest 
Colorado are currently playing a key role in our contribution of 
natural gas and coal resources to the nation and we are certainly 
willing to increase our national energy contribution with oil shale 
presuming that it can be done in an environmentally responsible and 
mutually beneficial manner but we must ask this subcommittee that you 
encourage our coastal states were drilling bans have been in place 
since 1981 and our fellow Americans in Cape Cod that oppose wind 
turbines to put forth their energy contribution to our nation. This 
energy crisis is too big for any one energy resource and certainly too 
big for any one area of our nation to carry the burden. We in Northwest 
Colorado will not be a national sacrifice zone for energy development 
just so Rep Sam Farr of California can make statements and I quote, 
``People don't go to visit the coasts of Florida or the coast of 
California to watch oil wells'', well Rep. Fan they don't come to 
Colorado for that either but without energy none of us will going 
anywhere.
    Thank you for your time and consideration. I would be happy to 
answer any questions you might have.

    The Chairman. Pretty good. That took a smart engineer to 
come up with that.
    [Laughter.]
    The Chairman. We have another person with us that I failed 
to introduce. We have Derek Wagner. Derek, could you put up 
your hand? He represents Senator Allard and he's been with us 
on the trip. Senator Allard was unable to join us. He had 
committed himself prior to this trip, but he has genuine 
interest in the work, and I thought it be appropriate to 
introduce his representative to you and let you give him an 
appropriate round of applause. Thank you for being with us.
    Now, we're going to ask questions of the witnesses, 
starting with you, Senator, if you have any questions.
    Senator Salazar. Sure. Let me just ask a question of 
Commissioner Cook and Commissioner Meis. Impacts to the 
communities happen when you have natural resource development, 
whether it's mining, whether it's oil and gas development. We 
see a lot of that happening here in the West, here in Colorado.
    Both of your counties are affected a lot by what's 
happening with the development that is currently underway. Do 
we have the legal framework in place, that provides the revenue 
stream to your counties, and is able to deal with the impacts 
that currently occur?
    Let's start with you, Mr. Cook, because you come from one 
of those very rural, very remote areas that sometimes just 
doesn't have the kind of wherewithal other larger communities 
have.
    Mr. Cook. The current Colorado statutes in place do allow 
for some funding to come back to our county. Our county 
provides a huge percentage of the dollars, the Mineral Royalty 
and Lease Dollars that flow state and Federal coffers, but we 
are always making efforts to--we'd always like to see that 
dollar amount increased, because we believe we have needs 
significantly greater than the amount that does filter back to 
us. Fifty percent goes to the Federal level, then it goes down 
to the State, and by the time the State takes its share, 
there's not that much, we believe, that filters down to the 
local level. Where the true impact--the true, on-the-ground 
impacts are failed.
    Senator Salazar. So, you'd like to see a re-visitation of 
how those funds are allocated, so they actually are more 
connected to where the impacts are occurring; is that correct?
    Mr. Cook. That's correct. It would be nice if it would come 
straight from the Feds to the counties.
    [Laughter.]
    The Chairman. Start them there.
    Senator Salazar. Yes. Commissioner Meis?
    Mr. Meis. Thank you, Senator Salazar, for asking that 
question. This year, in the legislature alone, there were over 
12 attacks on severance tax with regard to special interests. 
Of course, they're seeing the windfall, if you will, that the 
State is seeing from the standpoint of Federal mineral leases, 
as well as severance tax. And so, of course, every special 
interest out there is trying to grab onto it. We of course, in 
local governments, are concerned with regard to those moneys 
being used for what they were intended for when those 
legislations were adopted, which was for energy impacts. So, we 
are concerned about that, but we are working diligently.
    We're happy to work with our local Department of Local 
Affairs, which is certainly helping in that cause. We've made 
some major changes, even within the statute, to change the 
process. So, hopefully, we will be able to get more of those 
moneys back to those areas of impact. But we do, I think, 
recognize that we're hoping to be more proactive in this next 
legislative cycle to go after more of those dollars versus 
continuing to fight the battle to defend them.
    Senator Salazar. OK. For both Mr. Cook and Mr. Meis, just a 
quick yes or no answer. Would it be fair to characterize that 
in your position as elected--part of the elected leadership of 
northwest Colorado and in your positions for the Northwest 
Council of Governments as well, you are cautiously optimistic 
with respect to the development of the oil shale resources and 
we should move forward in the examination of potential with 
caution, but move forward; is that an accurate position of Rio 
Blanco County, Commissioner Cook?
    Mr. Cook. Move forward with both eyes open.
    Senator Salazar. OK. Mr. Meis.
    Mr. Meis. Yes.
    Senator Salazar. OK. Thank you.
    The Chairman. All right. Nothing further. Commissioners, 
you are----
    Senator Hatch. Could I ask one question?
    The Chairman. Yes, indeed, Senator Hatch.
    Senator Hatch. I just have one for Mr. McKee that I'd like 
to ask. The BLM is conducting a programmatic EIS on oil shale 
and tar sands development. Part of that study is to consider to 
socioeconomic impacts on local communities. Do you believe that 
Uintah County, which you represent, will have sufficient input 
on that?
    Mr. McKee. Yes, we do. Thank you, Senator Hatch. We are at 
the table. We have cooperating agency status and so we will 
have definite input. Thank you.
    Senator Hatch. Thank you, Mr. Chairman. That's all I wanted 
to ask.
    The Chairman. Very good. Thank you. Thank you, 
Commissioners, it's good to have you here. Thank you.
    Mr. Cook. Thank you.
    The Chairman. Now we have four witnesses, and we're just 
about on time, so let's proceed. The first member of the panel 
is the CEO of unconventional resources at Shell Exploration and 
Production Company, Denver, CO, Mr. Stephen Mut. Second is Mr. 
Chris Treese, T-r-e-e-s-e, external affairs, Colorado River 
Water Conservation District, Lynnwood Springs. Third, John 
Baardson, B-a-a-r-d-s-o-n, chief executive officer, Baard 
Energy, LLC, Vancouver, WA. And Mr. Steve Smith, assistant 
regional director, The Wilderness Society, Denver, CO.
    We're going to proceed, starting from the left, with Mr. 
Stephen Mut. First of all, let me just state publicly, Mr. Mut, 
you have a very high position with a very powerful American 
energy company and are spending a great deal of your time on a 
project here, in this part of the world. And it has been 
imperative that we get to know you and we get to know your 
project.
    It is not one that is going unattended by many who are 
observing energy development in the world. It is not possible 
that you are doing what you are doing and that it not be known 
and that it not be looked upon and observed from the outside 
with astonishment at the idea, with the patents, and with the 
overall approach to the evolution of a potential for tar sands 
in this region. It is a commitment and a development that, if 
it reaches maturity, will indeed--could indeed do what I said 
in my opening remarks: shake the world.
    I don't think there's any doubt that you know that, in the 
depths of your analysis and in the depths of your 
recommendations to the Corporate Shell, in what they are doing 
in this area. We hope you will take a few moments to share what 
you can with the people of this area and, in the future, that 
on a regular basis you participate as publicly and as openly as 
possible with local officials about what you are doing, so that 
they, too, can share in what you perceive to be something very 
exciting.
    Having said that, we will start with you and proceed down 
the table. The microphone is yours, sir.

   STATEMENT OF STEPHEN MUT, PRESIDENT, SHELL UNCONVENTIONAL 
                  RESOURCES ENERGY, DENVER, CO

    Mr. Mut. Thank you, Mr. Chairman, Senator Hatch, Senator 
Salazar, and everybody else who has taken the time to come and 
listen today. I'm Stephen Mut with Shell Unconventional 
Resources Energy. I'd like to thank you all for the opportunity 
to update on our activities in oil shale, and particularly, for 
holding this hearing in Grand Junction on what could only be 
described as a spectacular day.
    I think I need one of those t-shirts--it's floating around 
the room--because Shell has been on a quarter-century journey 
to slowly and thoroughly investigate a new technology in the 
in-situ conversion process, a process that will turn oil shale 
into clean transportation fuels, natural gas, and gas liquids.
    We think it's the right technology, at right time, at the 
right place. The right place, because around here, within 100 
miles, is the most concentrated major resource for hydrocarbons 
on the planet. We think it's the right time, because oil is 
about $70 a barrel and partially responsible for some of the 
political strife around the world. And it is the right 
technology, because it's designed to capture and convert 
resources. It really couldn't be done in any other method, or 
using any other technology.
    For those of you who are unfamiliar with ICP, oil shale is 
a very immature precursor to oil and gas. It matures over 
geologic time with the heat and pressure that's afforded by 
burial. In a nutshell, what ICP does is advance the clock 
hundreds of millions--or tens of millions of years by 
inserting--we do that by inserting electric heaters into the 
subsurface, and warming the subsurface for 3 to 4 years.
    In the process, we crack apart very-long-chained complex-
carbon complexes into smaller molecules that can be vaporized 
at those temperatures, and move them as a vapor through the 
very small fissures and fractures that exist in the subsurface 
to a conventional well that can be brought to the surface. 
Because its material is lighter, it requires much less 
processing on the surface and has a much smaller carbon dioxide 
impact.
    The material that we do leave in the ground is heavily 
latent with metals. To bring it the surface would require 
significant processing and would have a significant carbon 
dioxide footprint. So we call this smart sequestration, 
because, quite clearly, the easiest carbon to sequester is the 
carbon you don't bring out of the ground in the first place.
    Because it's under in-situ, or underneath the ground, we 
have groundwater as an issue. We have to protect the process 
from groundwater, because a boiling water robs heat. We have to 
protect the groundwater from the hydrocarbons that are 
produced. We do that by forming a freeze wall, whereby we pump 
refrigerant into the subsurface, lowering the temperature, and 
form a vessel in which we do this work.
    For an update, you saw yesterday a significant project 
designing a--and building, constructing a freeze wall today 
that is of the size that can be easily scaled up to commercial 
size. Our next project, the only one before we'd be able to 
make a commercial decision, is the oil shale test, something we 
hope to do on a 160-acre plot, afforded by an R&D lease coming 
to us, hopefully, from the BLM leasing program sometime later 
this year. That's where we'll test every part of the technology 
together as an integrated unit. Again, it is sized to be scaled 
up.
    Senator Salazar talked about all three legs of something 
that's dear to us: sustainable development--profits, planet, 
and people. We've talked a little bit about the environmental 
impact, and a lot of discussion today has had to do with 
people. It'll be a huge impact on all the citizens of the 
United States, if a meaningful energy development were able to 
come from the oil shale.
    The greatest impacts, however, would be on the residents of 
Rio Blanco, Garfield, Mesa, and other parts of northwest 
Colorado, and eastern Utah. For years, we've been meeting 
neighbors, informing them of what our progress is on our 
research, and though we're years from making a commercial 
decision in the near-term, it's going to be time for us to 
begin talking about and opening a dialog about what the impacts 
of the commercial development could be.
    It's early, but the reasons for doing that are simple. We 
find that the best way to formulate a good answer is to work 
together as partners to find the answer, as opposed to 
presenting a solution and then working around the conflicts. 
So, in any major project, we find the more energy, the more 
time and the more money we spend up front, the better the 
solutions and the more economic the answers.
    I'm extremely proud to be part of a team that's working 
very hard, with patriotism being a driving force from many of 
the people that are working here. We want to do something 
meaningful with our careers, to make a real difference for the 
country. Many of us are making personal sacrifices to do so. 
We're happy to be a leader and to take on the headwinds that 
come with that sometimes. And we think that the Senate Energy 
and Natural Resource Committee is being a leader, too.
    I'd like to thank you, Mr. Chairman and Senator Salazar, 
for your leadership in bringing forth the energy bill last 
year, without which some of those key provisions we wouldn't 
have the driving force or the funding to be continuing the 
research that we have, at least at the pace that we are doing 
so. We do need to continue to help find a way to streamline 
permitting, as has been mentioned before, and quite 
importantly, to work on innovative ways to bring forward the 
cash-flow into the local communities, so that the 
infrastructure that's needed before production begins can be 
brought to the floor.
    Again, thank you for the opportunity to update the 
committee and the residents of this area. We're all partners in 
this great challenge. I really loved to hear the term 
partnership today, because that's what is needed. It's a 
challenge that can change the Nation's energy supply and 
balance, that can have a great impact on the trade deficit that 
exists today and spur on economic growth well beyond this 
three-State area.
    I'd be willing to take questions at any time.
    [The prepared statement of Mr. Mut follows:]
  Prepared Statement of Stephen Mut, President, Shell Unconventional 
                            Resources Energy
    Good morning, Mr. Chairman, Senator Hatch, and Senator Salazar. My 
name is Stephen Mut and I lead Shell Unconventional Resource Energy.
    As you know, for about a quarter of a century, Shell has been 
working to develop and to advance, hopefully to commercial success, an 
innovative technology which we are increasingly optimistic can open up 
the vast oil shale resources located in the Rocky Mountain area. This 
technology, once thoroughly proven, will allow Shell to produce clean, 
high quality transportation fuels such as gasoline, jet fuel and diesel 
as well as clean burning natural gas from oil shale in an economically 
viable and very environmentally sensitive fashion. Because the oil 
shale resource in the United States represents the largest, most 
concentrated onshore ``hydrocarbon'' resource on Earth, Shell's ICP 
technology holds promise for significantly increasing U.S. domestic 
energy production. When unlocked, this critical national asset will 
help to provide an energy bridge to 22nd century clean energy. If these 
resources are properly managed, there is the potential to reduce price 
volatility and political turbulence caused in part by tight energy 
supply-demand balances.
    As a diversified energy and petrochemicals company, Shell is 
investing heavily in a wide variety of energy sources, including 
renewables such as wind, solar, and hydrogen. We are making progress 
increasing the role those energy sources will play in the energy mix, 
but in the meantime America and the world will continue to need oil and 
natural gas to meet rapidly growing energy demand.
    For decades, energy companies have been trying, without success, to 
transform oil shale resources here in the West into affordable energy 
products. Oil shale can be found in large parts of the Green River 
Basin and is over 1,000 feet thick in many areas. According to DOE 
estimates, the Basin contains in excess of 1 trillion recoverable 
barrels of hydrocarbons locked up in the shale. It is thus easy to see 
why this vast resource has remained a target.
    In 1982 Shell commenced laboratory and field research on a 
promising in ground conversion and recovery process. This technology is 
called the In-situ Conversion Process, or ICP. In general terms the ICP 
process accelerates the natural process of oil and gas maturation by 
literally tens of millions of years. This is accomplished by slow sub-
surface heating of petroleum source rock containing kerogen, the 
precursor to oil and gas. This acceleration of natural processes is 
achieved by drilling many holes into the resource, inserting electric 
resistance heaters into those heater holes and heating the subsurface 
over a 3 to 4 year period. During this time very dense oil and gas is 
expelled from the kerogen and undergoes a series of changes that allow 
the lighter hydrocarbon products that are more mobile to move in the 
subsurface through existing or induced fractures to conventional 
producing wells from which they are brought to the surface. The process 
has the potential to produce a significant proportion of the original 
carbon in place in the subsurface--substantially more than the normal 
recovery efficiency of conventional oil and gas production. The carbon 
that remains in the subsurface resembles a char, is extremely hydrogen 
deficient, and if brought to the surface, would require extensive 
energy-intensive upgrading and saturation with hydrogen. We call this 
process Smart Carbon Sequestration because the easiest carbon to 
sequester is that which is not brought to the surface in the first 
place.
    Since 1996, Shell has successfully carried out five small field 
tests on its privately owned Mahogany property in Rio Blanco County, 
Colorado. In the most recent test conducted in 2004 and 2005, more than 
1,500 barrels of light oil plus associated gas were produced from a 
very small test plot using the ICP technology. We are pleased with 
these results, not only because oil and gas was produced, but also 
because it was produced in quantity, quality and on schedule as 
predicted by our computer modeling.
    As an update, Shell has commenced work on the first of two final 
tests needed to prove the technology commercially viable. The first of 
these is a purely environmental test of the capacity of our freeze wall 
technology to protect the groundwater system from the ICP process and 
the ICP process from the groundwater. We hope to replicate the results 
from our initial freeze test performed in 2003, this time by building a 
football field sized freeze wall that will extend down to commercial 
depths. This larger size and greater depth will give us sufficient 
information to allow us to confidently scale up to commercial size. 
Once the freeze wall is created and found to properly contain, we plan 
to stress test it to failure and then test various repair techniques. 
Over the next 18-24 months, we will gain sufficient knowledge to 
validate the adequacy of this technology in a commercial setting.
    Secondly, once the BLM completes its ongoing oil shale R&D leasing 
processes and issues the leases for which Shell has applied, we intend 
to proceed with permitting and then development of a small oil shale 
production test in which we would expect to produce 500-1500 barrels of 
oil and gas per day to validate our 24 years of research again at a 
size and in an area that would allow us to scale up to a commercial 
development.
    It is important to point out that the cost of all of these past and 
presently projected field tests has been entirely on Shell's dime and 
none of the projects have been underwritten by any governmental dollars 
whatsoever.
    When these two field tests have advanced sufficiently over the 
course of the next several years, we will have gained sufficient 
technical knowledge to validate the technology as an integrated unit. 
It is important to remember though, that we are still in a research 
mode and that any final decision on a commercial development would come 
near the end of this decade.
    Though the DOE estimates that this general part of the tri-state 
area may contain in excess of 1 trillion barrels of potentially 
recoverable hydrocarbon resources, or some four times the reserves 
found in Saudi Arabia, we at Shell say that it contains somewhere 
between zero and a huge amount of marketable energy barrels. On the 
upside, it is important to remember that technology and its limits will 
determine how much of this resource can be economically recovered. On 
the downside, we remind ourselves that ``Zero'' barrels is a 
possibility because no one has yet been able to develop oil shale on a 
sustainable commercial basis. In order to meet this challenge Shell or 
any other company must clear three distinct hurdles:

   Demonstrate that its recovery technology would be viable on 
        a commercial basis at oil prices lower than today's levels
   Demonstrate the capability for protecting the environment, 
        and
   Minimize socioeconomic impacts to surrounding communities 
        and their citizens.

    These criteria collectively translate into Sustainable 
Development---one of Shell's core principles. Stated more simply it 
means caring for People, the Planet, and Profits.
    Relative to protection of the environment, the ICP process has a 
number of positive attributes. Despite the fact that ICP requires 
substantial amounts of electricity, the reduced processing required for 
the lighter cleaner product mix when combined with sequestration of 
concentrated CO2 streams may result in a carbon dioxide 
footprint on par with and in some cases better than existing heavy oil 
production on a life cycle basis. The concentration of the resource 
leads to a smaller physical footprint and one that can be rather easily 
reclaimed. The in-situ nature of the process eliminates tailings piles. 
Process and cooling water needs are reduced relative to past efforts. 
Though it may not be as economic, we would likely move to air-cooling 
to reduce project water demand. Groundwater is protected by a robust 
freeze-wall. We are working to achieve a combination of these 
ingredients that will create an environmentally attractive package.
    Equally importantly, Shell is committed to working closely with the 
communities in this area first to identify issues and then to develop 
plans to address, in advance, the potential socioeconomic impacts of a 
commercial development. Even though Shell is still several years away 
from making a commercial decision, we anticipate commencing very early 
substantive discussions with a range of community stakeholders in this 
area to begin to analyze potential community impacts and to partner 
together to find solutions. We feel it is critically important to 
commence this more specific dialogue long before we make any firm 
decisions as to what a commercial oil shale project might look like. By 
doing so, we can jointly identify potential infrastructure and 
socioeconomic impacts that might arise from large-scale development and 
then jointly move forward to arrive at responsible and practical 
solutions to satisfy those identified needs. So later this year or 
early next, we hope to begin this collaborative process with area 
stakeholders. This will mean publicly identifying in nominal terms the 
potential size, scope and impact of a commercial operation. It will not 
mean that Shell has made any specific decisions because those are still 
years away. But just as in any commercial project, we find that 
spending more time, effort and money upfront with our stakeholder 
partners almost always results in a better and more fiscally sound 
development.
    Finally, we feel strongly that government has a significant 
leadership role to play in the development of oil shale. We feel that 
the leadership role for government is best channeled in four specific 
areas including:

   Providing access to Federally owned oil shale bearing lands,
   Removing unnecessary procedural obstacles that could delay 
        oil shale development by streamlining the permitting process 
        chain,
   Working with industry to develop innovative ways to provide 
        front-end assistance to local communities to match their 
        infrastructure investment needs as opposed to the back-end 
        loading normally seen for royalty and tax revenue streams, and
   Developing mechanisms as described in the DOE report on the 
        Strategic Significance of America's Oil Shale Resource to help 
        accelerate the establishment of an oil shale industry and to 
        stabilize its operation.

    We believe that this type of leadership was clearly evident in the 
development of last year's Energy Act that was largely authored by the 
Energy and Natural Resource Committee. Section 369 of that Act, the Oil 
Shale Section, contained many important provisions, three of which gave 
much needed guidance and clarity to our efforts in oil shale including:

   Elimination of the antiquated single lease limitation which 
        would potentially have kept companies from achieving critical 
        mass in their operations and which would have rewarded 
        technology followers rather than technology leaders in this 
        area.
   Mandating collaboration by and among various Executive 
        Departments and State and local governments in the planning for 
        oil shale exploitation.
   Establishing an orderly process for development of a 
        regulatory and fiscal regime under which oil shale developers 
        will need to operate.

    Mr. Chairman, Senator Hatch and Senator Salazar, we commend you for 
the bipartisan manner in which you all plus Senator Allard worked to 
reach a balanced set of legislative provisions to encourage responsible 
domestic oil shale development, as is included in the Energy Act.
    We would also like to commend the Bureau of Land Management for its 
creativity and leadership in developing the Oil Shale Research and 
Development Leasing Program which is a small but vitally important step 
in providing a driving force to companies like Shell to advance their 
research and technology development efforts.
    Mr. Chairman, Senator Salazar, and Senator Hatch, we at Shell thank 
you for coming to Western Colorado to seek input from the area's 
community leaders and residents. We are proud to be a partner with the 
region and its residents in this great effort which has the potential 
to change this Nation's indigenous energy supply/demand imbalance, to 
reduce its significant trade deficit, and to spur on economic growth 
well beyond the boundaries of the three State area.
    I will be happy to address any questions you might have.

    The Chairman. Thank you very much.
    Mr. Chris Treese, Colorado River Water Commission.

        STATEMENT OF CHRISTOPHER J. TREESE, MANAGER FOR 
 EXTERNAL AFFAIRS, COLORADO RIVER WATER CONSERVATION DISTRICT, 
                      GLENWOOD SPRINGS, CO

    Mr. Treese. Thank you, Mr. Chairman, Senator Hatch, Senator 
Salazar. For the record, my name is Chris Treese, representing 
the Colorado River Water Conservation District. It may be of 
interest to the committee to know that prior to my involvement 
in the water community, I spent 10 years with Unocal's oil 
shale project in Parachute Creek. And I was reminded, as I was 
driving down here today, that it was, in fact, 15 years ago 
today that I ended that career and started a new one with the 
Water District.
    I do appreciate the opportunity to share the views, 
concerns, and recommendations regarding the water needs and 
water interests of western Colorado associated with an 
emerging, but as yet uncertain, oil shale industry.
    The Colorado River Water Conservation District is the 
principal policy body for the Colorado River within the State 
of Colorado. We represent all or parts of 15 counties in 
northwest and west-central Colorado, including all of the oil 
shale-rich lands in Colorado. We offer our testimony in the 
spirit of cooperation and partnership with both the emerging 
industry and the Federal Government to ensure that an adequate 
and safe water supply is maintained and developed in a manner 
that is timely and compatible with other water interests in the 
arid West.
    The best decisions will be made with the best and most 
timely information. However, the ability to adequately assess, 
today, the water supply requirements and the water quality 
implications of an industry without a proven technology is 
limited at best. Simply put, what we don't know vastly 
outweighs what we do know. We are dealing with new and emerging 
technologies with yesterday's studies and information.
    Irrespective, however, of the extraction technology 
employed, significant quantities of water are going to be 
required. This much we know. Notwithstanding the unknowns and 
the uncertainties regarding oil shale development, there are 
actions that can and must be considered by Congress and the 
administration to ensure a well-planned and locally beneficial 
oil shale industry that's compatible and sustainable with our 
local communities.
    First, for Federal actions, I would recommend assurance 
that all environmental assessments include a thorough analysis 
of the cumulative water-related requirements for oil shale 
development. This, of course, includes the direct requirements 
of the oil shale industry on-site, as well as the indirect 
companion water requirements of the upstream and downstream 
energy requirements of the industry itself. That would be the 
electrical power generation and other energy demands, as well 
as the municipal demands required by a population growth, 
perhaps population boom, occasioned by the oil shale industry.
    Recognizing the limited and changing characteristics of oil 
shale technology and the related information, mitigation 
requirements should have a sort of adaptive management policy, 
such as those advanced in the environmental community on other 
issues. I think we're going to need that on this socioeconomic 
and water front, that as information is developed, we have 
requirements that are flexible and yet responsive.
    Congress should clarify that State and local permitting 
authorities apply equally to activities on projects on Federal 
land, as well as projects on non-Federal land.
    Future oil shale leases should include specific allocations 
of leased proceeds, including the bonus bid moneys, as you 
heard Director George comment on, to assist local and regional 
governments in addressing water shortage and developed storage, 
and development needs required by the lease, as well as related 
activities to oil shale development.
    Congress and the administration must also please make long 
term commitment to oil shale research. We expect the private 
sector's interest in oil shale to largely follow world oil 
prices. We look to the Federal Government to provide a baseline 
of investment and research in oil shale, and the related 
impacts and mitigation associated with those impacts for oil 
shale.
    The lessons learned from the last incarNation of the oil 
shale industry are vivid in the minds of elected and planning 
officials. We can and will, as Director George mentioned, 
prepare for oil shale development in a manner that assures 
mutual benefit to the industry and the local communities, so 
long as there is not undue risk to local communities. We have 
the institutional capacity and the human resources to 
accomplish this with appropriate assistance from the Federal 
Government. However, if the Congress or the administration 
artificially accelerates our oil shale development before 
technologies are sufficiently mature or without the sufficient 
information of the impacts, you have doomed us to repeat the 
impacts and the dislocations of the previous boom and bust 
cycles.
    I look forward to your questions and an opportunity to 
discuss these further.
    [The prepared statement of Mr. Treese follows:]
   Prepared Statement of Christopher J. Treese, Manager for External 
Affairs, Colorado River Water Conservation District, Glenwood Springs, 
                                   CO
          water-related issues regarding oil shale development
    I want to thank Chairman Domenici and Senator Salazar for this 
opportunity to share the Colorado River Water Conservation District's 
concerns and recommendations regarding water needs and interests 
associated with an emerging, but as yet uncertain, oil shale industry. 
I also want to extend our gratitude to the Chairman for his personal 
commitment to field hearings and field investigations, thereby 
providing greater and more cost-effective access to the Senate 
Committee process and ensuring first-hand committee information on 
issues of national importance.
    The Colorado River Water Conservation District is the principal 
policy body for the Colorado River within Colorado. We are a political 
subdivision of the State of Colorado responsible for the conservation, 
use, and development of the water resources of the Colorado River basin 
to which the State of Colorado is entitled under the 1922 and 1948 
Colorado River compacts. The River District includes all or part of 15 
counties in western Colorado, including all of the oil shale-rich lands 
of northwest Colorado. We offer the following testimony in a spirit of 
cooperation and potential partnership with both the emerging oil shale 
industry and the federal government to ensure that adequate and safe 
water supplies are maintained and developed in a manner that is both 
timely and compatible with competing water demands in the and West.
    The hydrocarbon-rich Green River Formation resides in a region with 
limited precipitation. Most of the oil shale region of northwest 
Colorado receives 8 to 14 inches of precipitation annually. Essentially 
the entirety of the oil shale resource lies within the Colorado River 
basin, where competition for scarce water resources is well known. Oil 
shale development will inevitably compete with existing water uses and 
conflict with the vision of many for the desired water futures in the 
arid West. The best decisions will be made on the best and most timely 
information. We must know as much as possible, as early as possible 
about the water needs of alternative oil shale extraction technologies 
and their companion water quality implications.
    The ability to adequately assess water supply requirements and 
water quality implications of an industry without a proven technology 
is limited at best. Simply put, what we don't know vastly outweighs 
what we do know. This, however, is not an argument in opposition to oil 
shale development or in favor of diverting resources to other pursuits. 
Rather, it is a call for research and resource dedication to finding 
answers to the water supply needs and water quality implications of oil 
shale development. It is also a plea for a pace of resource development 
commensurate with the development of reliable information and the 
ability of the industry and local communities to address their water-
related requirements.
    Irrespective of the extraction technology employed, significant new 
water supplies will be required by an oil shale industry. Extraction 
technologies in the 1970's and 1980's required up to five and six 
barrels of water for each barrel of shale oil produced. More recent, 
emerging technologies report significantly reduced water requirements, 
on the order of a barrel of water required for a barrel of shale oil. 
However, even under these favorable assumptions, a modest oil shale 
industry of 500,000 barrels per day would require roughly 25,000 acre 
feet of water annually. To ensure a reliable annual yield of 25,000 
acre feet of consumptive use water would require new storage facilities 
with 50,000 to 80,000 acre foot capacities, assuming an adequate source 
of water is legally and physically available.
    An emerging oil shale industry with its attendant construction and 
operating workforces will also require new water supplies for municipal 
use. This need presents an opportunity for public-private, industry-
municipal partnerships for water resource development. However, this 
opportunity is tempered by the memory of the recent ``bust'' of the 
previous oil shale development boom.
    In addition to water availability, water infrastructure funding is 
a challenge. In the most recent round of oil shale development 
commencing in the 1970's, the federal government set aside a 
significant portion of the bonus bid funds from the two federal lease 
tracts for local impact mitigation. These funds became the highly 
successful Oil Shale Trust Fund. This fund was distributed to each of 
the locally impacted counties for their individual and locally-
prioritized capital needs. Congress enacted a similar financial 
allocation mechanism in 1998 in the ``Southern Nevada Public Land 
Management Act'' (P.L. 105-263) with specific payment of federal land 
sale proceeds to the regional water authority for water-related 
infrastructure development. More recently, analogous water investment 
allocations have been specified by Senators Reid and Ensign in other 
southern Nevada legislation and are also currently being contemplated 
in draft legislation by Senator Bennett and Congressman Matheson for 
southwestern Utah water development. Specific allocation of oil shale-
related federal revenues for public infrastructure requirements, 
including express allocation of resources for regional water supply 
development, would significantly assist necessary water resource 
development.
    Conventional wisdom in Colorado holds that a minimum of twenty 
years is required to plan, design, engineer, permit, finance, and 
construct even a modest new water storage reservoir. No one can point 
to the exception to this twenty year minimum, and there are plenty of 
examples exceeding this twenty year standard, many by decades. The 
stimulus of oil shale's water need may reduce this standard, but it may 
not. Accordingly, immediate cooperative efforts should be initiated 
between would-be oil shale developers and local and regional water 
authorities to identify public and private water needs and alternatives 
to their supply.
    An additional lesson learned from the previous oil shale ``boom'' 
is the need for cumulative impact analysis. If Congress advocates for a 
vibrant, multi-company oil shale industry operating in the region, the 
traditional project by project analysis of environmental and 
socioeconomic impacts will be insufficient. Impact analyses of oil 
shale development must examine the cumulative impacts of the entire, 
reasonably foreseeable industry. During the last boom, the industry 
formed a cooperative, public sector-private sector ``Cumulative Impacts 
Task Force'' to mutually assess the socioeconomic impacts of the then 
anticipated oil shale industry. Additionally, through this, and an 
allied industry-only group, decisions were made regarding the equitable 
allocation of impact mitigation. The region and the industry would be 
equally well served by a similar effort this time.
    Finally, the lessons learned from the last oil shale boom and bust 
are vivid in the minds of the area's elected and planning officials. We 
can and will prepare for oil shale development in a manner that assures 
mutual benefit to both the industry and the local communities without 
undue risk on the latter. We have the institutional capacity and human 
resources to accomplish this with appropriate assistance from the 
federal government. However, if Congress or the administration 
artificially accelerates oil shale development either by rewarding or 
requiring rapid development before technologies are sufficiently mature 
or without proper analysis of potential impacts and the time to prepare 
for those impacts, you will have doomed the local communities to repeat 
the disastrous and disruptive boom and bust cycle of previous 
incarnations of the long-promised oil shale industry. Accordingly, this 
is my plea for a deliberate and thoughtful pace to oil shale 
development that will ultimately reward all who are party to it, 
whether by choice or proximity.
                            recommendations
    While the unknowns and uncertainties regarding oil shale 
development will continue to loom large, there are actions that can and 
must be initiated immediately by Congress and the Administration, as 
well as by state and local governments, to ensure a well-planned and 
locally-beneficial oil shale industry compatible with and sustainable 
for the local community.
Federal Actions
   All environmental assessments should include a thorough 
        analysis of water-related requirements of oil shale 
        development. This should include direct water needs of oil 
        shale on-site development, as well as the indirect, companion 
        water requirements of ancillary oil shale activities (e.g., 
        electrical generation or other energy requirements of oil shale 
        production, municipal demands of energy-induced population 
        growth).
   Mitigation measures required by federal agencies should 
        include a sort of ``adaptive management'' approach allowing for 
        new and emerging technologies changing information regarding 
        water use requirements and water quality impacts of oil shale 
        development;
   Congress should clarify that state and local permitting 
        authorities apply equally to activities and projects on federal 
        land as on private and non-federal public lands.
   All future oil shale leases should include specific 
        allocations of lease proceeds, including bonus bid revenues, to 
        assist local and regional governments in addressing water 
        storage and development needs occasioned by the lease and 
        related oil shale development.
   Finally, Congress and the administration must make a long-
        term research and development support commitment to this 
        national resource, one that transcends the wildly fluctuating 
        world oil market. This hydrocarbon resource is simply too 
        substantial and its development too nascent to allow research 
        and development to follow world oil prices, as it predictably 
        will if reliant solely on private funding sources. A successful 
        oil shale industry that is harmonious with local communities 
        requires a long-term federal commitment to developing new 
        technologies, exploring new ways to minimize and mitigate 
        impacts, and entering into new partnerships with state and 
        local agencies to allow us to adequately prepare for and 
        support this new energy industry.
State and Local Government Actions
   Regional governmental coordination and cooperation is 
        required to adequately plan for the rapid growth likely with an 
        emerging oil shale industry. This has begun through the 
        Associated Governments of Northwest Colorado and Club 20 but 
        must be broadened and accelerated.
   Watershed planning and water supply development alternatives 
        must be advanced. State and regional water authorities have the 
        capacity to lead these efforts but may require additional 
        funding to expedite the process.
   Development of contingency planning and creative capital 
        financing mechanisms that don't place present and future 
        residents at financial risk of default in case of another 
        ``bust'' are Imperative.
Industry Actions
   The industry should partner with local governments to 
        mutually assess potential impacts and benefits of oil shale 
        development. Considerable time and expense will be spared by a 
        NEPA-like analysis of a potential oil shale industry that 
        meaningfully involves locally-affected communities and 
        interests from the earliest stages of the process (e.g., 
        development of the scope of work, contractor selections, 
        modeling decisions, selection of assumptions). Such early 
        involvement can dramatically reduce the predictable distrust of 
        large volumes of technical documents being presented as fait 
        accompli in long, boring technical public meetings subsequent 
        to the material decisions.
   A functional oil shale trade group focused on the cumulative 
        impacts and their mitigation should be formed. With water 
        resources traditionally requiring the greatest lead time, 
        emphasis should be placed on analysis and planning for adequate 
        water supplies for the industry and the local communities.

    The Chairman. Thank you very much. Please proceed.

STATEMENT OF JOHN A. BAARDSON, CEO AND PRESIDENT, BAARD ENERGY, 
                       LLC, VANCOUVER, WA

    Mr. Baardson. Thank you, Mr. Chairman. Privileged to be 
able to be here today, also with Senator Hatch and Senator 
Salazar. Baard Energy is a privately held firm with offices in 
Washington, Ohio, and Salt Lake City, Utah. I am John Baardson, 
the President and CEO of Baard Energy.
    Baard Energy is involved in the development of alternative 
fuels from advanced technologies, including ethanol, biodiesel, 
coal to liquids, and oil shales. We focus on building plants 
that can produce ultra-clean fuels made from our own indigenous 
resources here in the United States.
    You know, we're here today to talk about section 369 of the 
Energy Policy Act and some of the implementations of it. The 
RD&D program, which was authorized in that bill, is off and 
running. It's considered by many to be flawed in that it 
arbitrarily and severely limited the number of developers and 
technologies that had access to public lands and those 
resources. The permanent leasing program and the problematic 
environmental impact statements have begun and we logged the 
initial developments that they have made. These are important 
first steps, but they are not enough.
    The Act assumes that industry will step forward without the 
help of Government to develop the oil shale resources. However, 
this scenario is contrary to the successful Alberta model and 
completely ignores the fact that 80 percent of the resource in 
the United States sits on federally-owned lands.
    I recall that offshore drilling was once considered an 
unconventional source, too risky, and too expensive to pursue. 
However, with significant Government support, the cost burden 
was overcome, and offshore oil is now considered a conventional 
resource.
    The same is true with the Alberta tar sands. They were once 
considered too risky and too expensive, but now, Alberta is 
producing huge quantities of oil--over a billion barrels a 
year--from tar sand for less than $20 a barrel. This was 
largely as a result of a government program that they 
implemented.
    If we are to be able to follow the successful Alberta 
model, we must do more than we have enacted in the recently 
passed Energy Policy Act. Senator Bunning from Kentucky 
recently introduced legislation called the Coal to Liquid Fuel 
Promotion Act of 2006. We helped draft some of that legislation 
and we were involved in some of the thinking that went behind 
it. Fortunately, it leaves oil shale off completely. We think a 
suitable type of bill, either introduced along with this bill 
or in conjunction with it, should be put forth that would do 
the same thing that they are trying to do for coal liquids, for 
oil shale.
    In particular, Senator Bunning had a six-point plan. The 
first one was, he was--and if we were to modify this to apply 
to oil shale, what we would propose is there would be an 
authorization to underwrite Federal loan guarantees for up to 
ten oil shale plants. These plants should have a minimum 
capacity of 5,000 barrels per day and a maximum of 10,000 
barrels per day.
    We also believe an authorization to be put forth for a $100 
million, to help fund the--cover front-end engineering and 
design costs for these initial ten plants--and as Senator 
Bunning had--these would be in the form of grants or non-
recourse loans.
    The third item was the authorization of a 20 percent oil 
shale fuel investment tax credit to be made available for those 
ten plants. Now, a number of these items are already in the 
existing bill, but we seem to be now getting ready to carve 
these things for the various technologies.
    One thing that coal to liquid has that oil shale does not 
have was a fifty-cent per gallon excise tax credit, which is 
being proposed to be extended to December 31, 2020.
    We also ask that oil shale fuel be included in the 
strategic petroleum reserve and that the strategic petroleum 
reserve units be authorized to be built in either Colorado, 
Utah or Wyoming and that oil shale-type fuels be stored in 
those strategic petroleum reserve facilities.
    The final act is that they wanted to clarify the authority 
given in the Act, that the Department of Defense had the right 
to enter into long-term contracts, such as 25 years. However, 
in that program, I think they only want to clarify that for 
coal to liquids.
    These programs will help support many important emerging 
technologies involved with oil shale. Those are: new oil shale 
retorts are available; they can produce oil with minimal or no 
water usage; we have upgrading technologies that can directly 
convert kerogen into a usable, low-sulfur fuel oil; and also, 
there are many new uses for spent oil shale, which could allow 
spent oil shale to be used to reduce sulfur emissions from 
coal-fired plants across the United States and we could largely 
eliminate the need for disposal on the local level.
    For the project we are designing, we have need for a 
railroad to go to Vernal, UT, to help us to efficiently get 
this product to market.
    I thank you for your time and appreciate this opportunity.
    [The prepared statement of Mr. Baardson follows:]
      Prepared Statement of John A. Baardson, CEO and President, 
                           Baard Energy, LLC
    Thank you, Mr. Chairman. Distinguished Members of the Senate and 
guests, I am John Baardson, the President and CEO of Baard Energy, LLC. 
Baard Energy is a privately held firm with offices in Vancouver, 
Washington, Cincinnati, Ohio, Cleveland, Ohio and Salt Lake City, Utah. 
Baard Energy is involved in the development of alternative fuels from 
advanced technologies including biodiesel, oil shale and Coal to 
Liquids (``CTL''). My Company is focusing on building plants to produce 
ultra-clean fuels made from secure sources of abundant feedstock 
located here in the United States.
    I have been asked to talk to you today about implementation of the 
oil shale provisions of the Energy Policy act of 2005 (the ``Act''). 
The Energy Policy Act established a task force to, among other things, 
develop a plan to determine the safest and steadiest route for oil 
shale development, implement a RD&D leasing program and establish a 
permanent mineral leasing program in the Department of the Interior to 
provide access to this resource. The RD&D leasing program is off and 
running but is considered by many to be flawed because the BLM 
arbitrarily and severely limited the number of developers and 
technologies with access to federal oil shale resources. The permanent 
leasing program and the problematic Environmental Impact Statement are 
critical to the long term success of the program and I laud its initial 
successes. These are important first steps but this will not be enough.
    The Act assumes that industry will step forward without the help of 
government to develop the oil shale resources. However, this scenario 
is contrary to the successful Alberta model and completely ignores the 
fact that 80 percent of the resource in the United States sits on 
federally owned lands, which poses certain regulatory barriers to major 
investment in the development of the resource.
    I recall that offshore drilling was once considered an 
unconventional source of oil too risky and too expensive to pursue. 
However, with significant government support, the cost burden was 
overcome, and offshore oil is now considered a conventional resource. 
Similarly, getting oil from oil sands in Alberta was once considered by 
the ``experts'' to be too expensive and risky. Now Alberta is producing 
huge quantities of oil from tar sands at less than $20 a barrel, as a 
result of government support.
    If we are to follow the successful Alberta model on oil shale we 
must do more than we have enacted in the recently passed Energy Policy 
act of 2005. Senator Bunning from Kentucky recently introduced 
legislation called the Coal-to-Liquids Fuel Promotion Act of 2006 that 
is an excellent model for us to use to advance oil shale development. I 
therefore suggest that you consider a six-point plan for oil shale that 
is similar to what is proposed by Senator Bunning:.

          1) Authorization and appropriation to underwrite federal loan 
        guarantees for up to ten oil shale fuel facilities through 
        2015. These plants should have a minimum production of 5,000 
        barrels per day and a maximum of 20,000 barrels per day of 
        ready to use transportation fuels derived from oil shale.
          2) Authorization and appropriation of $100 million in 
        deployment funding support in the form of grants or non-
        recourse loans to cover front-end engineering and design costs 
        for the initial ten plants.
          3) Authorization and appropriation for a 20 percent oil shale 
        fuel investment tax credit to be made available to oil shale 
        fuel facilities placed in service before December 31, 2015.
          4) Authorization and appropriation for a 50 cents per gallon 
        fuel excise tax credit for oil shale fuels which would expire 
        no sooner than December 31, 2020.
          5) Require inclusion of oil shale fuel in the Strategic 
        Petroleum Reserve, authorize the construction of SPR storage 
        facilities for oil shale fuel which could be located in 
        Colorado, Utah or Wyoming and authorize the SPR to hold up to 
        20% of the reserve in the form of fuels that have been derived 
        from oil shale.
          6) Clarification of the authority already given to the 
        Department of Defense and other agencies for Federal government 
        purchasing support of oil shale fuels through long term 
        guaranteed fixed price contracts by specifying that they may 
        purchase up to a term of 25 years.

    These programs will help support many important emerging 
technologies involved in oil shale development which I would like to 
summarize for the record:

          1) New oil shale retorts are available that can process oil 
        shale safely and inexpensively with little or no water usage.
          2) Upgrading technologies which convert raw kerogen from oil 
        shale to commercial grade transportation fuels. There are 
        technologies available that will convert the kerogen directly 
        into super-low sulfur fuels. This will avoid having to send oil 
        shale liquids to refineries that are already operating at 
        maximum capacity. In addition, combining the technologies from 
        the coal to liquids industry into the oil shale industry will 
        expand this ability further and help solve certain processing 
        problems.
          3) New uses for spent oil shale have been developed that will 
        allow the spent oil shale to be used to reduce sulfur emissions 
        from coal fired power plants more efficiently than the 
        limestone we now use. This innovation alone will help oil shale 
        fuels to continue to be competitive at under $40 per barrel. 
        For the project we are designing, we will need to build a 
        railroad to Vernal, Utah to efficiently get this product to 
        market. The Federal Government and the State of Utah can help 
        us to put this railroad in place.

    Oil shale fuels are a win/win scenario. We develop an indigenous 
secure fuel source from a material that was previously unusable, 
creating an environmentally friendly fuel supply and generating jobs in 
economically depressed areas of the nation. To jump-start this process, 
however, requires the assistance of the Federal Government. It is of 
the utmost importance to our Country's national security and economic 
well-being that we work together to accomplish this goal.
    Thank you for all that you have already done, and let's keep 
pushing forward. Thank you as well for your time today.

    The Chairman. We thank you very much for your time. We are 
fully aware of the legislation introduced by the distinguished 
Senator from Kentucky and it is being reviewed by the Committee 
for a number of suggestions that he has put forth.
    And we're right back, close to being on time with our last 
witness, from The Wilderness Society of Denver, CO, Mr. Steven 
Smith, Assistant Regional Director. We welcome you and look 
forward to your testimony, sir.

  STATEMENT OF STEVE SMITH, ASSISTANT REGIONAL DIRECTOR, THE 
                 WILDERNESS SOCIETY, DENVER, CO

    Mr. Smith. Thank you, Mr. Chairman, and thank you, Senator 
Salazar and Senator Hatch, for providing this opportunity to 
highlight some key environmental issues that must be addressed 
as Federal land managers consider the possible development of 
oil shale resources in this region. I especially appreciate the 
opportunity of going last, because each of you three Senators 
have touched on several of the points that are included in my 
comments. So it's a nice head start.
    My name is Steve Smith. I am assistant regional director 
for The Wilderness Society, but my testimony today reflects the 
contributions and expertise from an array of conservation and 
citizen organizations working in coalition on this issue.
    I live in Glenwood Springs, CO, 30 miles from one of 
America's richer deposits of oil shale. Over the past 17 years 
living there, I have watched the local people, communities and 
economies slowly recover from what was the disaster of the last 
oil shale experiment in our country. That boom/bust disaster 
was the result of attempts to move oil shale too quickly, with 
artificial acceleration and unsustainable subsidies.
    It is essential that Congress and Federal land managers 
learn from the mistakes of that past and act cautiously, from 
the innovations of the present, when crafting oil shale policy 
and activities. As you know, the Energy Policy Act of 2005 
directed the Secretary of the Interior to promptly make 
available public lands for oil shale research, to analyze, by 
February 20, 2007, through a programmatic environmental impact 
statement, the environmental, economic and social impacts of 
potential commercial oil shale development in three Western 
States and to consider possible leasing of public lands for 
commercial oil shale production some time after that. This is a 
very ambitious schedule, especially considering that attempts 
to develop oil shale have been initiated and have essentially 
failed in each case, many times over the past century and that 
no energy company has yet indicated that it is close to being 
ready for commercial production. That is why it makes sense, as 
each of you have described in various ways, to take the time 
needed for a thoughtful review of the research results from the 
preliminary leasing program and to take that review and to 
pursue that review of the research program before considering 
any public lands for leasing for commercial oil shale 
production.
    This will allow Federal managers, local citizens and their 
leaders and the industry itself to evaluate not only how well 
the technologies work, but also how those technologies could 
affect local economies and communities and the natural 
environment so key to both.
    The public lands in question in northwest Colorado and 
northeast Utah and southwest Wyoming certainly have energy 
potential and already are producing unprecedented volumes of 
oil, natural gas and coal. Those same public lands also include 
integrated and critical wildlife habitat, popular hunting, 
fishing and recreation opportunities, water supplies for local 
agriculture and for communities and astounding scenic wonder. 
For all its energy potential, the oil shale country must be 
considered in the larger context of those of natural and public 
values.
    Specific areas of concern include the direct impacts to the 
land, energy input needs, and water and air quality. I'll touch 
on each of those very briefly with more detail in my written 
statement.
    Both the research leasing and the EIS analysis of potential 
commercial leasing should include protection for the more 
sensitive, ecologically important and scenic portions of the 
lands involved, including lands with wilderness potential, key 
habitat for imperiled species and other wildlife, productive 
agricultural land and important watersheds and streams. These 
concerns are especially important in the context of the 100 
percent surface disturbance that results from the new in-situ 
production techniques. The analysis of potential impacts to the 
land itself must also consider and avoid the auxiliary effects 
from new roads, traffic, worker camps and the general influx of 
dramatically increased industrial and recreational activity on 
lands that now enjoy a relative state of solitude and minimal 
disturbance.
    The amount of energy needed to make oil shale production 
work is immense, as you have heard. The Rand Corporation's oil 
shale report notes that production of 100,000 barrels per day, 
using the in-situ technique, would require 1.2 gigawatts of 
dedicated electric energy capacity. That equates to 
construction of a power plant equal in size to the largest 
coal-fired powered plant now operating in Colorado. A 500,000 
barrels per day industry would need 6 gigawatts of new electric 
power, an amount equal to that generated from all of Colorado's 
existing coal-fired powered plants.
    The region underlain by oil shale is notably arid, with 
relatively low annual rainfall, and an existing over-commitment 
of water supplies and facilities. The Rand report notes that 
traditional oil shale techniques require between two and five 
barrels of water to produce one barrel of shale oil product and 
that the in-situ process may also require considerable volumes 
of water. How we get that water for oil shale without drying up 
productive ranch land or compromising the health of our streams 
is a key question.
    The Rand report also noted that no studies of the immediate 
or cumulative impacts of oil shale development on air quality, 
let alone the potential impact from additional electric 
generation for that production, have been reported since the 
1980's. Additional air quality study and modeling focused 
especially on sulfur dioxide, greenhouse emissions and 
particulates, both from the oil shale production itself and 
from the power plants, must be completed before making 
decisions about commercial oil shale production.
    Oil shale may some day make a contribution to meeting the 
Nation's energy needs. Researched carefully, developed 
methodically and considered in the important context of 
communities, recreation and the beauty and natural environment 
of these wondrous States, it can make that contribution without 
destroying longer-term resources and values. Congress and 
Federal managers should, in careful concentration with States 
and local communities, learn from the oil shale research 
leasing program before beginning any commercial leasing or 
commercial production on public lands.
    The oil shale will be there when we are ready to develop it 
in a truly sustainable and environmentally-sound manner. We 
should not venture too fast until we are.
    I have included with my testimony, for the hearing record 
and for your review, a copy of comprehensive comments we 
submitted earlier this year as part of the oil shale 
programmatic EIS process. I invite your questions on that 
document, on my comments today and on any other opportunity we 
may have to help with your work and consideration. Thank you 
again for this opportunity.
    [The prepared statement of Mr. Smith follows:]
    Prepared Statement of Steve Smith, Assistant Regional Director, 
                         The Wilderness Society
    Thank you, Mr. Chairman and members of the committee, for this 
opportunity to highlight some key environmental issues that must be 
addressed as federal land managers consider the possible development of 
oil shale resources in this region.
    My name is Steve Smith. I am Assistant Regional Director for The 
Wilderness Society's Four Corners States Office. My testimony today, 
however, reflects thoughtful research and recommendations compiled by 
staff and volunteers from an array of conservation and citizen 
organizations working in coalition to better understand this potential 
energy resource and to contribute to discussions about it future.
    I am especially grateful for very able advice and assistance from 
Bob Randall and Jim Martin of Western Resource Advocates, Randy Udall 
of Community Office for Resource Efficiency, air quality expert Robert 
Yuhnke, and Kevin Markey, who was among the conservation community's 
leading experts during the ill-fated oil shale boom of the 1970's and 
1980's.
    I live in Glenwood Springs, Colorado, 30 miles from one of 
America's richer deposits of oil shale. Over the past seventeen years 
living there, I have watched the local people, communities, and economy 
slowly recover and revive from what was the disaster of the last oil 
shale experiment in our county.
    That boom-bust disaster was the result of attempts to move oil 
shale too quickly with artificial acceleration and unsustainable 
subsidies. It is essential that Congress and federal land managers 
learn both from the mistakes of that past and, cautiously, from the 
innovations of the present when crafting oil shale policy and 
activities.
                              perspectives
    Other witnesses appearing before you today are far better qualified 
than am I to assess both the quantity of shale oil that is potentially 
recoverable and the quantity that may prove to be economically 
recoverable. While considering their presentations, however, it seems 
important to recall that producers and their investors sank five 
billion dollars into oil shale last time around, and then abandoned the 
field on May 2, 1982.
    Similarly, it is important to put today's oil and gasoline prices 
into perspective. As the last oil shale venture in northwest Colorado 
was coming apart in 1980, the Office of Technology Assessment projected 
that the production of oil from oil shale might be economically viable 
at a market price of $61 per barrel, and an internal Exxon memo pegged 
the number at $108 per barrel, both those numbers in 1980 dollars. Even 
our current prices of $60 dollars per barrel, adjusted for inflation, 
do not come close to those levels.
    Additional perspective is found in comparative opportunities for 
helping match our energy supplies to our energy needs. An increase in 
the fuel efficiency of the nation's automobile fleet by just one mile 
per gallon, for example, would save 400,000 barrels of oil per day, 
more than oil shale is likely to produce in the next decade or more, 
even by the most optimistic projections.
               oil shale, an important potential resource
    Even so, energy supplies are needed, and oil shale contains at 
least the potential of a very large total volume of new oil 
replacement. This possible source of fuels warrants careful 
consideration, both of its potential contribution and of its potential 
effects on other important values and resources.
    As you know, the Energy Policy Act of 2005 directed the Secretary 
of the Interior, that is to say the Bureau of Land Management (BLM), to 
make federal lands available for research and development activities 
for oil shale and tar sands resources, a process that the BLM has 
already begun. The Act also directed the BLM to analyze, through a 
programmatic environmental impact statement, the environmental, 
economic, and social impacts of potential commercial oil shale and tar 
sands development in three western states, to be completed by February 
2007.
    The Act also directed the BLM to adopt new regulations for 
commercial leasing of oil shale and tar sands six months later, 
mandating that these regulations be finalized by August 2007. Further, 
the Act told the BLM to gauge interest in development of oil shale and 
tar sands resources among state and local governments, Indian tribes, 
and members of the public and, if sufficient interest is found, gave 
the BLM the authority to hold a first-ever commercial lease sale for 
these resources in the spring of 2008, just short of three years after 
the Act was approved by Congress.
    This is a very ambitious schedule, especially considering that 
attempts to develop oil shale have been initiated, and have failed, 
many times over the past century--and considering that a leading 
company working on perhaps the currently most innovative approach to 
oil shale production announced last year that it was five to ten years 
away from even making a decision whether it can take on commercial 
production.
    It makes sense, therefore, to take all the time needed for a 
thoughtful review of the research results from the preliminary leasing 
program before considering any public lands leasing for commercial oil 
shale production. This allows federal managers, local citizens and 
their leaders, and the industry itself to evaluate whether and how well 
the new oil shale extraction technologies work and how they could 
affect local economies, communities, and the natural environment so key 
to both.
    As part of the interest-and-support standard described in the 
Energy Policy Act as threshold to commercial oil shale leasing, that 
leasing should begin, if it begins at all, only when technical 
difficulties of oil shale production are solved and when negative 
environmental and social effects of commercial development are fully 
understood and will be avoided or mitigated.
    Oil shale failures of the past all have been financial and 
technical failures; either we have been physically unable to transform 
rock into liquid fuel or the expense of doing so far outweighed the 
market value of the product. Today, new and very innovative 
technologies are evolving that may crack the physical barriers for 
producing fuel from oil shale. You have heard much about that technical 
progress even in today's hearing.
             careful research before commercial development
    Even those innovations, however, include many very new ideas and 
accompanying unknowns. The BLM is currently evaluating five in-situ oil 
shale research and development proposals in Colorado, each using 
technology that is the first of its kind. Nowhere on the planet has 
large-scale oil shale development occurred using the in-situ techniques 
being considered in Colorado's Piceance Basin. For all the effort and 
investment it has expended, the oil shale industry is in its infancy, 
and these are one-of-a-kind operations.
    The BLM should let companies conduct extensive, and long-term, 
research and development activities--and carefully evaluate the results 
of that research--before it considers holding a commercial lease sale.
    This sound, cautious approach to--indeed, strategic postponement 
of--commercial oil shale leasing on public lands does not mean 
foregoing oil shale energy production. In fact, the potential resource 
recovery from the BLM research-and-development leases themselves is 
very large. According to the Plans of Operations submitted with the 
research lease nominations, the estimated in-place oil shale resources 
for the 160-acre Colorado tracts are 284 million barrels, 280 million 
barrels, 300 million barrels, 274 million barrels, and 356 million 
barrels, respectively. Thus the total resource to be conveyed in the 
research-and-development leasing program is approximately 1.5 billion 
barrels in place.
    We note that this number does not represent the amount of oil that 
will be recovered, but rather the ``resource in place''. Because we do 
not yet know the potential recovery rate for the development methods 
proposed by research lessees, it is difficult to estimate the number of 
barrels that could actually be recovered. Whereas room-and-pillar 
mining resulted in recovery of only about 10% of the resource in place, 
in-situ methods are likely to recover much more. At a 70% recovery 
rate, for example, these research leases stand to deliver over 1 
billion barrels of oil over their life, which would represent a 
substantial domestic supply.
    If such rates of recovery actually result from the research leases, 
that would suggest that commercial leasing may make sense. Conversely, 
until experimental leases can definitively demonstrate high rates of 
recovery, larger tracts should not be offered for what would be 
speculative commercial leasing.
    Commercial leases offered later in time also will be likely to 
generate greater returns to the federal treasury. This view was 
supported by the Congressional Budget Office (CBO) when it evaluated 
legislative proposals to mandate large-scale oil shale and tar sand 
leasing in the next five years. The CBO found that because the 
technology to successfully develop shale has not yet been developed, 
bonus bids for commercial leases would be insignificant over the next 
five years.
    In addition, CBO found that any increased receipts from early lease 
sales would be offset by forgone receipts from sales that would 
otherwise occur later, when the technology has been developed, as well 
as by administrative costs. Leases will simply be more valuable when 
potential lessees know what they will be able to do on them.
                       protecting the environment
    Even as technological improvements advance, however, researchers 
and policymakers must fully consider and integrate into the oil shale 
equation the protection of our communities, our water, our wildlife, 
our clean air, and the scenic beauty of this region.
    The public lands in question, in northwest Colorado, northeast 
Utah, and southwest Wyoming, certainly have tremendous energy 
potential. Those lands already are producing unprecedented volumes of 
oil, natural gas, and coal for regional and national energy needs, and 
they contain a very large theoretical volume of additional energy from 
oil shale.
    Those same public lands also include integrated and critical 
wildlife habitat, popular hunting and other recreation opportunities, 
water supplies for local agriculture and communities, and astounding 
scenic wonders. For all its energy potential, the oil shale country 
must be considered in the larger context of natural and public values. 
Correspondingly, any energy policies affecting those lands must protect 
those other, more enduring and more complex values and the region's 
tourist-and recreation-dependent communities that relay on those 
natural features.
    Direct surface impacts--Some threshold considerations, for both a 
limited research program and the possible commercial leasing program on 
federal public lands (including conversion of research leases to 
commercial scale), include:

   Leasing should be offered only for research and development 
        of clearly new technologies and not for continued use of old 
        technologies or minor variations on them;
   Leasing must not be a license for speculation. Potential 
        lessees should be required to demonstrate, in advance, how 
        their proposed activities in the particular areas proposed for 
        leasing reduce the environmental impacts of oil shale 
        development or how their technologies or processes improve 
        energy efficiency, contribute to resource conservation, make 
        development of oil shale more economic, or reduce waste 
        outputs;
   No leases should be offered or issued on any lands in 
        Colorado, Utah, or Wyoming that any federal agency has 
        identified as having wilderness characteristics wilderness 
        study areas, wilderness inventory areas, or lands with a 
        reasonable probability of wilderness characteristics;
   No leases should be offered or issued on any lands proposed 
        for wilderness designation in legislation pending before 
        Congress (examples from past Congresses include America's 
        Redrock Wilderness Act, Colorado Wilderness Act, Northern 
        Rockies Ecosystem Protection Act, and Wyoming Wilderness Act);
   No leases should be offered or issued on any lands 
        designated as Area of Critical Environmental Concern;
   No leases should be offered or issued on any lands that 
        provide critical habitat to game animals, imperiled species, or 
        recovering species;
   The Bureau of Land Management (BLM) and other federal 
        agencies involved in oil shale research leasing should fully 
        consider new information supplied by citizen groups or 
        generated by the agencies themselves regarding potential 
        wilderness values before leasing any lands for oil shale 
        research;
   Leases for oil shale research or for commercial development 
        should include strictly enforced non-waiveable stipulations 
        mandating that lessees submit a reclamation plan to the 
        appropriate state and federal agencies prior to authorization 
        of any ground disturbing activities. Those stipulations should 
        include the requirement that reclamation activities begin 
        promptly upon lease expiration, termination, or relinquishment. 
        Leases should be issued only in exchange for genuinely adequate 
        bonding or other advance mechanism to ensure the completion of 
        reclamation;
   Leases should contain stipulations requiring lessees to 
        conduct air quality monitoring to establish baseline 
        conditions, modeling to anticipate impacts from lease-based 
        activities, and continuing monitoring to measure and control 
        impacts on air quality, visibility, and human health.
   Similar monitoring and precautions should be required 
        relative to water quality, watersheds and streamflow, wildlife 
        habitat, and the protection of plants and plant communities.

    Most of the considerations listed above relate to surface 
disturbance, that is, direct damage to the land and its vegetation. 
These points are particularly important when analyzing the new in-situ 
production techniques, which employ well bores (for down-hole heaters, 
water and gas recovery bores, coolant injection, and monitoring) every 
10-12 feet, in effect, 100% surface disturbance over individual 
production tracts of 640 acres or more and single company leases that 
may ultimately range from 5,240 to 40,000 acres.
    The analysis of potential impacts to lands and water, and means of 
avoiding and mitigating those impacts, must also consider the auxiliary 
effects of new roads, traffic, worker camps, and influx of dramatically 
increased industrial and recreational activity on lands that now enjoy 
a relative state of solitude and minimal disturbance.
    In addition to these precautions related to public and natural 
values found directly on the lands in questions, decisions about oil 
shale leasing and development must consider the broader contexts of 
energy inputs and their sources, water supplies and their sources, 
regional air quality, extended wildlife habitat, agricultural 
economies, and regional scale cumulative effects of a potential oil 
shale industry.
    Energy inputs--The amount of energy needed, as an input, to make 
oil shale production work is immense. Traditional, above-ground retorts 
must heat mined and pulverized oil shale to 900 degrees Fahrenheit, 
consuming 40% of the energy value produced from the shale itself. Even 
in the new in-situ heating technique, underground electric heaters must 
bring the ore to 700 degrees Fahrenheit and hold there for up to four 
years!
    The Rand Corporation's report, Oil Shale Development in the United 
States, Prospects and Policy Issues, prepared for the U.S. Department 
of Energy last year, notes that oil shale production of 100,000 barrels 
per day (less than one half of 1% of U.S. daily oil consumption), using 
the so-far most advanced in-situ underground heating retort technique, 
would require 1.2 gigawatts of dedicated electric generating capacity. 
That equates to construction of a dedicated power plant equal in size 
to the largest coal-fired plant now operating in Colorado.
    For a 500,000 barrel-per-day industry, the scale projected by some 
oil shale enthusiasts, that equates to need for 6 gigawatts of new 
electric power, an amount equal to that generated from all of 
Colorado's existing coal-fired power plants.
    Although some small amount of that electric generation might be 
fueled by natural gas, a by-product of the in-situ process, most of it 
likely would be fueled by the abundant coal supplies in the vicinity, 
prompting additional technological challenges in providing carbon 
sequestration and particulate air pollution control.
    Water--The region underlain by oil shale is notably arid, with 
relatively low annual rainfall, and existing over-commitment of 
existing water supplies and facilities. Against that dry backdrop, the 
Rand report cites the Office of Technology Assessment's projection that 
traditional oil shale operations require between 2.1 and 5.2 barrels of 
water to produce one barrel of shale oil product. While the new in-situ 
processes may require relatively less water, the Rand report notes that 
``considerable volumes of water may be required for oil and natural gas 
extraction, postextraction cooling, products upgrading and refining, 
environmental control systems, and power production.''
    The BLM projected in 1996 that oil shale (by traditional methods) 
would reduce the annual flow of the White River by up to 8.2 percent 
and ``would result in the permanent loss or severe degradation of 
nearly 50% of BLM stream fisheries.''
    Air quality--The Rand report notes that there were no publicly 
available analyses regarding how-modern pollution control systems could 
be incorporated into oil shale production facilities, and that further 
studies would be needed to determine the extent to which nonpoint-
source air emissions (i.e. dust and off-gassing) from both surface and 
in-situ operations could be prevented or controlled. Rand also found 
that no studies of the cumulative impacts of oil shale development on 
air quality had been reported since the 1980's. Because so much has 
changed in terms of air-quality regulations, mining and process 
technologies, and pollution-control techniques, the earlier air quality 
analyses were found to be no longer relevant. Elsewhere, Rand 
characterized available studies on air quality effects of oil shale 
development as ``so out of date, it is not possible to provide an 
analytically based estimate of the extent to which air quality 
considerations will constrain the technology profile, pace of 
development, and ultimate size of an oil shale industry.''
    Additional air quality study and modeling must be completed before 
making decisions about commercial oil shale production.
    Some earlier experiences provide some perspective on this important 
question. Primary among pollution types is the inevitable generation of 
sulfur and, once that element is exposed to air, the generation of 
sulfur dioxide. That was an important issue in 1980, when the court 
held that oil shale operations must comply with direct and regional 
incremental degradation of air quality. The technologies for control of 
sulfur dioxide has improved in the past two decades, but not all 
sources of the pollutant, primarily electric power plants, have taken 
measures to use them. If oil shale operations add sulfur dioxide to the 
regional mix, oil shale operators may be able to mitigate those 
additions by investing in pollution control technologies at existing 
power plants. Such exchanges of so-called pollution credits must, 
however, be investigated and integrated into any expanded oil shale 
program.
    All of these factors must be thoroughly and thoughtfully analyzed 
in the pending programmatic EIS and used as the basis for decisions 
about where oil shale activities will be allowed, and where they would 
not be appropriate and so will not be allowed.
                   conclusion: go slow, go carefully
    Oil shale holds a tremendous potential contribution to our energy 
supply. Researched carefully, developed slowly, and considered in the 
important contexts of communities, recreation, and the beauty and 
natural environment of these wondrous states, it can make that 
contribution without destroying longer-term resources and values.
    Congress and federal land managers should, in careful consultation 
with states and local communities, learn from the oil shale research 
leasing program before beginning any commercial leasing or commercial 
production on public lands.
    The oil shale will be there when we are ready to develop it in a 
truly sustainable and environmentally sound manner. We should not 
venture too fast until we are.
    I have included with my testimony, for the hearing record and for 
your reference, a copy of comprehensive comments submitted earlier this 
year as part of the oil shale programmatic EIS process. I invite your 
questions on that document, on my comments today, and on any other 
opportunity that we may have to help with your work and consideration.
    Thank you again for this opportunity to address the committee.*
---------------------------------------------------------------------------
    * The attached report has been retained in committee records.

    The Chairman. Thank you very much, Mr. Smith. We greatly 
appreciate your remarks. The attached document will be reviewed 
carefully.
    Mr. Smith. Thank you.
    The Chairman. I have no questions. I have reviewed your 
testimony, yours will be reviewed and I thank you for yours. 
Yours needs a lot of review before I can understand it, so it 
will get reviewed.
    Senator, we now yield to you before we close, and then 
Senator Hatch, and then I will close. Please proceed. Questions 
and closing, please.
    Senator Salazar. Let me just make a comment and then move 
to the closing. First, with respect to Shell Oil and Mr. Mut 
and what Shell Oil has been doing at the Mahogany Project, let 
me just reiterate what I have communicated to you and other 
officials of Shell, and that is, the great urgency of assuring 
that there is community involvement as you move forward with 
the research and development project and on to hopefully what 
will be the next steps. As I indicated to you yesterday, I 
visited an oil and gas company, which was drilling out in 
Garfield County. I was very pleased with the kind of 
collaboration that they had with the community, because mayors 
and council members and others were very supportive of that 
kind of a collaboration and I would encourage you to move 
forward with that process as your development moves forward.
    Let me just make a concluding comment here, briefly. First, 
in terms of acknowledgement, let me just say once again that I 
appreciate Senator Domenici holding this hearing here in 
Colorado today. He has contributed greatly to our country for 
many years in the U.S. Senate and I think the U.S. Senate was 
at its best last year when Senator Domenici and Senator 
Bingaman led an effort to bring Democrats and Republicans 
together so we could pass the first comprehensive National 
Energy Policy Act in more than a decade. I know there are some 
people who have criticized that National Energy Policy Act. It 
wasn't perfect. It didn't answer everybody's questions or 
everybody's concerns, but at the end of the day, it was a 
comprehensive statement that said that a national energy policy 
for the United States was no longer something that we were 
simply going to disregard. I think all of us who were on that 
committee felt that what had happened is that the long neglect 
of a national energy policy had left the United States in a 
very dangerous national security situation. So I again applaud 
Senator Domenici and Senator Bingaman for their leadership on 
that effort, as well as on so many other issues.
    I want to also thank Senator Hatch, our neighbor to the 
West, for having attended this hearing and for watching and 
participating in oil shale development, not only in his State, 
but in our State.
    Let me just give you my conclusion on this. I think it 
would be wrong for us, as a Nation, to just say no to oil 
shale, to look at what has happened historically and say, we 
tried it before and we ought not to look at it again. I think 
that the amount of oil that is estimated to be locked up in oil 
shale tells us that we need to seriously examine the potential 
of developing oil shale in a strategic manner as part of the 
national agenda. I think, equally, it would be wrong for us to 
say that we have all of the answers to some of the questions 
that have been raised here today, in terms of impacts to the 
community or how we will address the impacts to water or to the 
environment. I think it is important that all of those 
questions are questions that we address as we move forward.
    So, as we move forward with looking at the potential for 
oil shale development, I think that the agenda that was crafted 
by this Energy Committee last year is a thoughtful agenda and 
one that we ought to pursue. When I look at that agenda, it 
requires three sequential steps. Most of you in this audience 
may be familiar with those steps, but just to remind you what 
those steps are, No. 1, we are engaged in a research and 
development phase. That is exactly what Shell Oil is doing, 
spending millions and millions of dollars looking at whether or 
not the technology that they are exploring can, in fact, work. 
And there are other companies, both in Utah and in Colorado, 
that are in this phase. It is a research and development phase 
and I think it would have been a mistake for us, as a Congress, 
not to move forward in that direction.
    Second, section 369 says we will conduct a programmatic 
environmental impact statement. That programmatic environmental 
impact statement is underway and it will continue to 
conclusion. That is a very important part of this sequential 
program that we are undertaking.
    Then, finally, assuming that we go through those first two 
steps, then you get to the third step, and that is then the 
commercial leasing of public lands for oil shale development. I 
think the way that we set it out in that legislation is a 
thoughtful and orderly process. I think it allows us to move 
forward, as Commissioner Cook says, in a manner that we move 
forward with cautious optimism, but with our eyes open.
    And with that, Mr. Chairman, I once again thank you very 
much. I respect you very much for who you are and what you've 
done and for holding this hearing here in Colorado today.
    The Chairman. Senator Hatch.
    Senator Hatch. Well, thank you, Mr. Chairman. The Nation is 
in your debt for the leadership you've provided in getting that 
bill through. As somebody who has been there almost as long as 
you have, I've watched people flail around trying to get a 
comprehensive energy bill through for years and you're the one 
who's done it. So I really appreciate being here with you and 
being invited to talk with you on where we stand, but if you--
back to the comments of the--and I can only speak in the 
ranges, as well. The range supplied by the Rand Report, I 
believe the in-situ conversion process, complete with all the 
bells and whistles, the power generation, the upgrading, et 
cetera, will be at the low end of that scale.
    One of the reasons that it's not below the low end of that 
scale is the fact that most of the very concentrated resource 
that we'll be going after is located below the water table. So, 
eventually, water will take its place to fill the void spaces 
of the hydrocarbons that are removed, about half of what we 
think our total water usage will be. So the--you know, I'd say 
a range of probably more than two barrels of oil and less than 
three--two barrels of water per--let me start again. A range of 
between two and three barrels of water per barrel of oil, over 
one of which is used to fill the void space.
    And the importance of that last comment is that the timing 
of the filling of voidage is discretionary, so we can bring in 
that water in times of plenty and don't have to fill the void 
in the times of sparse oil.
    Senator Salazar. OK, OK. Mr. Baardson?
    Mr. Baardson. The retort--the oil tag retort, which me and 
Senator Domenici are going to visit with later this afternoon, 
uses no water at all. It actually creates water. There's water 
inherent in oil shale and as you go through the process, we 
extract water.
    The secondary process, though, does use water and we 
believe between the amount of water that we can get from the 
mine--the actual mining operation--and from the water that we 
extract from the oil shale itself, it will be completely self 
sufficient in water, and we'll need no outside source of water 
at all.
    Senator Hatch. That's great. Mr. Chairman, thank you so 
much for inviting me. I appreciate being with you. I have such 
admiration for you. And Senator Salazar, it's great to be in 
your State. I appreciate all the work you did.
    The Chairman. We're just about on time. Friends, it's been 
my pleasure to come to your State, although I'm very close at 
hand, and some of you see me frequently on television, because 
you can't avoid it.
    [Laughter.]
    The Chairman. It isn't that you enjoy it, but one of your 
channels covers me and so many of you think that I'm your 
Senator, but I'm really not. I'm representing New Mexico as 
best I can and sometimes I have trouble even doing that, much 
less spilling over onto you.
    In any event, I want to tell all of you the honest truth. I 
am a technology man. I borrowed that slogan and I wear it 
proudly. I am a technology man. The United States of America is 
built on technology and if there's anything I can wish as a 
legacy, it is that I participated and contributed a little bit 
to an environment that genuinely created innovativeness, that 
permitted people and institutions to apply technology, so that 
they became technology institutions or technology men.
    In addition, we live in a very strange, and difficult, and 
different times when, every now and then, it is nice to add to 
that that I am also a patriot. My kids think I'm a patriot and 
that's nice. They always give me things that remind me that I'm 
a patriot. They like to give me a shirt that has an American 
flag on it. You know, even at this age, they give me a white 
shirt for the Memorial Day recess with an American flag on it.
    We're caught in a bind in the world today, when it's kind 
of good, it seems, to be both a patriot and a technology man. 
That's kind of exciting. And whether you all like it or think 
it, what's happening right now, up here in your part of the 
world, is you going through a great technology evolution. Along 
with a lot of other things, this fantastic resource, which may 
not be enough for America's energy needs, but may carry us 
through and change our relationship to the countries that sort 
of have us by the throat, that resource that's up here may be 
sufficient to do that over the next 10 to 15 years. And what's 
going to be involved is patriotism and technology. And I'm 
beginning to sort of see that in the evolution of events here.
    You want to be sure that all these new breakthroughs are 
measured properly, so that the outcomes will be known. I'm 
hopeful that we have a model in place, by coincidence, that the 
companies who are developing the technology are also going to 
be motivated by whether or not the marketplace dictates its 
worth to them. If it isn't worth it, they're not going to do 
it. If it's not working, they're not going to proceed. And I am 
seeing it, as I get to learn. Sorry, sir, I don't know about 
yours. I hope I learn. I hope I learn. But I am learning about 
shales and there's a lot written about the old-fashioned on-
site retort process, which is not a lot of new technology, but 
a lot of intuition and people wanting to succeed.
    So, in any event, you are part of something big happening 
and you just want to make sure that it goes slow enough that we 
don't get carried away. I don't think we're going to get 
carried away this time. There are too many doubters and there 
are too many who don't want us to do it at all.
    And you are over there, maybe I don't know it well enough 
to say that, but the pressure will be kind of right. But what 
will come out of it will be what's good, it seems to me and 
from what I can tell, and I hope that's the case. And I hope 
that in about 10 years, you've got a big mark from on high on 
this part of the geography saying it's a very important part of 
this great United States.
    With that, we're in recess. Thank you for being here.
    [Whereupon, at 11:57 a.m., the hearing was adjourned.]

                               APPENDIXES

                              ----------                              

                               Appendix I

                   Responses to Additional Questions

                              ----------                              

Responses of Lieutenant Governor Gary Herbert to Questions From Senator 
                                Domenici
    The Energy Policy Act of 2005 directed the Department of Energy and 
the Department of the Interior to establish a task force to make 
recommendations on oil shale and tar sands development.
    Question 1. What has been the State's involvement in this process?
    Question 2. Has the State been satisfied with its opportunities to 
be involved in BLM's research leasing process and the programmatic EIS?
    In your testimony you described having 13 applications on file for 
tar sands development.
    Question 3. Can you expand on what types of tar sands activity are 
anticipated?
    Question 4. Are these on State lands or Federal lands?
    Answer. Thank you for affording me the opportunity to represent the 
State of Utah at a recent field hearing in Grand Junction, Colorado. It 
was a pleasure to visit with you and a wonderful opportunity for me to 
express the views of my state to the United States Senate.
    As a supplement to my testimony, I would like to add that Utah is 
generally encouraged with our integral involvement as a member of the 
Oil Shale Task Force mandated by the Energy Policy Act of 2005. Thus 
far, the state's involvement in the Research Development and 
Demonstration (RD&D) Leasing and Environmental Assessment (EA) as 
guided by the Bureau of Land Management has also been acceptable. 
However, as with the Programmatic Environmental Impact Statement 
(PEIS), the EA is an ongoing work in progress. There are a number of 
future steps in the PEIS preparation to accomplish until there exists a 
smoothly functioning and integrated process that utilizes the best of 
state and federal resources.
    One of the most critical steps to be taken will be the development 
of a Memorandum of Understanding (MOU) so that Utah can accomplish 
``cooperating agency'' status in working on the preparation of the 
PEIS. In essence, we are hopeful on the workings of the leasing process 
for oil shale. The next few months will be critical in determining that 
all concerns are accounted for in the preparation of the document.
    Current tar sand operations in the State of Utah consist mostly of 
small test (pilot) and exploration projects recently permitted. There 
are also a couple of County road departments that use the material for 
road building. The Division expects to see several of the small tar 
sands pilot mining operations ( 5 acres). In fact, one application currently under 
review is for an 80-acre mining operation. We also expect to continue 
to receive additional mining notices with fee (private) and Utah State 
School and Institutional Trust Lands Administration (SITLA) mineral 
ownership. Although state mine permitting notice is required on federal 
lands, OGM does not expect to see any applications for tar sands 
operations on federal lands until the Oil Shale and Tar Sands Leasing 
PEIS is completed by the BLM.
    The table below shows the distribution of activity by land 
ownership (surface/mineral). The majority of the projects are located 
on SITLA (state) lands.
    Ownership of surface/mineral estate of current (June 12, 2006) tar 
sands operations.

------------------------------------------------------------------------
                                             SITLA/   Federal/
                                   Fee/Fee    SITLA    Federal    Total
------------------------------------------------------------------------
Large Mine......................      2      \1\1         0         3
Small Mine......................      1         7         0         8
Exploration.....................      0         2         0         2
                                 ---------------------------------------
                                                                   13
------------------------------------------------------------------------
\1\ One current small mine has an application for a large mine.

    Again, I thank you for time and willingness to accept my testimony 
on behalf of the Great State of Utah. If you have any questions or if 
there is anything further information you or the committee requires, 
please do not hesitate to contact me.
                                 ______
                                 
     Responses of Russell George to Questions From Senator Domenici
    Question 1. The Energy Policy Act of 2005 directed the Department 
of Energy and the Department of the Interior to establish a task force 
to make recommendations on oil shale and tar sand development.
    What has been the State's involvement in this process?
    Answer. The State of Colorado has been represented on the Strategic 
and Unconventional Fuels Task Force as required by the Energy Policy 
Act.
    The Task Force has held three meetings, to date, including a kick-
off meeting on March 22, 2006 in Denver, Colorado, a conference call on 
April 7, 2006, and a formal meeting held in Salt Lake City, Utah on May 
11, 2006. A fourth meeting to finalize the interim report to Congress 
will be held the third week of June in Lexington, Kentucky.
    Colorado representatives have attended all of the Task Force 
meetings and have participated fully in the drafting of the report.
    Question 2. Has the State been satisfied with its opportunities to 
be involved in BLM's research leasing process and the programmatic EIS?
    Answer. The state has been active in both the Research, Development 
and Demonstration project as well as a cooperating agency in the 
Programmatic Environmental Impact Statement. The BLM has shown a 
sincere desire to involve us in these two processes and we will look 
forward to continued cooperation and participation in the future 
development and implementation of these programs.
    The timeframes established in the Energy Policy Act of 2005 have 
resulted in immediate additional demands on Department of Natural 
Resource staff. We are committed to providing our expertise and 
technical resources to the BLM as we cooperatively move forward with 
these programs. We will have to continue to make adjustments as we 
evaluate the requests from BLM in the coming years. Undoubtedly there 
will be increased human resources needed to participate at the level we 
believe to be appropriate but BLM has shown that they are willing to 
include us at every step and we are confident that this approach will 
continue in the future. The state's ability to competently perform its 
committed obligations will inevitably be affect by budget timing and 
funding constraints.
    Question 3. In your testimony you spoke of Colorado's Coordinating 
Council.
    Please explain what this council does and how it will help the 
permitting process.
    Answer. To fully understand the socioeconomic and environmental 
impacts of oil shale development, a coordinated and integrated 
permitting process is essential. The environmental and land use 
permitting process can be complex and time-consuming when all the 
local, state and federal requirements are considered. For the permit 
requirements in place 20 years ago, the average timeframe to permit an 
oil shale project was about 42 months. Some processes have become more 
complex since then--and certainly public interest is more organized and 
focused.
    As a reminder, the Colorado Joint Review Process--the predecessor 
to the Colorado Coordination Council--grew out of the concerns raised 
over the 1970's concept of an Energy Mobilization Board. That Board 
would have had the power to preempt local and state regulatory 
requirements in the national interest. The reaction in the West was to 
coordinate and streamline, not dismantle, the existing process. 
Attempts in recent years to truncate the process have been met with 
public criticism and lawsuits. Such efforts have proven to be 
counterproductive to the goal of developing these important resources.
    Today's Colorado Coordination Council is an option that the federal 
government should consider fully funding, or partially funding along 
with industry, to assure a rigorous regulatory and environmental review 
process with adequate public input and consultation. A coordinated 
permitting process will reduce uncertainties by clarifying technical 
requirements, timeframes, lead regulatory agencies and public input. 
The overall coordination of the effort could allow for the application 
of several permits for an individual project to occur simultaneously.
    The Colorado Coordination Council, located in the Department of 
Natural Resources, statutorily incorporates the Joint Review Process. 
There are numerous governmental requirements and approvals that must be 
complied with and obtained by the sponsor of a natural resources 
development project. The jurisdictional integrity of each entity of 
local, state, and federal government must be maintained. The role of 
the Council is to coordinate relations between sponsors of natural 
resource development projects, the public, and local, state, and 
federal government entities, to make the permitting process more 
efficient while insuring maximum public, governmental, and sponsor 
input. Effective coordination should reduce costs for state and local 
governmental entities and project sponsors and minimize the delay for 
sponsors of projects that comply with the terms and conditions of 
participating local, state, and governmental entities. Participation is 
voluntary.
    Upon receipt of a written request from a project sponsor, the 
Council would initiate project coordination procedures that would 
result in a commitment by the sponsor to pay for the specified costs of 
the governmental participants prior to the commencement of the process. 
The Council would transmit such fee to the State Treasurer for deposit 
in the Coordination Council cash fund. Moneys in the fund would be 
appropriated solely to the Council to pay for its costs in providing 
project coordination procedures.
    Project coordination procedures require the sponsor to provide a 
project statement; develop a list of all local, state, and federal 
governmental entities that the sponsor reasonably expects to be 
involved in a process requiring public input; and provide the project 
statement to those identified parties.
    The Council shall outline to the extent possible a list of all 
applicable requirements identified by the sponsor that will be the 
subject of the agreement between the sponsor and the Council; establish 
a timetable for completion of the public input, permit compliance, and 
approval requirements in coordination with the governmental entities 
involved; organize and manage meetings involving the sponsor and all 
involved governmental entities; and take any other action that will 
facilitate the timely approval or denial of permits, approvals, or 
licenses required of the sponsor for the commencement of the project.
    Community acceptance is the only way to avoid what could be well 
organized and sophisticated opposition to oil shale development. 
Seeking, tracking and addressing stakeholder concerns and encouraging 
participation are essential for project implementation in the timeframe 
contemplated by Congress.
     Responses of Russell George to Questions From Senator Salazar
    Question 1. Has the state evaluated the likely social and economic 
impacts of oil shale development in northwestern Colorado? In your 
judgment, how can we avoid the ``boom and bust'' cycle that has 
accompanied oil shale development efforts in the past?
    Answer. A procedure must be established to evaluate economic 
impacts at the local level. The federal government should fund, or 
require to be funded, a process to analyze the cumulative financial 
impacts of multiple and simultaneous resource development. This 
analysis will guide the timing of needed permanent and temporary 
community services and infrastructure and provide critical planning 
information for those impacted communities.
    To assess the fiscal impact to individual communities and counties 
in high development areas, it is essential to model the budgets, 
revenues and expenditures of affected jurisdictions in Northwest 
Colorado. The key task would be to determine what projects would cause 
what economic impacts to what jurisdictions in what years based on 
different population and development scenarios.
    Given the scope of this effort, and based on our experience in the 
early 1980's with the Cumulative Impacts Task Force, we believe that 
such an analysis should be funded by federal or industry funds as it 
was then.
    Another component of socioeconomic impacts is the financial burden 
to local economies to mitigate those impacts. Along with an oil shale 
lease process that generates production royalties for the federal 
government, the 1970's concept of front-end bonus bids should be 
applied to any oil shale leases.
    The federal government leased two tracts in each state--Colorado, 
Utah, and Wyoming--in the early 1970's. Bonus payments accompanied each 
of these leases--that determined the winning bid for the lease. Half of 
those bonus payments were distributed back to the state. The Colorado 
General Assembly established the State Oil Shale Trust Fund and Program 
which developed planning and coordination mechanisms for federal, 
state, and local governments and provided funding for designated local 
government services and projects ($100+ million). This economic cushion 
was essential to community stability, and the ability to withstand the 
economic shock of a project termination.
    The federal leasing program should include front-end financing for 
infrastructure needs and impact mitigation with a goal to mitigate the 
``boom town'' syndrome. It should not subsidize private investment by 
foregoing revenues that would mitigate financial impacts at the state 
and local level. If favorable tax and royalty terms in the early years 
are necessary, the federal government must identify the alternative 
source of state and local impact mitigation funds. The cumulative 
economic assessment will determine the necessary amount.
    This analysis would identify major infrastructure requirements, 
including roads, sewer, water supply and storage, schools and key 
government services--like planning and permitting requirements. The 
investment of industry funds to mitigate these impacts should coincide 
with the project development schedule. Such funds should also include 
the financial reserves necessary to maintain the services, facilities 
and infrastructure before industry-generated revenues are available.
    Question 2. Has the state analyzed the potential impacts to air, 
land and water as a result of oil shale development? If so, please 
describe.
    Answer. The state of Colorado is in the process of participating as 
a cooperating agency in the development of the
    Programmatic Environmental Impact Statement in coordination with 
the BLM. During this process we expect the issues of air, land and 
water impacts to be fully addressed and for those agencies (federal, 
state and local) with expertise and jurisdiction over these subjects to 
be fully involved in this evaluation. The state will evaluate each of 
these elements during this process. The state does have some background 
and baseline information relating to oil shale relating to the 
development that took place in the 1970's and early 1980's. This 
information is dated and somewhat obsolete because of the new 
technology that is being utilized in the current era of development.
    It should be noted that the streamlined time frame for commercial 
leasing availability could result in a less than comprehensive 
evaluation of these impacts. This issue is further complicated by the 
fact that industry has not completed and presented their evaluation as 
to which extraction methods will be utilized during the commercial 
development. It is imperative, therefore, that the Programmatic 
Environmental Impact Assessment be a high level overview of potential 
impacts and that the site specific Environmental Impact Statements 
fully evaluate the specific impacts each commercial lease will have 
based on its ultimate location and method of operation. The state 
expects that at the completion of these two critical steps, impacts to 
air, land and water will be comprehensively addressed prior to 
development.
    Question 3. What additional policies, if any, do you think the 
federal government should pursue with respect to potential development 
of Colorado's oil shale resource?
    Answer. The cumulative fiscal impact analysis should identify both 
on-site and offsite impacts by a development project. Mitigation funds 
paid by industry or the federal government for these impacts should be 
a condition of the lease. Such funds could be held by the State 
Treasurer for distribution to specific entities as expenses are 
incurred for specific projects.
    If an upfront payment is made in one unrestricted lump sum, the 
cumulative fiscal impact analysis and the project specific EIS could be 
used to prioritize the allocation of the funds to mitigate financial 
and environmental off site impacts. Such allocation should be driven by 
a public process.
    To the extent possible, mitigation of on-site impacts should be a 
condition or stipulation of the permit by the appropriate oversight 
agency.
    Question 4. How has the State of Colorado participated in the Oil 
Shale Task Force?
    Answer. The State of Colorado has been represented on the Strategic 
and Unconventional Fuels Task Force as required by the Energy Policy 
Act.
    The Task Force has held three meetings, to date, including a kick-
off meeting on March 22, 2006 in Denver, Colorado, a conference call on 
April 7, 2006, and a formal meeting held in Salt Lake City, Utah on May 
11, 2006. A fourth meeting to finalize the interim report to Congress 
will be held the third week of June in Lexington, Kentucky.
    Colorado representatives have attended all of the Task Force 
meetings and have participated fully in the drafting of the report.
                                 ______
                                 
        Responses of Kim Cook to Questions From Senator Domenici
    Question 1. You testified primarily to the need for ``up front 
funding assistance'' to counties.
    How well has the State shared it mineral receipts to counties?
    Answer. I can't speak to how other states such as Utah and/or 
Wyoming share such receipts as compared to how Colorado structures its 
distribution to counties. There are problems which have surfaced as the 
total value of the receipts have increased and the Colorado Department 
of Local Affairs (DOLA) has seen the need to alter the manner in which 
receipts are distributed. Based on a 2005 opinion by the Colorado 
Attorney General's office, Colorado's so-called 3rd Tier distribution 
dollars have been redirected from the county of origin of the Federal 
Mineral Lease (FML) operations to the counties in which the FML workers 
reside. While there are significant impacts associated with the place 
of residence there are still significant impacts in adjoining low 
population counties such as Rio Blanco County. Further, this 
redirection of FML dollars to counties-of-residence results in many 
counties receiving significantly more FML dollars than were ever 
generated within those counties while other counties, such as Rio 
Blanco County, receive less than 10% of the FML dollars generated 
within their jurisdictions. Rio Blanco County strongly objects to 
Colorado moving away from the ``County-of-origin'' concept in the 
distribution of FML dollars. Rio Blanco County would need more than 
double our current share of the FML dollars generated within our county 
to be able to mitigate the impacts which are currently occurring. The 
attached document describes the distribution of Colorado's share of FML 
dollars.
    Question 2. What do you think is needed for impact mitigation 
planning?
    Answer. For impacts to the tri-state region (Colorado, Utah, & 
Wyoming), the scope of such planning needs to include the geographical 
extent of the Green River Formation.
    Planning efforts tend to focus on specific features, such as 
socioeconomics, and be focused within a specific state. I think that 
regional infrastructure needs to be studied from a perspective which 
transcends state boundaries, especially in terms of the transportation, 
water, and electrical power grid. A regional transportation plan 
linking the Green River Basin of Wyoming with the Piceance Basin of 
Colorado and the Uinta Basin of Utah as well as the links from them to 
the outside national transportation network. Adequate water storage 
doesn't exist and needs to be developed on a similar scale. Finally, 
the electrical power grid of the region needs to be developed, perhaps 
utilizing unconventional technologies, to the point that adequate power 
to develop the oil shale resources can be provided while maintaining 
air quality standards. Such study and the funding can only come from 
the federal level and FML dollars from oil shale lands could, now that 
the DOE oil shale funding requirements from the last boom are met, be 
accrued for such studies and the mitigation of the anticipated impacts. 
It is hoped that the current PEIS will provide an adequate start toward 
identifying needs and possible mitigation strategies.
    Question 3. There is no question that local governments should not 
be forced to pay for these costs alone. But States have been receiving 
significant amounts of new federal royalty receipts generated from 
increased energy production and higher energy prices.
    Do you see a need for States to step up as well in providing 
funding for these needs?
    Answer. Rio Blanco County does see such a need. We are deeply 
concerned that the state's share of FML and mineral severance tax 
dollars will be diverted toward more populous and politically powerful 
areas of the state. As you may well know, Colorado, as a result of 
rapid growth along its I-25 and I-70 corridors, has many needed but 
unfunded projects. As it struggles to find adequate funds for these 
projects the leasing and severance revenues being generated in the more 
rural parts of the state are tempting targets for misappropriation.
        Responses of Kim Cook to Questions From Senator Salazar
    Question 1. How can we avoid the ``boom and bust'' cycle that has 
accompanied oil shale development efforts in the past?
    Answer. Possibly we could model the effort on the manner in which 
the immediate past Federal Reserve Chairman, Mr. Greenspan, has managed 
to avoid the worst of the inflation-recession impacts during his 
tenure. Such an effort would require careful monitoring of the amount 
of federal dollars available for the research and development phase of 
our unconventional energy resources. Making more dollars available, in 
the manner of the Fed lowering interest rates, can accelerate R&D 
projects but at the danger of local economic growth so large that local 
government cannot manage its impacts even with significant mitigation 
funding. While the current rate of R&D is probably too low to meet our 
current and future energy needs, federal funding for R&D and impact 
mitigation could be limited to only a few promising technologies in 
each of several forms of unconventional energy and spread over a wider 
geographic region than has occurred in the past. We favor this ``go 
slow'' approach seen from this perspective as compared to the massive 
influx of federal dollars in a very limited geographic region which 
sparked the last oil shale boom.
    Question 2. How are efforts on the programmatic environmental 
impact statement being received locally?
    Answer. The PEIS has a pretty low profile in western Rio Blanco 
County. There are concerns that this locality will have an adequate 
hearing of its concerns and that, in the broad scope of this effort, 
local concerns will bear much weight.
    Question 3. From your point of view, are any of the proposed 
development technologies preferable for local governments in Colorado? 
Are there advantages to in-situ processes as compared to surface 
retorting in the eyes of local governments, or vice versa?
    Answer. An in-situ process has a couple of real advantages. The 
extraction of petroleum from the shale via an in-situ process looks 
like it will take less water per produced barrel than mining 
techniques. With water in short supply in the west, this is important. 
In-situ seems like it will be easier to meet air quality standards, 
especially if a clean coal technology is used to generate electricity 
for the heaters. In-situ processes avoid the need to dispose of spent 
shale which now occupies a larger volume than the cavity from which it 
was extracted.
    In-situ will, however, eventually disturb the surface of the entire 
oil-bearing region. This means that special care will need to be taken 
to protect the unique species which occupy the surface exposures of the 
Green River Formation. Since several of these plant species exist 
nowhere else in the world, a special effort will need to be made to re-
establish them in areas which are reclaimed after extraction of the 
petroleum is complete.
    Question 4. How would you describe Shell's working relationship 
with Rio Blanco County?
    Answer. Rio Blanco County feels it has an excellent working 
relationship with Shell Frontier Oil & Gas. Shell has worked hard at 
establishing and maintaining strong, open communications with the 
county. We have negotiated on mitigating potential problems based on 
each other's activities and actions. Shell has been forthcoming with 
impact assistance, information, and their plans for the future. They 
rank among the best, if not the best, of the energy extraction industry 
operators in our county.
    Question 5. What kinds of federal assistance are necessary, from 
the point of view of Rio Blanco County, before oil shale can be 
developed commercially?
    Answer. As mentioned in our response to Senator Domenici's 
questions, Rio Blanco County sees a need for federal assistance in the 
area of regional infrastructure planning. As we move closer to the 
commercial extraction of shale oil, funding assistance for the 
infrastructure needs will become necessary. It is to be hoped that oil 
shale leasing revenues and severance taxes can be retained in a fund to 
assist local governments with these impacts. We see little or no need 
for major incentives to industry now that we are again in an era of 
high oil prices.
                                 ______
                                 
       Responses of Mike McKee to Questions From Senator Domenici
    Question 1. You testified primarily to the need for ``up front 
funding assistance'' to counties.
    How well has the State shared it mineral receipts to counties?
    Answer. Out of the State's mineral receipts 40% return to the 
county of origin. This 40% must be receipted into county established 
Special Service Districts, not into the impacted county coffers. If the 
money were to come directly to the county, Payment in Lieu of Taxes 
(PILT) money would be forfeited. Some of the mineral receipts are 
allocated to the State's Permanent Community Impact Fund Board (PCIFB). 
The state's mineral producing counties make application to the PCIFB to 
fund various county projects. PCIFB awards are in the form of grants or 
low interest loans.
    The only improvement to this system desired by this County would be 
to allow the mineral receipts to come back directly to the county of 
origin, by passing the Special Service Districts, without forfeiture of 
PILT funding. If the purpose of the mineral receipts is to assist the 
county of origin in reducing those impacts resulting from oil and gas 
production, the State has created an unnecessarily burdensome process.
    Question 2. What do you think is needed for impact mitigation 
planning?
    Answer. Mitigation planning is difficult, at best, for an industry 
that is here today and could be gone tomorrow. A mechanism must be 
established for working with industry to do future forecasting. Uintah 
County has previously been a victim of the volatile oil and gas ``boom/
bust'' cycle. We need a survey or study to collect information from 
industry and establish their plans for the next ten years. In addition, 
we need to bolster our economic studies to track community needs and 
impacts. The County needs the assistance of a planning professional, 
possibly brought in on a consulting basis, to do this forecasting. The 
County needs funding, in addition to the mineral receipts it already 
receives, to pay for this planning.
    The County is a willing participant in energy production. Some of 
this country's premiere oil and gas fields are right here in Uintah 
County. This production is helping to alleviate a national shortage and 
the County should not be called upon to bear the impact burdens alone.
    Question 3. There is no question that local governments should not 
be forced to pay for these costs alone. But States have been receiving 
significant amounts of new federal royalty receipts generated from 
increased energy production and higher energy prices.
    Do you see a need for States to step up as well in providing 
funding for these needs?
    Answer. Yes. The State of Utah's position has been that even though 
a large portion of the production (68%) is in the Northeastern portion 
of the State, the whole State is being impacted. Consequently, the 
other non-mineral producing portions of the State wish to benefit from 
those mineral receipts. The State prefers not to acknowledge that the 
mineral receipt money is being generated in predominately one area of 
the State and, accordingly, receipts should be returned to mitigate the 
impact.
    The non-mineral producing portions of the State are not dealing 
with over 400 miles of unpaved roads, providing access to the 
production fields, in desperate need of repair. Nor, do they have an 
abysmal lack of low income and temporary stay housing as a result of 
transient workers moving into the area. This County is in desperate 
need of a new jail due to the increased population and number of 
workers abusing alcohol and methamphetamines. The number of law 
enforcement officers must be quickly increased to handle the extra 
burden. Housing construction has increased, along with the need for 
building inspectors and planning personnel. The areas workers are 
flocking to the high paying oil and gas production jobs leaving behind 
minimum wage jobs that cannot be filled. An area that reported 150 
available jobs a year ago now is reporting over 400 available jobs. The 
impacts that result from an unanticipated time of prosperity are 
innumerous.
    In addition to the mineral receipts, the State of Utah collects a 
severance tax. Outside of a small percentage that goes to a 
revitalization fund, the State does not share any of the severance tax 
collected with the counties of origin. We believe that since the 
minerals are severed from the County's natural resources the County 
should receive a portion of the severance tax returned to the State.
    Federal statute directs the State to give ``priority to those 
subdivisions of the state socially or economically impacted by 
development of minerals.'' Unless the federal government steps in and 
provides additional direction, the counties of impact will not get the 
help they need.
                                 ______
                                 
       Responses of Craig Meis to Questions From Senator Domenici
    Question 1. You testified primarily to the need for ``up front 
funding assistance'' to counties.
    How well has the State shared it mineral receipts to counties?
    Answer. The State of Colorado receives revenues from energy 
development via Federal Mineral Lease and Severance Tax. The largest 
beneficiary of Federal Mineral Lease is the State School Fund with 52% 
of all revenues going to the State's School Districts with only 14% of 
all revenues going back to local counties or cities of origin via 
direct payments. Some additional dollars do make it back to local 
governments via energy impact grants through the Colorado Department of 
Local Affairs however these grants have historically required 
significant local matching dollars and have had caps on grant limits 
therefore the use of them in energy impacted regions has not been as 
great without these limitations.
    Severance Tax is the primary source of energy related revenues that 
the State receives outside of property taxes. Severance Tax dollars 
have been increasing very rapidly over the past three years due to 
significantly increased natural gas production and rising energy 
commodity costs. The distribution of severance tax in Colorado is also 
a very complicated formula of which 7.5% of total severance tax 
revenues are paid to local governments via a direct payment based on 
energy employee residency reports and 40% of total severance tax 
revenues is used to fund the State's Energy Impact Assistance Fund. I 
stated earlier the limitations that currently preclude local 
governments from taking full advantage of these energy impact grant 
funds. The remaining 52.5% of severance tax collected by the State is 
used to fund State operations such as Department of Natural Resources 
and Department of Local Affairs.
    The formulas that allocate these dollars for both Federal Mineral 
Lease and Severance Tax within the State of Colorado are very 
complicated so rather than try to explain these I will submit for the 
record the Colorado Department of Local Affairs presentation attached 
that outlines specifically the revenues paid and the distributions made 
throughout the State. This presentation also illustrates the formulas 
used to allocate the distributions.
    Question 2. What do you think is needed for impact mitigation 
planning?
    Answer. An allowance for a prepayment on royalties or equivalent 
that flows in large part directly to the cities and counties were the 
impact of energy development will be the greatest. These revenues would 
allow for planning and capital improvements to be made in these areas 
prior to impacts taking place. All the counties in Northwest Colorado 
are experiencing major impacts on our roads, law enforcement, human 
services and other public services and infrastructure currently due to 
the rapidly growing natural gas industry in our region. Should we add 
oil shale to the already fragile services and infrastructure in place 
in the region we are destined for failure. While we are certainly up 
for the additional challenge in providing additional reliable and 
affordable energy to our nation, we would respectfully request that 
assistance be given to help plan for and pay for the impacts associated 
with any future development.
    Question 3. There is no question that local governments should not 
be forced to pay for these costs alone. But States have been receiving 
significant amounts of new federal royalty receipts generated from 
increased energy production and higher energy prices.
    Do you see a need for States to step up as well in providing 
funding for these needs?
    Answer. While I will certainly not argue that I think the State of 
Colorado should allocate a higher percentage of funding to areas of the 
State impacted by energy development based upon the figures I presented 
earlier. I will point out that it is certainly the perception of 
Northwest Colorado that a much smaller percent of Federal revenues 
received from energy development are returned back to the States or 
Counties of origin. A greater emphasis by this Committee would be to 
review whether Federal revenues received by energy development are 
actually being used to support and enhance future energy development in 
these impacted regions for the benefit of the nation. Colorful Colorado 
certainly does not want energy development in our back yard no more 
than the California Coast does but we are certainly willing to do our 
part if the Federal assistance is available to do it with and do it 
right.
       Responses of Craig Meis to Questions From Senator Salazar
    Question 1. In April 2005, Jim Evans of Associated Governments of 
Northwest Colorado testified in front of this committee that the best 
advice from local governments to industry was: ``communicate, 
communicate, communicate.'' Have the finalists for BLM R&D leases in 
Colorado (Chevron, EGL Resources, and Shell) heeded this advice?
    Answer. Certainly some more than others. If I were to place them in 
order it would be very easy. Shell the best with Chevron second and EGL 
last. Shell has certainly set the standard but they have also been 
working on their Mahogany Project for quite sometime and been very good 
about advising local government all along on their progress. All three 
have been a part of the public presentations held throughout NW 
Colorado by the BLM as part of the information sharing aspect of the 
upcoming RD&D leases being issued.
    Question 2. What level of participation have the local communities 
had in the Oil Shale Task Force established by section 369 of the 
Energy Policy Act of 2005?
    Answer. Since I am the designated local representative for the 
State of Colorado, the participation and the involvement in the task 
force has been very good. I have certainly been sharing any and all 
information from the task force meetings with my fellow electeds in 
Northwest Colorado to make sure that I am representing their questions 
and concerns as the member of the task force. I have been pleased with 
the outcomes of the task force to date and with all the participants of 
the task force. The members of the task force are very engaged and 
productive. We are all saying very similar things and have like 
concerns. Everyone on the task force wants any activity that comes from 
future oil shale development to be successful and mutual beneficial.
    Question 3. As a representative for Colorado communities on the Oil 
Shale Task Force, how have you sought to best represent Colorado's 
local communities on the task force?
    Answer. I have been providing updates and sharing any of the 
information received as part of the task force activities with 
Associated Governments of Northwest Colorado which is made up of the 
five Counties and their respective Municipalities of Northwest 
Colorado. Any feedback received from the members of AGNC is relayed to 
the subcommittee.
    Question 4. Are there any barriers preventing meaningful 
participation by local communities in the task force?
    Answer. Not to my knowledge at this point. Both the applicable 
State and Federal agencies associated with the oil shale proposals have 
been very receptive and proactive about local input. I am unaware of 
any negative comments or feedback at this point with regard to any 
local community feeling like they are not being listened to or heard.
    Question 5. From your point of view, are any of the proposed 
development technologies preferable for local governments in Colorado? 
Are there advantages to in-situ processes as compared to surface 
retorting in the eyes of local governments, or vice versa?
    Answer. At this early stage, I feel most in local government and 
the surrounding communities are simply waiting in anticipation for the 
outcome of the RD&D activities. We are all very aware of energy 
development in this region and the ever changing technology associated 
with energy development. We are certainly hopeful that oil shale 
development technology will also be something that is exponentially 
increased to minimize any adverse environmental impacts while 
maximizing resource recovery. Whether surface retort, in-situ or 
another as of yet undiscovered technology may be found for developing 
and processing oil shale, all certainly have their challenges and all 
very much have significant impacts. I would hope that we as policy 
makers will let the scientists do their jobs to let us know about the 
feasibility of oil shale production before we condemn anything based 
solely on the emotion of the issue. This should be an issue based on 
science rather than politics and emotion.
                                 ______
                                 
      Responses of Stephen Mut to Questions From Senator Domenici
    Question 1. I understand from the Department of Energy that, if any 
technology becomes commercially viable, it is conceivable that the 
state area of Colorado, Utah, and Wyoming could produce around three 
million barrels per day from oil shale.
    What would this mean for the nation and American consumers?
    Answer. In the case where oil shale were to produce a 3 million 
barrel per day increase in both US and world oil and gas supply, there 
would be significant changes that would be readily felt by both the 
economy and the average consumer. Among those impacts would be a 
lowering of world oil and gas prices (assuming that no offsetting 
reduction was applied elsewhere), a reduction in gasoline prices at the 
pump, and a reasonable increase in the US economic growth as a result 
of those lower energy prices and a simultaneous reduction in the trade 
deficit. Different macroeconomists would calculate these precise 
impacts differently of course. But directionally, there is little doubt 
that these specific impacts would be seen, along with the difficult to 
calculate geopolitical value of reducing US dependence on foreign 
producing nations while at the same time showing them that alternatives 
to their products were readily available.
    With approximately two-thirds of our nation's current energy demand 
coming from imports, and estimates that our energy demand will double 
or more by 2050, developing our domestic oil shale resources is an 
important and perhaps critical step in bolstering domestic energy 
security. Meeting our future energy needs will involve a diversity of 
energy sources including: conservation, conventional, unconventional, 
alternate and renewable energy sources. Additionally, changes in 
consumer habits and improvements in technology can further reduce our 
national energy demands.
    Question 2. What about the pace of oil shale development? Are we 
going about this along the right time frame?
    Answer. There are no quick fixes to our nation's energy supply and 
demand problem. If the U.S.'s unconventional energy resources, 
including oil shale, can be prudently developed in an economically, 
environmentally and socially sound manner, companies should be 
encouraged to proceed at a pace to allow for commercial production to 
commence by the early-to-middle part of the next decade.
    Question 3. What are you doing to ensure that the environment is 
protected as you plan for oil shale development?
    Answer. Developing oil shale in an environmentally responsible 
manner is a foundational element of Shell's sustainable development 
policy. Throughout our ten-year history of field-testing (that was 
preceded by almost 15 years of laboratory research), we have been 
studying the environment extensively to understand how best to develop 
the resources in a responsible manner. Environmentally related studies 
performed to date, and ongoing, include: groundwater, surface water and 
aquatic resources; plants and noxious weeds; wildlife, wild horses and 
threatened & endangered species; meteorology and air emissions 
modeling; cultural resources; and soil, reclamation and remediation. 
Additionally, we are cooperating with the BLM as it prepares the 
Environmental Assessments that are needed to evaluate and support 
implementation of the RD&D leasing program. Shell will also support a 
comprehensive site specific Environmental Impact Statement as a pre-
condition to any commercial-scale project development.
       Responses of Stephen Mut to Questions From Senator Salazar
    Question 1. How well do you think the R&D leasing program is 
working?
    Answer. BLM's RD&D leasing program will open the door to prudent 
demonstration of viable oil shale recovery technologies. Shell is 
supportive of the process and is anxious to receive issuance of the 
three leases with which to initiate the next, and hopefully last, stage 
in our 24-year R&D efforts leading to commercial development. So far 
BLM's process seems to be working well, as it was thoughtfully 
developed to assure that only applicants providing adequate proposals 
would be given the opportunity to demonstrate their research. Shell 
feels that it is important to develop oil shale resources in a 
cautious, methodical manner to assure economic viability, environmental 
responsibility and social sustainability.
    Question 2. When will Shell make a determination whether to 
commercialize production?
    Answer. Shell hopes to make the decision whether to commercialize 
oil shale production around the end of this decade. However, we 
anticipate proceeding with long-term preliminary activities over the 
next several years such as: NEPA compliance, permitting and 
comprehensive impact assessment in partnership with potentially 
impacted communities in order to have those steps completed in advance 
of a commercial development decision.
    Question 3. What would be the likely consequences of a commercial 
leasing program if BLM offers commercial leases before the technology 
can be proven?
    Answer. A regulatory program needs to be put in place as part of 
the regulatory segment of a commercial leasing program to assure that 
operators' projects are environmentally and socially responsible and 
that also provide specific criteria to define maximum economic 
recovery, require diligent development, adequate bonding and other 
environmental protections plus a multitude of other operational 
criteria before commercial leasing commences. These regulatory 
provisions are an important step that need to be completed before 
commercial leases are actually issued. So long as these regulatory 
safeguards are installed at the front to protect the land and the 
environment, the question of whether or not a technology is yet 
``proven'' is more a function of a company's decision-making process.
    Question 4. Would speculative oil shale leasing be 
counterproductive to the potential development of the resource?
    Answer. Any commercial oil shale program should provide specific 
diligent development requirement to discourage speculative oil shale 
lease acquisitions.
    Question 5. Please describe the total life-cycle energy inputs for 
your in-situ conversion process. Given these inputs, what net energy 
production can we anticipate?
    Answer. Shell is still very much in a research and development mode 
and will continue to be in such a mode for several years. Our first 
fully integrated, commercial-depth test is still ahead of us on an RD&D 
lease we anticipate receiving this summer from the BLM. So in this very 
preliminary stage, our energy balance predictions are still only best-
calculated estimates. Our preliminary modeling calculations indicate 
that in a commercial operation each unit of energy going into the 
ground will yield approximately 7 units of energy from produced shale 
hydrocarbons. However our analysis of the energy balance from more of a 
full life cycle perspective, considering the energy required for 
electricity generation and transmission, should result in a net energy 
balance more on the order of 3 to 3.5 units realized per unit input.
    Although this is an important parameter, one must put it in 
perspective, considering that the entire oil shale industry is in its 
fetal stages. If one considers the advancement of airplanes, computers 
or telephones from their inception to today, vanguard industries 
inevitably drive themselves toward improvements, efficiencies and cost 
reductions. Oil shale development should be no different. Shell is 
strongly driven to advance our process toward being more efficient and 
less cost and resource intensive. An example is our third RD&D lease 
application, in which we are proposing to test an advanced-generation 
heater, which if successful, will significantly reduce the energy and 
capital demands of the ICP process.
    Question 6. Have you estimated the amount of electric power that 
will be required to produce and refine oil from shale?
    Answer. As stated in Response #5 above, our power consumptive 
numbers at this point are order-of-magnitude-type calculated estimates, 
which we believe will improve over time. After we have obtained initial 
results from the Oil Shale Test on the RD&D lease, we should know more 
specifically. At this point, we have not performed a full-scale 
integrated test from which we can scale-up our data to answer this 
question with greater precision.
    Question 6a. How much electric power is required per barrel of 
recovered oil?
    Answer. Per the previous response, this information is not yet 
developed.
    Question 6b. Have you identified a source for that electric power?
    Answer. We are considering several power supply scenarios and have 
not yet finalized our plan. There are many factors involved in this 
decision, including fuel type, location, construction costs and timing, 
air emissions increment availability, project permitability, 
CO2 emissions, transmission issues, and land availability, 
among others. Also, as the answer to our nation's energy security will 
involve a diversity of energy sources, the supply to our project may 
also involve a mix of sources.
    Question 7. How much water is required to produce oil from shale 
using your ICP technology?
    Answer. Again, considering that we have not yet performed an 
integrated Oil Shale Test, we do not have accurate estimates that we 
could scale-up to answer this question. Our current calculated 
estimates are in the range of one barrel of water used for processing 
plus another barrel of water which will merely be displaced in the 
subsurface to ``refill'' the area from which shale oil and gas were 
produced, per barrel of oil produced--a number less than half of the 
demand of the prior retort technologies.
    Question 7a. Have you estimated the quantity of water that would be 
required to reclaim the property after completion of Shell's in-situ 
conversion process?
    Answer. We are working on such a determination, along with the 
broader answers regarding water balance. We plan to optimize the 
conservation of water resources by treating, storing and reusing water 
whenever possible. Recognizing the sensitivity of water supply in the 
region, we have already decided to use air rather than water cooling in 
our surface facilities. Although this decision will add significantly 
costs to a commercial project, it will correspondingly reduce the 
amount of water consumption needed.
    Question 7b. Have you estimated the quantity of water that would be 
required to support commercial development of oil from shale, including 
municipal and other consumptive uses associated with growth in the 
communities of northwest Colorado required by that development?
    Answer. Please refer to the prior two responses. Additionally, we 
are already beginning to assess socioeconomic baseline conditions and 
anticipated project impacts on the region's communities. Our community 
development planning process will identify such impacts, and we will 
work in partnership with affected communities to address and 
appropriately mitigate project-related impacts on their infrastructure.
    Question 8. Does your company have water rights to support oil 
shale commercial production in Colorado? What is the quantity of water 
to which you have currently have rights?
    Answer. Answering this would reveal, and perhaps jeopardize ongoing 
commercial and proprietary negotiations. Once we are able to respond, 
we will reveal such information publicly.
    Question 9. Have you or anyone acting on your behalf filed 
applications which are now pending for additional water rights in 
Colorado?
    Answer. Please refer to the previous response.
                                 ______
                                 
      Responses of Chris Treese to Questions From Senator Domenici
    Your testimony spoke to the need for conducting new research. I 
assume much of this research would need to be funded by industry.
    Question 1. Who is best suited to conduct this research?
    Question 2. Can this research be completed in a timely manner?
    Answer. My recommendation regarding the need for a long-term 
commitment to oil shale research recognized that the industry has a 
vested interest in this research. But I also intended to recognize that 
private industry's commitment to and investment in oil shale research 
will inevitably wax and wane with world energy prices. I intended to 
stress the need for a long-term federal commitment to research that 
ideally would run counter-cyclical to the industry's research thereby 
providing a steady level of combined public and private research into 
the oil shale resource. Or, at a minimum, the federal government should 
provide a steady, baseline level of research that the industry could 
augment as energy prices and related business plans dictate.
    Regarding the timing of this research, again I would like to stress 
the need for a long-term commitment to this resource. If, in fact, a 
viable and sustainable industry emerges from this most recent round of 
interest in oil shale, then this research could be discontinued. 
However, as a, former member of the oil shale industry and student of 
the boom-and-bust cycles occasioned by past interest in oil shale, I 
caution against premature cessation of this research. Very few would 
have predicted the sudden collapse of oil shale development in the late 
70's and early 80's. World energy prices were rising faster than ever 
before in history. Proven supplies of traditional oil reserves were 
declining world-wide and domestic reserves shrinking even faster. The 
world's largest energy companies were investing in oil shale 
development in sums that no one could imagine they could walk away 
from. Yet on May 2, 1982 they did just that. Accordingly, some 
mechanism to ensure on-going research into safe and sustainable 
technologies to develop this vast, domestic hydrocarbon resource is 
vital.
    Question 3. You spoke to the need for new water storage. Is there 
potential for new storage in this region?
    Question 4. Are there any projects currently in the works?
    Answer. There are no water projects currently in development or in 
planning that either intend to supply a future oil shale industry or 
rely on a future industry for financing. Indeed, as you heard from 
industry representatives at the hearing, commercial development of oil 
shale remains a future and uncertain decision. Oil shale is simply too 
speculative, especially given the most recent experience of the would-
be industry's incarnation, to be a viable source of water project 
financing. Therefore, the industry must assume the responsibility of 
developing its own water supply requirements, both that directly 
required by the industry as well as water requirements of ancillary 
services (e.g., electrical supply) and municipal demands created by 
energy-related in-migrants. I believe local water districts, including 
ours, and state water agencies are willing to partner with the industry 
to develop necessary water resources but only under terms and 
conditions that do not place financial risk on local constituencies.
    Additional water storage will be required. The amount, timing, and 
location obviously will be dictated largely by location of the oil 
shale development. Generally, there is water storage potential in the 
greater Colorado River basin. Again, location will be a key 
consideration.
    Dating back to the 1950's, the energy industry has invested in 
water rights in the Colorado River basin. Most of these rights are 
``conditional rights'' under Colorado water law and remain undeveloped 
to date. New filings for junior water rights are also possible in many 
areas, but water availability for such rights are correspondingly less 
certain.
    As the Chairman knows, the upper basin states of the Colorado River 
face considerable uncertainties concerning the exact amount of 
developable water under the 1922 Colorado River Compact. Under current 
hydrological assumptions, Colorado has not fully developed its 
allocation of Colorado River water under the 1922 and 1948 Compacts. 
However, Colorado, like New Mexico, is nearing full development along 
with the attendant risks and uncertainties that accompany full 
development. For this reason and others, I suggested in my written and 
oral testimony to the Committee that

   ``All environmental assessments should include a thorough 
        analysis of water-related requirements of oil shale 
        development. This should include direct water needs of oil 
        shale on-site development, as well as the indirect, companion 
        water requirements of ancillary oil shale activities (e. g., 
        electrical generation or other energy requirements of oil shale 
        production, municipal demands of energy-induced population 
        growth).
   Watershed planning and water supply development alternatives 
        must be advanced. State and regional water authorities have the 
        capacity to lead these efforts but may require additional 
        (federal) funding to expedite the process.
   Development of contingency planning and creative capital 
        financing mechanisms that don't place present and future 
        residents at financial risk of default in case of another 
        ``bust'' are imperative.
                                 ______
                                 
      Responses of Steve Smith to Questions From Senator Domenici
    Question 1. What impacts do you anticipate to air, land, and water 
resources from oil shale development?
    Answer. 100% surface disturbance--Most recent emphasis in recent 
oil shale research has been on in situ techniques that heat the ore 
underground--in place. These techniques, while avoiding mining and 
hauling of mined material, result in complete surface disturbance in 
the production area.
    With wells drilled for inserting heaters, for water monitoring and 
removal, for extraction of gas and oil shale product, and, in at least 
one version, for establishing and monitoring freeze walls to contain 
ground water, the land surface is perforated with wells every 10 to 12 
feet. The accompanying equipment and the drilling activity itself 
completely alters the surface, removing all vegetation and grading the 
land to an unnatural flatness.
    Certainly, such techniques will necessitate elaborate surface 
reclamation, including storage and reuse of topsoil, replanting of 
vegetation, and recontouring the land and waterways. Reclamation of 
such scale has seldom been completely effective in the type of arid 
landscape under which oil shale is found.
    With or without effective reclamation, the period of surface 
disturbance--four years or more, and the extent of surface 
disturbance--640 acres to 1,920 acres at a time, severely alter 
wildlife habitat and migration areas (particularly that for mule deer, 
pronghorn, and sage grouse), disturb scenic values, and threaten 
streams with siltation.
    In particular, such disturbance to such an extent would destroy 
essential values in Areas of Critical Environmental Concern, areas with 
wilderness characteristics, and delicate habitat for rare or imperiled 
plant and animal species.
    Water supplies--The best current estimates of water needed for in 
situ oil shale production project a ratio of about 4 units of water 
needed for each unit of oil shale fuel product produced. Commercial 
scale development, as contemplated by the departments of Energy and the 
Interior, this would require construction of new water diversion and 
storage capacity rivaling that of all the reservoirs already existing 
in northwest Colorado.
    Even if such water facilities can be built for oil shale, the 
competition for actual water supplies would intensify, putting new 
expense and burdens on ranches and community water supplies in the 
area.
    Water quality--Virtually nothing is known about the impacts of the 
in situ process on groundwater and surface streams. The basic 
components of this approach--heating strata to very high temperatures 
for several years--suggests that threats to groundwater quality would 
be significant.
    Air quality--According to the Rand report on oil shale potential, 
very little is known about the potential impacts of oil shale 
development on air quality. With the region already experiencing 
significant air quality damage from natural gas production operations, 
the potential impacts from oil shale will be a key topic for additional 
research and modeling before commercial leasing is considered.
    The necessity of constructing and operating new coal-fired power 
plants for electrical power for oil shale operations (see below), and 
the concomitant impacts on air quality in the region from new power 
plant emissions, also need to be taken into account.
    Those power plant emissions and emissions oil shale operations 
themselves are likely to add significant and unhealthy levels of sulfur 
dioxide (SO2), carbon monoxide (CO), ozone (O3), 
nitrous oxides (NOX), and lead, as well as greenhouse gas 
carbon dioxide (CO2), to the air in the region.
    Electric power plants--The best current calculations anticipate 
very large electric power needs for oil shale production, primarily for 
operating underground electric heaters in the in situ method. At 
projected commercial scale production (500,000 barrels per day), new 
electric power generation equal to that from all existing coal-fired 
power plants in Colorado.
    Even if such new capacity could be built and exclusively dedicated 
to oil shale use, the impacts on fuel supplies, generation and 
transmission capacity, and air and water quality would be tremendous, 
both adding direct environmental damage, adding to global warming 
emissions, and competing with public and municipal energy suppliers,
    Question 2. What is your impression of how well the PETS process 
[environmental review, mandated in the Energy Policy Act of 2005, of 
potential for commercial production of oil shale] is proceeding?
    Answer. The federal agencies' approach (led by the Department of 
the Interior) has, so far, been conducted in an open and accessible 
manner. The only public aspect of that approach has been the issues 
scoping phase, in which citizens had opportunity to outline the issues 
that should be reviewed in the PETS,
    Once a draft PEIS is issued, we will be better able to evaluate 
whether the scoping phase was effective, that is, whether the agencies 
have prepared an thorough and fair analysis of the range of issues that 
must be evaluated, and the impacts that must be avoided or mitigated, 
prior to any public lands leasing for commercial production,
    One key flaw is the PETS schedule, especially when considered in 
combination with other provisions in the oil shale section of the 
Energy Policy Act. It may be possible to complete an accurate and 
effective PETS by the due date 18 months after enactment (approximately 
the end of 2006), but that is a highly accelerated pace for an analysis 
of such magnitude. Congress should anticipate the need to extend the 
PEIS study period lest the document end up incomplete or inaccurate.
    This sense of undue haste is compounded by the Act's requirement 
that the Department of the Interior issue, within six months after 
completion of the PSIS, regulations for leasing federal public lands 
for commercial scale oil shale production. Regulations issues on such a 
hasty schedule will be carefully scrutinized and may well fall short of 
the level of protection needed for other, more enduring public lands 
values.
    Meanwhile, the Research, Development, and Demonstration oil shale 
leasing program (as mandated in the Act and as previously initiated by 
Interior) proceeds. Once the research leases are issued, experimental 
and demonstration work on those lease tracts will continue for up to 15 
years. Contemplation of a commercial leasing program before results, 
conclusions, and mitigation techniques are provided from those research 
leases is unwise and premature. No commercial leases should be issued 
on public lands before that research is completed. Certainly, no 
commercial leases should be issued in mid-2007, even if commercial 
leasing regulations are in place by then.

    [Responses to the following questions were not received at 
the time the hearing went to press:]

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                      Washington, DC, June 6, 2006.
John Baardson,
Chief Executive Officer, Baard Energy, LLC, Vancouver, WA.
    Dear Mr. Baardson: I would like to take this opportunity to thank 
you for appearing before the Seante Committee on Energy and Natural 
Resources on June 1, 2006 in Grand Junction, Colorado to give testimony 
regarding the implementation of the oil shale provisions of the Energy 
Policy Act of 2005.
    Enclosed herewith please find a list of questions that have been 
submitted for the record. If possible, I would like to have your 
response to these questions by June 20, 2006.
    Thank you in advance for your prompt consideration.
            Sincerely,
                                          Pete V. Domenici,
                                                          Chairman.
[Enclosure.]
                    Questions From Senator Domenici
    Question 1. You spoke of technologies for converting oil shale to 
commercial grade transportation fuels and super low sulfur fuels.
    What are these technologies and how do they benefit the oil shale 
industry?
    Question 2. Many of your proposals for loan guarantees and tax 
credits fall outside the jurisdiction of this Committee, but it's been 
my impression that there is a considerable amount of private investment 
being made in these proposals.
    With the large profits that the energy industry is benefiting from 
today, why should Congress be putting tax payer dollars into this 
process?

                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

    [Due to the large amount of material received, only a 
representative sample of statements follows. Additional 
documents have been retained in committee files.]
                                                      June 1, 2006.
Hon. Pete Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Senator Pete Domenici, Senator Ken Salazar and the Senate 
Energy and Natural Resources Committee: We, Northwestern Colorado 
elected officials, want to sincerely thank-you for coming to the 
Western Slope of Colorado to discuss the issues that local communities 
have concerning the Federal oil shale program. Unfortunately, many of 
us will not be able to attend in person. We have drafted this letter to 
give you a sense of the common concerns of many of the elected 
officials in Northwestern Colorado. We do hope this is the beginning of 
a long and thorough dialogue.
    The Bureau of Land Management's oil shale Research and Development 
Demonstration program is an important first step towards determining 
the potential for developing oil shale commercially. There are some 
basic questions that we simply cannot answer without the R&D program.

         1) Is there a method to extract oil shale that is commercially 
        viable?
         2) Are there new technologies (such as the in-situ process) 
        that can bring shale oil to market without the many 
        environmental impacts associated with mining and retort?
         3) What is the maximum amount of oil shale production that can 
        be allowed before air quality, water quality and quantity, 
        social impacts and our infrastructure meet their limits?

    These questions should be answered before public land is leased for 
commercial oil shale production.
    The local Bureau of Land Management (BLM) has stated that the 2005 
Energy Policy Act requires commercial leasing of our public lands at 
the conclusion of the Programmatic Environmental Impact Statement 
scheduled for completion by February 8, 2007. That is not how we read 
the Act. The Act states (at  15927(e)) that following adoption of 
final regulations, the Interior Department must consult with the 
Governors of Colorado, Utah, and Wyoming, representatives of local 
governments, interested Indian Tribes, and the public to determine the 
level of support in the development of oil shale and tar sands 
resources. If ``sufficient support and interest'' is found in a state, 
then the Department may conduct a lease sale. We believe that 
commercial leasing should not occur until. the success of the Research 
and Development Demonstration program has been measured.
    Additionally, we believe it is a mistake to direct the BLM to 
complete the oil shale Programmatic Environmental Impact Statement 
before the Research and Development Demonstration program is complete. 
Because of the timeline placed on the completion of the oil shale PEIS, 
the BLM has been--placed in the impossible position of having to 
estimate the environmental effects of technology still being developed. 
This analysis also must consider all the possible social and economic 
effects of oil shale development for a large part of Utah, Colorado and 
Wyoming. This analysis would better serve the region if conducted in 
tandem with the R&D Demonstration program.
    The R&D demonstration program should be allowed to run its course 
before commercial leasing of public land is allowed. There are 
thousands of acres that are privately owned by oil and gas industry 
that can and will be developed for oil shale if a feasible technology 
is discovered. Our public lands provide many of our communities with 
our most important and sustainable industry--hunting and tourism. We 
believe that the Federal government has the responsibility to answer 
our very basic questions before allowing wholesale leasing of our 
public lands.
    When oil shale is mentioned on the Western Slope of Colorado it is 
discussed as an industry that brought our economy and communities to 
their knees. In the earliest part of the boom lack of housing and 
infrastructure had communities reeling and left people sleeping under 
bridges and in tent cities. Then, just as towns and counties were able 
to provide the needed infrastructure for the industry we experienced 
the bust. May 2, 1982, the day Exxon closed down its oil shale 
operations and sent home over 2,000 workers, is still referred to as 
``Black Sunday'' in our communities. Local governments had created 
housing and infrastructure that was no longer needed. People walked 
away from their homes and mortgages. There was even a bank closing by 
FDIC. These are not the experiences of past generations. This is the 
experience of community leaders and people who hold elected office 
today.
    Colorado is already playing a large role in supplying energy to 
meet the needs of our country. Western Colorado is a national leader in 
natural gas production. But this boom has certainly created its own 
problems. Housing is at critical levels and worker's ``man-camps'' are 
being set up. Many of our communities are stretching to meet current 
needs.
    Imposing the additional environmental and social impacts of oil 
shale development should only be done in a slow, systematic manner such 
that the needs of our communities are fully met. We hope that you will 
not allow mistakes of the recent past to be repeated. We urge you to 
not rush into oil shale leasing until more is known about the 
technology and the impacts a new oil shale industry will bring to our 
state.
            Sincerely,
                    Tresi Houpt, Garfield County Commissioner, James R. 
                            Bennett, Ph.D., Trustee, Town of Palisade, 
                            Keith Lambert, Mayor of Rifle, CO, Townsend 
                            H. Anderson, City Councilor, City of 
                            Steamboat Springs, Tod Tibbetts, Mayor Pro-
                            tem, Town of Silt, Michael Hassig, Mayor, 
                            Town of Carbondale, Frank Breslin, Mayor, 
                            Town of New Castle, Alice Hubbard-Laird, 
                            Trustee, Town of Carbondale, Judy Beasley, 
                            Trustee, Town of Parachute, Patricia S. 
                            Hanna, Trustee, Town of Palisade, Mick 
                            Ireland, Chair, Pitkin County Board of 
                            County Commissioners on behalf of the 
                            entire BOCC, Ken Brenner, City Councilor, 
                            City of Steamboat Springs, Dr. Teresa 
                            Coons, City Council, City of Grand 
                            Junction, Scott Chaplin, Trustee, Town of 
                            Carbondale, Doug Edwards, Mayor, Town of 
                            Palisade, Bruce Christensen, Mayor, 
                            Glenwood Springs, J. Russell Criswell, 
                            Trustee, Town of Carbondale, Roy McClung, 
                            Mayor, Town of Parachute.

    Note: Unless otherwise stated, elected office is noted for 
identification purposes only.
                                 ______
                                 
                 Statement of Oil Shale Alliance, Inc.
    Chairman Domenici, Senator Salazar, and Senator Hatch: We would 
like to remind you of the American entrepreneurial spirit, and smaller 
companies, which seem to have been somewhat forgotten in the news over 
a very large company like Shell being involved in oil shale R&D.
    It was not a large corporation that led the pioneers across the 
prairies in covered wagons. And no large corporation was present in the 
bicycle shop of Orville and Wilbur Wright or in the garage of Bill 
Hewlett and Dave Packard. Many, many world-changing innovations come 
from small companies.
    It was a major oil company, Exxon, which pulled the plug on Black 
Sunday, and caused economic devastation throughout the Rocky Mountain 
Region. You see, major companies have difficulty doing small things 
efficiently. It has to be a very large project, or it has virtually no 
impact on their annual financial statements, and therefore is not worth 
the trouble. When people suggest ``Go Slow on Oil Shale'' they are 
really protesting against giant company mega-projects with their 
associated environmental impact.
    Most of the remaining undiscovered oilfields in the U.S. are now 
smaller in size. The giant oil companies have pulled up stakes, and 
taken their very large projects elsewhere. As a matter of fact, at 
present, all of the major oil companies combined, have very little role 
in exploring for, and producing oil in the United States. The majors 
are off looking for greater profits in places like Kazakhstan and 
Nigeria, or are simply looking for oil on Wall Street
    Small, independent oil companies are presently the backbone of the 
U.S. oil industry. Independent producers develop 90 percent of domestic 
oil and gas wells, produce 68 percent of domestic oil and produce 82 
percent of domestic natural gas. Most independents have fewer than 20 
employees. Yet, collectively, independent producers are the key to 
future domestic energy exploration and production. (Source 
www.ipaa.org).
    In this same spirit, three small, entrepreneurial companies have 
banded together to form Oil Shale Alliance, Inc. and intend to 
commercially develop oil shale quickly and efficiently. The three 
companies are Independent Energy Partners Inc., Phoenix Wyoming Inc. 
and Petro Probe Inc. The three companies will be using three different 
in situ technologies: solid oxide fuel cells, borehole microwave, and 
hot gas injection. All three technologies have significant advantages 
in oil shale development.
    Petro Probe Inc. plans to field test their hot gas injection 
process in six months. Since their patented technology injects and 
produces from the same well, they will be producing hydrocarbons within 
days, or even minutes, of their first field tests.
    Phoenix Wyoming plans to field test their borehole microwave 
technology in 12 months. In prior, smaller scale, field tests, their 
borehole microwave approach (radiation) heated the ground 50 times more 
quickly than electric heating rods (conduction).
    Independent Energy Partners Inc. plans to field test their patented 
solid oxide fuel cell process in 18 months. Since electricity is 
produced from the fuel cells, and all the (normally waste) heat is used 
to usefully heat the ground, their approach results in an outstanding 
Net-Energy-Ratio of 7.0, which is twice as good as the 3.5 NER of other 
proposed processes.
    Smaller companies, like those in the alliance, do not have the 
capital to initiate mega-projects that may have a large environmental 
impact or whip-saw the economic future of thousands of western Colorado 
residents. Our approach is much more environmentally benign. We plan to 
get small plants working commercially, and then build additional small 
plants. It will be a slow and gradual ramp-up, with plenty of 
opportunity to improve, and make innovations, in the first few small 
plants.
    Smaller companies seem to have been forgotten in the oil shale RD&D 
process put in place by President Bush to make BLM leases available. 
Among the winners were three Shell companies, Exxon and Chevron. There 
was only one company who won a test area in Colorado who did not have 
revenues in excess of $10 billion per year.
    The companies who could really have used test areas were members of 
the Oil Shale Alliance, whose technology passed BLM scrutiny, but who 
were denied test areas because they did not have all of their funding 
in place, and they did not have their BLM bonds in place. It would have 
been good to actually have a test area, before having to put up a bond, 
and it would have been good to actually have a place to test before 
having to raise all of the necessary investment capital. Instead, the 
winners of test sites in Colorado were all extremely large 
corporations, with just one exception.
    Do remember us in BLM leasing processes or in any other pending 
legislation. Many exceptional innovators prefer a small company, or 
entrepreneurial environment, over that of a very large corporation. 
Small companies innovate, make Herculean efforts, burn the midnight 
oil, and get the job done.
            Yours very sincerely,
                                   William H. Pelton, Ph.D.,
                                           President, Phoenix Wyoming, 
                                               Inc.,
                                   Robert T Leisen,
                                           Chairman, Phoenix Wyoming, 
                                               Inc.,
                                   Alan Forbes,
                                           President, Independent 
                                               Energy Partners, Inc.,
                                   Larry Vance,
                                           Chairman, Petro Probe, Inc.
                                 ______
                                 
                            ExxonMobil Corporation,
                                            Public Affairs,
                                      Washington, DC, May 26, 2006.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Senator Domenici: I am pleased to forward to you the written 
testimony of Stephen Cassiani, who is President of ExxonMobil Upstream 
Research Company. We would ask that this testimony be incorporated into 
the record for the proceedings for the June 1, 2006 hearing on U.S. Oil 
Shale Resource and Research, which is to be held in Grand Junction, 
Colorado.
    ExxonMobil has a strong interest in the development of the 
Department of Interior's Research, Development and Demonstration 
program. As yet we have not been selected to participate in this 
program. As Mr. Cassiani's written testimony states, ExxonMobil's oil 
shale development technology has several favorable differentiating 
attributes--and, as the leading American energy company, we very much 
hope to be able to play an active role in the RD&D initiative.
    Thank you for your ongoing leadership on energy issues and best 
wishes for a successful hearing in Colorado.
            Sincerely,
                                               R.D. Nelson,
                                                    Vice President.
                                 ______
                                 
   Statement of Stephen M. Cassiani, President, ExxonMobil Upstream 
                            Research Company
    Chairman Domenici, Senators Hatch and Salazar. My name is Stephen 
Cassiani and I am the President of ExxonMobil Upstream Research 
Company, located in Houston, Texas. I am pleased to submit for the 
record, these prepared remarks on what we at ExxonMobil believe to be a 
very important issue for the long-term energy security of this country. 
It is a pleasure to have the opportunity to submit these comments 
regarding shale oil research and development.
    Let me also thank you, the Senate Energy and Natural Resources 
Committee and the Department of the Interior more broadly for ongoing 
efforts to promote environmentally-responsible shale oil development. 
The technology development goals of the Energy Policy Act of 2005 are 
clear with respect to the need to improve access to additional domestic 
energy supplies. Your efforts are and will continue to be important so 
that we can stay on this path and that promising technologies are 
developed and applied to recover shale oil from areas of high resource 
density.
    The scale of this resource is too large to be ignored. Commercial 
and environmentally responsible development will provide a significant 
very long-term direct benefit to the American economy and consumers by 
diversifying our nation's sources of energy supply and increasing 
energy security. This is also consistent with DOE's mission of 
advancing U.S. energy security, including promoting scientific and 
technological innovation.
    In order to achieve this vision, companies that have promising 
technologies must be allowed access to high-grade oil shale deposits in 
the United States in order to optimally test oil shale extraction 
technologies and realize potential large-scale oil production for the 
country. For our part, ExxonMobil has been working on shale ail 
recovery technology at the research company. We and others are now 
prepared to move into a field research phase, so the current DOI 
Research, Development and Demonstration (RD&D) lease program is very 
timely. It is premature to ascertain which technology or technologies 
will ultimately prove commercial and which will maximize environmental 
protection and resource recovery. But it is time for us to get out of 
the lab and into the field. We believe that ExxonMobil is one of a very 
few companies that has the world-class technology and the financial 
strength to effectively pursue this significant yet challenging 
resource.
    As you may be aware, ExxonMobil applied for a Research, Development 
and Demonstration lease in September 2005 to test our oil shale 
development concepts under the Bureau of Land Management's Oil Shale 
Leasing Program as announced in the Federal Register dated June 9, 
2005.
    Our technology, which we have been testing in our labs, is 
potentially more efficient, effective and low impact than other 
proposed approaches. This can be explained by four differentiating 
attributes of our approach.
    First, our technology would deliver heat to the in situ oil shale 
more effectively than other approaches by creating a planar heat 
source, maximizing the heat transfer contact area. The importance of 
more effective heat delivery is that we expect to be able to accomplish 
the necessary oil shale heating with far fewer wells, leaving a 
significantly smaller footprint than other techniques.
    Second, with respect to multi-mineral development which would occur 
in this area, our researchers believe our approach should make it 
possible to develop oil shale first and in the process, increase sodium 
mineral recovery. We have applied for a patent on a technology to 
maximize sodium mineral production and allow nahcolite to be produced 
as soda ash subsequent to oil shale production. This concept would 
advance the nation's interests in speeding production of shale oil and 
is consistent with the BLM/DOI requirement as a steward for the 
nation's resources to maximize protection and production of important 
minerals.
    The third point is the subsurface environmental benefit of 
producing the shale oil first. The solution mining process of the 
subsequent sodium mineral recovery phase entails flushing the recovery 
zone with water. This will sweep residual free oil out of the formation 
mitigating any future aquifer contamination concerns.
    Fourth, we can do some of the necessary field work at our privately 
owned acreage at Colony, which will reduce surface disturbance to the 
newly leased federal lands. Initial work at Colony outcrops would 
afford us the opportunity to test and observe our subsurface 
development technologies in a more controlled and accessible 
environment. This recovery technology is not commercially applicable to 
Colony resources, but it provides an ideal technology development 
opportunity.
    We strongly suggest that it is in the best interest of the country 
to test all potentially viable shale oil recovery technologies. We are 
disappointed that our oil shale development proposal was not accepted 
by the DOI, but we are continuing to work to become part of this 
important domestic initiative. We believe ExxonMobil has the 
technological and financial strength to further the country's interests 
for energy security and independence and remain committed to that 
objective. We look forward to participating in the United States' oil 
shale resource challenge and appreciate your continued leadership and 
support for technology development to help this country find a way to 
exploit this important resource for the benefit of the American people.
                                 ______
                                 
         Statement of Gary D. Aho, Sage Geotech Inc., Rifle, CO
    Dear Chairman Domenici:
    My name is Gary D. Aho and I have an office in Rifle, Colorado, 
long referred to as the ``Oil Shale Capital of the World''.
                             my background
    I've spent my entire 37-year career in the mining and mineral 
processing industry. I spent the first 34 years with The Cleveland-
Cliffs Iron Company (CCI), one of the pioneers in oil shale and 
essentially the only mining company in the business. Though initially 
stationed in the Michigan iron mining operations, I began assisting the 
CCI Rifle, Colorado office on oil shale projects in 1975. I then moved 
to Rifle in 1979 as Chief Engineer of the Western Division and became 
responsible for CCI's oil shale activities. The company is an owner of 
oil shale lands and has cost-shared in many of the retort pilot plant 
projects. The company also completed mine designs and feasibility 
studies for other oil shale projects and clients. We worked on both 
western and eastern oil shale projects. I became VP and General Manager 
of Cliffs Engineering Inc., a subsidiary organized to conduct the 
consulting work. I worked closely with many of the major energy 
companies and served on advisory committees to government groups and 
trade associations. I eventually became President of Cliffs Oil Shale 
Corp. and Cliffs Synfuels Corp., two CCI subsidiaries.
    Since October 2003, I've been President of Sage Geotech Inc., a 
privately-owned company that provides oil shale consulting services to 
industry and government clients. I am currently Chairman of the Oil 
Shale Association. I also serve as an advisor to DOE's Office of Naval 
Petroleum and Oil Shale Reserves, which is part of DOE's Office of 
Petroleum Reserves. This office serves as support to the Task Force on 
Strategic Unconventional Fuels, which was established by the Energy 
Policy Act of 2005.
    I lived through the Colorado and Utah oil shale boom and bust of 
the 1970's and 1980's and learned many lessons first hand along the 
way. Besides being involved with engineering, construction and 
operations for many of the projects, I lived, and still do, in the 
region impacted by the rapid startup and then termination of oil shale 
projects. I personally had to reduce the Cliffs Engineering staff of 
fifty-five to just one after the bust in the 1980's and know exactly 
how people and communities were hurt by the rapid shutdown of projects.
    There were plenty of mistakes made during those days that led to 
the shelving of oil shale at that time. I feel oil shale a very 
important domestic resource that can be developed to meet the needs of 
our nation. However, we must not repeat the same mistakes this time 
around. I believe there is a right way to develop oil shale and I 
believe we can do it commercially today. I'd like to share some of my 
thoughts on how it can be done.
                           what is oil shale?
    Oil shale is a fine-grained sedimentary rock that contains a solid 
organic material known as kerogen. When heated to a pyrolysis 
temperature (700-900 F), kerogen decomposes to produce hydrocarbon 
vapor and residual carbon. The vapor is then partially condensed in 
secondary treatment to produce shale oil. The liquid shale oil can be 
treated and refined to produce premium transportation fuels.
                      how is oil shale processed?
    The heating of the oil shale, referred to as retorting or 
pyrolysis, can either be done in a surface vessel (a retort) after the 
shale is mined or the heating can be done underground with the shale 
left in place (in situ). In either case, the shale oil liquid product 
needs to be upgraded and then refined to produce marketable 
transportation fuels.
     why isn't shale oil being produced in the united states today?
    The United States has made a number of attempts to develop oil 
shale, some dating back to the early 1800's in the eastern U.S. In the 
early 1900's the vast oil shale resources of Colorado, Utah and Wyoming 
were discovered and there was a period of excitement over the 
prospects, especially since conventional oil production in the eastern 
U.S. was declining. However, huge discoveries in Texas flooded the 
country with oil and shale activities were halted. This start and stop 
process occurred a number of times in the decades to follow when new 
oil discoveries thwarted oil shale projects. So, plentiful oil at 
reasonable prices has always been a major hurdle for oil shale. Why 
develop this expensive, less attractive resource when the world had 
plenty of oil and international relations fostered trade?
    But, times are changing and oil shale needs to be reconsidered as a 
strategic fuel for the United States. The DOE's Office of Naval 
Petroleum and Oil Shale Reserves published two key reports that point 
to the need to develop U.S. oil shale resources and that make 
recommendations on how the nation might go about developing an oil 
shale industry:

          1. ``Strategic Significance of America's Oil Shale 
        Resource'', two volumes, March 2004.
          2. ``America's Oil Shale, Findings and Recommendations of the 
        Steering Committee'', Final Report, June 2005.

    In my opinion, there are a number of reasons we don't have a shale 
oil industry in U.S. today. First, this is a capital intensive, high 
risk business. Developing a commercial project will take a long lead 
time, perhaps 10 years, to design, permit, construct and startup the 
mine and plant. A 50,000 BPD plant will cost at least $2.0 billion. A 
conventional oil shale project entails a mine and process plant and in 
most aspects resembles a very large mining operation, not a petroleum 
project. Mining projects typically require long lead times, are capital 
intensive, and have long payback periods over a life of operations that 
often exceeds 30 years. Oil companies have not done well in their 
previous efforts at entering the mining business; the two cultures are 
extremely different. I frequently refer to oil shale as a mining, 
pyroprocessing and material handling problem; then, the product, crude 
shale oil, is something the oil companies know how to handle.
    Second, the retorting technology is a big question in the minds of 
many. Many retort designs have been developed but only a few have been 
tested at a pilot plant scale and even fewer at a near commercial 
scale. It is crucial that we build and demonstrate a number of 
retorting technologies, both surface and in situ. It is this research, 
development and demonstration (RD&D) work that will answer critical 
questions related to (1) project capital and operating costs and 
potential return on investments, (2) which first generation retorts, 
both surface and in situ, perform best and what needs to be modified on 
each to enhance that performance, (3) what the environmental emissions 
and how can they be mitigated, (4) what are the infrastructure 
requirements, including power, water, pipelines, etc, (5) what are the 
shale oil properties and what needs to be done to upgrade, refine and 
market the product, and (6) what are the requirements for skilled 
labor, local infrastructure, and related project needs, and (7) can we 
mine the shale or process the shale in situ without damaging ground 
water or other natural resources.
    A mistake of the 1970's and 1980's was that commercial projects 
were initiated and construction was started well before retorts were 
even tested at a pilot or demonstration scale. The technology issue had 
not been adequately addressed. We need to go slow and be sure the 
technology works this time.
    While the technical issues listed above need to be answered before 
huge capital investments will be made with confidence, my third crucial 
question relates to the project economics. No one is able to forecast 
what the price of oil will be in 10 years when the first commercials 
project might come on line. It is extremely risky making a multi-
billion dollar investment when the cash flow projections are so 
uncertain. It so important that industry and government participate 
together in developing a program to reduce the investment risk in first 
generation oil shale plants and, by so doing, accelerate the 
construction of these initial plants.
                  what should the government be doing?
    I concur with the recommendations presented in the two DOE studies 
I referenced above. Most specifically, I recommend the following as 
being crucial Federal actions to accelerate the development of oil 
shale in the United States.
    1. The Federal government should foster construction and operation 
of many surface and in situ pilot plants and demonstration plants. 
Actual sustained operations at this scale are imperative for answering 
crucial technical, environmental, social and economic questions. This 
program will identify the most promising technologies for initial 
commercial ventures.
    2. The Federal government should promote leasing of Federal 
resources so worthwhile projects, both large and small, have a place to 
test and then commercialize their plans. The federal government 
controls about 80% of the western oil shale and access to these lands 
is key to industry's long term planning and investment decisions. Along 
these lines, the Anvil Points Mine near Rifle, Colorado should be 
considered as a research center to provide shale to pilot plants in a 
nearby research park. A separate oil shale and tar sand research center 
could be tied to the Utah State University campus in Vernal, Utah. By 
centralizing research facilities, common infrastructure can be employed 
by many pilot plant projects, resulting in less expense and waste for 
everyone working on oil shale.
    3. Establish a Federal cost-sharing program that puts the 
government in a position to partner and share the risks with the 
industry. This program should entail numerous incentive options. Some 
of the most obvious ones for consideration are the following:

          a) Provide outright grants or 50% cost share in pilot and 
        demonstration plants
          b) Allow R&D tax credits for pre-commercial research, pilot 
        and demonstration programs
          c) Allow accelerated depreciation and/or expensing of capital 
        in the year spent
          d) Provide price guarantees or price floors for first 
        generation plants
          e) Provide loan guarantees for qualified applicants
          f) Establish a shale oil purchase program to assure a market 
        for first generation projects
          g) Provide royalty relief for projects on public lands
                               in closing
    The United States has the richest oil shale deposits in the world 
and we should be taking a lead role in the research and development 
activities required to bring this resource to commercialization. We 
lost the past 20 years without a domestic oil shale program; we don't 
have the leisure to wait now. We need to immediately begin pilot and 
demonstration programs to prove up the technologies and answer the 
numerous questions related to economics, environment, socioeconomics, 
infrastructure, marketing, and transportation. The Federal government 
must make the commitment to develop this resource and then design the 
programs needed to foster industry involvement and investment. These 
programs must be a joint effort of government and industry if oil shale 
is to be developed in the foreseeable future. I believe we can do it 
and I believe we must.
    I am optimistic that the Task Force on Strategic Unconventional 
Fuels, with the assistance of DOE's Office of Petroleum Reserves, will 
present strong recommendations along these lines in their future 
reports to Congress.
                                 ______
                                 
                       Statement of EnShale, Inc.
    EnShale, Inc is one of several businesses pursuing the significant 
opportunity represented by the resource that is available in oil shale 
in the Western U.S. We are concerned that a number of misconceptions 
are being perpetuated by the press and some government representatives. 
We'd like to briefly address them here and suggest that additional work 
be engaged to make sure the public is fully aware of the facts of the 
current state of the art for extracting oil from oil shale:

   The RAND report states that processing oil shale requires 
        about 3 barrels of water for each barrel of oil extracted. 
        EnShale has been reviewing a number of the processes being 
        proposed and does not see any evidence that this amount of 
        water will be required. Certainly any process development needs 
        to take water consumption into account and minimize the 
        consumption in order to be economically viable.
   A Deseret News editorial from Sunday, May 28, 2006 refers to 
        the RAND report and a reference to the mines being as large as 
        the largest open pit mines in operation. The suggestion is that 
        the mines will be open pit and visible from space. With 
        hundreds of feet of overburden, these mines will not be open 
        pit. The mines will be underground and will require the use of 
        known technologies to develop. The disposal of the spent shale 
        will require careful evaluation of disposal sites. When the oil 
        has been extracted, the spent shale is not toxic. Tests have 
        shown that natural regional flora are compatible with the 
        disposed material. EnShale is also investigating the 
        possibility of using the spent shale in cement operations.
   Much publicity has been given to Ethanol as a means of 
        freeing the country from foreign sources of oil. We have seen 
        quotes of production costs between $1.00 and $1.50 per gallon 
        or between $42 and $66 per barrel. Those production costs will 
        only be acceptable with price supports like the federal 
        government created with the SynFuels Corp. in the 70's and 
        80's. We hope the government will not repeat those mistakes and 
        cause the economic and community hardships experienced by this 
        area when those price supports were removed. Several of the 
        processes being considered for oil shale are quoting production 
        costs in the $30 per barrel range. We think it will be much 
        better for the country to use oil shale as an energy resource 
        than ethanol.
   The emissions of toxic vapors has been suggested as a draw 
        back to processing of oil shale. EnShale's experience has shown 
        that the vapors created during the heating of the kerogen are 
        valuable and must be captured in order to have an economic 
        model that will work. The successful oil shale process will 
        find ways to capture all valuable byproducts and turn them into 
        useful materials.
   Some have suggested that the BTU content of oil shale is too 
        low to be a profitable source of energy. The weight by percent 
        of kerogen in oil shale is typically 10%. While this is much 
        lower than other sources of petroleum like coal, it is still 
        plenty of energy content to pursue profitably. EnShale's parent 
        company, Bullion Monarch Mining, has experience in the mining 
        of precious metals where the measure of valuable material in a 
        ton of ore is one one-thousandth of a percent. In dollar terms, 
        the value in a ton of oil shale is between $47 and $70. For 
        various precious metals like gold, silver, and copper, it is 
        common for the value per ton to be in the same range or less.

    EnShale believes that the efforts of many different groups will be 
needed to realize the potential in the resource that is available to 
the United States and looks forward to being part of that effort.
    EnShale represented by Merrill Fisher and Wayne Pearce
                                 ______
                                 
  Statement of Larry F. Vance, Chairman, Earth Search Sciences, Inc., 
                             Kalispell, MT
a new oil shale processing technology establishes oil shale as a hedge 
                     for long term oil & gas supply
The Prospects of Oil Shale
    Petro Probe, Inc. (PPI) is a Nevada corporation with its current 
business address at #6-306 Stoner Loop Rd., Lakeside, MT, 59922 , phone 
number (406) 751-5200. PPI is a private company, majority owned by 
Earth Search Sciences, Inc.
    PPI is a development stage company, ready to implement a patented 
technology for the recovery of hydrocarbonaceous products (oil, natural 
gas, specialty gases and hydrogen) from oil shale. Oil shale deposits 
exist in proven domestic basins within the U.S.A. and from many world-
wide locations. The Company is responding to the market's demand and 
the strong energy message coming from the U.S. Government, for more 
innovative exploration strategies and new domestic hydrocarbon 
supplies. It has an unrestricted license to develop a patented system 
for the recovery of commercial products from oil shale.
    The technology is focused on an ``in situ'' (meaning in its 
original place or form, i.e. not disturbed) process using super heated 
air to gasify the oil shale in its original state underground, followed 
by a condensation process to recover the products.
    The target is oil shale, a 40-50 million-year-old sedimentary rock, 
which contains a solid hydrocarbon, Kerogen, within its structure of 
clay minerals. Kerogen is basically ``fossilized algae'' which has been 
formed during the deposit of sediments in ancient lake environments. 
The effects of time, pressure and temperature have transformed these 
sediments into a hydrocarbon-bearing rock, known as oil shale. In its 
natural state oil shale contains no liquid hydrocarbons. The 
hydrocarbon component is an organic solid which can only be liberated 
by the application of heat, in the order of 350 C or more. The 
extraction of the hydrocarbon component is carried out by the heat 
under a physics law known as ``black-body radiation'' which forces the 
decomposition of the Kerogen and release of hydrocarbons as a vapor. 
The vapor has no escape except through the exits provided by drilling 
and when cooled, becomes liquid oil and gas.
    The organic matter in oil shale has been studied extensively and 
most deposits in the world are well classified. It is estimated that 
nearly 62% of the world's potentially recoverable oil shale resources 
are concentrated in the U.S.A. The largest of the deposits is found in 
the 42,000 km2 Green River formation in north-western 
Colorado, north-eastern Utah and south-western Wyoming. The richest and 
most easily recoverable deposits are located in the Piceance Creek 
Basin in western Colorado followed by the Uinta Basin in eastern Utah 
and San Juan Basin in New Mexico.
    Although oil shale represents a significant source of fossil 
energy, the most predominant reason extraction has not been generally 
successful is that most approaches focused on rubilization and above 
ground retorting. Where surface bound deposits have been rich on the 
average, there is not enough of that easily attainable resource to 
economically mine; and there is too much overburden to use the 
technique of lifting the overburden by blasting to produce permeability 
and rubilization. All rubilization methods tend to do considerable 
damage to the environment and have now been generally regulated and 
avoided.
    PPI's technology avoids all these problems and can still bring oil 
and gas in at reasonable cost levels in the $8 to $10 per barrel range.
    The invention provides a process and system for recovering 
hydrocarbonaceous products from an in-situ oil shale formation at 
potentially any depth to which a hole can be drilled in the oil shale 
formation. Thus, oil shale as deep as 3,000 feet or deeper may be 
treated using the present invention. The initial test results indicate 
the process will be economical for recovering these products from all 
regions of an oil shale formation.
    Further, by eliminating the need for rubilization, expensive and 
time-consuming procedures are avoided, and the structural integrity of 
the ground and surrounding terrain are preserved. The shale formation 
itself retains 94%--99% of its original structural integrity once the 
Kerogen has been altered. All surface support structures are built and 
installed in such a manner that they are easily moved from one location 
to another without leaving permanent scars on the landscape. The--
process is compact and self-sustaining.
    The highly marketable and value-added products are: Natural Gas 
(scrubbed and pipeline ready); Crude Oil of high specific gravity; 
Specialty gases, Methane, Butane, Propane, Ethane, Hydrogen and a 
Mineral water as a by-product of the process.
Key Features
    Self-perpetuating feedstock--A major cost saving feature of the PPI 
process is its self-perpetuating burner feedstock. After the warm-up 
phase, enough combustible gas product is collected to not only feed the 
system but also produce commercial quantities of a high BTU gas. This 
is unique in the oil industry where traditionally one method of 
extraction is used for gas and another for oil.
    Relatively low risk exploration--Oil shale bearing regions of the 
world are well known. Exploration is a matter of choosing areas where 
oil shale averaging 25 gallons per ton has a specific gravity of around 
2.15, and a density of 134 pounds per cubic foot. The final selection 
is determined by test drilling a small core sampling to find oil 
content about 1.675 gallons per cubic foot over a pay zone depth of 500 
feet or more. The PPI planned well field is drilled on 50 foot spacing. 
Each processing hole will have a 20 diameter and work an area of 5261 
square feet (based on the ``black body radiation'' law of physics) for 
effective thermal conductivity. The volume of such a hole, given a 500-
foot pay zone, will be on the order of 2.6 million cubic feet with an 
oil content of 4.4 million gallons. This will yield 3.5 million gallons 
(approx. 80%), or 83,000 barrels of recovered oil. The end design 
sixteen holes in the prototype plant is calculated to yield 1,328,000 
barrels of recovered oil over the life of the field.
    Multiple products are produced--Based on a 500 long pay zone the 
heat input of each input hole would be sufficient to gasify 2300 pounds 
of oil shale per hour. According to studies, oil shale heated in situ 
to appropriate temperatures will produce a substantial volume of high 
quality combustible gas as a co-product with the oil. For oil shale 
averaging 25 gallons per ton, tests show the non-condensable gas 
available to range from a minimum of 575 cubic feet per barrel of oil 
to a maximum 1,370 cubic feet per barrel (dependent on circumstances, 
ambient BTU, kerogen qualities, etc.) At a minimum the prototype plant 
will have the capacity to produce (575  83,000  16) 763,600,000 cu 
ft. of gas although the actual operating results may exceed this 
figure.
Expectation
    This overview uses recent public data produced on the oil shale 
recovery process. PP1 must stress that it presents this data and the 
overview with the understanding that the actual prototype plant will 
undertake to establish clear and specific results that will show and 
support substantial improvements of cost and production over those 
presented.
    It is also expected that there will be additional sources of 
revenue through utilization of the steam produced by the PPI process 
(production of co-generated kilowatts). The gas composition tables also 
represent that hydrogen and other specialty gases will be available for 
commercial production.
    The expectation is that the new gasification technology will 
produce oil, gas and associated valuable products in a simple, cost 
effective manner. The capital costs to construct fields and plants are 
minimal compared to other hydrocarbon recovery methods. The process is 
environmentally safe and acceptable.
    The potential is as great as the tar sands have proven to be in 
northern Alberta.
    An opportunity exists to be an entry level investor in the 
technology and a series of plants in North America.
U.S. Oil Shale Resources

   Nearly 60 percent of the world's potentially recoverable 
        shale oil resource. is concentrated in the United States
   The minable western and eastern oil shales of the United 
        States have been estimated to contain an in-place oil resource 
        of some 1,670,000,000,000 barrels.
   Using a 50% allowance for unrecoverable shale and a 25% 
        allowance for conversion to synthetic fuel, the production 
        potential for shale oil in the United States is estimated to be 
        626,000,000,000 barrels.

      THE RECOVERABLE SHALE OIL RESOURCES OF THE UNITED STATES \1\
------------------------------------------------------------------------
                                                            Recoverable
                         Deposits                          Resources \2\
------------------------------------------------------------------------
Piceance Basin (Colorado)
    Mahogany Zone........................................         59
    Shales above Mahogany Zone...........................         90
    Shales above Mahogany Zone...........................        231
Uinta Basin (Utah).......................................         51
Other western basins.....................................        131
Eastern oil shales (Kentucky, Indiana, Ohio).............         64
                                                          --------------
    Total................................................        626
------------------------------------------------------------------------
\1\ Recovery factor = 37.5 percent of estimated in-place resource.
\2\ In billion barrels
Figures adapted from Oil & Gas Journal, U.S. Geological Survey, and
  American Association of Petroleum Geologists.

                                 ______
                                 
High Power Microwave Extraction of Oil from Shale Deposits in Colorado, 
                            Wyoming and Utah
                             a white paper
 submitted by peter m. kearl, geoscience services, grand junction, co; 
  george caryotakis, stanford linear accelerator; and cpi inc., palo 
                            alto, california
    Abstract: Current and past experiments for producing oil from shale 
have employed low radio frequency (RF) that resulting in an inefficient 
heating mechanism, potential negative environmental impacts, and 
unacceptable delays in the production of oil. Recent theoretical and 
experimental research strongly indicate that microwave heating results 
in an controlled expansion of the area heated by a microwave source 
placed in a bore hole yielding oil and gas in a fraction of the time 
required by low frequency heating. A proposed field demonstration will 
prove that the use of microwave heating for-shale oil production is 
feasible, economical, environmentally sound, and will open the way for 
the construction of a demonstration production facility financed by an 
interested oil company.
    High Power Microwave Technology: As project manager for the High 
Power Microwave (HPM) program developed in cooperation with Oak Ridge 
National Laboratory and private industry, Peter Kearl oversaw the 
development of theoretical, experimental, and laboratory testing of an 
innovative method for the in-situ removal of hydrocarbons combining 
technology developed during the Star Wars program and recently 
available Russian radar technology. Theoretical and modeling studies 
proved the viability of the HPM technology and large-scale laboratory 
tests demonstrated the concept.
    The HPM technology involves a phased array antenna placed into a 
bore hole via wave guides and connected to a surface power source that 
includes a 500 KW klystron tube that generates 2.45 GHz microwave 
energy. From the phase array antenna, a phase boundary is launched into 
the subsurface material selectively heating oil and water in the shale 
to pyrolysis. The phase boundary gradually expands into the surface 
creating a bubble in permittivity space that controls the movement of 
hydrocarbon migration. Gas and oil migrate to the same bore hole 
containing the antenna and are recovered at the surface. Impacts to 
potential groundwater resources and the surface environment are 
minimized.
    Application of HPM Technology to Oil Shale Deposits: The Green 
River Formation covering parts of Colorado, Wyoming, and Utah are 
estimated to contain over 2 trillion barrels of oil--enough oil to 
allow the United States to become energy independent. A major problem 
with extracting oil from shale deposits is the energy required to 
remove the oil. However, the location of the oil shale deposits 
provides a unique opportunity to transform a clean renewable energy 
source into valuable petroleum and gas products. Colorado is rank 11th 
in the nation in the ability to produce electricity using wind power. 
The area of the oil shale deposits has the highest wind index rating in 
the state and allows wind generated power for as little as 3.6 cents a 
kilowatt hour. Wind generators can be used to power the HPM system to 
produce oil with minimal impact to the environment. Basic thermodynamic 
calculations indicate that 500 kilowatts delivered to subsurface oils--
shale deposits will yield 4 barrels of oil per hour. At a price of $70 
per barrel, a single HPM installation will produce approximately $2.5 
million of oil per year. This means that capital costs for the HPM 
system will be paid off within two years of initial operations. The 
problem of transmitting wind energy from remote areas where wind is a 
viable resource to distant consumers via transmission lines is overcome 
by the simple fact that the wind turbines will be located adjacent to 
the oil producing sites.
    Comparison of HPM with Existing Low Frequency Heating: A simply 
comparison of HPM heating and low frequency heating can be illustrated 
by comparing the efficiencies of microwave and conventional ovens. A 
sample of oil shale placed in a 700 watt microwave oven can be heated 
to an internal temperature of 103 degrees C in three minutes. The same 
oil shale sample placed in a conventional oven where 10,000 watts of 
energy are applied requires 22 minutes to achieve the same temperature. 
While there are several losses in a conventional oven, this simple 
experiment shows that at one-tenth of the power, microwaves heat oil 
shale seven times faster than a conventional oven. This difference in 
heating efficiencies can be explained by fundamental differences in the 
physics of power delivery to the oil shale. Low frequency heating 
utilizes charge carriers, ions in the groundwater, to transmit energy 
from the source into the rock. Once the temperature reaches 100 degrees 
centigrade, water evaporates and the charge carrier pathway is broken. 
From this point on, low-frequency RF heating relies on inefficient heat 
conduction to propagate energy in the subsurface. This is why it 
requires three years of heating before any oil can be produced. 
Microwaves, on the other hand, provide rapid efficient heating where 
oil will be produced immediately upon application of power to the 
subsurface. Because microwave frequency heating (above 1 GHz) relies on 
the turning of polar molecules in an alternating electrical field 
(dielectric heating), the limitation of ionic heating are eliminated. 
Most soils and rocks are composed of aluminum silicates similar in 
composition to a ceramic dish used to heat food in a microwave oven. 
Microwave power passes through the ceramic dish and preferentially 
heating water in the food. Using this analogy for subsurface microwave 
heating, the rock will attenuate only a minor portion of the microwave 
power while coupling energy to the oil and water in the rock. As oil 
and water are removed from the rock, microwave energy efficiently 
passes through the dry oil-free rock and continues to heat and remove 
oil at greater distances from the antenna. Another significant 
advantage of microwave heating is the enhanced permeability created in 
the rock by microwave heating. Rapid microwave heating will fracture 
the rock creating a preferential pathway--in the region between the 
phase boundary and the borehole resulting in the rapid egress of oil 
from the subsurface to the bore hole. Permeability enhancement has 
important implications in increasing oil production from existing wells 
in the United States. The Rand Corporation predicts a 2 to 1 ratio of 
energy extracted compared to energy usage. For the HPM system, this 
energy ratio exceeds 8 to 1 over a ten-year period.
    Scientific and Economic Viability: The HPM microwave program funded 
by the DOE was peer reviewed by the Robert Haupt of the Lincoln 
Laboratory at MIT, Harold Olsen at the Colorado School of Mines, Thomas 
Rabson of Rice University, and R. Claude Woods at the University of 
Wisconsin, Madison. The principle conclusion of the panel was that the 
concept of the HPM system is based on sound scientific principles. A 
government funded field demonstration of the HPM system provides the 
opportunity to develop a viable, economic, and environmentally sound 
technology that combined with sensible conservation methods will allow 
the United States to become energy independent within the foreseeable 
future. In addition, royalties paid to state and federal governments 
would provide a substantial revenue stream allowing state governments 
to mitigate local economic impacts and the federal government to 
mitigate impacts of rising energy prices for all Americans.
                                 ______
                                 
      Statement of Oil Shale Exploration Company, LLC, Mobile, AL
     What the Oil Shale Industry Needs from the Federal Government 
                               to Succeed
                             i. background
    OSEC and other experts estimate that 2 trillion barrels of shale 
oil occur within the Green River Formation in portions of Utah, Wyoming 
and Colorado.\1\ This domestic oil source represents more than triple 
the known oil reserves of Saudi Arabia. Once commercial production 
levels are achieved, it is estimated that the direct domestic benefits 
derived from development of this energy source would be several hundred 
billion dollars annually, which would accrue, in part, to federal, 
state and local governments in the form of leases, royalties and income 
taxes. In addition, it is estimated that the industry and its by-
products will create more than a hundred thousand new jobs, enhance 
national security, and depress global oil prices.\2\
---------------------------------------------------------------------------
    \1\ Strategic Significance of America's Oil Shale Resource, Vol. I, 
Assessment of Strategic Issues, Office of Naval Petroleum and Oil Shale 
Reserves, DOE, March 2004 (the ``2004 DOE Report''). For purposes of 
this discussion, the geological formation will be referred to as ``oil 
shale'' and the oil extracted from the formation will be referred to as 
``shale oil.''
    \2\ The 2004 DOE Report
---------------------------------------------------------------------------
    Currently, several promising oil shale technologies are being 
investigated and field-tested both in the United States and abroad. 
OSEC is among those companies that possess the technical and project 
management experience necessary to develop one of the more promising 
technological options, and was recently selected as the nominee for a 
BLM lease for Research, Development and Demonstration of Oil Shale 
Recovery Technology at the White River Mine site in Uintah County, 
Utah.\3\
---------------------------------------------------------------------------
    \3\ OSEC will be demonstrating technology known as the Alberta 
Taciuk Processor, which was recently used in a semi-commercial scale 
demonstration facility in Australia to successfully extract 
approximately 1.5 million barrels of shale oil between 1999 and 2004.
---------------------------------------------------------------------------
    The costs and risks involved, and the long development and start-up 
period (up to eight years) prior to commercial production, present 
significant barriers for industry pioneers. For these reasons, 
government participation and meaningful government incentives are 
needed to induce research, promote technology demonstration, and 
attract the necessary capital investment. OSEC proposes several 
incentives that promote front end investment in technology 
demonstration, as well as other cost offsets that will help assure a 
minimum return and thereby encourage the private sector to make 
critical upfront investments.
    ii. proposed incentives for development of oil shale production 
                              capabilities
    Below is OSEC's preliminary list of incentives that would help 
mitigate risks and encourage companies to accelerate oil shale research 
and development activities in the United States.
A. Price Floor for Domestically Produced Shale Oil
    Oil prices rise and fall quickly. As recently as 1998, the average 
world crude price was less than $13 per barrel; in recent weeks the 
price of crude exceeded $75 per barrel. The amount of investment needed 
to produce and refine shale oil is significant: approximately $1-2 
billion for a plant to produce 20,000 to 30,000 barrels per day and 
approximately $100-200 million for modifications to an existing 
refinery to process an equivalent amount of shale oil into refined 
petroleum products.
    We believe that banks, investors and energy companies will not put 
their money behind commercial shale oil production facilities and 
refinery modifications based on today's high crude prices. Rather, the 
private sector bases its investment decisions on conservative 
assumptions about how far the price of crude could fall during the 
period needed to repay such large capital outlays.
    To enhance domestic energy security and to facilitate the 
development, financing, and construction of a core group of initial 
shale oil production facilities and to make refinery modifications 
necessary to process domestic shale oil resources, the government 
should set a floor price for domestically produced shale oil. This 
floor should be initially set at $55 per barrel (adjusted for 
inflation); it should cover at least ten years of production (to 
provide comfort to banks and investors that initial investments would 
be repaid); and it should cover an initial number of plants sufficient 
to establish this new domestic energy source (e.g., the floor could be 
provided to all shale oil plants and associated refinery modifications 
constructed until total industry capacity reaches at least 1 million 
barrels per day).
B. Production Tax Credit
    OSEC proposes a production tax credit of $6 per barrel of shale oil 
produced.\4\ In combination with the price floor incentive described in 
Part A above, this production tax credit would provide the incentive 
needed to develop and demonstrate oil shale technologies and invest in 
extraction and processing facilities by assuring a minimum return on 
the sale of shale oil when oil falls below a certain price. It would 
provide important protection for investors against production costs 
that exceed those for producing oil from conventional sources. The 
credit would go to the owner of the facility (which does not have to be 
the operator). The credit could phase out when oil reaches a certain 
price and it also could sunset.
---------------------------------------------------------------------------
    \4\ Oil shale was included in the production tax credit found in 
section 29 (now section 45K) of the Internal Revenue Code, but the 
credit, as applied to oil shale, expired at the end of 1992 (it applied 
to oil sold before 2003 from wells drilled from 1980 through 1992). 
Prior to its expiration it provided a set credit per barrel of oil 
produced and was phased out when oil hit a certain price (it is at or 
near the phase out point now).
---------------------------------------------------------------------------
C. Other Proposed Incentives
    In addition to the tax and pricing incentives described above, 
additional financial assistance should be provided in support of 
pioneers of oil shale technology, to enhance scientific understanding 
for the benefit of multiple parties, and to assist local communities in 
responding to opportunities presented by first generation pilot, 
demonstration, and commercial oil shale plants.
            1. Grant Program and/or Direct Assistance for RD&D Projects
          In order to offset costs for initial site deployment and for 
        development of technologies beneficial to multiple parties on a 
        broad scale, a federal program of direct financial assistance 
        and grants should be provided, and include (a) federal grant 
        assistance of up to $10 million for opening and re-opening oil 
        shale mines on public lands; (b) $50 million in direct grants 
        for development of methods and technology for carbon dioxide 
        capture and sequestration; and (c) up to $25 million in other 
        direct financial assistance and/or competitive grants for 
        eligible commercial enterprises.
          These funds would be used to offset research, development and 
        demonstration (``RD&D'') costs for pilot and demonstration 
        plants. Such programs could be modeled on the existing 
        demonstration grant program for enhanced oil and natural gas 
        production described in Section 354 of the Energy Policy Act of 
        2005, and/or modeled on the financial assistance program under 
        the Clean Coal Initiative of the Energy Policy Act of 2005.
            2. Government Funding for Research Related to Extraction 
                    Processes
          In order to promote applied research in relevant oil shale 
        processes, there should be a federal program of research grants 
        for public and private universities and institutions 
        (preferably in Colorado, Utah and Wyoming), as well as for 
        federal agencies to study extraction processes, shale formation 
        characteristics, surface impact mitigation techniques, spent 
        shale use and disposal, and air quality modeling. Such research 
        would assist the industry in optimizing its production 
        facilities, and minimizing environmental impact, and could help 
        reduce production costs and/or promote earlier commercial 
        production. This program could dovetail with the ``State 
        Technologies Advancement Collaborative'' envisioned in Section 
        127 of the Energy Act of 2005.
            3. Training Assistance for Oil Shale States
          The U.S. Secretary of Labor could make grants to relevant 
        state labor departments for programs focused on training the 
        affected populations in the skills necessary to construct and 
        operate oil shale extraction and processing facilities.
            4. Loan Guarantees
          In order to attract the necessary level of investment in oil 
        shale extraction and development technologies federal loan 
        guarantees are required. Such guarantees provide a critical 
        incentive for early capital investments.
                                 ______
                                 
      Prepared Statement of Stephen Colby, Colorado Department of 
                             Local Affairs
         colorado distribution of federal mineral lease revenue
    Federal Mineral Lease revenues are collected by the federal 
Minerals Management Service in the U.S. Department of Interior. These 
revenues come from the leases of federal lands for mineral production. 
Roughly 50% of the revenues collected on federal leases in Colorado, 
are transferred by the U.S. Government to the Colorado State Treasurer. 
These receipts at the State Treasurer have ranged from $30 to $60 
million annually.
    From the State Treasurer, the distribution of these funds is 
conducted under state legislative statute C.R.S. 34-63. This statute 
operates on a formula basis to distribute funds to the counties, 
cities, and school districts through a number of different programs.
    The largest share of the funds goes to the State School Fund for 
distribution to school districts throughout the state under the School 
Finance Act. Counties, cities and school districts in counties with 
federal mineral leases receive significant direct payments from the 
State Treasurer on a quarterly basis. A like share gets to local 
governments through the Department of Local Affairs grants program. 
Finally, 10% goes to the Colorado Water Conservation Board for funding 
of local water supply development.
    The formula for these distributions is complex, as the chart 
attached below demonstrates. It was crafted by the legislature in a 
cascade format, which provides a first cut share to the parties and 
then allocates any residuals in a second and third cut. This approach 
was crafted over the years as the amount of money distributed by the 
statute varied widely from $30 to $60 million. The cascade method was 
used to hold harmless the existing recipient amounts while allocating 
the increased totals.
    The third table shows the actual calculation of payments for 
Calendar Year 2003 by county. The percent distributed to school 
districts and towns is set by statute at a minimum which can be 
increased by the county commissioners and therefore varies from county-
to-county and year-to-year. The payments to school districts are then 
split among school districts in a county on the basis of reported 
enrollment. The payments to towns within a county are distributed 
proportional to population within towns. Specific local government 
payments are listed on the State Treasurer web site at: http://
www.treasurer.state.co.us/transfers/fed_funds.html.
                   Federal Mineral Lease Distribution
Federal Mineral Leasing Act
   Net of administrative charges, returns 50% of rentals and 
        royalties from federal lands in the state of origin.
   Directs that such funds be used by the states for planning, 
        construction and maintenance of public facilities and services 
        in areas of the state socially and economically impacted by 
        mineral development.
Colorado Mineral Leasing Fund
   Colorado statute (C.R.S. 34-63-102) directs that in the 
        distribution of these funds priority shall be given to school 
        districts and political sub-divisions socially or economically 
        impacted by the development or processing of the federal 
        minerals.
   Distributes the amounts originating in each county as 
        reported by the Federal government under the following 
        ``cascade'' type of formula:
First Cut
            10%
          To the Water Conservation Board
            15%
          To the Department of Local Affairs
            25%
          To the State School Fund
            50%
          To the county area of origin up to $200,000
              Spillover
                  All funds from counties whose 50% share went over 
                $200,000
              $10.7M Fill-In
                  State School Fund gets all the spillover up to $10.7 
                million
              Balance
                  Funds in the spillover in excess of $10.7 million
Second Cut
          All county areas who contribute to the SPILLOVER get what 
        remains of their 50% in the BALANCE up to a total limit of $1.2 
        million per county area. To avoid PILT deductions the county 
        can elect to have all these receipts given to school districts 
        and towns in a 50/50 split or share the funds as follows
            School Districts
          Get at least 25% of each county's total distribution
            Towns
          Get at least 37.5% of each county area total distribution 
        above $250,000
            County
          Gets the residual
            Overflow
          All funds from counties whose 50% share went over $1,200,000
              The Overflow Split
                  50% of the overflow goes to the State School Fund
                  50% of the 1overflow goes to the Department of Local 
                Affairs
              Direct Distribution
                  25% of the DLA 50% is distributed to cities and 
                counties on the basis of employee residence reports.
  description of the calculation of the federal mineral lease cascade 
                    distribution under c.r.s. 34-63.
First Cut
    Every quarter the State Treasurer totals up the receipts from the 
federal government, including interest earnings, which have been 
identified by county of origin.
    25 percent of these receipts are transferred to the State School 
Fund in the state's Department of Education, 10 percent to the Colorado 
Water Conservation Board in the state's Department of Natural 
Resources, and 25% to the Local Government Mineral Lease Fund in the 
state's Department of Local Affairs. The remaining 50% is then 
calculated for each county and an amount up to $200,000 is prepared for 
distribution.
Spillover
    Any amounts over $200,000 in each county is pooled in a 
``spillover'' calculation which is distributed to the State School Fund 
until the total in this ``spillover'' calculation reached $10.7 
million.
Second Cut
    Once the $10.7 million spillover requirement is fulfilled, any 
funds left in those counties which had reached the $200,000 threshold 
on their distributions in the first cut are set aside for the county up 
to a second threshold of $1.2 million.
    This county allocation is then divided up into three portions: one 
for the school districts in the county, one for towns in the county and 
the remainder for the county government. The percent distributed to 
school districts and towns is set by statute at a minimum of 25% and 
can be increased by the county commissioners out of the portion that 
would have otherwise gone to them. Similarly, the portion to towns is 
set as at least 37.5% of the amount of the county allocation above 
$250,000. Again, this percent can be increased by the county 
commissioners out of the share that would have otherwise gone to them.
    The resulting payments to school districts are then split among 
school districts in a county on the basis of reported enrollment. The 
resulting payments to towns within a county are distributed 
proportional to population within towns.
PILT Offset (obsolete)
    A provision is made in the statute C.R.S. 34-63-102(3)(c)(II) for 
the diversion of the county commissioners share of the federal mineral 
lease payment to school districts and towns in order, it was assumed, 
to increase in like amount the payments of the federal BLM PILT 
(Payments In Lieu of Taxes) program to the county. Experience has shown 
that the increase in BLM PILT payments falls short of the amount 
diverted. As a result, this option is no longer being used.
Overflow
    After the county allocations in the Second Cut have been fulfilled, 
there can remain funds above $1.2 million in some counties, which funds 
are allocated to the ``Overflow''. The Overflow is split evenly between 
the State School Fund and the local government grant fund in the 
Department of Local Affairs.
Direct Distribution
    Finally, statute instructs that 25% pf the Overflow distributed to 
the local government grant program in the Department of Local Affairs 
shall be distributed to the towns and counties on the basis of the 
taxpayer employee residence reports. In practice the reports provided 
under the severance tax statute C.R.S. 39-29-110(1)(d)(1) are used for 
this distribution.

                    DISTRIBUTION OF FEDERAL MINERAL LEASE RECEIPTS TO  THE STATE OF COLORADO
                                                     [in $]
----------------------------------------------------------------------------------------------------------------
                 Calendar Year                       2001         2002         2003         2004         2005
----------------------------------------------------------------------------------------------------------------
Total Colorado Receipts........................   64,583,766   41,797,845   62,841,190   89,860,158  114,791,773
    from Oil and Gas...........................   29,046,563   15,074,411   29,805,841   46,106,713   68,203,036
    from Coal..................................   17,770,850   16,459,014  11,038,6801   20,642,753   18,222,512
    from other Production......................   6,195,7972    2,743,600    7,772,371    8,178,139    10,46,931
    from Bonus & Rents.........................   11,570,557    7,520,819   14,224,297   14,932,553   17,902,294
----------------------------------------------------------------------------------------------------------------

               DISTRIBUTION OF FEDERAL MINERAL LEASE RECEIPTS TO  THE STATE OF COLORADO--Continued
                                                     [in $]
----------------------------------------------------------------------------------------------------------------
                 Calendar Year                       2001         2002         2003         2004         2005
----------------------------------------------------------------------------------------------------------------
Distribution
    Counties...................................    5,378,931    4,005,099    5,246,746    5,595,223    6,158,485
    School Districts...........................    3,095,017    2,103,826    3,044,457    3,391,473    3,724,617
    Towns......................................    3,053,696    1,959,186    2,914,985    3,401,548    3,815,160
    Colo Water Cons Bd.........................    6,458,434    4,156,885    6,307,167   11,479,169    8,986,021
    State School Fund..........................   31,878,061   22,214,867   31,167,501   44,085,957   55,896,755
    DoLA Grant Program.........................   13,461,633    7,077,318   12,985,438   21,669,710   29,592,878
    DoLA Direct Distribution...................    1,257,994      280,663    1,174,896   2,730,2261    4,124,708
----------------------------------------------------------------------------------------------------------------

                                 ______
                                 
 Statement of Dan McClendon, General Manager, Delta-Montrose Electric 
                       Association, Montrose, CO
    Dear Senator Pete Domenici, Senator Ken Salazar and the Senate 
Energy and Natural Resources Committee:
    Delta-Montrose Electric Association (DMEA) represents over 30,000 
members on the western slope of Colorado. Our mission is to energize 
and serve our community. DMEA is a leader in promoting innovative 
technologies to our members, which are designed to reduce our member's 
energy consumption. We promote efficient lighting through such programs 
as the ``Brightening Our Communities Campaign'' and high efficient 
heating and cool systems through our award winning ``Co-Z Program''. 
DMEA's commitments to our member's energy needs are summed up in our 
corporate goal of reducing our member's overall energy consumption by 
25% by 2025.
    This letter has been drafted to inform you about our collective 
concerns over the potential growth in population and hence demand for 
our product, electric power.
    Delta-Montrose Electric Association is fully aware of the potential 
growth in demand and consumption of electric power associated with the 
development of our oil shale resources in western Colorado. With a 
potential extraction process such as the in-situ method, which requires 
heating the ground to 700 degrees Fahrenheit for several years, the 
demand for our product associated with this extraction process could 
seriously impact our existing members and our community.
    Equally centered in the collective memory of our members is the 
collapse of the oil shale programs of the 1980's. The sudden loss of 
jobs in neighboring communities caused many locals and their businesses 
to become bankrupt. It took almost 18 years for our communities to 
fully rebound from the economic devastation associated with the oil 
shale industry bust.
    An equally difficult problem is the demand for our product imposed 
by the natural gas industry. The natural gas industry is requiring the 
electric industry to provide electric power in remote areas. This will 
require a substantial investment in infrastructure by our association 
and hence our existing members. The natural gas industry's demand for 
our product is typically shorter than the traditional life of electric 
power infrastructure. This can and likely will result in stranded 
investment that existing members will be required to pay.
    All this growth comes at a time when our energy provider (Tri-State 
Generation and Transmission Cooperative) is faced with exponential 
growth. Capital requirements to construct new power plants and 
associated infrastructure is projected to be $5 billion over the next 
15 years. These projections do not include potential increases in 
electric power demand imposed by both the oil shale industry and the 
natural gas industry.
    Based on the potential impacts associated with the fossil fuel 
energy industry, Delta-Montrose Electric Association requests your 
legislative support protecting our desire to creatively implement 
tariffs that will place the economic burden for electric power on the 
corporate shoulders of the energy industry.
                                 ______
                                 
           Statement of Robert A. Loucks, Grand Junction, CO
    Thank you for scheduling a hearing on oil shale in Grand Junction. 
Your foresight and determination are greatly appreciated
    The campaign to reduce our dependence on unstable foreign oil 
supplies leading to an oil free economy should include shale oil 
development along with encouragement of conservation and development of 
renewable resources. The use of the extensive shale oil energy supply 
will be an important component of the process to get us through the 
coming transition from non-renewable hydrocarbons to other resources.
    However, we must not repeat the mistake of prior energy crises and 
assume that shale oil is ready for commercial development. Despite all 
the attempts to develop a shale oil industry in the U.S. over the past 
100 years, the fact remains that no proven method exists for 
efficiently removing the oil from the rock. There are a number of 
candidate processes possible, but none has demonstrated a practical 
capability to produce oil.
    For this reason, it is imperative that the next step in shale oil 
development be a demonstration and test phase. It is possible that the 
BLM RD&D leasing program may serve this purpose, but I am unconvinced 
because it seems to be essentially a duplication of the failed 1970-80 
prototype leasing program. Another possibility is a government center 
to provide the proper conditions for test activities. There have been 
previous efforts in this direction in the past, e.g., the Bureau of 
Mines and Colorado School of Mines work at Anvil Points. Also, a 
thorough analysis of the merits of government and industry partnerships 
is available in the report DOE/EIS-0068 dated September 1980. Other 
proposals include a ``Proof of Concept'' facility at the federal Cb 
site by Occidental Oil Shale in 1990 as discussed by Russell George of 
the Colorado Department of Natural Resources at your recent hearings on 
shale oil. Additionally, Federal legislation was passed in 1992. See 
U.S. Code: Title 42, Section 13412.
    An attractive alternative was outlined 30 years ago. Little has 
changed in the past 3 decades.

          June 1976 ``Robert McClements, Jr., president of Sunoco 
        Energy Development Co., a subsidiary of Sun Co., Inc., said his 
        firm advocated a jointly-funded government-industry program to 
        support oil-shale efforts through the stage of technology 
        development. Mr. McClements expressed concern about several 
        things:
                  First, technology, which has been demonstrated only 
                at the pilot plant or semi-works level; thus the scale-
                up to commercial-size units carries with it a high 
                technological risk.
                  Second, the operational risk involved with a 
                commercial oil-shale facility. For a large-scale plant 
                to successfully maintain design production levels, it 
                has to be on-stream--working as a unit--a high 
                percentage of the time. Another operations concern 
                relates to labor. Oil-shale plants will be built in 
                areas where there is presently no reservoir of people 
                to operate and maintain them.
                  Third, the environmental aspects. Since we don't know 
                what the final environmental regulations will be for 
                oil-shale plants, we simply don't have a good grasp on 
                how to design a plant.
                  Fourth, the highly uncertain public policy climate 
                that exists today and which restrict the operation of 
                market forces.
                  Fifth, timing. Enormously long lead times are 
                involved in synfuels facilities and when you are 
                talking about an expenditure of $1 billion (as assumed 
                in 1976) per plant, the orderly, coordinated timing of 
                capital investment is essential. But that's impossible 
                with the present uncertainties.
                  Sixth, economics. Even under the most optimistic 
                assumptions for capital investment and operating 
                performance, the required selling price for synthetic 
                oil may still exceed the market price for conventional 
                oil. A loan-guarantee program does not deal with the 
                basic difficulty. That is, the size of the investment 
                required, coupled with existing policy, technical and 
                financial uncertainties, effectively forecloses the 
                initiation of commercial oil-shale undertakings. An 
                alternative approach can be a program that will assure 
                the demonstration of a wide range of existing infant 
                technologies on a broad scale. Such a program should 
                provide for the construction of a number of modest-
                sized operating modules. But, since each module would 
                cost about $100-$200 million (in 1976 $) on which no 
                return can be expected this program could not be 
                initiated solely by private industry. The most 
                realistic approach could be to pattern it on a joint 
                government-industry demonstration plant concept. Such a 
                program could be initiated by a clearly identified 
                governmental sponsor, which would solicit specific 
                proposals from private companies for a variety of joint 
                efforts. Government financing would then carry the 
                projects through the stage of demonstrated technology. 
                Thus, if a module(s) successfully demonstrates a 
                technology, and if economic conditions permit, the 
                government's interest could be acquired by the 
                program's industry partner under previously agreed-upon 
                terms.''

    Irrespective of the outcome of the debate on the real status of 
`peaking' oil, shale oil process testing must happen. I have no doubts 
of our ability to make the transition.
    Our country has proven time and again that we can meet enormous 
challenges and succeed.
    Please let me know if you would like any of the above referenced 
materials or if I may be of assistance to you.
                                 ______
                                 
      Statement of Peggy Rector, past Mayor and Rio Blanco County 
                       Commissioner, Rangely, CO
    I am Peggy Rector. I am a resident of Rangely, past Mayor and Rio 
Blanco County Commissioner. A member of the Rio Blanco Water District, 
member of Club 20 and a Rangely Chamber member. I was unable to attend 
the sessions provided by Associated Governments and Club 20 in Grand 
Junction with our Congressional Delegation.
    I would like to request the region look at how we might disperse 
the population influx that has and will come, with the energy this area 
will provide for our county. I think it important we all begin to work 
together. I read today that Grand Junction Housing Authority is going 
to help provide housing in different ways for people moving to Grand 
Junction. My comment would be for the region to truly look at trying to 
move the people to different areas on the western slope so no one 
community is truly overcome with population explosion. There are 
smaller communities needing growth. However, due to not having larger 
population base, they lack the retail amenities that most people 
desire. However, if we could get the companies to request their 
employee's live in certain areas this would begin to help. Our 
community of Rangely has dealt with energy. Unfortunately, we have 
recently had to close one of our schools because of lack of students. 
We have the infrastructure, water, sewer, gas, electricity to deal with 
an influx of people plus the schools to accommodate. We also have a 
Community College for training needs etc. The interesting part to me 
about Grand Junction encouraging more people to come there is that the 
roadways in Grand Junction presently cannot truly accommodate the 
people they have. I would, in light of this, suggest the total region 
have the discussion with the companies about location of their 
employees and how this would best work. I think if we plan this in a 
proper way, all will benefit and be able to handle the influx in a very 
good way.
    If small communities such as Rangely know they have people coming 
in, we will then have contractors ready to come and build houses for 
their needs, manufactured housing people will also be on the doorstep.
    I further desire discussion on the assessment of the water needs 
for the total energy together with what the local communities needs are 
going to be in conjunction. I believe this is something the Water Basin 
Roundtables can accomplish with the help of the State Legislature. I 
also believe the Federal Government needs to play a role in helping in 
whatever way is possible since the Western Slope of Colorado and 
Eastern Utah will be providing the necessary energy needs for our 
nation. We need water storage for the dry years. This storage needs to 
be in the overall planning process. We need to plan to grow our 
communities in a positive way with the help of the Locals, State and 
Federal agencies.
    In the smaller communities we need retail services for the people 
coming, it is the chicken and the egg situation. The people will come, 
then the retail services. We need to also think about recreational 
needs for the citizens of the area. They will need parks, walkways, 
bike paths etc.
    Once the infrastructure for the energy is completed the workforce 
will dwindle down. The need will be to leave these rural communities 
whole. We should have learned over the years with boom and bust how to 
address the situations in a positive way for all. We need a forum that 
brings communities, counties, energy companies, big and small together 
to truly discuss the true impacts gas, oil, coal gasification, electric 
energy, oil shale collectively are having and will continue to have on 
this area. Roadways are critical to getting people to work and home in 
a safe manner. Travel time to and from work. Where new roads can cut 
time and direct population we need to take a very serious look.
    In conclusion we need to truly be aware of the overall impacts to 
the areas and try to make those impacts positive in nature. I believe 
by directing that population through employer location is an ideal way 
to do this.
    Thanks so much for being able to present my views on the total 
energy package.
                                 ______
                                 
            Statement of Glen A. Miller, Grand Junction, CO

Re: U.S. Senate Energy Committee meeting on Oil Shale, Grand Junction, 
Co, June 1, 2006

    Thank you for holding this meeting and taking the opportunity to 
learn more about this truly huge resource.
    My concern with the current efforts come in part from spending more 
then a decade in Interior's Prototype Oil Shale Lease Program office 
(1978-1986) here in Grand Junction.
    My brief comments in general refer to Piceance Basin, Colorado.
    1. BLM has no criteria for ``qualifying'' an R&D lessee to obtain a 
``Commercial Lease'' on 5000+ acres. Note that each proposed Commercial 
Lease would contain about the equivalent of a ``Prudhoe Bay'' in 
resources (10-14 Billion BBL's ). The give-away aspects of this makes 
``Teapot Dome'' look teeny by comparison. All proposed leases are where 
shale is very deep and hundreds of feet below the water table, thus 
making R&D more expensive.
    2. Of most importance, I am not aware of any requirement of a 
``Minimal Percentage'' recovery so long as the ``Economical Viable'' 
and ``Environmentally Acceptable'' goals are met. Thus, a lessee 
presumably could meet these goals at 10% recovery, produce 1-2 billion 
barrels, but greatly increase the difficulty of recovering the 
remainder by our future generations (who will be in a true oil-short 
era). This 10% assumption may be low, but wasting huge amounts of 
resources is not acceptable.
    3. Sodium-Aluminum resources in the oil shale. There is some 
recognition by BLM of the value of Sodium (Nahcolite, 29 million tons), 
but nothing I've seen addresses the conservation or recovery of the 3.5 
billion tons of Aluminum (Dawsonite). This is 20 times the metal in our 
Bauxite resources, and research suggests that Aluminum can be recovered 
from Dawnsonite with a fraction of the energy required to process 
Bauxite.
    These resources are unusually large and unique, and recovery is 
complex, but they are of critical importance to our Nations future, and 
must not be wasted merely because much R&D is needed to achieve near-
100% recovery.
    An academic researcher during the 1970-1980 period remarked that 
``This oil shale resource is our Nation's perfect `bridge' fuel. It can 
fill in for centuries when conventional oil is near-depleted and buy 
time to develop other energy sources.'' Think about it.
    Thank you.
                                 ______
                                 
         Statement of Penny and Jim Creasy, Grand Junction, CO
    We have watched the administrations wholesale giveaway. Instead of 
opening up more lands to energy exploration and development, it would 
seem better to find alternatives.
    We would like to see much better stewardship of our national 
treasures. It is my understanding that good stewardship should be the 
BLM's mission. I also understand that agency takes orders right from 
the top. We are now in a land grab and abuse that is unequaled in the 
history of this country. The ``liquidation sale'' mentality should come 
to an end.
    I believe government should come FROM the people to the 
politicians, not the other way around. It is my belief that there is 
hope there if we are listened to. Please do a lot more studying and 
preparation--that will take at least 3 years. The oil shale project 
could turn out to be a huge boondoggle.
                                 ______
                                 
 Statement of Art Goodtimes, County Commissioner, San Miguel County, CO
    Although San Miguel County is not directly affected by the oil 
shale proposals currently being developed for Western Colorado, the 
previous oil shale bust had significant negative effects on the 
economies of the entire Western Slope.
    I urge you to take careful precautions before moving towards the 
kind of boom climate that pushed many citizens into overextending, only 
to be caught when the boom went bust.
    Oil shale also needs to be developed with careful environmental 
controls, particularly regarding our precious water resources. To that 
end, I strongly support the kind of efforts that Sen. Ken Salazar has 
been making to balance our economic needs around developing our own 
energy resources in this country with the long-term needs of the 
environment--upon which San Miguel County's booming tourist economy so 
completely depends.
    Thanks for the opportunity to comment.

                                    

      
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