II 

109TH CONGRESS 

1ST SESSION S. 1111 

To promote oil shale and tar sand development, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

MAY 24, 2005 

Mr. HATCH (for himself, Mr. BENNETT, and Mr. ALLARD) introduced the 

following bill; which was read twice and referred to the Committee on Finance 

A BILL 

To promote oil shale and tar sand development, and for 

other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Oil Shale and Tar Sand Development Act of 2005’’. 

6 (b) TABLE OF CONTENTS.—The table of contents of 

7 this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Declaration of policy. 

Sec. 3. Definitions. 

TITLE I—STRATEGIC FUELS DEVELOPMENT 

Sec. 101. Strategic Fuels Task Force. 

Sec. 102. Federal leasing program. 

Sec. 103. Mineral Leasing Act amendments. 
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Sec. 104. Royalties. 

Sec. 105. Office of Strategic Fuels. 

Sec. 106. Cost-shared demonstration technologies. 

Sec. 107. Technical assistance. 

Sec. 108. State water rights. 

Sec. 109. Authorization of appropriations. 

TITLE II—PROCUREMENT OF UNCONVENTIONAL FUELS BY 

DEPARTMENT OF DEFENSE 

Sec. 201. Procurement of unconventional fuels by the Department of Defense. 

TITLE III—TAX INCENTIVES 

Sec. 301. Expensing of oil shale and oil sands technology expenditures. 

1 SEC. 2. DECLARATION OF POLICY. 

2 Congress declares that it is the policy of the United 

3 States that— 

4 (1) domestic oil shale, tar sands, and other 

5 strategic fuels— 

6 (A) represent major long-term strategic en7 ergy assets that complement the near-term as8 sets of the Strategic Petroleum Reserve; and 

9 (B) should be developed on an accelerated 

10 basis; 

11 (2) development of those strategic fuels should 

12 be promoted to meet the anticipated energy needs of 

13 the United States, including civilian and military re14 quirements; 

15 (3) those fuels are strategically important re16 sources; and 

17 (4) the Federal Government and the private 

18 sector should form a partnership to develop those 
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1 strategic fuels for the benefit of the people of the 

2 United States. 

3 SEC. 3. DEFINITIONS. 

4 In this Act: 

5 (1) OFFICE.—The term ‘‘Office’’ means the Of6 fice of Strategic Fuels established by section 105(a). 

7 (2) PLAN.—The term ‘‘plan’’ means the 5-year 

8 strategic fuels development plan formulated under 

9 section 101(c). 

10 (3) SECRETARY.—The term ‘‘Secretary’’ means 

11 the Secretary of Energy, acting in consultation with 

12 the Task Force. 

13 (4) STRATEGIC FUEL.—The term ‘‘strategic 

14 fuel’’ means domestic and military fuels derived 

15 from strategic hydrocarbon resources to be managed 

16 and developed under the guidance and authorities of 

17 the Strategic Petroleum Reserve as established by 

18 the Energy Policy and Conservation Act (42 U.S.C. 

19 6201 et seq.). 

20 (5) STRATEGIC HYDROCARBON RESOURCES.— 

21 The term ‘‘strategic hydrocarbon resources’’ 

22 means— 

23 (A) oil; 

24 (B) oil shale; 
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1 (C) tar sands (commonly referred to as 

2 ‘‘oil sands’’); 

3 (D) coal-derived liquids; 

4 (E) gas-derived liquids; and 

5 (F) any other hydrocarbon resource deter6 mined by the Secretary. 

7 (6) TASK FORCE.—The term ‘‘Task Force’’ 

8 means the Strategic Fuels Task Force established 

9 by section 101(a). 

10 TITLE I—STRATEGIC FUELS 

11 DEVELOPMENT 

12 SEC. 101. STRATEGIC FUELS TASK FORCE. 

13 (a) ESTABLISHMENT.—There is established a Stra14 tegic Fuels Task Force to develop a program to coordinate 

15 and accelerate the commercial development of strategic 

16 fuels in an integrated manner. 

17 (b) COMPOSITION.—The Task Force shall be com18 posed of— 

19 (1) the Secretary (or the designee of the Sec20 retary); 

21 (2) the Secretary of Defense (or the designee of 

22 the Secretary of Defense); 

23 (3) the Secretary of the Interior (or the des24 ignee of the Secretary of the Interior); and 
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1 (4) representatives of industry, affected States 

2 and communities, and other stakeholders, appointed 

3 by the President. 

4 (c) DEVELOPMENT OF A 5-YEAR PLAN.— 

5 (1) IN GENERAL.—The Task Force shall direct 

6 the Office to formulate a 5-year plan and coordinate 

7 with representatives of the Department of Defense 

8 and the Department of the Interior to promote the 

9 development of strategic fuels by industry. 

10 (2) COMPONENTS.—In formulating the plan, 

11 the Task Force shall— 

12 (A) identify public actions that are re13 quired to stimulate prudent development of 

14 strategic fuels by industry; 

15 (B) analyze the costs and benefits of those 

16 actions; 

17 (C) make recommendations concerning 

18 specific actions that should be taken to stimu19 late prudent development of strategic fuels by 

20 industry, including economic, investment, tax, 

21 technology, research and development, infra22 structure, environmental, education, and socio23 economic actions; 

24 (D) provide notice and opportunity for 

25 public comment on the plan; 
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1 (E) identify strategic fuel technologies 

2 that— 

3 (i) are ready for pilot plant and 

4 semiworks development; and 

5 (ii) have a high probability of leading 

6 to advanced technology for first- or second7 generation commercial production; and 

8 (F) assess the availability of water from 

9 the Green River Formation to meet the needs 

10 of the strategic fuels industry. 

11 (3) REPORTS.—Not later than 180 days after 

12 the date of enactment of this Act, the Task Force 

13 shall submit to the President and Congress a report 

14 that describes the analysis and recommendations of 

15 the Task Force for the plan. 

16 SEC. 102. FEDERAL LEASING PROGRAM. 

17 (a) IN GENERAL.—As soon as practicable after the 

18 date of enactment of this Act, the Secretary of the Inte19 rior, acting through the Bureau of Land Management, 

20 shall develop, implement, and manage comprehensive leas21 ing programs for strategic fuels on Federal land that ad22 dress all stages of the leasing process from research and 

23 development to full commercial leasing. 

24 (b) ADMINISTRATION.—In carrying out the leasing 

25 programs, the Secretary of the Interior shall— 
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1 (1) ensure environmentally sound and efficient 

2 development of strategic fuels; 

3 (2) permit leasing beginning not later than the 

4 date that is 18 months after the date of enactment 

5 of this Act; 

6 (3) in consultation with industry and the States 

7 of Utah, Wyoming, and Colorado, define lease blocks 

8 that— 

9 (A) meet requirements of industry; 

10 (B) facilitate the efficient development of 

11 strategic fuels; and 

12 (C) are sufficient in size for development 

13 for a commercial operation consistent with the 

14 Mineral Leasing Act (30 U.S.C. 181 et seq.); 

15 and 

16 (4) as appropriate, provide for exchanges of 

17 Federal land for such State or private land as is 

18 necessary to achieve responsible leasing and develop19 ment. 

20 SEC. 103. MINERAL LEASING ACT AMENDMENTS. 

21 Section 21 of the Mineral Leasing Act (30 U.S.C. 

22 241) is amended— 

23 (1) in subsection (a)— 
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1 (A) by designating the first, second, and 

2 third sentences as paragraphs (1), (2), and (3), 

3 respectively; 

4 (B) in paragraph (3) (as designated by 

5 paragraph (1))— 

6 (i) by striking ‘‘rate of 50 cents per 

7 acre’’ and inserting ‘‘rate of $2.00 per 

8 acre’’; and 

9 (ii) in the last proviso— 

10 (I) by striking ‘‘That not more 

11 than one lease shall be granted under 

12 this section to any’’ and inserting 

13 ‘‘That no’’; 

14 (II) by striking ‘‘except that with 

15 respect to leases for’’ and inserting 

16 ‘‘shall acquire or hold more than 

17 50,000 acres of oil shale leases in any 

18 1 State. For’’; and 

19 (C) by adding at the end the following: 

20 ‘‘(4) RESEARCH AND DEVELOPMENT.—For a 

21 lease issued for research and development activities, 

22 the lessee shall be entitled to a preference right to 

23 lease additional lands to a total acreage not to ex24 ceed 5,120 acres to develop commercial production 

25 facilities, if the lessee submits an application and 
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1 provides evidence, and the Secretary agrees, that the 

2 lessee has developed technology that warrants a 

3 commercial lease.’’; 

4 (2) by redesignating subsection (d) as sub5 section (e); 

6 (3) by redesignating the second subsection (c) 

7 as subsection (d); and 

8 (4) in subsection (e)(1) (as redesignated by 

9 paragraph (2)), by striking ‘‘subsection (c)’’ and in10 serting ‘‘subsection (d)’’. 

11 SEC. 104. ROYALTIES. 

12 Section 35 of the Mineral Leasing Act (30 U.S.C. 

13 191) is amended by adding at the end the following: 

14 ‘‘(c)(1) Except as provided in paragraph (2) and not15 withstanding any other provision of this Act, any royalty 

16 otherwise accruing to the United States under any lease 

17 for the extraction of a strategic fuel (as defined in section 

18 3 of the Oil Shale and Tar Sand Development Act of 

19 2005) on Federal land shall be reduced by— 

20 ‘‘(A) 50 percent if NYMEX WTI oil $22.00– 

21 23.99 a barrel on the date on which the strategic 

22 fuel is sold; 

23 ‘‘(B) 40 percent if NYMEX WTI oil is $24.00– 

24 25.99 a barrel on the date on which the strategic 

25 fuel is sold; 
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1 ‘‘(C) 30 percent if NYMEX WTI oil is $26.00– 

2 27.99 a barrel on the date on which the strategic 

3 fuel is sold; 

4 ‘‘(D) 20 percent if NYMEX WTI oil is $28.00– 

5 29.99 a barrel on the date on which the strategic 

6 fuel is sold; and 

7 ‘‘(E) 10 percent if NYMEX WTI oil is $30.00– 

8 31.99 a barrel on the date on which the strategic 

9 fuel is sold. 

10 ‘‘(2) The reduction in royalty provided under para11 graph (1) shall terminate on the date that the project for 

12 the extraction of the strategic fuel reaches payback, as de13 termined by the Secretary of the Interior (in consultation 

14 with the Secretary of Energy). 

15 SEC. 105. OFFICE OF STRATEGIC FUELS. 

16 (a) ESTABLISHMENT.—There is established, in the 

17 Office of Naval Petroleum and Oil Shale Reserves, within 

18 the Office of the Deputy Assistant Secretary for Petro19 leum Reserves of the Department of Energy, the Office 

20 of Strategic Fuels, to ensure that strategic fuels are devel21 oped as strategic resources of national importance. 

22 (b) PURPOSES.—The purposes of the Office are— 

23 (1) to coordinate the creation and implementa24 tion of a commercial strategic fuel development pro25 gram for the United States; 
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1 (2) to evaluate the strategic importance of un2 conventional sources of strategic fuels to the security 

3 of the United States; and 

4 (3) to promote and coordinate Federal Govern5 ment actions that facilitate the development of stra6 tegic fuels in order to effectively address the energy 

7 supply needs of the United States. 

8 (c) DUTIES.—The Office shall— 

9 (1) identify, assess, and recommend appropriate 

10 actions of the Federal Government required to assist 

11 in the development and manufacturing of strategic 

12 fuels; 

13 (2) coordinate and facilitate appropriate rela14 tionships between private industry and the Federal 

15 Government to promote sufficient and timely private 

16 investment to commercialize strategic fuels for do17 mestic and military use; and 

18 (3) facilitate a partnership with Alberta, Can19 ada, for purposes of sharing information relating to 

20 the development and manufacturing of strategic 

21 fuels. 

22 (d) CONSULTATION AND COORDINATION.—In car23 rying out subsection (c), the Office shall— 

24 (1) work closely with the Task Force; and 
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1 (2) establish an advisory group composed of the 

2 various stakeholders involved in the development of 

3 strategic fuels, including State and local representa4 tives, private industry, and other affected commu5 nities. 

6 (e) ANNUAL REPORTS.—Not later than 180 days 

7 after the date of enactment of this Act and annually there8 after, the Office shall submit to Congress a report describ9 ing the activities and recommendations of the Office. 

10 SEC. 106. COST-SHARED DEMONSTRATION TECHNOLOGIES. 

11 (a) IDENTIFICATION.—The Secretary shall identify 

12 technologies for the development of strategic fuels that— 

13 (1) are ready for demonstration at a commer14 cially-representative scale; and 

15 (2) have a high probability of leading to com16 mercial production. 

17 (b) ASSISTANCE.—For each technology identified 

18 under subsection (a), the Secretary may provide— 

19 (1) technical assistance; 

20 (2) assistance in meeting environmental and 

21 regulatory requirements; and 

22 (3) cost-sharing assistance through the payment 

23 of a Federal share of not to exceed 49 percent (as 

24 determined by the Secretary) of the capital and op-
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1 erating costs of the expanded project, including envi2 ronmental controls. 

3 SEC. 107. TECHNICAL ASSISTANCE. 

4 (a) IN GENERAL.—The Secretary shall provide tech5 nical assistance to private industry for the purpose of 

6 overcoming technical challenges to the development of ad7 vancement of strategic fuels technologies for application 

8 in the United States. 

9 (b) ADMINISTRATION.— 

10 (1) IN GENERAL.—The Secretary may provide 

11 technical assistance under this section on a fee-for12 service or cost-shared basis through individual agree13 ments, cooperative research and development agree14 ments, partnerships, or other approaches. 

15 (2) FEDERAL SHARE.—The Federal share of 

16 the cost of activities assisted under this section shall 

17 be not less than 25 percent, as determined by the 

18 Secretary. 

19 SEC. 108. STATE WATER RIGHTS. 

20 Nothing in this title impairs or in any manner affects 

21 any right or jurisdiction of the States with respect to the 

22 waters (including boundary waters) of the States. 

23 SEC. 109. AUTHORIZATION OF APPROPRIATIONS. 

24 There are authorized to be appropriated such sums 

25 as are necessary to carry out this title. 
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1 TITLE II—PROCUREMENT OF 

2 UNCONVENTIONAL FUELS BY 

3 DEPARTMENT OF DEFENSE 

4 SEC. 201. PROCUREMENT OF UNCONVENTIONAL FUELS BY 

5 THE DEPARTMENT OF DEFENSE. 

6 (a) IN GENERAL.—Chapter 141 of title 10, United 

7 States Code, is amended by inserting after section 2398 

8 the following new section: 

9 ‘‘§ 2398a. Procurement of fuels derived from coal, oil 

10 shale, and tar sands 

11 ‘‘(a) UTILIZATION OF FUELS TO MEET DEPART12 MENT OF DEFENSE NEEDS.—The Secretary of Defense 

13 shall develop a strategy to utilize fuels produced from coal, 

14 oil shale, or tar (oil) sands (commonly referred to as ‘un15 conventional fuels’) that are either extracted by mining or 

16 in-situ methods and refined in the United States in order 

17 to assist in meeting the fuel requirements of the Depart18 ment of Defense. 

19 ‘‘(b) AUTHORITY TO PROCURE.—The Secretary of 

20 Defense may enter into one or more contracts or other 

21 agreements to procure a fuel described in that subsection 

22 to meet one or more fuel requirements of the Department 

23 of Defense. Any such contract or agreement shall meet 

24 the requirements of this section. 
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1 ‘‘(c) CLEAN FUEL REQUIREMENTS.—A fuel may be 

2 procured under subsection (b) only if such fuel meets such 

3 standards for clean fuels produced from domestic sources 

4 as the Secretary of Defense shall establish for purposes 

5 of this section in consultation with the Office of Strategic 

6 Fuel Analysis of the Department of Energy. 

7 ‘‘(d) MULTIYEAR CONTRACT AUTHORITY.—Subject 

8 to applicable provisions of appropriations Acts, any con9 tract or other agreement for the procurement of fuel under 

10 subsection (b) may be for one or more years at the election 

11 of the Secretary of Defense. 

12 ‘‘(e) PRICE LIMITATIONS.— 

13 ‘‘(1) Each contract or other agreement for the 

14 procurement of fuel under subsection (b) shall set 

15 forth the maximum price and minimum price to be 

16 paid for a unit of fuel under such contract or agree17 ment, which prices shall be established by the Sec18 retary of Defense at the time of entry into such con19 tract or agreement. 

20 ‘‘(2) In establishing under paragraph (1) the 

21 maximum price and minimum price to be paid for 

22 fuel under a contract or agreement under subsection 

23 (b), the Secretary shall take into account applicable 

24 information on world oil markets from the Depart25 ment of Energy, including global prices for crude oil, 
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1 costs of production of such fuel from both conven2 tional and unconventional sources, and returns on 

3 investment in the production of such fuel. 

4 ‘‘(f) FUEL SOURCE ANALYSIS.—In order to facilitate 

5 the procurement by the Department of Defense of fuels 

6 under subsection (b), the Secretary of Defense may carry 

7 out a comprehensive assessment of current and potential 

8 locations in the United States for the supply of fuels de9 scribed in subsection (a) to the Department.’’. 

10 (b) CLERICAL AMENDMENT.—The table of sections 

11 at the beginning of such chapter is amended by inserting 

12 after the item relating to section 2398 the following new 

13 item: 

‘‘2398a. Procurement of fuels derived from coal, oil shale, and tar sands.’’. 

14 TITLE III—TAX INCENTIVES 

15 SEC. 301. EXPENSING OF OIL SHALE AND OIL SANDS TECH16 NOLOGY EXPENDITURES. 

17 (a) IN GENERAL.—Part VI of subchapter B of chap18 ter 1 of the Internal Revenue Code of 1986 (relating to 

19 itemized deductions for individuals and corporations) is 

20 amended by inserting after section 190 the following new 

21 section: 

22 ‘‘SEC. 191. OIL SHALE AND OIL SANDS TECHNOLOGY EX23 PENDITURES. 

24 ‘‘(a) TREATMENT OF EXPENDITURES.— 
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1 (1) IN GENERAL.—A taxpayer may elect to 

2 treat any qualified oil shale and oil sands technology 

3 expenditure which is paid or incurred by the tax4 payer as an expense which is not chargeable to cap5 ital account. Any expenditure which is so treated 

6 shall be allowed as a deduction. 

7 ‘‘(2) ELECTION.—An election under paragraph 

8 (1) shall be made at such time and in such manner 

9 as the Secretary may prescribe by regulation. 

10 ‘‘(b) QUALIFIED OIL SHALE AND OIL SANDS TECH11 NOLOGY EXPENDITURES.—For purposes of this section, 

12 the term ‘qualified oil shale and oil sands technology ex13 penditure’ means, with respect to any taxable year, any 

14 direct or indirect costs incurred and properly taken into 

15 account with respect to the purchase or installation of 

16 equipment and facilities (including any upgrades thereto) 

17 relating to in-situ treatment (or processing), mining, con18 version, recovery, and upgrading of oil shale or oil sands 

19 located in the United States for the purpose of creating 

20 fuels, fuels feedstocks, or other manufactured products. 

21 Such term shall include so much of the purchase price 

22 paid by the lessor or equipment and facilities subject to 

23 a lease described in subsection (c)(2) as is attributable to 

24 expenditures incurred by the lessee which would otherwise 

25 be described in the preceding sentence. 
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1 ‘‘(c) WHEN EXPENDITURES TAKEN INTO AC2 COUNT.—For purposes of this section— 

3 ‘‘(1) IN GENERAL.—Qualified oil shale and oil 

4 sands technology expenditures shall be taken into ac5 count under this section only with respect to equip6 ment and facilities— 

7 ‘‘(A) the original use of which commences 

8 with the taxpayer, and 

9 ‘‘(B) which are placed in service, after the 

10 date of the enactment of this Act. 

11 ‘‘(2) SALE-LEASEBACKS.—For purposes of 

12 paragraph (1), if property— 

13 ‘‘(A) is originally placed in service after 

14 the date of the enactment of this Act by any 

15 person, and 

16 ‘‘(B) sold and leased back by such person 

17 within 3 months after the date such property 

18 was originally placed in service, such property 

19 shall be treated as originally placed in service 

20 not earlier than the date on which such prop21 erty is used under the leaseback referred to in 

22 clause (ii). 

23 ‘‘(d) SPECIAL RULES.— 

24 ‘‘(1) PROPERTY USED OUTSIDE THE UNITED

25 STATES, ETC., NOT QUALIFIED.—No expenditures 
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1 shall be taken into account under subsection (a)(1) 

2 with respect to the portion of the cost of any prop3 erty referred to in section 50(b) or with respect to 

4 the portion of the cost of any property specified in 

5 an election under section 179. 

6 ‘‘(2) BASIS REDUCTION.— 

7 ‘‘(A) IN GENERAL.—For purposes of this 

8 title, the basis of any property shall be reduced 

9 by the portion of the cost of such property 

10 taken into account under subsection (a)(1). 

11 ‘‘(B) ORDINARY INCOME RECAPTURE.— 

12 For purposes of section 1245, the amount of 

13 the deduction allowable under subsection (a)(1) 

14 with respect to any property which is of a char15 acter subject to the allowance for depreciation 

16 shall be treated as a deduction allowed for de17 preciation under section 167. 

18 ‘‘(3) COORDINATION WITH SECTION 38.—No 

19 credit shall be allowed under section 38 with respect 

20 to any amount for which a deduction is allowed 

21 under subsection (a)(1).’’. 

22 (b) CONFORMING AMENDMENTS.— 

23 (1) Section 263(a)(1) of the Internal Revenue 

24 Code of 1986 (relating to capital expenditures) is 

25 amended by striking ‘‘or’’ at the end of subpara-
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1 graph (H), by striking the period at the end of sub2 paragraph (I) and inserting ‘‘, or’’, and by adding 

3 at the end the following new subparagraph: 

4 ‘‘(J) expenditures for which a deduction is 

5 allowed under section 191.’’. 

6 (2) Section 1016(a) of such Code is amended 

7 by striking ‘‘and’’ at the end of paragraph (30), by 

8 striking the period at the end of paragraph (31) and 

9 inserting ‘‘, and’’, and by adding at the end the fol10 lowing new paragraph: 

11 ‘‘(32) to the extent provided in section 

12 191(d)(2).’’. 

13 (3) The table of sections for part VI of sub14 chapter A of chapter 1 of such Code is amended by 

15 inserting after the item relating to section 190 the 

16 following new item: 

Sec. 191. Oil shale and oil sands technology expenditures.’’. 

17 (c) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to expenditures incurred in taxable 

19 years beginning after December 31, 2005. 

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