Assessment of Oil Shale Technologies—Vol.

II: A History and Analysis of the Federal

Prototype Oil Shale Leasing Program

July 1980
Library of Congress Catalog Card Number 80-600102

For sale by the Superintendent of Documents, U.S. Government Printing Office

Washington, D.C. 20402 Stock No. 052-003 -00763-1
Foreword

This volume discusses the Federal Prototype Oil Shale Leasing Program that

began in 1974 when the U.S. Department of the Interior sold leases to four tracts

in the oil shale regions of Colorado and Utah, A prior leasing attempt in 1968 is

also described because it provides an historical perspective about the imperatives

that have encouraged the development of Federal oil shale lands by private industry and the restraints that have inhibited such development.

The report includes discussions of political, economic, environmental, and

energy-related factors that affected both the 1968 leasing attempt and its

successor—the current Prototype Program. The Program’s goals are identified,

and its progress and status are examined to determine if those goals have been

met or are likely to be met in the foreseeable future.

&:N:zf;’-

Director
Oil Shale Advisory Committee

James H. Gary, Chairman

Colorado School of Mines

James Boyd

Private Consultant

William Brennan

Rancher

Rio Manco County, Colo.

Robert L, Coble*

Massachusetts Institute of Technology

Roland C. Fischer

Colorado River Water Conservation

District

John D. Haun

Colorado School of Mines

Carolyn A. Johnson

Public Lands Institute

Sidney Katell

West Virginia University

*Resigned March 1979.

**died April 1979.

Estella B. Leopold

University of Washington

Charles H. Prien**

Denver Research Institute

John F. Redmond

Retired, Shell Oil Co.

Richard D. Ridley

Occidental Oil Shale, Inc.

Raymond L. Smith

Michigan Technological University

Thomas W. Ten Eyck

Rio Blanco Oil Shale Co.

Wallace Tyner

Purdue University

Glen D. Weaver

Colorado State University

NOTE: The Advisory Committee provided advice and comment throughout the assessment, but does

not necessarily approve, disapprove, or endorse the report, for which OTA assumes full responsibility.

Iv
Oil Shale Technology Project Staff

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Audrey Buyrn, Materials Program Manager

Thomas A, Sladek, Principal Investigator

William E, Davis, Social and Economic Impacts

Patricia L. Poulton, Environmental and Water Availability

Phillip L. Robinson, Economic and Financial

Administrative Staff

Patricia A, Canavan Margaret M. Connors

Carol A. Drohan Jackie S, Robinson

Contributors

Bob Fensterheim, Health Program

Mike Gough, Health Program

Donald G. Kesterke, U.S. Bureau of Mines*

Albert E, Paladino, National Bureau of Standards**

Steven Plotkin, Energy Program

Publishing Staff

John C. Holmes, Publishing Officer -.

Kathie S. Boss Debra M. Datcher Joanne Heming

‘Oil Shale Project Director through January 1979, on detail to (OTA) from the U.S. Bureau of Mines.

**Materials Program Manager through December 1978,
Acknowledgments

This report was prepared by the Office of Technology Assessment Materials

Program staff. A full list of the contractors and consultants who contributed to

the assessment will be found in volume I. The staff wishes to acknowledge the special assistance and cooperation in the preparation of volume II of the Office of the

Assistant Secretary for Land and Water Resources of the Department of the Interior and of the Denver Regional Office of the General Accounting Office.
Contents

Chapter

1. Introduction and Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. An Initial Attempt at Oil Shale Leasing (1963-68). . . . . . . . . . . . . . . . . . . . . . . . .

Introduction , , ., . . . . . . . . . . . . . , ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Political Environment ., , . . . . . . ., . . . . . . . . . . . . . . ., , . . . . . . . . . , , ., , .

Energy and the Economic Environment . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . .

An Initial Leasing Program .............................................................................. . . ,.,

A Revised Proposal and Its Demise . . . . . . . . . . . . . . . . . . . . . , ..., , , . . . . . . . ,

Reasons for Failureofthe 1968 Program . . . . . ..., ,. ....., ,, ,..., ,, . . . . .

Chapter preferences. . . . . . . . . ., . . . . . . . . . . . . . , . . . . . . . . . . . ., . . . . . . . . .

3.Evolution of the Prototype Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Political Environment . . . . . . . . . ..., , . . . . . . . . . . . . ., . . . . . . . , . . . . . . .

Energy and the Economic Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Prototype Program Emerges . . . . . ,, .....,.., . . . . . . . . . . . . . . . . . . . . . .

Chapters References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.The Changing Scene Between 1974and1979. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., . . . . . . . . . . . . , . . . . . . . .

The Changing Economic Situation. . . . . . ..., ., . . . . . . . . . . . , . . . . . . . ., . . . .

Problems on Colorado Tract C-a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Problems on ColoradoTract C-b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Problems on the Utah Tracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...,.., . . . . . .

In-LieuLands . . . . . . . . . ,., . . . . . . . . . . . . . . . . , ., ,....., . . . . . . . . . .,

Unpatented Mining Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Peninsula Mining Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,.

Environmental Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Problems With theEnvironmental Baseline ., . . . . . . , ..., ., . . . . . . . . ..., . . —. - . . . . . . . .

5.

The Political Climate. . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . , . . . . , . . . .

Suspension Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Events During the Suspension Periods. . . . . . . . . . . . . . . . . . . . . . . . . .

Resumption of Activitiesand Current Status ..,..., . . . . . . . . . . . . . . . . . . . . .

TractC-a. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tract C-b. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tracts U-a andU-b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter preferences. . . . . . . . . ., ..., . . . . . . , , , . . . . . . . . . . . . . . , . . . . . . . .

Key Issues in the Prototype Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . , . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Technological Issues . . . ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Environmental Issues. , ., . . . . . . . . . . . . . . . ., . . . . . . . . . . . . , . . . . . . . . . . . . .

Legal and Political Issues. ..., ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , .

Economic Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapters References. . . . . . . , . . . . . . , ., ..., , ., , . . . . . . . . . . . . . . . . . . . . . .

Page

1

9

9

9

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16

22

24

25

29

29

29

32

34

37

41

41

41

42

47

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48

50

53

53

54

55

55

56

59

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59

60

60

65

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69

72

74

VII
Contents—continued

Chapter Page

6. Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Objectives of the1973Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

New Initiatives ....., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Chapter preferences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

List of Tables

Table No. Page

l.LeaseTracts Offered Under the Prototype Oil Shale Leasing Program.................37

2. Cost Estimates for Oil Shale Processing Plants, . . . . . . . . . . . . . . . . . . . . . . . . . . 41

3.Mining Claims in theTristate Oil Shale Region, 1968.. . . . . . . . . . . . . . . . . . . . . 69

4.Nature of Claims on Oil Shale LandsWith Commercial Potential, 1968...,,,.. 70

List of Figures

FigureNo. Page

l.Status of Oil ShaleTechnologies in 1968. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

2.U.S. Petroleum Supplies as Projected in 1971.., . . . . . . . . . . . . . . . . . . . . . . . . . 33

3.CostTrends for Domestic and Imported Petroleum. . . . . . . . . . . . . . . . . . . . . . . . 34

4.Locations of the Tracts Offered for LeaseUnder the Prototype Program. . . . . . 35

5.Engineering Cost Estimates for 50,000-bbl/dS shaleOil Syncrude Plants ............ 42

6.0pen-Pit Mining Concept Featuring OfftractWasteDisposal . . . . . . . . . . . . . . . 43

7.0riginal Development Plan for ColoradoTractC-a. . . . . . . . . . . . . . . . . . . . . . . . 43

8.AMultiple-LevelRoom-and-Pillar Oil Shale Mine. . . . . . . . . . . . . . . . . . . . . . . . . 47

List of Acronyms

BLM

DDP

DOE

DOI

EIS

EPA

ERDA

FLPMA

—Bureau of Land Management

—detailed development plan

—Department of Energy

—Department of the Interior

— environmental impact statement

—Environmental Protection Agency

—Energy Research and Development

Administration

—Federal Land Policy and Management

Act

MIS — modified in situ

NAAQS —National Ambient Air Quality

Standards

NEPA —National Environmental Policy Act

PSD —prevention of significant

deterioration

Tosco —The Oil Shale Corporation [now

Tosco, Corp.)

USBM —U.S. Bureau of Mines
CHAPTER 1

Introduction and Background
—

CHAPTER 1

Introduction and Background

The oil shale deposits of the Green River

formation occur in several geologic basins in

Colorado, Utah, and Wyoming and underlie

some 17,000 mi2 ( 11 million acres) of terrain.

Nearly 72 percent of the land, overlying

about 80 percent of the oil shale resource, is

in the public domain and is controlled by the

U.S. Department of the Interior (DOI). Most of

the Federal land is located near the depositional centers of the basins and contains the

thickest and richest oil shale deposits. The remaining lands are controlled by individuals,

private companies, and the governments of

the three States.

Oil shale lands were acquired by the States

under the provisions of their respective statehood enabling acts. Private holdings were acquired during the late 19th and early 20th

centuries by individual homesteaders, by the

railroads during construction of the transcontinental rail line, or through patenting of

placer mining claims for oil shale and other

minerals, The railroad lands comprise oddnumbered sections of each township within

20 miles on either side of the railroad right-ofway through the Wyoming oil shale basins.

The total acreage of these holdings is very

large, but commercial development is inhibited by the small size of individual tracts, by

their distribution in a checkerboard pattern,

and by the relatively poor quality of the oil

shale resource, It is possible that the railroad

properties could be developed in conjunction

with leasing contiguous State or Federal sections. At present, however, the best opportunities for development on private lands appear to lie with the holdings that have descended from homesteads and mining claims.

The Mining Law of 1872 and the Petroleum

Placer Act of 1897 did not specifically mention oil shale, and it was not until 1920 that

shale was finally determined to be subject to

the placer provisions of the two laws. Prior to

1920, however, they were interpreted to allow oil shale to be characterized as a locatable mineral which permitted prospectors to

acquire Federal oil shale lands by staking and

filing placer mining claims, performing a few

hundred dollars worth of work on the claim

site, and paying small fees to purchase “patents” that conveyed ownership of both surface and mineral rights. Physical discovery of

the deposits was required. This requirement,

coupled with that for assessment work, resulted in the location of claims along eroded

water courses where the deposits are visible

and easily accessible.

Numerous placer claims were filed during

the petroleum shortages of 1915-20, and patents for many of these were obtained by the

prospectors or their successors. Today, these

patented claims, together with the earlier

homesteads, comprise the privately owned oil

shale lands in Colorado and Utah. Individual

claims and homesteads were originally quite

small because of size restrictions imposed by

both homesteading and mining laws. However, many of these small tracts were subsequently purchased by large firms and were

unified into much larger development blocks.

Today, private interests (including the railroad) have clear title to 21 percent of the oil

shale lands in Colorado’s Piceance basin, 9

percent of Utah’s Uinta basin, 24 percent of

the Green River basin in Wyoming, and 10

percent of Wyoming’s Washakie basin. In

general, the private holdings are located near

the peripheries of the basins and contain

thinner deposits of lower grade oil shale than

do the Federal lands near the basin centers.

Some private tracts do contain high-quality

shale, and some are large enough to sustain a

major facility. For example, Union Oil Co. ’s

29,000 acres in Colorado are distributed over

three noncontiguous tracts, at least two of

which should contain sufficient oil shale for

long-term development. In contrast, the holdings of some other firms, although similar in

total acreage to Union’s, are subdivided into

numerous small tracts that are scattered

across the basins. For example, EXXON

Corp. owns over 10,000 acres in the Piceance

3
4 ● A History and Analysis of the Federal Prototype Oil Shale Leas/rig Program

basin, but this land is distributed over about

30 noncontiguous tracts. It is questionable

that any single tract would be large enough

for commercial development.

Despite disadvantages with respect to

tract size and resource quality, it should be

possible for a substantial industry to be initiated on private holdings. Some companies

have taken preliminary steps along this path

when economic conditions have appeared especially favorable. But, private landowners

(generally major energy companies) have traditionally declined to commit to large-scale

development pending a clarification of the

Government’s position with regard to private

access to public oil shale resources. If industry did invest in private tracts the Government could subsequently permit development

on adjacent Federal lands that, according to

industry, had greater profit potential.

As noted above, the private sector was

first allowed access to public oil shale lands

over a century ago, by passage of the 1872

Mining Law. The 1920 Mineral Lands Leasing Act ended the process of claiming Federal

oil shale lands and imposed a leasing process

to promote private mining of oil shale and

specific other minerals. The Act empowered

the Secretary of the Interior to lease to any

qualified person or corporation “any deposit

of oil shale . . . belonging to the United States

and the surface of so much of the public lands

containing such deposits, or land adjacent

thereto, as maybe required for the extraction

and reduction of the leased minerals . . .“

The Secretary was required to assess annual

rentals of 50 cents per leased acre, and the

maximum size of an individual tract was limited to 5,120 acres (8 mi2). No individual or

firm could hold more than this acreage under

lease in the United States. Except for these

provisions, the Secretary was given broad

discretionary powers to select lease tracts

and to shape the terms of development leases.

Five oil shale lease applications were filed

with DOI after 1920. Three leases were issued, but all were subsequently canceled.

In the early 1920’s, during the Harding administration, Secretary of the Interior Fall

was alleged to have accepted bribes from an

oil company in consideration of noncompetitive leasing of Naval Petroleum Reserve No.

3—the Teapot Dome field in Wyoming. In

1930, during the era of caution that followed

the Teapot Dome scandals, President Hoover

issued Executive Order 5327, which withdrew oil shale lands from leasing under the

Mineral Leasing Act and “temporarily” reserved them for the purpose of “investigation,

examination, and classification. ” Since 1930,

the temporary order has been modified on a

few occasions. In 1933, for example,

Hoover’s Executive Order 6016 permitted oil

and gas leases on the oil shale lands, and i n

1935, President Roosevelt’s Executive Order

7038 authorized prospecting permits and development leases for sodium-bearing minerals. The order has also been modified from

time to time to permit reserve exploration and

disposition of specific surface rights in limited areas. With these exceptions, Hoover’s

order remained in effect and essentially unaltered for over 40 years. No oil shale leases

were issued during this period.

In 1952, President Truman issued Executive Order 10355, which authorized the Secretary of the Interior to rescind the withdrawal order. Subsequent Secretaries, however, have been reluctant to exert the authority for fear of creating the environment for a

leasing scandal like Teapot Dome. In 1965,

testifying before the Senate Committee on Interior and Insular Affairs, Undersecretary of

the Interior John Carver, Jr., described the

situation as follows:

The Secretary has not yet determined

what recommendation should be made to

Congress, if any, for the resolution of any

policy questions prior to the lifting of the

withdrawal order , . . No Secretary . . . can

take any more than tiny and tentative steps

which have the effect of relinquishing title to

this resource without running great risks of

misinterpretation . , . This reserve is so big

and so valuable that , . , it tends to freeze

any kind of action, either congressional or

administrative,

Interior’s hesitation was compounded by the

uncertain status of unpatented mining claims
.

Ch 1–Introduction and Background 5

on much of the Federal land and by a prevailing feeling that shale oil was not needed by

the Nation,

From time to time, administrative inaction

proved unacceptable to congressional delegates from Colorado, Utah, and Wyoming.

These legislators, with urging from State officials and the energy industry, pressed DOI to

lease the Federal oil shale lands with the rationale that development was in the Nation’s

interest, would provide indigenous energy

supplies, and would convey economic benefits to the State and Federal Governments.

In the 1960’s and early 1970’s, such pressure contributed to the formulation of two different but related leasing attempts. The first

was promulgated as part of a comprehensive

oil shale program in the Johnson administration by Secretary of the Interior Stewart

Udall between 1964 and 1968. Udall’s lease

offerings failed to attract private participation, Other portions of his program were carried forward into the Nixon administration,

however, where they were supplemented by

the Federal Prototype Oil Shale Leasing Program under the direction of Secretaries

Hickel and Morton. The Prototype Program

was successful in that private capital was

committed to four lease tracts in Colorado

and Utah. The Program is continuing today,

although in substantially modified form.

An understanding of the evolution of the

1968 attempt, and of the past, present, and

possible future of the Prototype Program, is

important to the formulation of effective Federal oil shale policies. This volume provides a

history of both programs. Its purpose is to

convey background information for answering the following questions:

. What political, economic, and energy

supply situations prevailed when the

programs were initiated and how did

these situations affect industry’s response to the lease offerings?

How did the terms of the lease offerings

affect their relative successes?

What forces and factors affected the

course of the Prototype Program?

How has the Program succeeded or

failed in meeting its objectives?

What are its possible futures?

Discussion begins with historical accounts of

the two leasing programs, including analyses

of the forces at play during their evolutionary

phases. The programs are then contrasted in

an attempt to explain why the Prototype offering attracted private capital while its

predecessor did not. Finally, the objectives of

the Prototype Program are reiterated, and

the Program’s status is analyzed to determine

whether its objectives have been achieved or

are likely to be achieved, given the current

energy situation and economic climate.

The Prototype Program has been affected

by all of the key issues that currently cloud

the future of the U.S. oil shale industry. Included are legal issues associated with landownership, environmental issues surrounding

the potential effects of development on the

area’s ecosystem, uncertainties associated

with the development and promulgation of

regulations under the National Environmental Policy Act and other legislation, economic

issues regarding the cost of producing shale

oil for use in an uncertain energy future, and

technological issues associated with emerging processes. These larger issues are discussed at length in volume I because their effects will be felt in all future approaches to

development, regardless of whether they are

conducted within the aegis of an expanded

Prototype Program or as parallel efforts external to the Program. Issue analysis is intentionally brief within this volume, and issues

are discussed only as required to clarify their

effects on the character and progress of the

Program.
CHAPTER 2

An Initial Attempt at Oil Shale Leasing

(1963-68)
CHAPTER 2

An Initial Attempt at Oil Shale Leasing (1963-68)

Introduction

In 1963, Secretary of the Interior Udall

was strongly encouraged by Western-State

political interests to create a Federal oil shale

policy, In response to this pressure, the Department of the Interior (DOI) organized an

advisory board of private citizens to analyze

the constraints on oil shale commercialization

and to recommend procedures for initiating

and managing development of public oil shale

resources. In 1967, DOI incorporated some of

the board’s suggestions in a tentative leasing

proposal that was withdrawn after public review, DOI” S approach to leasing was substantially revised after additional study, and in

1968, DOI offered three Colorado lease tracts

to private industry. No acceptable bids were

received, and the leasing program was terminated.

Although it failed, the 1968 lease offering

triggered a series of actions that led to the

current Federal Prototype Oil Shale Leasing

Program. Many of the attitudes, imperatives,

and impediments that shaped the 1968 attempt also influenced the evolution of the Prototype Program and its implementation in

1973 and 1974. This chapter describes the

evolution of the 1968 program and discusses

the reasons for its failure.

The Political Environment

As noted in chapter 1, the Secretary of the

Interior was given authority in 1952 to lease

Federal oil shale lands in the Western States,

but DOI pursued a course of inaction for fear

of scandals and because no urgent need was

felt for new fuel sources such as oil shale. In

the 1960”s, congressional delegates from Colorado, Utah, and Wyoming responded to

DOI's inaction by urging Secretary Udall to

formulate a development policy for Western

oil shale. Particularly active were Colorado

Representative Aspinall, Chairman of the

House Committee on Interior and Insular Affairs, and Senators Allott of Colorado, Hansen of Wyoming, and Moss of Utah on the corresponding Senate committee. These proponents of oil shale development were supported in principle by Senator Bennett of

Utah, Senator Dominick of Colorado, and Representative I Harrison of Wyoming. Congressional advocates were aided by the Governors of Colorado, Utah, and Wyoming who

differed in their specific motivations and objectives, but were unified in their efforts to

enhance the economies of their respective

States.

The proponents of private development of

public oil shale lands expressed their desires

to enhance economic stability and to counter

the threat to national security posed by the

Nation’s diminishing petroleum reserves and

growing reliance on imported oil. Working

against their efforts were legislators such as

Illinois Senator Douglas, Senator Proxmire of

Wisconsin, and Senator Hart of Michigan.

These men emphasized the need for protecting the public’s mineral-resource heritage

and avoiding an oil shale monopoly by the major oil companies. Pressure from both advocacy positions affected all phases of Secretary Udall’s attempts to develop an effective

oil shale policy.

At the same time, several articles appeared in the public press that were unequivocally concerned with the hazards of encouraging private control of the public lands.

An example is the work of Mr. J. R, Freeman,

9
10 . A H/story and Analysis of the Federal Prototype Oil Shale Leasing Program

editor of the Farmer and Miner newspaper of

Frederick, Colo., and a long-time critic of

private oil shale developers. Beginning in

1965, Mr. Freeman published a series of 38

articles entitled “The Multi-Billion Dollar

Grab of Oil Shale Lands, ” which alleged

fraudulent efforts on the part of private individuals, corporations, and Government officials to dispose of the public oil shale lands.

Mr. Freeman’s style was provocative, and

many of his allegations were controversial.

However, his views reflected those of numerous citizens who were dissatisfied with the

Government’s management of public resources. He was perhaps the most vocal opponent of Udall’s leasing efforts, and he periodically referred to the Teapot Dome scandals to

characterize his concern about the DOI program. At Senate hearings in 1967, he presented a written statement that included the

following claims and allegations:1

Let me make one point crystal clear, I am

for development of the West’s oil shale resources. I want progress, but I want real

honest-to-goodness development of the public

lands for the public benefit. I do not want: (1)

Enrichment of speculators who use phony oil

shale mining claims filed 47 years ago to buy

public land containing 3,000,000 barrels of

shale oil per acre for $2.50 per acre and then

sell them to the oil companies for $2,000 per

acre. (2) Transfer of the public domain to the

control of a few monopolists who lock up the

oil shale so it won’t compete with their Arabian and Texas oil. (3) Disposal of the public

oil shale lands or leasing of large blocks of oil

shale lands before the recovery processes

are developed and the real values are made

known to the public, (4) Robbery of the public

through fraudulent, conniving, collusive or

self-serving actions by public officials who

are in cahoots with speculators and oil companies. Indeed, Gentlemen of the Senate,

present Department policies are leading

directly to these undesirable and deplorable

consequences . . . I must report to this distinguished body that I have found key officials

and employees involved in handling oil shale

in the Executive Branch, especially in the Departments of the Interior and Justice, and in

the Legislative Branch, sadly lacking in honesty, and openness.

Another analysis was offered by Mr. Chris

Welles in Harper’s Magazine. Welles, an

associate editor for Life magazine, appraised

the oil shale situation and pointed out that

DOI’s leasing efforts had been, and would

continue to be, influenced by strong political

forces, both favoring and opposing private

development of the public’s resources. He

pointed out that little credence was given in

Congress to claims of scandals. However, he

expressed concern that the oil industry was

moving into a position of control and described congressional attempts to counter

these moves as follows:2

While the oil industry’s attempts to dominate shale research are well-documented, it

is impossible to verify the recurrent allegations about a Teapot Dome-size scandal—a

giant giveaway mounting into the billions of

dollars. What does emerge clearly is the fact

that the government under dubious circumstances allowed oil companies and land speculators to gain ownership of many thousands

of acres of rich shale land, and readily acquiesced to the oil industry’s concept of a

prudent Federal shale policy ., . Senator

Philip Hart of Michigan sees shale oil development as a means of reducing the monopolistic power of the oil industry (which has

lately been expanding into many other energy industries, including coal and nuclear

power). Senators Robert Kennedy and William Proxmire—among others—sponsored

legislation designed in part to accomplish

this,

Similar concerns and analyses were provided by Julius Duscha in an article in the

Atlantic Monthly. Mr. Duscha, a member of

the national news staff of the Washington

Post, described the congressional climate as

follows: 3

. . . the controversy over the shale oil

lands involves a cast of strong characters in

positions of power and influence ., . The

most influential proponent of immediate leasing is Congressman Aspinall . . . representative of the congressional district containing

the richest of the shale deposits . . . “Natural

resources were placed there to be used, ’ Aspinall maintains, “not to be cooped up for future generations ., . The oil isn’t worth a
—

Ch 2–An /n/t/al Atempt 011 Shale Leas/rig ( 1963-68) ● 11

hoot to anybody as long as it is in the

ground. ”

Mr. Duscha provided the following recommendations for a national oil shale policy:

. . . if the public interest is to be served,

Udall—and President Johnson—must first

make certain that no legislation is pushed

through Congress forcing the government to

lease its shale lands before their true value

is known and before the cost of taking the oil

out of the rock is determined . , . The government does not, however, necessarily have to

develop the shale lands itself, What is necessary is that the government protect the public interest in this great resource, once private development of these Federal resources

is permitted , , , Large tracts of land are not

needed for experimental work, and if it is

necessary, the government can lease small

sections of its shale lands to facilitate research.

Colorado Senator Dominick responded by

contrasting Duscha’s premises and conclusions with those of Mr. C. E. Reistle, chairman

of the board of Humble Oil and Refining Company. Mr. Dominick made the following comments on the floor of the Senate in 1966:4

. . . I do not agree with (Mr. Duscha) on his

analysis of the problem or his approach in

the article , . . The article (by Mr. Reistle)

shows quite clearly, in my opinion, the need

for new energy resources in our country, resources which are not subject to being shut

off in the event of national emergency , , .

This shows the absolute futility of taking a

natural resource of this size and leaving it in

the ground where no one can get at it. We

have been urging the Secretary of the Interior to establish rules and regulations for the

leasing of those properties, I think it is important that that be done instead of putting it on

the shelf as has been done, awaiting further

action and apparently waiting further development of research programs now going on.

Senator Allott of Colorado was also discontented with DOI’S hesitation and with what

appeared to him to be a preoccupation with

avoiding scandal. Mr. Allott made the following comments during a dialogue with Secretary Udall at the Senate oil shale hearings in

1967:5

. . . I am afraid that in a sense we are all

affected with the Teapot Dome Syndrome. I

am sure that neither the Secretary nor any of

his assistants nor his administration are going to be involved in anything which would

effect a situation which would result in a monopoly or a windfall to any company if it can

possibly be avoided . . . So I hope that this

syndrome, which seems to pervade much of

your discussion and thinking, can be discarded with the concept that no one (is) looking for such a windfall.

Senator Allott was also concerned about the

effects of delays at the Federal level on the

long-range economic viability and commercial attractiveness of the oil shale industry.

He made the following statement regarding

the problems of establishing an industry in

competition with conventional petroleum and

alternate synthetic fuels:h

there would seem to be plenty of room

for everyone sincerely interested in developing an oil shale industry both in terms of

shale land and in terms of market opportunity. However, in the final analysis the need

for and the emergence of an oil shale industry will be determined on a basis of economics, Oil shale will have to compete with other

energy sources and fuels . . . It would be

most unfortunate if oil shale’s inability to

compete was as a result of either government action or government inaction, because

it would deny us the many benefits that could

result from such an industry . . . I am very

strongly of the opinion that we are at the

point where, unless we can provide sufficient incentives to private industry, those

people who would normally be interested in

development of an oil shale process will turn

to coal because of blocks put in their way,

and . . . our oil shale industry . , . might even

be wrapped up forever and completely bypassed in favor of other energy resources. I

am sure that the Secretary does not want to

see this happen any more than I do.

The opinions expressed by oil shale proponents in Congress were echoed by the Gover-
12 ● A H istory and Analysis of the leasing progra m

nors of Colorado, Utah, and Wyoming, who

provided statements for the record of the Senate hearings that were convened in February

of 1967 to consider a preliminary draft of

Udall’s initial leasing proposal. Colorado’s

Governor Love provided the following expression of support:’

The earliest possible development of our

oil shale resource is essential to assuring a

solid long-range supplement to our domestic

petroleum supply , . . The problems which

now obstruct the development of our oil

shale deposits are many and complex, but

they are not insoluble. It is apparent, however, that a prompt and vigorous start must

be made to achieve even such a long range

goal as a respectable capacity to produce oil

from oil shale not later than 1975. To decide

to wait until all of the problems have been

identified, studied, and solved would, because of the constantly changing effect of

other economic factors, be tantamount to a

decision not to foster the development of oil

shale and in fact to discourage it. While we

do not counsel hasty and ill-considered action, we are convinced that the immediate removal of certain major obstacles to oil shale

development could assure that operations

would permit an industry be commenced in

due course.

Wyoming’s support was equally positive, but

was tempered by concern that a large-scale

leasing program could interfere with the

trona mining industry, which was recovering

sodium carbonate and bicarbonate from the

oil shale beds in Sweetwater County, Wyo.

Governor Hathaway provided the following

statement to the Senate hearings:H

I did want . . . to express before your Committee the great interest which Wyoming has

in the development of oil shale and associated minerals. Secretary of the Interior

Udall’s announcement on January 27 of a

five-point oil shale development program signals, we hope, a recognition by the Federal

Government to bring our vast oil shale reserves into commercial production as early

as possible , , . In summary, Mr. Chairman,

let me say that Wyoming stands foursquare

behind the immediate development of an oil

shale and associated minerals industry.

Utah did not have an associated minerals industry, but the State did own substantial oil

shale lands. Governor Rampton’s statement

conveys his support of oil shale development

and the desire of the State to participate

through leasing of its lands:9

We are making available for lease to private industry our State owned deposits of oil

shale and will continue to do so, We believe

that the demand for energy will be such that

conventional oil and gas resources will not

meet our needs during the 1970’s. Consideration of economic and national defense indicate need for development of a domestic synthetic fuel program . . . We urge that the program be implemented to allow private industry to develop both the State owned and the

federally owned oil shale reserves,

As discussed later, Udall’s initial leasing

proposal was released for public comment in

May of 1967. It offered leases, but restricted

initial activities to research and development

(R&D) on small areas of the lease tracts, No

commitment was made to allow subsequent

commercial operations on the same tracts.

The initial proposal was strongly criticized by

congressional delegates from Colorado, Utah,

and Wyoming. The following statement by

Utah Senator Bennett is typical of their reactions: ‘()

I feel that the Department of the Interior

should modify the proposed leasing regulations so that a healthy, comprehensive and

ultimately profitable private industry can be

developed on the public oil shale lands. The

regulations as written will not, in my opinion,

achieve that objective. I believe that the objective can best be achieved by strengthening private industry’s role in developing the

oil shale potential . . . I do not believe Government can match the efficiency and economy which are the natural results of industrial competition ., . I would suggest that

perhaps Congress should assume the initiative in writing into law what I consider to be

a reasonable and responsible leasing policy.

In any event, I assure you of my continuing

interest and support in Congress for early oil

shale development.
Senator Dominick expressed his concern over

the authority given to the Secretary of the Interior to select among lease applicants and to

determine whether the results of the preliminary R&D efforts justified subsequent commercial leasing. His statement includes the

following

Although the participation of private enterprise is clearly contemplated, almost no

incentive seems to be offered to encourage

the same. What does one gain by engaging in

the research and development program?

Frankly. an onerous rcsponsibility and far

too much discretion have been placed with

the Secretary of the Interior.

In contrast. others in Congress raised

equally strong objections to terms that appeared too lax and that might have permitted

private development without significant returns to the public. This viewpoint was expressed at the Senate hearings by Senator

Proxmire as follows: 12

. . . we appear to know virtually nothing

a bout t h e fu 11 e x t e n t o r va l u e o f this precious

resource and very 1ittle about development

costs, problems, and processes , . . I have

seen no evidence to indicate that it is essentrial, or even desirable to develop these shale

oil reserves with the haste exernplified by the

Secretary . . . Naturally the Secretary is

under severe pressures from within the oil

industry to proceed with a development plan.

But it is up to your Committee, Mr. Chairman,

to put a brake on the present headlong rush

to lease this land . . . The stakes are too high,

and the public interest is too transcendent,

the pressures are too great, and the questions are too many to permit these decisions

to be left to administrative discretion . . .

In summary, the political environment

when DOI was formulating its leasing policy

was characterized by strong and conflicting

opinions, statements, and pressures. On [he

one hand, oil shale proponents in Congress, in

the governments of the affected States, and in

the oil industry favored development in the interest of economic benefit and national security. On the other hand, some vocal private

citizens feared that private access to the Federal oil shale lands would lead to scandal and

abuse of the public trust. This viewpoint was

conveyed most strongly by Mr. Freeman,

Other citizens and legislators feared that hasty action by Interior would lead to an untimely disposal of public resources and to profiteering by private industry.

It is likely that pressure from all sides affected Udall”s oil shale activities. Pressure in

favor of rapid leasing undoubtedly spurred

his efforts to prepare and promulgate leasing

regulations. Counterpressures undoubtedly

shaped the format and content of those regulations.

Energy and the Economic Environment

The energy situation and the economic environment in the early 1960’s did not encourage heavy capital investment in a syntheticfuels industry. Petroleum imports were restricted by quotas promulgated under President Eisenhower’s Mandatory Oil Import

Control Program. Production of domestic oil

was still increasing, and oil prices in constant

dollars were actually declining. The principal

concern of domestic producers was that the

quotas might be lifted, triggering a flood of

underpriced foreign oil,

In the mid-1960’s, this situation shifted as

the Department of State began to encourage

foreign trade under the mandates of the

Trade Expansion Act of 1962. Petroleum imports were initially excepted from the expansion policy because of their threat to the domestic oil industry, which was generally recognized as important to national security. In

1965, however, the State Department took the

position that increasing oil imports would be

in the national interest, Particular attention

was given to the importance of Venezuela’s
14 A History and Analysis of the Federal Prototype Oil Shale Leasing Program

petroleum industry to the economic and political stability of that country. In 1965, Assistant Secretary of State Douglas MacArthur II

noted that: 13

increasing prosperity for the Venezuelan “petroleum industry is essential if the

country is to remain an effective democracy

and a keystone in our relations with Latin

America.

This policy was reflected in other executive

branch departments, including DOI. Secretary Udall regarded relaxing import quotas as a

viable mechanism for encouraging competition and efficiency within the domestic petroleum industry. This position was clearly expressed by Frank J. Barry, DOI Solicitor, in an

address to the 1965 Oil Shale Symposium. 14

The basic justification for the (oil import)

program is the assumption that if this country became involved in a war, foreign oil supplies would be cut off and we would be dependent exclusively on domestic production.

Therefore, the rationale goes, it behooves us

to maintain an adequate domestic productive

capacity, Hence, oil imports are restricted to

a level which will not eliminate domestic producers from our own market and will justify

their continued search for new oil fields and

their improvement of refining techniques.

Foreign oil, however, is highly competitive

and its cheapness tends to sharpen the wits

and encourage the perfection of the technical skill of domestic producers . , . You

should note that , . , the worst feature of protectionism, namely, higher costs to the ultimate consumer, is limited by substantial import levels for cheap, highly competitive foreign oil.

Early in 1966, Udall began to rescind quotas on crude oil. Marked increases occurred

in the quantities of petroleum that entered

the Nation through eastern seaboard ports,

despite the protests of domestic coal and oil

producers, railroads, and utility companies, ’s

Udall subsequently announced that he favored eliminating quotas for refined products

such as residual fuel oil.16 Further reductions

in import restrictions occurred in September

of 1966, shortly before Udall announced his

tentative leasing regulations for oil shale

lands. ’7

Oil imports were of concern to domestic

energy companies considering involvement in

Interior’s oil shale program. As discussed

below, domestic petroleum production was

increasing, but reserves were declining, and

efforts to locate new ones were largely unsuccessful. The companies had several options to

assure a reliable flow of oil to their refining

and distribution systems. First, they could

continue exploration in the continental

United States. Second, they could explore

nonconventional areas such as Alaska and

the Continental Shelf. Third, they could increase their reliance on imported crude and

refined products, Fourth, they could develop

synthetic liquid fuels from coal or oil shale.

Their strategies were affected by a number of technical, economic, and political factors, including individual corporate positions

with regard to long-term petroleum and natural gas reserves, availability of investment

capital, expertise in technologies for synthetic fuels, and Government policies. At the time

that Udall’s leasing proposals were being circulated, DOI’s actions must have implied that

the executive branch had adopted a policy of

encouraging oil imports. This policy must

have discouraged serious consideration of oil

shale.

The Interim Report of the Oil Shale Advisory Board also was discouraging. Although

several members emphasized the importance

of developing oil shale as a national energy

resource, Mr. Galbraith’s opinion expressed

the opposite point of view:18

There is no showing of urgent economic or

strategic need for oil from shale in the present or near future . . , Imports . . . are almost

certainly cheaper than oil from shale by prospective processes. Hence, there is no pressing peacetime need for oil from shale, Given

the most rapid development, the share of oil

from shale in total production will be negligible for many years. Hence, it will not, in the

foreseeable future, be an important wartime

resource replacing any important present

supply of petroleum. We cite this because

strategic arguments are regularly advanced

for oil shale development. They appear to reflect only the common effort to find a nation-
Ch 2–An Initial Attempt at Oil Shale Leas/rig ( 1963-68) ● 15

al security justification for action that individuals or groups would find in their economic interest,

This position was later disputed by Captain

Howard Moore, Director of Naval Petroleum

and Oil Shale Resources, at the Senate hearings on Udall’s January 1967, leasing proposal: 19

It is obvious from the standpoint of national defense that if the oil shale reserves are to

make a significant contribution, there must

exist at that time a viable oil shale industry.

It is unlikely that sufficient time or resources

will be available during a full scale emergency for development of such an industry . , ,

This is of great importance today because

present trends indicate the United States is

becoming a crude deficient nation and may

in the future be forced to rely more and more

upon imported fuels to meet even peacetime

demands . . .

The following dialog subsequently took place

between Captain Moore and Senator Allott, a

member of the Committee:

Senator Allott: I assume it is your point of

view—it has been mine for a long time—that

development of a viable oil shale industry is

a necessity for the national defense and the

national welfare.

Captain Moore: It certainly is, Senator.

Senator Allott: And I assume also . . . that

the time is now, because . . . such processes

, . . are going to require a long leadtime and

the investment of vast amounts of money.

Captain Moore: Yes, sir.

Thus, although the Department of Defense

favored rapid development, Galbraith and

other economic and policy advisors continued

to press for a more leisurely approach, in the

belief that oil shale could not be a feasible resource either in peacetime or in time of war.

There was further discouragement early in

1968, when DOI published United States Petroleum Through 1980, a report that predicted future fuel requirements and forecast

the roles of domestic and imported oil in meeting those needs, The report predicted that in

1980 the United States would consume approximately 6.5 billion barrels (bbl) of petr~

leum liquids, with domestic oil production

supplying about 64 percent and domestic

natural gas liquids and condensates an additional 16 percent. Only about 20 percent

would be obtained from foreign sources. 20

The report was a study in contrasts. It optimistically projected U.S. petroleum production but documented the declining discoveries

of new reserves. These discoveries peaked

between 1950 and 1957 and afterwards declined steadily to less than 3 billion bbl per

year in 1965. However, the report assumed

that domestic oil industry could contribute

over 4 billion bbl per year in 1980. This seeming inconsistency was rationalized by the

assumption that additional discoveries could

be encouraged or even forced by the Government’s import limitations, tax structures,

R&D expenditures, and leasing policies: industry would find more oil if Government

made such discovery essential or economically attractive.

The report’s most significant conclusion

about synthetic fuels was that they would not

be needed before 1980 and not even then unless the 20-percent reliance on oil imports became a subject of national concern. According to the report, synthetic fuels such as shale

oil would not be developed in the 1960’s and

1970”s because the processing technology

was unpredictable, primitive, and expensive.

Private capital would not be invested, it concluded, because profitability and capital recovery would always be threatened by cheap

oil imports.

The same conclusions were stated by Walter Hibbard, Jr., of the U.S. Bureau of Mines

(USBM), in testimony before the Senate Subcommittee on Minerals, Materials, and Fuels

in March of 1968. He cited a USBM study of

the potential need for shale oil and the opportunities and constraints on its development.

The study concluded that :21

Although the vast domestic resources of

oil shale contain the equivalent of 70 times

the present domestic proved reserves of

crude petroleum, commercial development is
16 A History and Analysis 01 the Federal Prototype 01/ Shale Leas/rig Program

complicated by technologic gaps and economic and environmental problems. Reduction in production costs is prerequisite to the

emergence of a significant commercial shale

oil industry,

The study also concluded that, unless problems could be solved in the near future, significant production would probably not occur

before 1980.

These reports forecast a bleak future for

the industry. First, DOI assumed that synthetic fuels would not be needed before 1980 because new oil would be found before serious

supply problems occurred, Second, through

its control mechanisms, the Government

would continue to suppress the price of conventional petroleum to below the cost of producing synthetic fuels. Third, oil shale processes were regarded as technologically and

economically unsatisfactory.

The oil industry therefore minimized oil

shale activities and instead sought new petroleum reserves, Attractive but expensive exploration opportunities were pursued in

Alaska, in the Santa Barbara Channel, and

on the Continental Shelf. Little excess capital

was available for ventures like oil shale development which offered little promise of substantial short-term gains and which would be

influenced by a Federal agency whose commitment to their success was unclear.

The decision to seek new oilfields rather

than to develop oil shale was favored by Federal tax policies. Crude oil producers were allowed to write off certain exploration and development expenses, which often amounted

to over 75 percent of total drilling costs, In

essence, most costs associated with conventional oil discovery were tax deductible—an

advantage not to be enjoyed by oil shale developers who would be forced to invest aftertax profits and then amortize the large frontend expenses over a period of many years,

Crude oil producers also enjoyed a depletion

allowance of 27.5 percent of the value of the

oil at the wellhead. The depletion allowance

for oil shale was set at 15 percent of the value

of mined and crushed shale prior to oil recovery. Because raw oil shale has very little value, the depletion allowance was worth only

about $0.05/bbl of shale oil after taxes. If

shale oil were given the same depletion allowance as conventional crude oil (27.5 percent

of oil value), the credit would be worth about

$0.40bbl Therefore, oil shale proponents

complained, taxation policies favored conventional crude oil over shale oil by a factor

of eight.

In summary, at the time that Secretary

Udall was preparing his leasing proposal, industry was not convinced of DOI’S commitment to oil shale development because the Department appeared dedicated to conventional

petroleum for at least another decade. The

high costs of seeking new oil left little surplus

capital for oil shale, which was fiscally unattractive under Government taxation policies,

In view of these circumstances, it is probable

that industry would have responded negatively to any Federal oil shale leasing proposal,

and especially to the uniquely structured proposals that were presented in 1967 and 1968.

An Initial Leasing Program

In November 1963, Secretary Udall called withdrawal order

for public comments on the formulation of and that leases be

be rescinded immediately

issued for private developnew oil shale leasing procedures.22 Over 200 ment on a first-come, first-served basis. DOI

responses were received. Assistant Secre- was not prepared to accept this recommendatory of the Interior John Kelly summarized tion because, in Kelly’s words:

these comments at the First Symposium on Oil The simple rescinding of Executive Order

Shale in 1964.23 According to Kelly, a majority No. 5327 would create more problems than it

of the comments recommended that Hoover’s would solve and would not be in consonance
Ch 2–An /n/l/a/ Attempt at 0il Shale Leasing ( 1963-68) ● 17

with the many changes and amendments

made by the Congress in the Mineral Leasing

Act of 1920, and with the regulations promulgated by the Secretaries of the Interior

under these laws.

Kelly also felt that the comments received did

not touch on two crucial policy areas: the role

of shale oil in the Nation’s total energy complex and its effects on developing economies

in the rest of the world.

Udall then appointed an Oil Shale Advisory

Board to analyze the commercial potential of

the Nation’s oil shale deposits and to recommend specific plans for implementing their

development by private interests or Government agencies, Its members were:

Joseph L. Fisher, president of Resources

for the Future, Inc. (Chairman of the Advisory Board);

Orlo E. Childs, president of the Colorado

School of Mines:

Benjamin V. Cohen, attorney from Washington, D. C.;

John Kenneth Galbraith, professor at

Harvard University:

James M. Gavin, chairman of the board

of Arthur D. Little, Inc.;

Milo Perkins, economics consultant from

Tucson; and

H. Byron Mock, attorney from Salt Lake

City,

Their four meetings, between July 1964 and

January 1965, included a field trip to the oil

shale region, presentations by Federal officials, and testimony from representatives of

industry, the Colorado State government,

trade associations, and other interested

groups. The Board’s Interim Report was submitted in February 1965. 24 (There was no final report, )

The 12-page report was accompanied by

six minority opinions, one from each member

except Gavin, who had attended only the first

meeting and resigned before the report was

prepared, One analyst has likened the interim report to “six dissents saying nothing. ”25

Udall’s appraisal was conveyed in subsequent testimony before the Senate Interior

Committee: 26

Although there were divisions of opinion, I

felt the report was extremely usefuI, And I

still feel that way, because I think, like a

great searchlight, it illuminated the whole

landscape, It illuminated all of the policy

alternatives . . . I personally feel most strongly that the Oil Shale Advisory Board and

every member on it made a very big contribution in focusing on this (leasing policy) as the

controversial question. As a consequence, I

think the whole problem is illuminated and

we at least know what some of the alternatives are,

According to Chairman Fisher’s transmittal

letter, the members concurred in the following general concerns:

All members agree that the public interest

should be safeguarded, however and whenever the resource might pass into a commercial development phase. The public interest

includes careful attention to the conservation . . . of community, recreational, and

scenic values, as well as the wise use of

mineral resources. It also includes protection against speculation in public land

leases , ., The Board agrees that the Federal

government, working in appropriate cooperat ion with the States, should move positively but cautiously to encourage private oil

shale development, with full protection of the

public interest in the broadest sense, and

that it must expect to provide some of the

support, directly or indirectly, of the research required.

The following specific policy objectives

were suggested:

1. to encourage advancement of the technology of shale oil extraction and the development of a competitive shale oil

industry;

2. to encourage wide industry competition

and initiative in the development of techniques of mining and recovery;

3. to establish conservation goals and

standards for the recovery of the oil

shale resource, for the protection of

other values in and adjacent to oil shale
18 . A History and Analysis of the Federal Prototype 011 Shale Leasing program

4.

5.

6.

The

lands, and for protection of public health

and related values;

to prevent speculative use of leased Federal lands to the detriment of oil shale

development;

to provide for reasonable revenues to

the Federal and State governments from

the use of Federal shale lands; and

to set up whatever Federal program may

be decided upon in such a way that it

can be administered effectively,

Board effectively returned full responsibility for policy development and program design to DOI but did provide several alternate

policy recommendations. The following three

options were suggested for consideration:

1.

2.

3.

continue Hoover’s withdrawal order and

initiate Government research (including

contracts with private firms) to develop

conservation standards and practices

and to determine a market value for

shale oil, then use this value as the basis

for subsequent leasing regulations; or

rescind the withdrawal order and offer

a few commercial-size tracts for competitive leasing by private industry with

mandatory due-diligence and performance requirements to prevent speculations; or

modify the withdrawal order but restrict

initial leasing to a few small researchsize tracts with the option for commercial leases contingent upon commercial

viability of the recovery processes to be

developed.

Option 1 was endorsed by Galbraith and

echoed the opinions of some economists and

Government officials who feared that any

commercial leases would be purchased for

speculative purposes. In their opinion, the

Federal lands thus accessed would not be

used to develop an industry but rather would

be hoarded for the time when conventional

petroleum reserves were exhausted. By this

technique, they feared, the oil companies

would prevent others from establishing an industry in competition with conventional

petroleum. Without a competing domestic

supply system, the companies could press for

continuation of favorable policies such as

quotas on imported oil and high depletion

allowances for domestic crude producers.

Concern over speculation was coupled with a

suspicion that shale oil could ultimately prove

to be much cheaper than conventional crude

oil.

One of Galbraith’s major concerns was

that, without firm economic data, the Government would have to rely on industry estimates

of the true cost of shale oil extraction. Immediate leasing of large tracts was considered undesirable until this true cost could be

better defined. If shale oil were actually

cheap, release of Government reserves would

constitute a massive giveaway to the oil companies. If oil shale economics were marginal,

the companies would buy up the leases to prevent others from entering the energy field. If

costs were too high, leasing would be of no

value because no shale oil would be produced

for many years, if at all.

In summary, Galbraith’s position was that

private lands were adequate for initial fieldtesting of oil shale technologies and that no

Federal lands should be released until the

value of the resource was established

through Government research. His position

was summarized in his minority opinion:

Having withstood thoughtfully designed

raids in the past, it is important that the

government show equal wisdom and restraint in the present on behalf of our resources for the future . . , The major oil companies are naturally concerned with protecting their position in the event of the development of an oil shale industry by buying or

controlling oil shale acreage. However, with

one or two exceptions they seemed not now

inclined to incur substantial development

costs to produce shale oil. Certainly for companies with alternative sources of petroleum

the economic attraction of oil shale is not

high. The incentive to control oil-bearing

acreage is thus, for the time being, much

greater than the incentive to produce from it,

Cohen concurred with most of Galbraith’s

principles but also favored Option 3 (research leasing), provided that the private re-
Ch 2–An /n/t/a/ Attempt at 011 Shale Leasing ( 1963-68) ● 19

search was closely scrutinized by the Government to ensure that the lessees were not

simply hoarding resources. Fisher agreed

that private lands were adequate for R&D,

but he supported leasing of research tracts

and favored accelerated Government research (including private contracts) in case

industry did not respond to the lease offering.

He also recommended that the Government

announce its intention to offer commercial

leases upon completion of the research

phase. He suggested that commercial leases

be restricted to companies that either participated in the research-tract program or conducted equivalent research on private lands.

Childs, Perkins, and Mock favored Option

2—immediate offering of a limited number of

commercial leases. Childs warned that research leases would not interest industry

unless they were the first stage in a commercial leasing program. Mock recommended

that the lease terms be attractive to industry,

particularly with respect to tract size, and

suggested that each tract be 5,120 acres, the

maximum allowed by the Mineral Leasing

Act of 1920, He also recommended that industry participate in tract nomination and suggested an adjustable royalty so that both industry and Government could receive fair returns, Perkins saw no need for the Government to become involved in process-related

R&D and recommended that such activities

be left to industry. He suggested Government

research in the areas of health and conservation standards, water use, environmental

considerations, and geological exploration,

Thus, in early 1965, Secretary Udall found

himself in a rather difficult position. The suggestions of potential developers and the general public conflicted with some of DOI’s fundamental policies and did not address national and international energy needs and supply

strategies. Udall had then attempted to elicit

expert guidance from the members of the Oil

Shale Advisory Board, who agreed on general

goals but disagreed on appropriate policies.

Some members maintained that research was

mandatory to prevent speculation and to

avoid a massive giveaway, Others held that

research leasing alone, without a commitment to subsequent commercial leasing,

would fail. In any event, research alone

would not convey the economic benefits that

were desired by oil shale proponents in Congress. Finally, there was no assurance that

industry would respond favorably to any program because the severity of the energy-supply problem was not universally acknowledged, and shale oil was unfavorably regarded compared with domestic petroleum

and with the then reliable oil supplies from

Middle East fields.

Udall’s predicament was complicated by

the fact that some Senators and Representatives strongly opposed providing the oil industry with access to the public’s oil shale resources, while others wanted Congress to

consider new legislation to force a leasing

program. If enacted, such legislation would

have preempted DOI’S control of the oil shale

lands and could have run counter to DOI’S

policies.

The situation was further complicated in

1966 by a rush to file new mining claims on

the Federal oil shale lands, precipitated by

the discovery of dawsonite. Dawsonite is a

potential source of aluminum—a locatable

mineral under the Mining Law of 1872—and

the private claimants believed that location of

dawsonite claims could eventually lead to acquisition of the Federal lands that contained

the mineral. Dealing with these efforts occupied much staff time within DO1 during 1966

and probably delayed the formulation of leasing policies.

The next milestone in policy development

was reached on January 27, 1967, nearly 2

years after the Oil Shale Advisory Board submitted its report. On that date, Secretary

Udall announced a comprehensive five-point

program that reflected most of the concerns

and suggestions of the Board members. z

’ Its

principal objectives were:

1. to clear titles of oil shale lands and to

resolve ownership disputes that were inhibiting private investment in oil shale

development;
20 ● A History and Analysis of the Federal Prototype 01/ Shale Leas/rig Program

2.

3.

4.

5.

to allow consolidation of scattered private holdings through land exchange,

thus creating more private sites suitable

for large-scale development;

to investigate nuclear in situ oil shale

processing;

to conduct a lo-year federally funded research program to establish oil shale’s

economic potential and shale oil’s market value; and

to sell provisional development leases

that would allow limited private access

to Federal oil shale lands.

Although details were not provided in the announcement, all objectives appeared at least

mildly favorable to industrial cooperation.

The proposed program addressed many issues influencing development, The first objective would have clarified the ownership of

disputed Federal lands and would have simplified any subsequent leasing program. The

second would have permitted private landowners to consolidate their lands and to pursue development from a more favorable posture, If this had been accomplished, leasing of

public lands might not have been so important. Nuclear processing, the focus of the

third objective, appeared promising at the

time and further study could have benefited

industry. The research program (point 4) was

primarily to determine fair values for oil

shale products so that the Government could

ensure an equitable return from subsequent

leasing. Industry, too, certainly would have

benefited from technical, economic, and

resource-appraisal R&D,

With regard to point 5, the announcement

stated that only provisional leases would be

offered, and commercial leases would not be

sold until R&D had been successfully performed on the research tracts. Udall did not

describe the lease terms, but the term “provisional” was disturbing to industry in view of

Orlo Childs’ contention that restricted research leases would not attract industry, Industry’s pessimism was not eased by the general tone of Secretary Udall’s presentation,

which included the following statement:

The public interest requires that in our efforts to develop the technology of extracting

oil from shale, we write into every rule, regulation, contract, and permit affecting the

public lands those terms and conditions that

will: encourage competition in development

and use of oil shale and related mineral resources; prevent speculation and windfall

profits; promote mining operation and production practices that are consistent with

good conservation management of overall resources in the region, encourage fullest use

of all known mineral resources; provide reasonable revenues to the Federal and State

Governments.

This cautious position was further emphasized by the specific lease terms, which were

published on May 10, 1967.28

The leasing proposal called for allocating

30,000 acres of Federal land to R&D. This

area would be divided into several individual

tracts, with the size of each tract dependent

on the quantity and quality of the contained

oil shale resources. Lessees were to be

selected by the Secretary on the basis of proposals and according to demonstrated need

for access to Federal land. Competitive bidding was not to be used. Tracts could be as

large as 5,120 acres. However, for the first

10 years, the developers would be restricted

to relatively small areas where small-scale

research was to be conducted. Diligent R&D

was mandatory, and unless the lessees sustained some level of progress, the leases

could be revoked. This requirement assured

that leases would not be purchased for resource-holding purposes nor to prevent other

potential developers from gaining a lead in

process development.

To assure diligence, and to enable DOI to

obtain a true picture of the costs of oil shale

development, DOI required that the lessees

disclose all technical data acquired. Patent

rights for all technologies developed on the

research tract would revert to the Government. The disclosure requirement, coupled

with the patent provision, effectively removed a major incentive by eliminating any

possibility that technical advantages might
Ch 2–An Initial Attempt Oil Shale Leasing [963-68) ● 21

accrue to the lessees as a result of their research expenditures,

After the lo-year research phase, if DOI

and the lessees were so inclined, and if DOI

believed that commercial viability had been

demonstrated, the research leases could be

extended to cover commercial development.

No royalties would be paid to the Government

for shale oil produced until the commercial

leases were executed. However, the Secretary reserved the right to approve extensions

and to determine how much of each lease

tract would be opened for commercial activities. He also reserved the right to mandate

the royalties for the commercial phase. A

minimum royalty of 3 percent of the gross value of mineral products was suggested. If the

commercial venture proved profitable, the

Government would share in the profits

through a variable royalty, which would

range from 10 percent of net income in excess

of 10 percent of capital investment, to 50 percent of net income in excess of 20 percent of

capital investment.

These terms reveal the influence of the Oil

Shale Advisory Board, Chairman Fisher’s

recommendation of research leasing is evident, as are his suggestions for Government

R&D and for subsequent commercial leases

restricted to those companies that purchased

research leases. Cohen’s concern over due

diligence was adequately addressed, as was

Mock’s recommendation of a variable royalty, with the size of the royalty left to the

discretion of the Secretary. Childs and Perkins recommended commercial leases; these

might be allowed but not for at least 10 years

after the research leases were sold. Galbraith’s concern over the unknown but probably enormous profit potential of oil shale is

evident throughout.

The January announcement of the program’s framework and the May publication

of tentative leasing regulations were both

part of Secretary Udall’s efforts to evolve an

oil shale program that would be acceptable to

oil shale opponents and proponents alike. He

sought comments on the general framework

and used them {in part) to structure the tentative regulations. The Senate Committee on

Interior and Insular Affairs provided a forum

for receiving comments, for assessing Udall’s

response, and for providing congressional

guidance, The committee conducted two

hearings on the program that emerged in

1967. The first, in February, received comments on the program announcement. Joseph

Fisher, former chairman of the Oil Shale Advisory Board, acknowledged that the fivepoint program was largely based on his recommendations. He re-emphasized the need

for research to address the unknown value of

oil shale and the possible effects of its extraction. 29 Colorado’s Governor Love recommended rapid action on the oil shale question. ]

’

) The Director of Naval Petroleum and

Oil Shale Resources expressed the Navy’s interest in oil shale development as a means of

providing fuel for national defense. 31 T h e

American Federation of Labor and the National Farmers Union testified regarding distribution of any Federal royalties that might

accrue from oil shale leasing. ’2 Sinclair Oil

warned that oil companies would not invest in

research unless assured of eventual commercial operations. And Western-State congressional delegates and the Governors of Utah

and Wyoming expressed their continued interest. 34

Many of the witnesses and committee members conveyed their appreciation of DOI’S

progress. However, little was heard from the

major oil companies that were most likely to

respond to any leasing proposal. Some industry officials expressed concern over the research focus of the leasing proposal, and advice was offered for improving its terms.

The second set of hearings was conducted

in September —after the tentative leasing

regulations were published. It was during

these hearings that Utah’s Senator Bennett

expressed his concern about Government interference with private enterprise, that Colorado’s Senator Dominick spoke regarding

the “onerous responsibility and far too much

discretion” given the Secretary, and that

Senator Proxmire called for “a halt to the

present hasty administrative effort. ”
22 A H/story and Analysis of the Federal Prototype 011 Shale Leas/rig Program

Industry’s reaction to the leasing regulations was almost universally unfavorable. In

his testimony, Secretary Udall summarized

the 36 specific comments submitted to his office. According to DOI’s analysis, major concerns were expressed in 10 specific areas:

the size of the royalties, the term of the

leases, the acreage to be allowed for research and commercial activities, the noncompetitive selection process, the relationship of leases to operations for recovering

associated minerals, the disclosure requirements, the discretionary authority given to

the Secretary, the restrictive provisions for

land exchanges, and miscellaneous provisions for conflicts with unpatented mining

claims and automatic termination in the event

that commercial operations ceased for any

reason.

The position of most of the oil company respondents were summarized by an official of

Continental Oil Co.:35

Our reaction is not a favorable one. Overall it is our view that the rights to be granted

are circumscribed with restrictions and conditions to such an extent that sufficient economic incentive will be lacking. It is our view

that private industry will not be warranted

in making the necessary capital, organizational, and technological commitments which

will be required.

These sentiments were echoed by an official

of Sun Oil Co. :36

The proposed requirement on the disclosure of research information . . . would make

it impossible for a company to develop technology processes or engineering design in formation without giving that information to all

other companies. This provision completely

removes the incentive for carrying out a proprietary research program and is in direct

conflict with the free enterprise system,

The president of Union Oil Co. analyzed the

profit-share royalty provisions of the regulation:37

Under this provision a successful operator

will find himself in a bracket paying 50 percent of his pretax profits without allowance

for royalty and depletion plus at least a corporate income tax of 48 percent of his pretax

profits remaining after allowance for royalty

and depletion, It is submitted that these rates

are excessive and unrealistic; and may I ad

lib that it is well known that the Arabs are

tough traders. But may I suggest Mr. Udall’s

suggested devices would receive the plaudits

of Karl Marx if he were alive today, and no

doubt, John Kenneth Galbraith, who is alive

today,

In summary, industrial officials stressed

financial uncertainties and warned that the

elimination of proprietary rights to technical

information would prevent companies from

committing venture capital. Even if research

were diligently pursued and feasible processes were developed, subsequent commercial operations could not be assured of acceptable profits because the Secretary could

impose extremely high royalties. In any case,

the phased leasing approach (uneconomical

research leases, followed perhaps by commercial leases of unknown quality) would necessitate large front-end capital commitments without guarantee of adequate returns.

of

A Revised Proposal and Its Demise

Secretary Udall described his next course proper program. Our target date for compleaction as follows :38 tion of this study is mid-January 1968.

We are carefully studying these comments

to test out our assumptions and to improve The study group consisted of DOI personour approach , . . Aided by these comments nel and experts from the Bureau of the Budg-

. , . we already have underway the further et and the Council of Economic Advisors. The

intensive study of oil shale policy which is so mid-January milestone passed, and on Februnecessary in arriving at the decisions on a ary7, Secretary Udall stated that the group
—... .

Ch 2–An Initial Attempt at 011 Shale Leasing ( 1963-68) ● 23

had not yet provided definite recommendations to either modify the proposed regulations or to re-issue them in unmodified form. 39

The group’s report, Prospects for Oil Shale

Development—Colorado, Utah, and Wyoming,

was finally released on May 29, 1968.J(J It

recommended that DOI test the “market potential” of oil shale by leasing two different

types of deposits (one thin but outcropping,

and one thick and buried), each sufficient to

supply a 35,000- to 50,00@ bbl/d plant for 20

to 30 years. It was recommended that the test

leases be offered before the end of 1968 and

that they be followed by production leasing

within 5 years, The test leases were not fully

described but their general framework departed significantly from Udall’s May proposal for research leasing.

During the next few months, DOI expedited

creation of a new leasing proposal that could

be released before the presidential election in

November 1968. Secretary Udall first requested comments on the general concept of

test leasing as outlined in the DOI study

report. About 26 responses were contributed

before the closing date of August 31.”] In

generai, industry’s responses were quite favorable and commended the Secretary on his

abandonment of the research leasing regulations. The major consistent objection was to

the proposed sizes of the lease tracts, which

industry representatives claimed were too

small for economic operations. Few comments were received from private individuals. The Colorado newspaper editor Freeman,

who had presented scathing testimony at the

1967 hearings, furnished the following comments:

1 request that you stop certain undesirable

features of the . . . program . . . which point

to fraud in the Interior Department operations, if not fraud in the Justice Department

and in Congress as well . . . The report, in my

judgment, evidences a great desire on the

part of the Department and its officials to

conceal the oil shale . . . scandals which

dwarf the Teapot Dome affair by at least a

hundred times.

Senator Proxmire characterized the report as

a “significant step” but re-emphasized his

desire for research to help the Government

determine a fair value for its oil shale resources. He also questioned the need for leasing, given the extent of the private holdings.

On September 10, DOI designated and described three test-lease sites and set forth

rules by which interested companies could

drill exploratory coreholes on the sites. Each

tract was sized to supply a 125, f)O()-bbl/d facility. This size was larger than recommended by the DOI study group and apparently reflected industry’s desire for adequate

resources. The initial deadline for exploratory drilling was November 15, but it was

subsequently extended to December 12. The

Oil Shale Corporation (Tosco) and Atlantic

Richfield drilled coreholes on two of the proposed tracts. Shell Oil Company drilled on

one of the same tracts. No exploration was

conducted on the third tract.

On September 27, DOI published a first

draft of the proposed lease form, which was

modified on October 2 and October 14. On

November 1, interested firms, were sent legal

descriptions of the tracts and were invited to

submit sealed bonus bids for their leases.

Bids were to be submitted by December 20,

after the November presidential election.

The final version of the lease form was

published on November 5. Its provisions were

much less restrictive than those of the May

proposal. Industry was allowed to retain

patents and technical information acquired

on the tracts, However, the Secretary was to

be provided with all of the information acquired during tract development, and licensing of any new technology not related to refining was required. Royalties for in situ operations were fixed at 12.5 percent of the value

of shale oil produced. The royalty for above-

-ground retorting was to be calculated on a

sliding scale, with a royalty of $0.14/ton of

shale mined imposed for shale yielding 30 gallons of oil per ton (gal/ton). (These royalties
24 ● A H/story and Ana/ys/s of the Federal Prototype 01/ Sha/e Leasing Program

were roughly equivalent to those for oil and

gas.) In addition, minimum royalties of from

$10 to $50/acre were to be collected after the

eighth anniversary of the lease. Minimum

royalties on the largest tract would have

amounted to over $100, C)C)()/year and should

have acted to discourage speculation, at least

by small investors if not by major oil C()~ipanies, As with the earlier proposal, development was to be phased. However, the types

of activities to be conducted during the R&D

phase were not restricted, and lessees were

assured that commercial development would

be permitted.

Cameron and Jones, Inc., a firm with extensive experience in the field of synthetic fuels,

supplied the following analysis of the lease offering:’z

We believe that the . . . program is a major

and significant step towards the development of an oil shale industry, Several provisions of the test lease form, however, and the

timing of the entire programs coupled with

what we believe to be less than prime oil

shale lease sites, result in our conclusion

that the program will not achieve the objectives for which it was designed. Seldom have

we felt so strongly compelled to interject

recommendations for industry action within

the pages of this report. In this instance

there appears to be a very real possibility

that if the test leasing program is not successful, industry’s reason for nonparticipation may be misunderstood. Already the

word “apathy” has been used by news media

to describe industry interests. For this reason we strongly recommend that each company not intending to participate . . . state

their reasons in writing to the Secretary of

the Interior.

DO1 expected to receive several bids of $2o

million to $3o million for each tract, In fact,

only three bids were submitted. One bid

($625.00) Was provided by a drilling operator.

The other two were submitted by Tosco:

$249,000 (for a lease valued by DOI at $3o

million) and $250,000 (for a lease for which

DOI expected to receive $2o million). The bids

were rejected, and the program was canceled.

Reasons for Failure of the 1968 Program

The 1968 leasing attempt failed because:

●

●

●

●

●

●

The

the energy-supply situation and the economic environment were not conducive

to investment in synthetic fuels;

DOI did not appear committed to oil

shale development;

taxation policies favored conventional

petroleum over oil from shale;

according to industry, two of the lease

tracts were too small (1,251 acres) to

permit long-term commercial development;

industry was not involved in lease-tract

nomination, all feasibility studies were

conducted within DOI; and

only 3 months were allowed for potential

lessees to evaluate resource areas covering several square miles.

final point was crucial, because some of

industry’s attempts to characterize the tracts

provided very discouraging information,

which might have been countered if time had

permitted detailed exploration. For example,

Tosco detected extensive ground water aquifers above the mining zone on one tract, and

found geological defects that might have precluded mine development. One of Tosco’s bids

included a $2o million delayed bonus-bid provision that would have been executed if subsequent exploration refuted the initial findings. DOI declined the offer.

In summary, Secretary Udall was diligent

in his attempts to develop an acceptable oil

shale program. He was subjected to political

and public pressures both for and against

private oil shale development. He attempted

to formulate a leasing program that would relieve both types of pressure, but his early proposals produced strong negative reactions

from private firms. His ultimate lease offer-
ing, although deficient in some areas, might

have attracted positive industry response if

the business climate had been different. The

offering was certainly affected by its hasty

promulgation between May of 1968 and the

presidential election in November.

Chapter 2 References

‘Hearings on the Federal Oil Shale Program,

Senate Committee cm Interior and Insular Affairs,

95th Cong., 1st sess. (1967), pp. 461-472.

‘Chris Wells, “oil Shale: Hidden Scandal or Inflated Myth?” Harper’s Mugazine, vol. 237, No.

1419, August 1968, pp. 61-65.

‘Julius Duscha, “Bonanza in Colorado—Who

Gets It?’” Atlantic Monthly, vol. 217, No. 3, March

1966, pp. 82-86.

‘Congressional Record-Senate, Mar. 7, 1966,

pp. 5111-5115.

“Supra No. 1, at p. 184.

‘

] Ibid,, at pp. 193 and 195.

Ibid., at p, 92.

“Ibid., at pp. 51-52.

“Ibid., at p. 52.

“’Ibid., at pp. 139-141.

‘

] Ibid., at p. 142.

“Ibid,, at pp. 311-312.

1‘Douglas MacArthur II, Assistant Secretary of

State for C[)n~ression:]l Rel:i t ions, letter to Senator Gordon Allott, AUR. 9, 1965.

‘“Frank J, Barry, “A National Policy for Oil

Shale: Factors to be Considered, ” Quarterly of the

Colorado School of Mines, vol. 60, No. 3, July 1965,

pp. 97-110.

“David D, Dominick, “Oil Shale—The Need for

a National Policy, ” Land and Water Law Review,

vol. II, No. 1, 1967, p. 78.

1’IWall Street Journal, Dec. 23, 1965, p. 2.

‘-Supra No. 3, at p. 97.

‘

f

’ Oil Shale Advisory Board, Interim Report to

the Secretary of the Interior, Department of the

Interior, 1965.

‘(!3upra No. 1, at pp. 54-60.

-“’Synthetic Fuels Quarterly Report, vol. 5, No. 3,

September 1968, pp. 47-49.

“Synthetic FueJs Quarterly Report, vol. 5, No. 2,

June 1968, pp. 42-53.

“28 Federal Register (1963], revoking 43 CFR

pt. 197 (1963) (Oil Shale Leases).

‘{John M. Kelly, “A Synopsis of the Responses

Received by the Department of the Interior in Answer to Secretary Udall’s Request for Suggestions

on the Development of Oil Shale on the Public

Lands,” Quarterly of the Colorado School of

Mines, vol. 59, No. 3, July 1964, pp. 1-6.

%upra No. 18.

2’Supra No. 15, at pp. 61-97.

Wupra No. 1, at pp. 5 and 24.

‘-’’Five-Point Oil Shale Development Program

Announced,’” news release from the Office of the

Secretary, Department of the Interior, Jan. 27,

1967.

‘l’’’ Proposed Regulations to Govern Oil Shale

Leasing and Land Exchange Announced,”’ Office

of the Secretary, Department of the Interior, May

7, 1967. See also: 43 CFR, pt. 3170, and 32 Federal

Register, May 10, 1967.

%upra No. 1, at pp. 75-85.

“’Ibid., at pp. 85-96.

“I bid., at pp. 96-100.

“Ibid,, at pp. 100-105 and 122-123.

“Ibid,, at pp. 123-125.

“Ibid., at pp. 24 and 28-53.

“Ibid,, at p. 495.

“)Ibid,, at p. 499.

‘-Ibid,, at pp. 250-251,

‘HIbid,, at p. 178.

“

]

Stewart L, Udall, personal communication to

Russell J. Cameron, Feb. 7, 1968. (See: Synthetic

Fuels QuarterJy Report, vol. 5, No 1, March 1968,

p. A-30.)

“’Prospects for Oi] Shale Development—Colorado, Utah, and Wyoming, U.S. Department of the Interior, May 29, 1968.

‘

l Supra No. 20, at pp. 1-4 and A-99 to A-153.

“Ibid,, at p, 12.
CHAPTER 3

Evolution of the Prototype Program

(1969-74)
CHAPTER 3

Evolution of the Prototype Program (1969-74)

Introduction

Under President Nixon, the Department of

the Interior (DOI) organized an extensive R&D

program that included an evaluation of the

nuclear approach to in situ processing, mining and rock mechanics studies, resource exploration, mineral processing experiments,

and other efforts, Out of this program came

an improved understanding of the nature of

the resource and of the problems inherent in

its development. At the same time, the Government intensified its efforts to clea r

clouded titles to the oil shale lands in its control, an activity that would have simplified

the process of leasing those lands for private

development. Little progress was made

towards consolidating scattered privat e

tracts, partially because of a lack of interest

on the part of industry and partially because

of DOI’S involvement in the clouded-title

issue.

The congressional climate in the early

years of the new administration was similar

to that in the 1964-68 era in that industry,

State government officials, and Western

State congressional delegates continued to

press for leasing of public oil shale lands,

under the rationale that this was the fastest

way to create a large-scale oil shale industry.

In 1969, DOI began structuring the Federal

Prototype Oil Shale Leasing Program which,

like the 1968 attempt, was intended to be a

first step towards an expanded leasing effort.

This chapter discusses the forces that motivated the Government to initiate the Prototype Program and describes the energy-supply and economic factors that affected its

emergence. Discussion ends with the lease

sales in 1974.

since then is

chapter.

The Political Environment

As discussed in chapter 1, DOI administrators prior to the Nixon administration were

concerned about the possibility of creating

leasing scandals like Teapot Dome. They

therefore resisted pressure by industry and

regional political interests to lease public oil

shale lands in the Western States. Industry

and Western State officials were largely excluded from policy and program design, despite their keen interest in the implementation of a successful leasing program. DOI’S

initial leasing proposal reflected a cautious

approach to dealing with industrial developers, and industry rejected its terms. The

second proposal was hastily conceived and

although its terms were much more liberal,

time constraints and the prevailing energysupply situation contributed to its failure.

The conduct of the Program

discussed in the following

In contrast, the DOI officials appointed by

President Nixon took the position that private

industry should be involved in developing the

public’s oil shale resources, Under Secretary

Hickel, DOI sought to develop a leasing program that would assure enthusiatic industry

response. The effort was continued by Secretary Hickel’s successor, Rogers Morton.

In his June 4, 1971, Clean Energy Message

to Congress, President Nixon instructed the

Secretary of the Interior to expedite a leasing

program that would lead to oil shale development on public lands. By June 29, DOI had

prepared and released a program statement

and a draft environmental impact statement

(EIS) for the Prototype Program, Leases were

to be sold about 18 months later, in late 1972.

DOI also drafted the Mineral Leasing Act of
30 . A H/story and Analysis o/ the Federal Prototype 011 Shale Leasing program

1971 (S. 2726), which would have doubled the

maximum size of a lease tract (from 5,120

acres under the Mineral Leasing Act of 1920

to 10,240 acres), and would have increased

the number of leases that could be held by

one individual or association from one for the

entire United States to one per State.

In commenting on the emerging oil shale

program at 1971 Senate hearings, Assistant

Secretary of the Interior Hollis Dole made the

following statement about the desirability of

private participation:]

There is a strong increasing interest and

support by State and local governments, industry, and the general public in oil shale development. We believe the proposed program

can accomplish its stated goal and provide a

new source of energy for the Nation by stimulating the timely development of commercial

oil shale technology by private enterprise . . .

I know I do not have to call it to your attention, but I do want to reiterate, that the name

of the game and the way we do business here

in our country is under the private enterprise system. So, therefore, I think we should

give it the broadest latitude in allowing it to

work.

DOI officials were consistently opposed to

Government involvement in oil shale commercialization other than leasing. An example is

DOI’S response to S. 2510, which was introduced by Senator Moss of Utah in 1971 to

provide a Government-owned development

corporation. In his testimony on the bill, Assistant Secretary Dole commented:2

. . . we feel that industry is capable and

willing to assume the enormous costs that

are involved. We feel that by putting this

solely and largely upon the private sector

that more people will become involved in this

and more rapid progress will be made because of the need of private industry to get a

return on their investment , . . As far as oil

shale is concerned, we feel very definitely

that private enterprise can develop it, and

because of the various admonitions by Congress we feel they should be allowed to do

so , . . We believe that S.251O . . . runs

counter to the philosophy of the present Mining and Minerals Policy Act, which specifies

that the Government’s principal role is to encourage private enterprise to develop the

Nation’s mineral resources . . . Positive Federal leadership—without undue intrusion

into the proper concerns of the private sector—is the other ingredient needed to provide the economic and administrative climate necessary to foster . . . fuels development under private initiative.

The administration’s patent policy announced on August 23, 1971, which permitted

private participants in Federal programs to

retain patent rights, is further evidence of its

philosophy about private development of public resources. Secretary Udall’s desire to protect the Federal interest in oil shale technology was a major concern to industry during

the 1964-68 leasing attempt, Under Secretary

Morton, the issue of proprietary rights was

resolved in favor of the private parties. Most

of the questions about the proper nature of

Government-industry relationships that inhibited DOI’S policy development under the

previous administration appear to have been

replaced by uniform support for private involvement.

DOI acknowledged that, technically and

economically, oil shale development was still

not completely feasible. However, the real

barriers to commercialization were believed

to be largely legal and political, DOI’S perception of the technical status of oil shale operations is indicated in figure 1, taken from the

1968 publication Prospects for Oil Shale Development t—Colorado, Utah, and Wyoming.

As shown, several years before the Prototype

Program began, DOI regarded such basic

operations as aboveground retorting, underground mining, upgrading, and product utilization to be reasonably well developed.

Other operations such as aboveground mining, in situ fracturing, and spent shale disposal were not well understood and needed further research. Economic aspects were also

not clearly defined. However, estimates

based on pilot plant and semiworks studies

indicated the possibility of commercialization, given a sound resource base supported

by a research, development, and demonstration program. The resource base was to come

from the Prototype Oil Shale Leasing Pro
Ch 3–Evolution of the Prototype Program ( 1969-74) . 31

(3A) NATURAL

(2C) HYDRAULtC

(2C) ELECTRIC

(2A) CHEMICAL

EXPLOSIVE

(4) NUCLEAR

Figure 1 .—Status of Oil Shale Technologies in 1968

t

a

OIL SHALE DEPOSIT

c

IN-SITU (3) CONVENTIONAL (2)

r

J J L 1

I J{

{

Room and piJlar (1 A)

UNDERGROUNO Cut and fill (4)

FRACTURING MINING Block caving (36)

OPEN PIT (3B)

+

CRUSHING (1Q

I

}.

7

(2b) GAS DRIVE PRODUCT

(2B) ARTIFICIALLY RECOVERY

(1C) THERMAL AND CHEMCALTREATING

{

(2C) HYDROGENATION :~&:~ ~

kcr=uw

CODE --

State of knowledge applicable to 011 shale

1 Reasonably well demonstrated

2 Some experimental knowledge

3 Little known

4 Conceptual

— wl[h know(edge sfemm(ng from

A Shale experience

B petroleum or other Industry

experience

C Both

I

(Ic)

1---------- - m -

[

GASOLINE AMMONIA (lC)

DIESEL FUEL SULFUR (lC)

JET FUEL ARWATICS (2A)

DK3TILLATE FUEL OIL SPECIALTIES (3A)

RESIDUAL FUEL OIL COKE (lC)

LQUEFIEO PETROLEUM GAB PITCH (lC)

ASPHALT (lC)

SOURCE Prospects for 011 Shale Development — Colorado, Utah, and Wyom{ng, U S Department of the Inter{ or, May 1968, p 47

gram, and support from DOI’S research arms,

e.g., the Bureau of Mines and the Geological

Survey.

Political and legal problems related to

clouded land titles, rights of private access to

Federal mineral lands, restrictions on proprietary information, and the definition of a fair

return for the public’s resources were harder

to address in a single development program.

DOI believed that with a proper leasing program, the technical and economic uncertainties would be resolved, and there would be

time and motivation to clarify the complex

legal and political issues. Therefore, DO1 proceeded to prepare a set of guidelines for immediate leasing action, and to encourage the

involvement of industry and the affected

States in all phases.

The guidelines and accompanying actions

were soon affected by emerging environmental regulations, Because of the passage of the

National Environmental Policy Act (NEPA) in

1969, DOI was forced to give unprecedented

consideration to the environmental aspects of

oil shale development in developing the leasing procedures. Such issues had not been emphasized previously. By the time of the Prototype Program’s inception, however, environmental concerns were becoming institutionalized as protective measures wer e

enacted at all levels of government.

NEPA had an immediate effect on the Prototype Program. Although a preliminary EIS

was issued for the Program in 1971, potential

environmental effects were described only in

vague and general terms, The EIS was strong-
32 ● A History and Anaalysis of the Federal Prototype 011 Shale Leasing Program

ly criticized during hearings on the Program.

Special attention was given to its treatment of

land reclamation problems, air quality and

water quality impacts, and effects on wildlife, as well as the absence of an assessment

of alternate energy sources. ] In 1971 and

1972 court decisions in Calvert Cliffs Coordinating Committee v. the Atomic Energy Commission and the Natural Resources Defense

Council v. Morton required that development

alternatives be considered in any environmental statement prepared under NEPA. * Be-

*Calvert cliffs Coordinationg committee Inc. v, U.S Atomic

Energy Commission, 449 F.2d 1109 (D.C. cert. denied, 404 U.S. 942: National Resources Defense Council v. Mor--

ton, 458 F. 2d 827 D.C. Cir.1972). F’or a discussion of the legislalive history and intended effect of the requirement for an environmental impact statment, see Richard N. L. Andrews,

‘‘Impact Statements and Ipact Assessment, in Environment

tal Impact Assessment (Marian Blisset ed.). Engineering foundation, 1975, at pp. 16-18.

cause DOI’S preliminary EIS considered no

alternative programs, it was therefore inadequate under the law.

4 The statement was

withdrawn and a much larger and more comprehensive document prepared.

In summary, the political environment

within the executive branch was quite different from the one that dominated the 1964-68

program, A major DOI objective was to facilitate a leasing program to allow the federally

controlled oil shale resources to be privately

developed. At the same time, DOI had to contend with the new system of environmental

legislation, and to structure the leasing program to ensure that the development of the oil

shale industry complied with environmental

laws. Balancing these objectives was often

difficult because not all of the implications of

the laws were clearly understood at that

time.

Energy and the Economic Environment

There were at least two reasons why the

Prototype Program had strong backing from

the executive branch of the Federal Government. First, the administration viewed oil

shale development as an integral part of its

overall strategy to reduce dependence on imported oil. Imports were regarded as a threat

both to national security and to achieving a

favorable balance of international payments.

Second, local and State interest in development remained high, and these interests were

expressed in Washington, D.C,

In figure 2, projections are shown for the

components of the Nation’s oil-supply system

as they were viewed by the National Petroleum Council in 1971. A similar illustration

was used by DO1’S Oil Shale Coordinator in a

1973 decision document that played a continuing role in the Program’s justification

over the next few years. As shown, domestic

oil production in the lower 48 States was predicted to decline steadily from its peak in

1970, and by 1985 to account for less than 50

percent of the oil demand. The drop in production would be compensated for by rising

production from the new frontier area on the

North Slope of Alaska, but not sufficiently to

counter the increasing import dependency.

After 1980, total domestic production, including the North Slope, would decline. Oil

demand, on the other hand, was predicted to

increase steadily and to nearly double between 1970 and 1985. Imports were expected

to supply the shortfall, and by 1980 to comprise nearly 50 percent of oil demand. * It was

predicted that even with reasonably low

world oil prices, the dollar export would have

a destabilizing effect on the Nation’s economy.

The trend in prices of domestic and imported petroleum from 1968 (the time of

Secretary Udall’s leasing attempt] to 1974

(the time of the Prototype Program’s implementation] is shown in figure 3, In 1968, both

*The estimates of total demand were high but projections of

the relative contributions of domestic and foreign sources were

generally accurate. Figure 2 predicts a domestic production in

1975 of about 11 million bbl/d, about 60 percent of projected

demand. Actual production was only 8.4 million bbl/9. but it

was about 60 percent of actual demand.
25

Figure 2.— U.S. Petroleum Supplies as Projected in 1971

260

— 2 5

20

15

147

L I I

5

0

9 8

Ch 3–Evolut/on of the Prototype Program ( 1969-74) ● 33

115

18.4

22.5

1960 1965 1970 1975 1980 1985

SOURCE U S Energy Outook An /nitial Appraisal 7971-1985 The National Petroleum Council July 1971 p 27

— 2 0

~ ‘verse ”

Imports

— 1 5

~ Canad a

North

~ ““P ’

— 1 0

u. s.

Crude,

~ condensat e

NGL

— 5

— o

supplies were cheap but imports had a modest price advantage that discouraged domestic exploration and high-risk ventures like oil

shale development. Beginning with the Teheran pricing agreement of 1971, posted prices

of Middle East oil began to rise at a slightly

higher rate. The agreement coincided with

President Nixon’s request that DOI expedite

an oil shale leasing program, In October of

1973, a major military confrontation occurred in the Middle East and the Arab oil

embargo followed, directed against the

United States and other countries that supported Israel. In November 1973, Secretary

Morton called for bids on six oil shale leases

under the framework of the Prototype Program.

With the supply shortages caused by the

Arab embargo, domestic energy companies

concentrated on obtaining any new source of

oil, including oil from shale. In evaluating the

Prototype Program, the companies certainly

anticipated extremely high petroleum prices

in the 1980’s when the oil shale plants would

come on stream. As discussed in chapter 6 of
34 . A History and Analysis of the Federal Prototype 011 Shale Leasing Program

Figure 3.— Cost Trends for Domestic and Imported

Petroleum

12

11

10

9

8

5

4

3

2

1

1968 1969 1970 1971 1972 1973 1974

SOURCE Off Ice of Technology Assessment

volume I, under stable conditions when oil

supplies are reliable, shale oil has never been

able to compete for long with crude petroleum. In late 1973, however, there were indications that the future price for imported oil

would be much higher than the expected

price for oil from shale. In 1960, for example,

Union Oil Co. proposed to market shale oil at

about $3.00/bbl, delivered to California.5 The

average price for conventional crude that

year was $2.88 /bbl. In 1968, when the average price for crude was $2.94 /bbl, a DOI

study indicated that shale oil would have to

sell for $3.59/bbl to yield a 12-percent rate of

return on investment, DOI also estimated that

the price could be reduced to $2.73 /bbl, with

improved mining and processing technologies, which would have made it competitive

with conventional crude. ~

Although shale oil was marginally competitive before 1973, it appeared highly attractive after OPEC instituted its new pricing policies. The prevailing opinion among industry’s financial analysts was that liquid fuels

could be produced from oil shale at a much

lower price. Analysts also certainly weighed

the favorable provisions of the Prototype

leases against the unknown but potentially

high costs of environmental protection that

would accrue to the successful bidders. They

apparently decided that the potential profits

to be realized from competition with highpriced foreign oil outweighed the risks associated with investment in oil shale.

The Prototype Program Emerges

In November 1971, DOI requested leasetract nominations from industry and from the

State governments. Twenty tracts were subsequently nominated: thirteen in Colorado,

four in Utah, and three in Wyoming, In April

of 1972, DOI designated six tracts to be offered for leasing—two in each of the States.

(See figure 4.) On April 30, 1973, the final EIS

was released.

It is noteworthy that the tracts were dispersed over three States, The reason was

partly technical because the sites included

four very different resource conditions in

terms of oil shale grade and thickness, overburden thickness, and ground water occurrence. It was believed that these diverse conditions would encourage a range of development technologies. DOI suggested in situ

processing for the Wyoming tracts; open pit

mining for one Colorado tract and wet underground mining for the other; and dry underground mining for both of the Utah tracts.

Dispersion of the tracts would also permit an

evaluation of socioeconomic effects on three

different regions. Impacts would be dispersed over a broader economic base than if

all the sites were concentrated in a single

demographic area. It is likely that the decision was also influenced by a desire for extensive support by the States.
Ch 3–Evolution of the Prototype Program ( 1969-74) . 35

Figure 4.— Locations of the Tracts Offered for Lease Under the Prototype Program

I

I

IDAHO :

— - -

i

- -

D Salt Lake City

o

(

GREEN

UINTA

BASIN

- .

UTAH

RIVER

>

BASIN

WYOMING

● Rock Springs W-a &

W-b

d

WASHAKIE /

BASIN

‘

–– 

~

--— -- — - -

SAND

I WASH

BASIN

COLORADO

●

PICEANCE ~

i

I

I

1 Iwt

011 shale deposits of the Green Rwer formation

SOURCE T A sldek Recent Trends in 011 Shale— Part 3 Shale 011 Refing and Some 011 Shale Problems Minerals Industries Bu//etin VOI 18 No 2 March

1975 p 4

On November 28, 1973, Secretary Morton

announced the dates for the sales of leases.

In his news release he stated:

I recognize that estimates for future demand are uncertain, but our best estimates,

and the course of recent events affecting our

energy supply, leave no doubt that in the

years ahead we must place greater reliance

on new domestic sources of petroleum. The

high risks and many uncertainties that attend dependence on foreign supplies of energy make it imperative that we explore expeditiously all of our promising alternative

energy supplies.

The leasing program I have approved will

encourage oil shale development and allow
36 ● A H/story and Analysis of the Federal Prototype 011 Shale Leasing Program

us to learn whether our 600-billion-barrel

shale oil reserves can be developed at acceptable economic and environmental costs.

The program’s goals were:

●

●

●

●

to provide a new energy source to the

Nation by stimulating development of

commercial oil shale technology by private industry;

to ensure the environmental integrity of

the affected areas and at the same time

to develop a full range of environmental

safeguards and restoration techniques

for incorporation into the planning of a

mature oil shale industry, should one develop;

to permit an equitable return to all parties in the development of the public resource; and

to develop management expertise in the

leasing and supervision of oil shale development as a basis for future administrative procedures.

The terms of the leases were generally favorable to industry participation although in

some ways they were more strict than those

of the 1968 offering, For example, the lessees

would have to spend 2 years characterizing

the environmental baseline, including identifying and counting the numerous plants and

animal species and measuring air and water

quality. They would also have to monitor the

environment over the operating lifetime of the

processing facilities. The leases were also

less generous with respect to timing of the

bonus payments with which the leases were

purchased. Payments were to be made in five

equal installments, one at the time of sale and

the others on the subsequent anniversaries of

the sale date, In the 1968 offering, bonuses

were also to be paid in five installments, but

the first payment was not due until the

seventh anniversary. In the 1968 program,

royalties paid to the Government for the sale of

shale oil could be credited against the first

bonus payment, if the royalties were paid

before the due date of the bonus installment.

The more stringent payment schedule of

the Prototype leases was compensated for by

other conditions. Among these were the removal of mandatory licensing for any new

technologies developed on the lease tracts (a

controversial aspect of the 1968 offering),

credit against payments for extraordinary

environmental protection costs, a diligence

incentive that allowed offsetting the fourth

and fifth bonus payments by investments

made prior to their due dates, and forgiveness of part of the bonus if the lease was relinquished within 3 years. Credits for environmental costs were considered a valid

aid in meeting environmental protection requirements that were still evolving. The diligence incentive was to prevent the lessees

from withdrawing to a resource-holding position in which little development work was

performed. Bonus forgiveness was an escape

mechanism by which a lessee could withdraw

without sacrificing all of the initial bid.

Overall, the lease terms at least partially

compensated for the risks of developing an

untested technology under rapidly changing

economic and social conditions, and with

unknown environmental restrictions. In the

context of the energy and oil price situation of

the 1973-74 period, the terms were sufficiently attractive to elicit industrial involvement.

Dates for the sale of individual leases were

staggered between January 8 and June 1 1

,

1974, to allow firms several opportunities to

bid. Sale dates and other details of the Program’s initiation are presented in table 1. The

winning bids totaled nearly $450 million for

slightly over 32 mi2 (20,500 acres) of surface,

The high bid was over $210 million, offered

by a joint venture of Gulf Oil Co. and Standard Oil Co. of Indiana.

The development technologies indicated in

the table are those suggested by DOI in the

EIS and in other documents. They were subsequently adopted by the lessees in their initial detailed development plans. At the time of

the lease offering, DOI projected that the six

tracts would be producing a total of 250,000

barrels per day by 1980. However, no bids

were submitted for the two Wyoming tracts

that were proposed for in situ development.
Ch 3–EV OItion o/ the Prototype Program (/969-74) 37

The Wyoming shales are relatively lean and of bidder response. Prospective bidders perinterbedded with barren rock, and their poor haps also lacked confidence in the new and

quality certainly contributed to the absence untried in situ approach.

Table 1.–Lease Tracts Offered Under the Prototype Oil Shale Leasing Program

Tract

C-a

C-b

U.bb

W-a

W-b

Location

Colorado

Colorado

Utah

Utah

Wyoming

Wyoming

Date of sale

1 /8/74

2/ 12/74

3/ 12/74

4/9/74

5/ 14/’74

6/11 174

‘Winning bidder Winning bid Development concept

RIO Blanco 011 Shale project $210305,600 Open-pit mining, above-ground retorting

{Gulf 011 Standard 011 of Indiana)

C-b Shale 011 project (Atlantic 117788,000 Underground mining aboveground

(Richfield, Tosco Shell, Ashland) retorting ~

White River Shale 011 Development 75,596,800 Underground mining, aboveground

(Sun 011 Phillips Petroleum) retorting

White River Shale 011 Corp 45 107200 Underground mining aboveground

(Sun 011, Phillips Standard of Ohio) retorting’

None In situ (suggested by DOI )

None In situ (suggested by DO I )

Chapter 3 References

‘Hearings on oil Shale, Subcommittee on Minerals, Materials, and Fuels of the Senate Committee

on Interior and Insular Affairs, 92d Cong., 1st

sess., Nov. 15, 1971, Committee Serial 92-12, pp.

33-47.

2

Ibid.

‘Ibid., at pp. 19-25.

‘Ibid., at p. 42.

5

F. L. Hartley (Chairman and President, Union

Oil Company of California] and J. M. Hopkins (Acting President of Union’s Synthetic Fuels Division),

Joint Statement Be-fore the Colorado Interior Legislative Committee on Oil Shale, Coal, and Related

Minerals, July 23, 1974.

6

Prospects for Oil Shale Development—Colorado, Utah, and Wyoming, Department of the Interior, May 29, 1968.

7

“Decision Statement of the Secretary of the Interior on the Prototype Oil Shale Leasing Program, ” Department of the Interior, Office of the

Secretary, News Release, Nov. 28, 1973.
CHAPTER 4

The Changing Scene Between

1974 and 1979
CHAPTER 4

The Changing Scene Between 1974 and 1979

Introduction

The Prototype Program began in a climate quested suspensions of operations in 1976,

of optimism in 1974 that was soon altered by and four of the original industrial particichanging economic conditions, technical and pants withdrew. This chapter discusses the

legal problems, and regulatory uncertainties. problems encountered and their effects on

As a consequence, all of the lessees re- development.

The Changing Economic Situation

In 1974, bidders for the Prototype Program

leases assumed that the recent tripling of the

world oil prices would make shale oil competitive in the energy marketplace. This assumption was based on preliminary financial estimates completed during the stable economic

period that preceded the Arab oil embargo

and before detailed studies were performed

on specific facilities on specific sites in the oil

shale region. As noted in chapter 6 of volume

I, subsequent economic estimates were much

less favorable, Table 2 shows the upward

trend in estimates of investment requirements for shale oil plants, and the trend is

further illustrated in figure 5, As shown, between 1973 (the year of the lease offerings)

and 1976 (the year of the suspensions requests), estimated costs for an oil shale plant

tripled.

Various increments of the cost escalation

are attributable to general inflation, to extraordinary cost increases for capital goods,

to increased costs of environmental protection, and particularly to the improved accuracy of later, more detailed engineering

studies. ” Regardless of the reasons, the lessees were alarmed by the sharp reduction in

their potential profits, and their distress was

exacerbated by problems encountered during

predevelopment activities on the lease tracts.

Table 2.–Cost Estimates for Oil Shale Processing Plants

Time of estimate Estimated costa $ million Source of estimate Referenceb

1968 $138 Department of the Interior 1

1968 144 The Oil Shale Corporation 2

1970 250 The National Petroleum Council 3

1973 280 Department of the Interior 4

1973 250-300 Colony Development Operation 5

Early 1974 400-500 Colony Development Operation 6

Late 1974 850-90 0 Colony Development Operation 6

1976 960 The Oil Shale Corporation 7

1977 1,050 The Oil Shale Corporation 7

aplanls use underground mining and above-ground retorting Production Capacities are approximately 50,000 bbl/d of shale oil syncrude

bsee reference list The cost trends are analyzed in references 6and 8

SOURCE Off Ice of Technology Assessment
42 ● A H/story and Analysts of the Federal Prototype Oil Shale Leas/rig Program

Problems on Colorado Tract C-a

In 1973, the Department of the Interior

(DOI) indicated that tract C-a appeared

amenable to open pit mining because of the

relatively thin overburden covering the oil

shale zones, and that aboveground retorting

would most likely be employed. Rio Blanco Oil

Shale Project, the lessee, incorporated this

concept in its initial development plan, which

was submitted to the Area Oil Shale Supervisor’s Office in March of 1974. Figure 6 is a

sketch of the proposed open pit mine design.

Rio Blanco’s concept for developing the tract

is shown in figure 7, Mining would begin in

one corner of the tract, and the pit would

gradually be enlarged until it encompassed

the entire tract surface. After several years,

freshly stripped overburden would begin to

be returned- to the mined-out area, and the pit

would thereafter be backfilled at the same

time that new areas were being mined. In the

interim, mining and processing wastes would

be disposed of on 84 Mesa, a highland to the

northeast. * Retorts and other processing

facilities would be permanently located on an

area adjoining the tract north boundary.

The use of off tract lands for waste disposal

and processing sites was a key feature. In

evolving the plan, Rio Blanco analyzed alternative development concepts with ‘respect to

*This specific site was not considered in the environmental

impact statement (EIS). The EIS discussed off tract disposal only

as a hypothetical possibility not as part of the proposed action.

Figure 5.— Engineering Cost Estimates for 50,000-bbl/d Shale Oil Syncrude Plants

$1,100 ~, i I I i I r I I I

1.000

900

800

(/3

c

o

: 70 0

L

: 40 0

w

300

200

100

1968 1969 1970 1971 1972 1973 1974 1975 1976 1977

SOURCE Off Ice of Technology Assessment
—.

Ch 4–The Changing Scene Between 1974 and 1979 ● 43

Figure 6.—Open-Pit Mining Concept Featuring Off tract Waste Disposal

Off-Site Disposal

Overburden

 Lease Boundarie s

SOURCE hearings on oil .Shale Leasing Subcommittee on Minetals Materials

and Fuels of the Senate Committee on Interior and Insular Affairs

94th Cong 2d sess Mar 17 1976 p 84

Figure 7.— Original Development Plan for Colorado Tract C-a

T

T K % EXISTING MOON LAKE

: i 1OAY:::NE ( y TRANSMISSION LINE

7

I

4IIKE -

1

LLtU 1 HIC m

RANSMISSION

u

\ LINE

-’K’dlk!!J ~— j

~ AMOCO PIPELINE

1

N

TELEPHONE CABLE

— . .

I

T

j k

- ?

/ ’

, L ~

> +

;

r

T o

3

5

R 102 W

SOURCE RIo Blanco oiI Shale Project Detailed Development Plan Tract C-a Gulf Oil Corp and Standard Oil CO Indiana March 1976 p 1-3
44 A History and Analysis of the Federal Prototype 011 Shale Leasing Program

resource recovery, economics, ease of operation, and overall environmental impact, but

rejected them all. 9 10 Underground mining was

rejected because resource recovery would be

only one-fifth that of a comparable open pit

mine. Ontract disposal of solid wastes was

rejected because the area covered could not

have been mined by open pit without excessive materials handling, Underground mining

of the disposal area was rejected because resource recovery would be only one-fourth of

that achievable by open pit mining of the entire tract. Finally, several sites within the

tract boundaries were considered for the

processing facilities but were rejected because of the economic advantages of mining

the entire surface.

Rio Blanco had reason to expect that DOI

would allow the use of off tract lands. In 1970,

DOI’S Solicitor had expressed the opinion

that DOI had authority to allow such usage.

Furthermore, several references to off tract

land use were made in the 1973 EIS. For example, in the volume on specific impacts of oil

shale development, it was stated that: 11

about 256 million cubic yards of loose

waste (overburden) material could be disposed of offsite in Water Gulch which lies to

the west of the (C-a) tract.

Two options were also described for disposal

of processed shale, both involving off tract

disposal areas, ” Finally, the EIS noted that:’{

If this (C-a] tract is mined by surface mining methods, it is expected that the entire

surface would be excavated , . .

This would be possible only if the processing

facilities were located off tract. Offsite land

use was also mentioned in DOI’S advertisement of the lease sales in 1973, as follows:14

The Department recognizes that in some

situations lands outside the leased tracts

may be required . . . for roads and other purposes . . . Moreover, since this is a prototype

rather than a general leasing program, the

Department may in the future find it desirable to conduct investigations, studies, and

experiments under section 101 of the Public

Lands Administration Act (13 U.S.C. 1362),

particularly in connection with the disposal

of spent shale. In order to facilitate these

experiments, the Department is withdrawing from all forms of appropriation

under public land laws . . . certain lands in

the vicinity of the tracts offered for lease.

The referenced Act allows the Secretary of

the Interior to perform work on his own initiative or in cooperation with others involving

the improvement, management, use, and protection of the lands and resources under

DO1’S jurisdiction. Under this broad authority, and with the concurrence of DO1’S Solicitor, leases were awarded for tracts C-a and

C-b on the basis of proposals that included

the possible use of off tract lands for waste

disposal. In the case of tract C-b, off tract

areas were relatively small, involving only

about 250 acres. Rio Blanco, however, proposed to use about 6,400 acres of off tract

land for development of tract C-a. This was

an area larger than the tract itself.

It is apparent from testimony presented by

DOI after the leases were awarded that DOI

was not fully confident of its powers to award

off tract land use. In February 1974, Secretary Morton testified:”

We have a legal opinion from our solicitor

that we would have the authority to grant additional areas if this became necessary. I

would like to make sure that we were not on

thin ice from a legal point of view , . , Specific authority for the grant of such rights under a general leasing program for oil shale is

not apparent. However, the prototype program is of a different nature ., . Particular

questions have arisen about the disposal of

spent shale. At this time, it is not clearly

known what the effect of spent shale disposal piles will be. This matter can only be determined by actual experimentation with

and study of disposal sites, This is a very

proper type of study to conduct under a prototype program . . . However, the question of

granting off lease disposal sites, other than

sites used for investigations, studies, and experiments, may arise. Accordingly, the Department has proposed statutory language

which would give it full authority to grant

offsite tracts if they are needed.

The proposed language was included in

two identical bills, S. 1040 and H.R. 5442,
Ch 4– The Changing Scene Between 1974 and 1979 45

which would have amended the Mineral

Leasing Act of 1920. Among the provisions of

these bills were a doubling in the size of

tracts that could be leased and the granting

of secretarial discretion regarding use of offtract areas. These amendments were important. because the Prototype Program was

based on section 21 of the Act, which authorizes the Secretary of the Interior to lease oil

shale deposits on public lands “and the surface of so much of the public lands containing

such deposits, or land adjacent thereto, as

may be required for the extraction and reduction of the leased minerals. “16 However, the

same section provides that no lease may exceed 5,120 acres. No consideration is given to

use of off tract areas for waste disposal.

In the opinion of the Comptroller General of

the United States, the provisions of the Public

Lands Administration Act did allow DOI to

use off tract lands for waste disposal in connection with a research and testing program.

The provisions were not clear with regard to

commercial operations. 17 In the absence of a

clear legislative charter, DOI hesitated to

allow the lessees to proceed with development plans that depended to a large degree

on such strategies. To do so could have been

interpreted as a violation of the Mineral

Leasing Act,

Many in Congress responded negatively to

DOI’S proposed legislation. The statement of

Congressman Vanik of Ohio is illustrative of

those who opposed it: 18

Using (the Public Land Administration Act)

as precedent, the Secretary of the Interior

will allow mill ions of tons of shale waste to

be dumped on adjacent Federal lands that

are not leased by the oil compinies under the

Pro tot type Leasing Program. This seems to me

a very severe stretching o f the apparent intent of (the Act).

Although the language of the bills required

that the Government be reimbursed the fair

market rental for any off tract land used in

support of oil shale leasing,”) some members

of Congress saw the bill as a giveaway to industry. In any event, the bills did not pass the

93d Congress, and DOI was left without clear

authority to allow commercial operations outside of the lease-tract boundaries.

A similar issue had arisen during the construction of the trans-Alaska oil pipeline

when DOI had sought to issue a special land

use permit for disposal outside the pipeline

right-of-way. The action was challenged and,

in Wilderness Society v. Morton, the court

ruled that—since the Leasing Act provided

specific authorization for the basic activity

(pipeline rights-of-way )—the Act”s specific

limitation could not be ignored by using special land use permits. 20

The decision was reached in 1973, after

the Prototype Program was developed but before the leases were sold. DOI’S Solicitor reviewed the lessees’ development proposals in

light of the decision and concluded that the

ruling also applied to the Prototype Program.

On December 20, 1974, Rio Blanco applied

for permission to use off tract areas, but early

in 19

7

5, DOI denied the application.

This sequence of events was documented

in 1976 during hearings on H.R. 11163, a DOIsponsored bill to amend the Mineral Leasing

Act to allow secretarial discretion regarding

use of off tract areas by participants in Federal leasing programs. The following e x -

change took place between Mr. Chris Farrand, Deputy Undersecretary of the Interior,

and Congressman Jim Johnson of Colorado::

Mr. Farrand. We specified in the original environmental impact statement that we anticipated it would be developed by open pit and

that the disposal of some of the spent shale

would be made offsite.

We also indicated in a withdrawal notice

that we published at about the time that the

notice of sale was issued that we were withdrawing certain lands around the tract for

possible use in experiments with spent shale

disposal sites.

Third, in a letter to Senator Jackson in January of 1974, we indicated we had authority

to allow offsite disposal or to make lands

available for such disposal through an existing program we call the special land-use permitsystem.
46 . A H/story and Analysis of the Federal Prototype 011 Shale Leasing program

Unfortunately, partially as a result of the

decision in the trans-Alaskan pipeline case

and as a result of a review by our Solicitor’s

office, we found we did not have the authority to grant off site disposal. For that reason,

we have come back to Congress to ask for an

amendment to the Mineral Leasing Act to

allow us to utilize lands in the vicinity of oil

shale leases and make them available to the

lessees only for very specified purposes attendant to the development of an oil shale

lease itself.

Mr. Johnson. But it was originally your intention and understanding that you had this authority at the time you entered into the contract for C-a, the lease contract, and both

parties understood this was the case?

Mr. Farrand. There was apparently some

disagreement within the Department but we

conveyed to the public and perhaps to the

lessees themselves that we had the authority. It was our mistake because we did not

have that authority. This is the best I can

say. It was an error, *

The bill was designed to allocate an additional 6,400 acres of Federal land for use in

development of the lease tracts. About 4,100

acres would have been used for 84 Mesa disposal area, The off tract processing facilities

would have occupied an additional 1,500

acres, and the balance would have been used

as waste transportation corridors and for

other purposes. DOI’s position was that the

additional land would allow Rio Blanco to

maximize resource recovery without reducing access to oil shale resources on the offtract areas. Mr. Farrand noted in his testimony that open pit mining would allow recovery of 5 billion bbl of shale oil. If underground

mining had to be substituted because of the

ban on use of offtract areas, only about 1

billion bbl could be recovered.

This position was disputed by a U.S. Geological Survey analyst who maintained that

the 84 Mesa site contained more oil shale

than did tract C-a, although at greater

*Environmental protection groups had questioned off tract

disposal as early as 1972 in comments on the draft EIS. They

met with the Colorado Director of BLM in December 1973,

before the lease sales. to protest. DOI should have been well

aware of the opposition.

depths. He expressed concern that waste

disposal on the mesa would preclude future

development of its resources by open pit mining, and that roughly $10 billion in mineral

values would be lost to the public as a result.22

DOI argued that the overburden on the mesa

was too thick for open pit mining, and that

resource recovery by underground mining

would be reduced only about 5 percent by the

additional weight of waste materials from

tract C-a.23

Congress rejected the bill. The kinds of opposition it faced were summed up in the testimony of Senator Haskell of Colorado, 24 H e

noted, first, that the Mineral Leasing Act

seemed clear in denying authority for off tract

disposal. Second, he called attention to the

original C-a detailed development plan (DDP)

that indicated the tract could accommodate

open-pit mining with ontract disposal while

producing 50,000 bbl/d for 30 years, Finally,

he expressed a concern that DOI was attempting to promote oil shale beyond the

levels initially contemplated for the Prototype

Program.

The latter concern was also expressed by

Representative Schroeder of Colorado in connection with her bill to prohibit dumping of

spent oil shale on any Federal lands not specifically included under the Prototype leases.

Her testimony on the bill includes the following statement:25

. . . I strongly believe that oil shale development carried forth under the supervision

of the Federal Government should proceed at

a pace which permits careful and complete

evaluation of its impacts, I believe we will

only have such evaluations if development is

carried forth according to the schedule of

such programs as the Department of the Interior’s Prototype Oil Shale Leasing Programs

in Colorado and Utah . . . Any more efforts

than this become the sort of crash program

for which the Federal Government is famous

I think everyone who bid on these Colorado tracts thought it would be enough land

to carry on the prototype programs the leasing program envisioned,

The sentiments expressed in connection

with amendments to the Mineral Leasing Act
———

Ch 4–The Changing Scene Between 1974 and 1979 ● 47

continued to prevail. The Federal Land Policy

and Management Act of 1976 includes the following:

Nothing in this Act, or in any amendments

made by this Act, shall be construed as permitting any person to place, or allow to be

placed, spent oil shale, overburden, or byproducts from the recovery of other minerals

found with oil shale, on any Federal land

other than Federal land which has been

leased for the recovery of shale oil . . . 26

Rio Blanco encountered other problems on

tract C-a when environmental monitoring programs measured high background levels of

hydrocarbon emissions, apparently from

sagebrush and other vegetation, that might

have precluded any significant development

under certain interpretations of air quality

regulations. This problem, although unusual,

illustrates the problems cited by the tract

lessees with respect to regulatory uncertainties. Because of its importance and because

similar circumstances were encountered on

the other lease tracts, the problem of high

background emissions is discussed in a separate part of this chapter.

The legal, political, and environmental

problems encountered on tract C-a, when

coupled with the uncertain economic feasibility of oil shale development, led to Rio Blanco’s request for a suspension of lease terms in

July of 1976, Details of the request are discussed later.

Problems on Colorado Tract C-b

In the original development plan, tract C-b

was to be developed by underground roomand-pillar mining in conjunction with above-

-ground retorting. During predevelopment

studies on the tract, the lessees encountered

problems with the geological characteristics

of the oil shale deposits, which made the project unattractive economically and forced

evaluation of other options.

Multilevel room-and-pillar mining is depicted in figure 8. Mining begins by providing

access to the oil shale zone through a vertical

shaft from the surface or a horizontal drift

through an adjacent outcrop. Large rooms

are blasted into the mining zone, and broken

shale is removed to the surface for processing, Some unbroken shale is left in place to

prevent the roof from falling. Mining can be

conducted on several levels if a floor or “sill

pillar”’ of unbroken shale is left between adjacent levels. Oil shale forms the support matrix for the entire mine. Except for roof bolts

and grout no other structural materials are

usually required.

The great thickness of the Green River formation deposits are very favorable for roomand-pillar mining because large underground

Figure 8. —A Multiple-Level Room. and-Pillar

Oil Shale Mine

SOURCE Hear/rig on 01/ Shale Leas/rig Subcommittee on Minerals Materials

and Fuels of the he Senate Commitee on Interior and InsuIar Affairs

94th Cong 2d sess Mar 17 1976 p 8 3
48 ● A H/story and Analysis of the Federal Prototype 011 Shale Leasing Program

equipment can be used, with resulting high

production rates and low costs. The economic

feasibility is sensitive to the mechanical properties of the oil shale, because they determine

the amount of shale in the support pillars.

The stronger the shale, the smaller the pillars

and the higher the resource recovery. Shale

that is weak because of natural fractures will

require large pillars. Under these conditions,

resource recovery would be low, and mining

costs very high.

Preliminary studies indicated that the

shale on tract C-b was strong. However, later

tests showed that much of the shale in the

mining zone was badly fractured, and that

support pillars would have to be larger than

anticipated. Resource recovery would have

been unacceptably low. Because the venture’s economic feasibility depended on high

resource recovery, the lessees determined

that the original development concept could

not be pursued,

As on tract C-a, the C-b lessees also measured high background levels of air pollutants.

These problems were further compounded by

the unfavorable project cost estimates that

were revealed late in 1974, Tosco and Atlantic Richfield began to reconsider their commitment to the leasing program, and on December 29, 1975, they assigned their interests to Ashland and Shell, withdrew from

the tract, and forfeited their investments in

the lease. The reasons cited for the withdrawal were inflation, questionable economic

feasibility, and lack of governmental support

in clarifying the effects of the background

emissions on future tract development.

Ashland and Shell were left with the task

of revising the development plan for the tract.

They were unable to do so with confidence

within the time constraints imposed by the

lease terms, and in March of 1976, they requested a suspension of operations. The request is discussed later in this chapter.

Problems on the Utah Tracts

Relatively few technical surprises were encountered on tracts U-a and U-b, but the baseline monitoring programs also measured levels of naturally occurring pollutants that

occasionally exceeded ambient air quality

standards. The Utah lessees were further affected by legal battles between the Federal

Government, the State of Utah, and private

firms over ownership of lands encompassing

the tracts.

In-Lieu Lands

Ownership rights are clouded over much of

the oil shale area, but the situation in Utah is

particularly complicated by circumstances

associated with the granting of Utah’s statehood. Under the Statehood Enabling Act of

1894, Utah was allowed to take title to four

sections of land in each township, with the intent that proceeds from the sale or use of

these sections would be applied to public education. At that time, much of Utah was unsettled and unsurveyed, and boundaries of many

townships could not be located. Consequently, the Federal Government allowed the State

to delay transfer of these sections until surveys could be completed, Subsequently, the

Government appropriated entire townships

for parks, monuments, national forests, and

Indian reservations, These lands were removed from possible acquisition by the State.

In lieu of these lands, Utah was allowed to select other areas in other townships. The inlieu lands could be arranged in contiguous

parcels, whereas the four sections originally

granted by the Statehood Act were noncontiguous.

The Statehood Act allowed transfer of Federal land to the State only if the land contained no valuable minerals, In 1918, Uta h

sued for an exemption to this rule, but lost.27 

In 1927, Congress changed the law to allow

selection of mineral lands under the statehood grants, but in-lieu lands were still re-
.

Ch 4–The Changing Scene Between 1974 and 1979 ● 49

quired to be nonmineral in nature.’}’ In 1958,

the law was changed again to allow selection

of mineral-bearing in-lieu lands provided that

the corresponding statehood-grant sections

also contained minerals, 29 In 1960, another

change allowed selection of any unappropriated public lands regardless of their mineral

character. Specifically included were the oil

shale lands withdrawn by President Hoover’s

Executive Order 5327.

By 1960, Utah’s stockpile of in-lieu lands

had reached 562,000 acres; this was subsequently reduced to 225,000 acres through the

selection process. * In February 1963, Secretary of the Interior Udall, at the request of

Colorado Representative Aspinall, instructed

the Bureau of Land Management (BLM) to

postpone transfer of additional mineral-bearing land until Congress could consider the

ramifications of the 1960 amendment. Mr.

Aspinall introduced a bill that would have

prevented the States from selecting in-lieu

lands with much greater value than the statehood sections, but the bill did not pass. In

1965 BLM announced that it was prepared to

resume its review of in-lieu applications, 30

However, in January 1967, Secretary Udall

told the Utah government that DOI would not

transfer in-lieu lands of disparate value,

citing as authority for this position the provisions of the Taylor Grazing Act. Nevertheless, Utah continued to apply for in-lieu selections and between September 1965 and November 1971 submitted 10 separate applications for transfer of 194 parcels of land totaling 157,225.9 acres, The land was located in

the oil shale area of the Uinta basin and included the present sites of lease tracts U-a

and U-b,

Interior delayed action on these applications and initiated an EIS specifically directed to the transfer of the Utah lands. The

rationale was that the transfer would give a

substantial block of oil shale land to a State

*other Western States were also granted school indemnity

lands. At present the States are entitled to the following acreages: Arizona California-180.000: Colora -

doIdah o

desirous of creating an oil shale industry that

could have significant environmental consequences. The statement had not been completed as of March 1974 when the Utah tracts

were leased, 32

Between January 8 and February 12, 1974,

leases to tracts C-a and C-b were sold for a

total of nearly $330 million—about $33,000

per acre. If the lands requested by Utah were

regarded as having equivalent market value,

their transfer would have meant a loss of

over $5 billion in mineral values to the U.S.

Treasury. Secretary Morton wished to avoid

or at least reduce this loss. on February 14,

1974, he notified Utah’s Governor Rampton

that DOI would not exchange the in-lieu lands

on an acre-for-acre basis but would rather

exchange lands of equal monetary value to

the statehood grant sections, thereby following the precedent set by Secretary Udall in

1967, 33 

On February 26, Senator Moss of Utah

complained about Secretary Morton’s position as follows:34 

The Secretary knows that his position is

not legally sound. He is afraid, however, of

the political repercussions, the unfounded

charges of “giveaway’< which will be hurled

at him, if he does what the law requires and

approves the selection lists. Therefore, tomorrow the State will file suit for declaratory and injunctive relief, seeking what has

been its due for 80 years . . . Since December

of 1973, I have been considering filing suit as

best friend of the thousands of school children in Utah who are and have been denied

rights granted to them by the Congress many

years ago . . . Now, however, since the State

is taking affirmative steps to bring suit, we

have determined to support . . . its efforts . . .

I cannot sit idly by and allow the Secretary of

the Interior to delay, procrastinate and obfuscate a matter which is clear on its face.

The statute in question . . . states clearly

that selections for lands lost shall be based

on equal acreage. The statute does not require equal value, To apply a new rule by administrative fiat is unconscionable, arbitrary, and capricious.
50 ● A H/story and Analysis of the Federal Prototype 011 Shale Leasing Program

On March 4 1974, Utah filed suit against

Secretary Morton in the U.S. District Court in

Salt Lake City, seeking an order to compel

him to rule on the in-lieu requests without

reference to the value of the parcels involved.

In 1976, the court ruled that the Secretary

was to determine if the applications complied

with the requirements of the law allowing

transfer of mineral lands, and to refrain from

comparing the value of the lands requested to

the sections granted at the time of statehood.” The court further concluded that the

National Environmental Policy Act was not

applicable and that an environmental statement was not required. (DOI’S EIS was subsequently abandoned. ) On September 14, 1976,

DOI appealed the ruling to the 10th District

Court of Appeals in Denver, where the cas e

remained until August 1978 when the earlier

decision was upheld. ‘b

Tracts U-a and U-b were leased on June 1,

1974, during the court contest in Salt Lake

City. The lessees were not overly disturbed by

the conflict, because Governor Rampton and

Secretary Morton had agreed that the lease

terms would remain in effect regardless of

the court’s ruling. The agreement was signed

before the leases were sold. Under the direction of the court, proceeds from the lease

sales (some $78 million as of May 1976) were

invested in treasury bonds with the proceeds

to go to the winner of the litigation,

On May 19, 1980, the U.S. Supreme Court

reversed the decision of the Circuit Court. ]7 It

upheld the Secretary of the Interior’s decision to refuse Utah’s applications for State indemnity selections of public lands that were

grossly disparate in value to the original

school land sections. The Court held that

under section 7 of the Taylor Grazing Act,

which requires the Secretary to classify public lands within Federal grazing districts a s

proper for school indemnity selections, the

Secretary is vested with broad discretion in

establishing criteria for classification; and

that the “grossly disparate value standard”

used in rejecting Utah’s selection was a valid

exercise of that discretion. The Court found

that the Secretary’s action was wholly faithful to Congress’ consistent purpose, in providing for indemnity selections, of giving the

States the rough equivalent of the school land

grant sections that were lost through preemption or private entry before they wer e

surveyed.

Other problems, relating to the existence of

unpatented mining claims overlying the Utah

tracts, and an application for a State lease t o

develop the same areas, also existed in Utah.

Unpatented Mining Claims

Before enactment of the Mineral Leasing

Act in 1920, oil shale was subject to disposition under the oil placer provisions of the mining laws. No new oil shale claims could be located after enactment of the Leasing Act;

however, section 37 contained a saving s

clause which preserved “valid claims existent at date of the passage of this Act and

thereafter maintained in compliance with the

(mining) laws under which initiated, which

claims may be perfected under such laws, including discovery. ” 38

The savings clause allows those who had

properly located claims to perfect them by

continuing operations to satisfy the requirements for a patent. Under the oil placer provisions, claims had to be located in tracts of n o

more than 20 acres per individual and n o

more than 160 acres per association of claimants. In practice, almost all of them before

1920 were located as 160-acre association

placer claims. The law requires that each

claim be individually “located” (staked and

marked), that there be an actual “discovery”

(exposure) of a “valuable mineral deposit, ”

within the limits of each claim, and that the

land be “chiefly valuable” for the oil shale

deposit.

Claims continue indefinitely with or without mineral production, The Mining Law requires that at least $100 worth of assessment

(development) work be performed each year

until each claim is patented, although work

can be combined for contiguous claims in

common ownership, and done on only one or
Ch 4– The Changing Scene Between 1974 and 1979 ● 51

some of them, if it benefits all the claims. If

the annual assessment work is not performed

on or for the benefit of a claim during any

year, the claim can be relocated by the original claimants, or by others as long as this

takes place before the original locators have

resumed work. Complete title to the surface

and subsurface of a placer claim can be obtained by submitting an application for a patent, performing at least $500 worth of assessment work, and paying a fee of $2.50/acre

plus any survey costs. The right to mine and

make use of the surface exists whether or not

the claim is patented, but, prior to isssuance

of a patent, surface use is limited to that required for the claimant’s mineral operations.

After issuance of a patent, the owner can do

whatever he wants with the land. On either

patented or unpatented claims, there is no requirement that mineral production ever be

commenced, nor any requirements related to

the timing, method, or pattern of development.

The validity of pre-1920) oil shale mining

claims has been the subject of considerable

dispute for many years, The dispute centers

on the meaning of the valuable mineral deposit criterion as applied to oil shale and the

consequences of failure to perform assessment work prior to 1971. The uncertain status of pre-1920 claims blanketing the prototype oil shale leases in Utah was one of the

principal bases for the court-ordered suspension of activities, granted at the request of the

lessees.

In the late 1960’s, DOI began a legal campaign to resolve the ownership issue. By 1974

all of the disputed titles in Wyoming and half

of those in Colorado had been cleared in favor of the Government: none of the Utah titles

had been cleared, including the claims on

tracts U-a and U-b, ”

At the time of the lease offerings it appeared that the Utah claims would be settled

in the Government’s favor and industrial bidders were apparently relying on this outcome.

In 1971, DOI Solicitor Melich ruled that DOI

had authority to sell the leases, even though

the tracts were covered with unpatented mining claims, if revenues were held in reserve

pending the outcome of litigation. If the Government won, the revenues would be handled

the same as with the other tracts, and the

State of Utah would receive its percentage

share as provided by the Mineral Leasing

Act. If the courts ruled in favor of the holders

of the unpatented claims, then the claimants

would divide the money. 40 However, all Federal and State leases would be declared void.

This procedure, which assumed agreement

by the mining claimants (and hence no cancellation of leases) was not, in fact, implemented.

Despite the uncertainties—the lessees

could not rely on permission to proceed with

tracts could be lost—the White River Shale

Project purchased the leases and proceeded

with development. Evidently, the participants

were confident that the Government would

ultimately prevail, or that they would be able

to negotiate acceptable terms with the private claimants, if they prevailed. On June 1,

1974, leases were issued for the Utah tracts.

This confidence may have been related to

DOI”S aggressive program to invalidate the

outstanding mining claims. On November 19,

1973, BLM initiated four contest proceedings

against certain claims in Colorado, seeking to

invalidate them on the theory that a mining

claim could be valid only if the deposit could

have been developed, extracted, and marketed at a reasonable profit at the time of location, and if the marketability had continued

without substantial interruption from the

date of location to the time of the contest proceedings. In 1970, BLM succeeded in invalidating three of the oil shale claims on other

grounds, but the DOI hearing officer validated six claims belonging to Shell Oil Co. and

others, rejecting BLM’s marketability theory.

BLM filed an appeal brief in 1970 seeking invalidation of the remaining six claims.

On June 28, 1974, the DOI Board of Land

Appeals reversed the hearing officer, accepted BLM’s marketability theory, and in-
52 . A History and Analysis of the Federal Prototype oil Shale Leasing program

validated all of the claims. The issue was not

soon settled because on August 20, Shell Oil

Co. filed a complaint in the District Court in

Denver seeking a reversal of the Board’s ruling.

In 1976, the District Court reversed the

Board’s decision and ruled that the claims at

issue were valid.41 The court held that DOI

was bound by prior departmental precedent

in the 1927 case of Freeman v. Summers 42

which recognized that oil shale was a

valuable mineral subject to appropriation

under the mining laws and that established

the legal basis in patenting pre-1920 claims

for more than 30 years of Department practice. The court said that by not requiring any

showing of present marketability for oil shale

claims, the Freeman case established a

separate and more liberal valuable mineral

test than that applied to other locatable minerals, The court reasoned that, since Congress had twice considered the issue of oil

shale patentability and had implicitly “ratified” the Freeman decision by not reversing it

legislatively, and since investors had relied

upon the Freeman rule for over half a century, DOI was not permitted to adopt the

present marketability test as a new standard

for evaluating the pre-1920 claims.

The Freeman case arose from a protest

filed in 1923 by pre-1920 mining claimants

against homestead entries made by Summers

in 1920. The shale claims had been located on

the same land in 1918. If the claims were

valid at the time of the homestead entries and

continued to be valid at the time the protest

was filed, the claimants had a prior right to

obtain patents for both the surface and the

subsurface, and the homestead entries would

have to be canceled. There could be no dispute concerning the basic mineral nature of

the land, since it had been classified as mineral in character in 1916. However, the mining claimants, in order to establish the initial

and continuing validity of their claims, had to

show that they had discovered a valuable

mineral deposit on each claim, that the land

was chiefly valuable for such deposit, and

that they had performed the required annual

assessment work.

The initial decision, in 1924, by DOI’S local

register and receiver, found that the claims

were invalid because oil shale deposits of sufficient value to be marketable had not been

exposed and the required assessment work

had not been performed. The commissioner of

the land office reversed this initial decision,

citing evidence that had been submitted

which purported to show that rich lower

strata could be profitably worked, and concluding, without any discussion, that there

had been a discovery of the valuable strata.

At the end of 1924, DOI’S First Assistant

Secretary Finney reversed the commissioner’s decision and declared the claims null and

void, finding there had been no proof of sufficient assessment work and that there was no

probative evidence demonstrating that the

lower, unexposed beds were valuable for

mining purposes.

Finney’s decision was the final appeal

available as a matter of right. Two requests

for rehearing or retrial were denied. Considerable pressure, however, was brought to

bear on DOI by oil shale mining claimants

from Colorado and their representatives in

Congress. The Secretary of the Interior exercised his supervisory power to order the case

reopened and retried, and held an open meeting attended only by oil shale mining claimants and their supporters at which the issue

of discovery of the richer lower strata

through geologic inference rather than actual

exposure was extensively discussed. In 1927,

Finney wrote and the Secretary signed a new

and final decision upholding the mining claimants” protest, a decision with which neither

DOI’S Solicitor nor any of his attorneys

agreed. 43

The decision was mainly concerned with

the issue that had been the primary focus

throughout the proceedings: the extent to

which geologic inference could be used to

support a discovery of the richer lower

strata, However, it also addressed the value

issue:

While at the present time there has been

no considerable production of oil from

shales, due to the fact that abundant quantities of oil have been produced more cheaply
Ch 4–The Changing Scene Between 1974 and 1979 ● 53

from wells, there is no possible doubt of its

value and of the fact that it constitutes an

enormously valuable resource for future use

by the American people,

It is not necessary, in order to constitute a

valid discovery under the general mining

laws sufficient to support an application for

patent, that the mineral in its present situation can be immediately disposed of a t a profit . . . 44

DOI appealed the 1976 District Court decision. The Tenth Circuit Court of Appeals affirmed the lower court decision and held that

the Department was bound by the Freeman

precedent. 45 The U.S. Supreme Court agreed

to review, on June 2, 1980 the Supreme Court

issued its opinion affirming the decisions of

the lower court that oil shale was a valuable

mineral and rejecting the application of the

present marketability standard. The case,

Andrus v. Shell Oil CO., 46 held that oil shale is

a valuable mineral that is patentable under

the savings clause of the Mineral Leasing Act

of 1920. In its decision the Court noted that

before 1920 there had been uncertainty

about whether oil shale was patentable

under the mining laws since there was no

commercial production of shale oil. The Court

found that by enacting the Mineral Leasing

Act of 1920 that withdrew oil shale from disposition under the mining law, Congress at

least implicitly recognized that oil shale had

been locatable. Since oil shale was not then

commercially valuable, the Court reasoned

that Congress must not have intended any

consideration of the present profitability of

shale in determining whether a claim was

patentable. To support its conclusion, the

Court cited the Freeman decision and departmental practices over 33 years in issuing

more than 523 patents as evidence of the contemporaneous administrative construction of

the 1920 Act by those charged with its implemen tat ion.

In a footnote. the Court recognized that a

separate value test exists for oil shale:

(The) history indicates only that a present

marketability standard does not apply to oil

shale. It does not affect our conclusion in

United States v. Coleman that for other minerals the Interior Department’s profitability

test is a permissible interpretation of the

‘‘valuable mineral requirement. 47

The implications of this Supreme Court decision for the unpatented claims in Utah are not

yet clear.

The Peninsula Mining Case

A further complication arose in 1974 when

Peninsula Mining, Inc., a Utah firm, applied

for State leases for 46,000 acres of land in

the Uinta basin, including tracts U-a and U-b.

Peninsula contended the Utah legal code required that the State must lease land, where

available, to the first qualified applicant to

satisfy the appropriate filing procedures,

which Peninsula Mining did on June 21, 1974.

Utah rejected the lease applications.

On December 11, 1974, Peninsula sued the

State of Utah in the Third Judicial District

Court of Salt Lake County, pleading that Utah

had complied with applicable laws, that title

should have been granted by the Federal Government within a reasonable time, and that

the State was therefore entitled and obligated to issue a lease for the area. On March

5, 1975, proceedings were stayed pending

resolution of Peninsula’s petition to intervene

in the Utah indemnity selection case. The petition was subsequently denied, Utah’s motion

to vacate the stay order and to dismiss the

complaint was also denied by the State court,

and the stay is still in effect .48

In 1976, therefore, the lessees of tracts U-a

and U-b were uncertain of the ultimate identity of their landlord. Depending on court decisions in a number of lawsuits, the landlord

could be the Federal Government, the State of

Utah, or one of a number of private parties.

The uncertainty remains in light of the

Supreme Court decision in Andrus v. Shell Oil

co.

Environmental Problems

The Utah lessees also encountered high

backround levels of naturally occurring air

pollutants during their environmental moni-
54 ● A H/story and Anaylisis of the Federal Prototype 01/ Shale Leas/rig Program

toring programs. The emissions were like regulations promulgated under the Clean Air

those found in Colorado and may have been Act might prohibit further industrial developsimilarly related to natural sources. Because ment, the lessees applied to DOI for a suspenof the ownership conflict and because t h e sion of lease provisions on July 19, 1976.49

Problems With the Environmental Baseline

Under the provisions of the leases, the

lessees were required to monitor air and

water quality, as well as other environmental

characteristics on the tracts and their e n -

virons. The purpose was to compile a body of

data that would define the baseline conditions before development. Any changes after

development started could then be associated

with the related activities. The monitoring

programs were to cover a Z-year period .

Early in the programs, air quality measurements detected concentrations of particulate, hydrocarbons, and ozone that occa -

sionally exceeded the National Ambient Air

Quality Standards (NAAQS) that were promulgated under the Clean Air Act of 1970. *

This situation was regarded as serious at the

time because the Act prohibited additional industrial development in areas of excessive

air pollution, i.e., areas where pollutant concentrations exceeded any of the NAAQS.

The discovery was surprising becaus e

there is very little industry near the tracts. It

was subsequently hypothesized that the pollutants might be emitted by natural sources

within the oil shale areas or by industries and

municipalities outside of the region. Particulate were related to windblown dust; hydrocarbons to emissions from nearby gas -

fields or more likely from sagebrush and

other vegetation; and ozone to long-distance

air transport from the Salt Lake City airshed. 50 51

The leases prohibited further development

until the pollution problem was solved, or until the NAAQS were modified, A DOI official

described the situation as follows: 52

*The laws and standards that regulate air quality in the oil

shale region are discussed in ch. 8 of vol. 1.

When we discovered this to be a problem

we immediately contacted the Environmental

Protection Agency, asked them whether in

fact the situation had to be resolved legislatively or whether it could be resolved administratively. The answer the Secretary received from Administrator Train was that

they believed that in July an amendment then

pending before the Congress would solve the

problem, but barring that they thought they

could deal with it administratively and were

in fact undertaking some studies to determine whether a change in the standards or a

change in the approach to the ambient air

quality problems might be appropriate.

I have received a draft, internal copy, of

their study, which indicates that when they

set the (standards) they did not understand

all the interrelationships between hydrocarbons and oxides, and in fact they may have to

adjust the geographical boundaries for

which they set ambient air quality standards.

If they do, it might resolve the problem,

Without administration or legislative help,

however, I remind you that the situation

presents an absolute impediment; that there

can be no legal action to develop those leases

under the conditions that appear to exist at

this point.

The area of uncertainty in the standards relates to the reactions between hydrocarbons

and nitrogen oxides (both of which are regulated) to form ozone. It was not clear that high

hydrocarbon concentrations would necessarily constitute a health hazard in the oil shale

area where concentrations of nitrogen oxides

were very low.53 What was clear was that the

tracts could not be developed under the law

as then interpreted.
Ch 4–The Changing Scene Between 1974 and 1979 ● 55

The Political Climate

During the mid-1970’s, it was generally

recognized that achieving energy independence would require the cooperation of domestic oil producers, at least in the near term,

However, there were growing concerns about

the high profits that oil companies had made

during the Arab oil embargo, Government

subsidies for fossil fuel production, environmental impacts of energy development, and

the costs of extracting fuels from oil shale,

Pressures mounted to divest the integrated

operations of the major oil companies as a

means for increasing competition in the energy industry.

Perhaps it wa s these concerns tha t

prompted Congress to reject several pieces of

legislation that would have supported synthetic fuel production in general, and benefited oil shale developers in particular. As

mentioned previously, Congress did not pass

the bill that would have allowed Rio Blanco to

use off tract lands, but instead adopted the

language of FLPMA. In 1975, President Ford

proposed an Energy Independence Authority

that would have provided as much as $100

billion for developing new energy sources.

The proposal was not approved by Congress,

Also in 1975, the House of Representatives

struck a $6 billion loan-guarantee provision

from the authorization bill for the Energy

Research and Development Administration

(ERDA). * The provision was strongly supported by the participants in the Prototype

Program, Had it passed, it could have removed some, although not all, of the financial

uncertainty of oil shale development. The

House also rejected a Senate bill that would

have allowed use of public land for research

on in situ processing. In 1976, a bill was introduced to authorize $3.5 billion in loan guarantees and $500 million in price supports for

synthetic fuels. The bill was defeated in committee. When coupled with the economic, geotechnical, environmental, and legal problems,

the political climate led all of the lessees to

reconsider continued involvement in the leasing program.

Suspension Requests

By the end of 1975, the original development concepts for tracts C-a and C-b had

been invalidated. On tract C-b, management

was disrupted by the withdrawal of two of

the original partners. In Utah, the lessees had

no assurance that the development of the

tracts could proceed at all, but the lessees

were sure that resolving the ownership issues

would require months, or even years. For all

of the tracts, obtaining the necessary legislative or administrative solutions to the air

quality problem promised to be a lengthy

process. All of these uncertainties introduced

the strong possibility of significant delays in

the development schedules.

Potential delays were of considerable economic concern to the lessees. The lease terms

required full payment of the first three bonus

payments but the fourth and fifth could be

partially or even fully offset by investments in

tract development. In order to qualify for the

benefits of the offset provision, investments

had to be made prior to the fourth and fifth

anniversaries of the lease sales. That is, at

least one-fifth of the original bonus bid (plus

interest) had to have been spent on the tract

before the fourth anniversary and an additional one-fifth before the fifth anniversary. If

no work were done, the total amount of the

bonus bid would have to be paid to the Government, Therefore, any delays that lowered

the amounts of investment in the fourth and

fifth years reduced the financial attractiveness of the projects. Many millions of dollars

would be lost by each of the participants if in-
56 ● A History and Analysis of the Federal Prototype 011 Shale Leasinng Program

vestments were not made according to original schedules.

The lessees saw only three possibilities:

. to relinquish the leases,

. to expedite preparation of new development plans and to press for resolution of

legal and regulatory uncertainties, or

● to request suspension of lease requirements until the uncertainties could be resolved.

The first choice would have entailed the sacrifice of three-fifths of the bonus bids for a

total financial loss of over $270 million (see

table I ) if all participants withdrew. The Prototype Program would have ended, and its

termination would have eliminated a commercialization opportunity that was still attractive to industry. The second alternative would

have involved much risk, even if only technical crash programs were required that were

completely controlled by the companies.

These risks were magnified by the necessity

of involvement with the courts and the regulatory agencies. The third possibility was allowed by the provisions of the Mineral Leasing Act of 1920, as amended, but only for the

purposes of encouraging the greatest ultimate recovery of the mineral. 54

The lessee’s concerns may have been related to the uncertain economic feasibility of

oil shale development, However, the leases

did not authorize suspensions for economic

reasons. In order to qualify for a suspension,

a lessee would have to provide a justification

in terms of resource recovery and conservation. On March 3, 1976, the remaining tract

C-b partners requested a temporary suspension to study whether lands owned by the

lessees could be exchanged for lands near the

tract, thereby increasing the resource base

that could be concurrently developed and

overcoming some of the problems created by

the weak shale.’)’ The request also cited the

potential conflict with the Clean Air Act regulations, and the need for time to consider

legislation to allow off tract land use. In addition, the transmittal letter mentioned a hostile governmental attitude towards the oil industry, as exemplified by price controls on

petroleum and proposed legislation for severence taxes and divestiture, However, the

principal foundation of the request was the

need for further studies of a concept for developing the tract that would minimize wasting the public’s resources. An 18-month suspension was requested. On August 20, DOI’S

Area Oil Shale Supervisor granted a 12-

month suspension (from September 1, 1976 to

September 1, 1977). The lessees were required to continue environmental monitoring

programs.

On July 2, 1976, Rio Blanco requested a 2-

year suspension on tract C-a, citing the high

background levels of natural air pollutants,

denial of off tract land use, economic uncertainty, the absence of a favorable political

climate, and the need to prepare new development plans that would maximize resource

recovery. 

56 58 DOI granted a l-year suspension

(until September 1, 1977) with the provision

for continuation of baseline environmental

monitoring.

On July 19, 1976, the lessees of tracts U-a

and U-b requested a 2-year suspension, citing

that the time was needed for additional study

to develop methods for improving resource

recovery with acceptable costs, to determine

whether the tracts could be developed in compliance with air quality regulations, and to

develop an economically feasible retorting

technology. DOI granted a l-year suspension

(from November 1 , 1976 to November 1 ,

1977).’>[] Continuation of baseline environmental monitoring was required,

Events During the Suspension Periods

During the suspension period, environmen- removed through actions by the Environmental uncertainties to tract development were tal Protection Agency (EPA) and the State of
Ch 4–The Changing Scene Between 1974 and 1979 ● 57

Colorado. In a letter dated July 5, 1977, to

DOI’S Area Oil Shale Supervisor, EPA’s Region VIII Administrator stated:60]

EPA does not feel that the air quality as

represented by measurements on the Federal

lease tracts precludes the development of

the oil shale resources. Utilization of interpretative rulings, existing regulations, and

policy statements would indicate that if a

facility is designed to meet all appropriate

State and Federal emission regulations and

the applicable “incremental type” ambient

standards, i.e., State and PSD, it may be constructed.

It is noteworthy that the statement implies

that changes in policy were not required to

accommodate development. EPA conclusions were based in part on analyses of the

nature of fugitive dust in rural areas and the

problems with high ozone concentrations in

areas that contained no man-related sources

of ozone or its precursor hydrocarbons.’)’

Since ozone and its precursors can be transported long distances, EPA’s analysis indicated that regulatory actions directed at protecting air quality in rural areas would be

more effective if applied to the distant urban

areas that were the likely sources for the pollutants. In addition, it was indicated that

areas like the oil shale region, which have low

ambient concentrations of nitrogen oxides,

are less subject to air quality degradation as

a result o f hydrocarbon emissions from new

sources (like oil shale plants) than are industrialized urban areas with high concentrations of nitrogen oxides. Because of the insensitivity of ozone concentrations to changes in

the concentration of hydrocarbons, controls

implemented in the oil shale region would

have little effect on ozone levels.

The fugitive dust analysis indicated a difference between dust in urban areas and in

rural areas. Rural dust is generally windblown material from sparsely vegetated land

and unpaved roads. It is typically native soil

and is not contaminated with industrial particulates, absorbed industrial fumes, or other

potentially toxic substances. Furthermore,

dust in rural areas is generally composed of

relatiely large particles: it is the smaller size

particulate that are most harmful to human

health and welfare. Urban dust tends to contain more smaller sized particles, which are

often made up of industrial particulate,

either alone or adhering to natural particles.

These are often contaminated with industrial

vapors and gases, automotive exhaust fumes,

rubber tire particles, and other materials

that have been related to adverse health effects.

In summary, EPA concluded that stringent

hydrocarbon emission regulations in the oil

shale area would have little effect on ozone

concentrations in the atmosphere. It also concluded that rural dust is substantially and

significantly different from suspended particulate in urban areas, and is less likely to

cause harm, even if present in concentrations

in excess of the NAAQS.

The Region VIII EPA Office drafted a rural

ozone policy that allowed construction of new

hydrocarbon sources in rural areas where

baseline ozone and hydrocarbon concentration exceeded ambient air quality guidelines,

provided that the facilities complied with

emission standards and regulations for preventing additional degradation in air quality.

The policy was proposed only if the new

sources were not near cities with populations

larger than 200,000. It was however, never

adopted by EPA in Washington.

A rural fugitive dust policy was also

drafted, but never adopted, that allowed construction of new particulate sources in rural

areas where baseline particulate concentrations exceeded the NAAQS, provided that the

sources complied with emissions standards

and used the best available pollution control

methods. It was proposed that the emissions

from the new sources, when added to emissions from other man-related sources in the

same area, could not exceed the particulate

standard developed for the area.

The second environmental problem was related to the standards for prevention of significant air quality deterioration (PSD) that

were proposed by the Colorado Air Pollution

Control Commission for controlling sulfurdi-
58 . A History and Analysis of the Federal Prototype 011 Shale Leasing program

oxide (S02) concentrations. The Colorado

standards that applied to the oil shale region

are compared below with the corresponding

Federal standards.

Allowable increase in SO2

concentration, g/m 3

Colorado PSD

Federal PSD standard for

standard for Category I

Class 11 areas ureas

Annual average . . . . . . . . 15 3

Maximum during any

24-hr period . . . ., . . . . 100 15

Maximum during any

3-hr period ., . . . . . . . . 7 0 0 7 5

An atmospheric dispersion modeling study

performed by the Colony Development Operation indicated that the Colorado 3-hour PSD

standard could not be satisfied by even the

smallest practical oil shale retort, and would

certainly be exceeded by a commercial-scale

retort even if the best available air pollution

control methods were used. Thus, oil shale

plants would be prohibited in Colorado’s oil

shale regions. 62 In March 1977, hearings

were held concerning the proposed regulations. Considerable testimony was presented

both favoring and opposing the regulations.

The PSD standards for the oil shale region

were subsequently revised to agree with the

Federal standards. (l’ According to the Colony

study, this revision would have permitted an

industry of at least 400,000 bbl/d in the Piceance basin. 64 It also would allow other developments (such as powerplants) to be built in

the oil shale area and other parts of the State.

Also during the suspension periods, the

technological approaches to developing

tracts C-a and C-b were revised. As noted

previously, Tosco Corp. and Atlantic Richfield withdrew from the C-b tract in December 1975 as a result of escalating project cost

estimates. On November 2, 1976, Shell Oil Co.

withdrew from the tract because of continued economic uncertainties, and on November 4, Ashland Oil Co. (the last of the original

four participants) announced a partnership

with Occidental Oil Shale, Inc. The companies proposed to develop tract C-b with Occidental’s modified in situ (MIS) retorting

technology. * MIS processing reduces the

need for aboveground facilities because the

retorts are underground. Waste disposal, although still a substantial problem, is considerably less than in aboveground retorting

operations. Because large, permanent underground openings are not needed, the technique was believed to be applicable to structurally weak shale deposits like those encountered on tract C-b. Furthermore, it was

claimed at that time that MIS processing

would produce shale oil for about half the

cost of aboveground retorting, and that resource recovery would increase fourfold

(from 300 million to 1.2 billion bbl).

On March 1, 1977, the tract C-b lessees

submitted a modified DDP to DOI’s Area Oil

Shale Supervisor that changed the approach

to tract development to MIS processing. On

May 25, Rio Blanco submitted a plan for developing tract C-a by MIS methods, rather

than by open pit mining and aboveground retorting as originally proposed. At the same

time, Rio Blanco also applied for an extension

of the suspension period beyond the September 1 deadline, if the problems with environmental baseline measurements were not resolved prior to that time. The request was

denied because the issue was resolved by the

EPA Regional Administrator on July 5. On

August 30, DOI approved the modified DDP

for tract C-b’s MIS operations. On September

1, suspensions for tracts C-a and C-b were

terminated. On September 22, DOI approved

the modified DDP for tract C-a.

The suspensions for Utah leases were not

terminated at the original November 1 deadline. On April 17, 1977, the Utah lessees filed

a complaint in the U.S. District Court in Salt

Lake City, seeking an injunction against the

Federal Government to prevent continuation

of the lease provisions until the issues surrounding ownership of the lease tracts were

resolved. On July 1, Judge Ritter granted the

injunction because:65

a. If plaintiffs proceed with development of

the leased deposits, they would be sub-

*MIS processing and other oil shale technologies are described in ch. 5 of vol. 1.
—..-——

Ch 4–The Changing Scene Between 1974 and 1979 ● 59

ject to the risk of losing the monies and

resources expended in development.

b. If plaintiffs retain the leases, but do not

proceed with development, they would

suffer the loss of monies paid as bonus

payments that otherwise could be spent

on development.

c. If plaintiffs relinquish the leases, they

would risk the loss of the monies expended to date on bonus and rental payments and preparation of the Detailed

Development Plan,

The injunction was issued with an effective

date of May 31, 1977, and was to continue until ownership of the land and the right to develop the tracts were settled by the resolution

of the suits between Utah and DOI, Peninsula

Mining and Utah, and DOI and the holders of

rights to unpatented mining claims.

Resumption of Activities and Current Status

Tract C-a

In January 1978 shaft sinking began on this

tract in preparation for a modular MIS retort

demonstration program. The program was to

involve five sequential retorts of increasing

size, and was to be completed by 1981. These

retorts were to be based on a concept developed by DOE’s Lawrence Livermore Laboratory. They were to lead to commercial-scale

operations by 1987 in which MIS retorts

would be used in conjunction with TOSCO 11

retorts to produce 76,000 bbl/d of crude shale

oil. In 1979, Rio Blanco executed a licensing

agreement with Occidental Oil Shale that

provided access to proprietary technical information acquired during Occidental’s field

experiments with MIS retorting. Also in 1979,

Rio Blanco submitted another modified DDP

in which its schedule was changed to include

the operation of three modular MIS retorts

through 1981. The first retort will be about 3 0

ft on each side and 200 ft high, and will be

used to develop techniques for rubbling and

combustion. It was-scheduled to be burned in

June of 1980, The second retort will be 60 ft

on each side and 400 ft high and will also be

burned in 1980, The third experiment may involve two parallel retorts, each 60 ft on each

side and 400 ft high, or a single retort measuring 60 ft by 150 ft by 400 ft high, Rubbling

will be completed late in 1980 and the burn is

scheduled for mid-1981. Additional retorts

may be constructed and burned after the end

of 1981. The retorts will probably be of commercial size and may be as high as 700 ft.

Rio Blanco is also considering Lurgi-Ruhrgas aboveground retorts to process the shale

that must be mined to create the in situ retorts. Current plans are to invest $100 million

in a modular retort development program in

which a 4,40@ ton/d Lurgi-Ruhrgas module

would be used to produce about 2,000 bbl/d of

crude shale oil. An agreement for the engineering design phase of the program was

signed by Rio Blanco and American Lurgi

Corp. on July 16, 1979, The plant could be in

operation within about 3 years. Commercialscale operations at about 76,000 bbl/d could

be attained by

project delays.

In February

1987 if there are no further

Tract C-b

1978, a contract was let for

shaft sinking on this tract in preparation for

an MIS retorting demonstration, Shaft sinking and the preparation of surface facilities

began in early 1978 and are continuing. On

December 15, 1978, Ashland Oil Co. announced its withdrawal from the tract effective February 14, 1979, leaving Occidental as

the sole developer. Ashland’s decision was

prompted by:66

. . . economic studies that suggest increased capital and operating costs may reduce profitability in the face of technical, political and regulatory uncertainties. This decision is in keeping with Ashland’s corporate

policy to emphasize projects that promise

cash flow commensurate with capital requirements.
60 ● A H/story and Analysis of the Federal Prototype 0il Shale Leas/rig Program

Ashland transferred its share of the lease to

Occidental at nominal cost, but retained the

right to recover its development investment of

about $37.5 million from any sales revenues

that may ultimately result from commercial

operations on the tract,

On July 25, 1979, Occidental sold a halfinterest in the tract for $110 million to Tenneco Oil Co. The tract will be developed jointly by the companies, Tenneco would have full

rights to use Occidental’s MIS technologies

both on the tract and in any other development ventures in which it may become involved. Full-scale commercial production of

57,000 bbl/d is anticipated in 1986. No plans

have been announced to process the mined

shale in aboveground retorts.

Tracts U-a and U-b

Ownership of these Utah tracts is still uncertain. Although the U.S. Supreme Court

found in favor of the Federal Government in

the in-lieu lands case, they found in favor of

the Colorado claimholders in the case of the

unpatented mining claims. Although the

claims in question are in Colorado, the outcome could have implications for future development in Utah. If the precedent is applied

to the unpatented mining claims overlying

tracts U-a and U-b and if these claims were

declared valid under the precedent of the

Shell Oil decision, the existing Federal leases

in Utah could be affected, The issue remains

unsettled as of the time of this writing.

Chapter 4 References

‘Department of the Interior, Prospects for Oil

Shale Development—Colorado, Utah, and Wyoming, May 1968, pp. 40-79.

‘R. N, Hall and L. H. Yardumian, “The Economics of Commercial Shale Oil Production by the

TOSCO II Process, ” paper presented at the 61st

Annual Meeting of the American Institute of

Chemical Engineers, Los Angeles, Calif,, Dec. 5,

1968.

‘The National Petroleum Council, U.S. Energy

Outlook—An Interim Report, Washington, D. C,,

1972,

4

S. Katell and P. Wellman, An Economic Analysis of Oil Shale Operations Featuring Gas Combustion Retorting, Bureau of Mines Technical

Progress Report No. 81, 1974.

‘J. C. Whitaker, Striking a Balance—Environment and Natural Resources Policy in the Nixon-Ford Years, American Enterprise Institute for

Public Policy Research, Washington. D. C., 1976,

pp. 221-236.

‘

)

J, J. Schantz, Jr,, and H. Perry, “Oil Shale—A

New Set of Uncertainties, ” Natural Resources

Journal, vol. 18, No. 4, October 1978, pp. 775-785.

J, F. Nutter and C. S, Waitman, “Oil Shale Economics Update, ” paper presented to the Southern

California Section, American Institute of Chemical Engineers, Anaheim, Calif., Apr. 18, 1978.

“E, D. Oliver and A. J, Moll, “Economic Feasibility Studies in Times of Rapid Cost Escalation, ”

Chemtech, September 1977, pp. 551-552.

‘C. S. Gist, et al., “A Simple Method for Evaluating Alternatives to a Proposed Environmental

Alteration, ” Quarterly of the Colorado School of

Mines, vol. 70, No. 4, October 1975, pp. 29-74.

10Rio Blanco Oil Shale project, Detailed Development Plan: Tract C-a, Gulf Oil Corp. and Standard

Oil Co. (Indiana), March 1976, pp. 7-2-1 to 7-2-20.

“Department of the Interior, Final Environmental Statement for the Prototype Oil Shale Leasing

Program, 1973, p. HI-11.

12Ibid., at p, IV-18.

13Ibid., at p, IV-48.

1438 Federal Register, 33188, Nov. 3, 1973.

15Hearings on Oil Shale Development Part 11,

Subcommittee on Mines and Mining of the House

Committee on Interior and Insular Affairs, 93d

Cong., 2d sess., Feb. 25-26, 1974, Committee Serial 93-37, pp. 77-78.

16Ibid., at p, 67.

17Ibid,, at p. 66.

18Ibid., at p. 63,

19Ibid., at p. 68.

20WiJderness Society v, Morton, 479 F. 2d 842

(1973), cert. denied, 411 U.S. 917.

“Hearings on Spent Oil Shale, Subcommittee on

Mines and Mining on the House Committee on Interior and Insular Affairs, 94th Cong., 2d sess.,
Ch 4–The Changing Scene Between 1974 and 1979 ● 61

June 21, 24, and 29, 1976, Committee Serial 94-62,

p. 19.

‘G. L. Snyder, letter to J. C. Reed, Jr., Chief, Office of Environmental Geology, U.S. Geological

Survey, Ivlar. 13, 1975,

- ‘Supra No. 21, a t p. 31.

~ l(~il Shale Lwlsing, Hearing before the Subcommit tee on Minerals, Materials, and Fuels, (l]mmi ttee on Interior and Insular Affairs, U.S. Senate,

94th Cong,, 2d sess., Mar, 17, 1976, pp. 9-24.

-’H,R. 1622, 94th Cong., 2d sess. See also supra

No. 21, at pp. 9-12.

“)90 Stat. 2786, 43 U.S.C. 1701 et seq. (1977

Supp. ).

- Unitc~i St~ites v. Sweet, 245 U.S. 563( 1919).

-’+44 Stat. 1026-1027 [Act of January 25, 1927,

ch. 57).

(’For a discussion of these changes, see Cameron En8ineers, Inc., Synthetic Fuels, vol. 11, No. 1,

hlarch 1974, p. 2-22,

“’Supra No. 29, at p. 2-23.

“48 Stat, 1269 (1 934], 43 U.S.C. 315 et seq. For

discussion, see Rocky hloun ta in Division, the Pace

Companv Consultants and En~ineers. Inc., C(lmcron S~7n thetic F’ucl.s Report, VO]. 16, No. 3, Sep -

tember 1979, p. 5-11.

‘Supra No. 29, at p. 2-23.

{ ‘Supra No. 31, ~;[~mer[)n Heport at p. 5-13.

“Supra No. 15, at pp. 124-125.

{ Unreported decision; U.S. District Court,

Southern District of CJtah, Judge Ritter, May 25,

1976. F’or discussion, see supra No. 31, at p. 5-14.

“’586 F. 2(1 756( 1978).

‘ An(~rus v. UtfIh, – — U.S. – —, No.

78-1522, hla~r 19, 1980 (Slip Opinion).

“{4 1 stat, 4:37 ( 1 920), 30 U. S.(;, 193.

‘“‘Potenti[il Future Role of Oil Sh:ile: Prospects

:i nd Cons train ts, Project In(fepenflence Task

l’{~rc[~ Iiep[~rt, 19741 pp. 92-98,

“’ht. hfelich, memorandum to the Assistant Secret:~ ri for Public I,and hlanagernent, Department

of the Interior, Oct. 28, 1971.

1’She~) [ji] V. ~rL(/ru,s, 426 h’ Supp. 894 (D, Co].

1 977].

‘JFreemun v. Summers, 52 L,D, 201 ( 1927).

4{ Hearings on S. l?esl .37{] Before the Sen(~te

Comm. on Public Lands and Surveys, 71st Cong.,

3d sess, 22, 24 (1931),

‘

} Supra No. 42, at pp. 206-207.

‘r7Andrus v, SheiJ oil Co., 591 F. 2d 597 (lOth

Cir., 1979).

1’)Andrus v. Shell oil Co., U.S. . No.

78-1815, June 2, 1980 (Slip opinion).

‘-Ibid., n. 11, p. 15. U.S. v. Colernun, 390 U.S. 599

(1968).

“JFor discussion, see Cameron Engineers, Inc.,

Synthetic Fuels Quarterly Report, vol. 14, No. 3,

September 1977, p. 5-28.

4’)He(]rings on Oversight—Pr{)t[)ty~le Oil Shale

Leasing, Subcommittee on Minerals, Materials,

and Fuels of the Senate Committee on Interior and

Insular Affairs, 94th Cong,, 2d sess.. Nov. 30,

1976, pp. 76-80.

‘

)

’’ Ibid., at p. 3.

‘l Ibid., at p. 51,

‘JIbid., at p. 3.

‘{ Ibid., at p. 62.

‘

] Ibid.. at p, 58.

‘

)

’Ibid., at p. 73.

‘

l

’ Ibid,, at p. 66,

‘ I Ibid., at p. 49,

‘

l

’

{ Truct C-a Annual Progress Report, Septemher

1977 - December 1978, Rio Blanco Oil Shale Cot,

Denver, Colo., March 1979, p. 1-1-2.

‘

l

’

) Supra No. 49, at pp. 71.72, and 76-80.

‘“J. A. Green, EPA Region VIII Administrator,

letter to P. A. Rutledge, Area Oil Shale Supervisor, July 5, 1977,

‘ll Supra No. 49, at pp. 101-105.

‘%ameron Engineers, Inc., Synthetic Fuels, vol.

14, No. 2, June 1!377, p. 2-6.

‘

l{ Supra No. 48, at pp. 2-12 and 2-13.

‘

)} Supra No, 62.

““]Supra No. 48, at p. 5-19.

‘l’lPrototype oil Shale Leasing Program, Department of the Interior, U.S. Geological Survey, Area

Oil Shale Office, Grand Junction, Colo., Jan. 15,

1979, p. 15.
CHAPTER 5

Key Issues in the Prototype Program
—.. —

CHAPTER 5

Key Issues in the Prototype Program

Introduction

During the Program’s designn phase and at

the time of the lease sales, it was widely

assumed by Government and industry spokesmen that shale oil production was close to

commercial feasibility and that commercialization efforts would commence once industry

was allowed access to rich oil shale deposits

on Federal lands. Thererefore, the Program

was focused solely on the leasing issue. I t

lacked some of the features of Secretary

Udall’s program. such as consolidating scattcred private holdings and clearing disputed

land titles. It also did not provide supporting

R&D to resolve the technical problems that

were apparent at the time and, more importantly, to provide expertise when new problems were encountered on the tracts. All of

these efforts and capabilities rested in other

branches of the Department of the Interior

(DOI) or in other Federal agencies.

These deficiencies were partially compensated for by other aspects of thc Program

such as the ‘involvement of State government

and public in the design and subsequent

phases, the leasing terms, and the provisions

for environmental protection. In addition it

was intended that the Program change over

time as knowledge was gained and problems

encountered. Many such problems arose as

the Program proceeded. These, along with

the uncertainties they engendered, slowed

the Program’s progress, disrupted the original development schedules, and raised serious doubts about continuation of the entire effort. This chapter summarizes some of the

technological, political, legal, environmental,

and economic issues that surrounded the Program, and describes their effects on its

schedules and status.

Technological Issues

The problems with

were encountered on

low rock strength that

tract C-b led the lessees

first test retort, and a struct

curred in the second retort soon

to adopt modified in situ (MIS) processing; development schedules were delayed by at least

a year as a result.. Technologica1 uncertainties were also associated with MIS because it

had not been tested in shales similar to those

found on C-b. Similar complications arose

when Rio Blaco decided to switch from open

pit mining and above-ground retorting to MIS.

Process development work for the MIS

technique includes partial Government funding of a retort development program on Occidental’s land along Logan Wash in Colorado.

In Phase I of this project, the Department of

Energy (DOE) provided $14 million for comparing two retort designs that were being

considered for commercial-scale operations

on tract C-b. Oil recoverv was poor from the

ural failure ocn after the rubble was ignited. Operation of the second retort (the sixth that Occidental has created a t

Logan Wash) has been completed and data

have been acquired, However, MIS appears

to have some technological problems. * To expedite the development of the first commercial-scale retort, the second design will be

further tested in Phase II, also at Logan

Wash. The Government is contributing $ 24

million (52 percent) of the Phase 11 cost.

The tract C-a lessees are also in the process-development stage as a result of their

adoption of MIS methods. As mentioned previously, this tract original MIS concept was

* The problems with MIS and the other developement technologies are discussed in ch. 5 of vol.I
66 ● A History and Analysis of the Federal Prototype Oil Shale Leasing Program

based on technology developed by the Lawrence Livermore Laboratory. It comprises a

mathematical model supported by small-scale

experiments in simulated in situ retorts. Rio

Blanco had planned to advance its status

with a modular retort development program

on tract C-a. Now that Rio Blanco has access

to Occidental’s MIS technology, it should be

possible to accelerate the program. Shaft

sinking in preparation for the modular program has been completed, However, problems with large inflows of ground water necessitated modifying the mining plan and delayed the ignition of the first retort. The possibility of testing aboveground processes also

exists with the announcement that Rio Blanco

has obtained a license to investigate the use

of Lurgi-Ruhrgas retorts for the mined portion of the shale.

It should be noted that DOE—and its predecessors the Federal Energy Administration

and the Energy Research and Development

Administration—has been the primary Federal agency stimulating private industry’s development of commercial oil shale technologies. DOE has, and continues to finance a variety of mining and processing technologies.

Some projects are of an R&D nature; others

are specifically aimed at commercialization. *

Certain goals of the Prototype Program,

therefore, are being supported outside the

formal framework of the Program,

*See vol. I, ch. 5, p. 172 for a description of DOE’S programs.

Environmental Issues

Oil shale development, and the Prototype

program in particular, is permeated with

highly controversial issues, because the physical and social environments will be altered.

Careful planning and numerous safeguards

will be needed to confine the disruptions to

acceptable levels. This reality was acknowledged by the Program’s authors and by the

tract lessees whose development work is governed by environmental statutes and who

state support for protecting the environment.

The developers are also concerned about environmental standards that could preclude

profitable projects.

To the proponents of oil shale development,

the potential economic, social, and environmental benefits appear to outweigh the disadvantages. They maintain that the only way to

obtain the benefits is to proceed with development while concurrently working on control

and restoration techniques to minimize the

ecological damage. They further maintain

that sufficient work has been done with respect to spent shale disposal, airborne emissions, and land restoration, and that there is

adequate information to justify taking the

next step.

Oil shale’s critics, on the other hand, maintain that there are more attractive energy

sources than shale oil, that critical environmental information is lacking, and that it will

be very difficult, if not impossible, to develop

oil shale without unacceptable environmental

damage. They further maintain that commercial-scale facilities should not be permitted

until there are better answers to the technological and environmental questions. They

generally approve of Government support of

research activities aimed at answering these

questions. However, they view as inappropriate any Government actions that are directed

at near-term commercialization, land exchanges for the purpose of creating commercial-size tracts, attempts to lease additional tracts within the Prototype Program,

large-scale subsidy programs, offtract waste

disposal, increases in lease tract size to encourage larger scale operations, and suspensions of leasing provisions in an attempt to

avoid due diligence requirements.

Proponents and critics also disagree about

the overall purpose of the Prototype Program,

at least with respect to its goal of environmental protection. The Secretary of the Inte-
—

Ch. 5–Key Issues In the Prototype Program ● 67

rior, in his decision statement regarding the

Program, identified as one of its major goals:1

To insure the environmental integrity of

the affected areas and, concurrently, define,

describe, and develop a full range of environmental safeguards and restoration techniques that can reasonably be incorporated

into the planning of a mature oil shale industry.

This statement has led to much controversy.

For example, the phrase “insure integrity’*

could be interpreted to imply preservation of

the existing environment. This would preclude oil shale development on any scale as

well as many other activities within or near

the affected areas. Another interpretation

would imply that adverse impacts will be

minimized and mitigated and that some form

of ecological balance, although not necessarily the original one, will be established on completion of the development work. This interpretation would allow development if undertaken in recognition of environmental requirements and regulations. Critics tend to

prefer the former interpretation; proponents

the latter. The phrase “that can reasonably

be incorporated, ” similarly allows differing

interpretations.

In 1976, a DOI official restated the Department’s philosophy regarding the Prototype

Program as follows:’

The Department of the Interior has not

changed its views on the importance of our

oil shale resources and the value of the Prototype Program to learn how best to develop

this resource under strict controls. In announcing suspension of operations on August

20, 1976, the Secretary stated that “We have

not relinquished our goal of demonstrating

the feasibility of shale oil production on a

commercial basis. “ The Department does not

consider the problems facing oil shale development to be insurmountable either individually or in aggregate.

Some environmental conservation groups

have identified these and other aspects of the

Program as basic inconsistencies. They maintain that commercialization cannot proceed,

nor can a base for such commercialization be

established, while maintaining environmental

integrity. Although DOI incorporated environmental protection provisions into the tract

leases, critics have expressed concern that

these provisions are not adequate to prevent

damage to the physical and social environments. They argue that the Program should

have been structured as an R&D effort,

rather than as the first step towards a commercial oil shale industry. Some concerns

over the evolution of the Program were expressed by a representative of the Colorado

Open Space Council in 1977 testimony before

the Senate:

The prototype program is still active but it

is a much different beast than the limited, experimental program as advertised. Serious

problems have plagued the program since

the final design was announced in November

1973. We trace these problems to the continuous efforts to re-define and/or expand

the program and the lack of specific criteria

by which to judge the success or failure of

the program, to govern the workings of the

program and time limits. These efforts have

been made by the lessees, the Department of

Interior and other Federal agencies, and by

Congress. In other words, instead of running

a carefully controlled and defined experiment, whose results of success or failure

would be equally informative, it has been an

attempt to make it succeed by almost any

means . . . I would like to briefly list the

items: One is suspension of bonus payments

due on the oil shale leases, . . . the attempt to

add two more lease tracts supposedly for in

situ development to the prototype program,

land trades that have been proposed, subsidy programs that have been proposed, and

off-site dumping.

DOI has not accepted the definition of the

Prototype Program as an R&D project, and

has continued to act to support facilitating

development of a base for an oil shale industry. Officials emphasize that one of the

Program’s major objectives was to develop

*The statement also critixized DOI's actions with respect to

preparation of an environmental impact statement (EIS) for the

Colony project, These actions were taken outside of the Program and With not he discussed here. The additional leases proposed for in situ developement are discussed later
environmental safeguards and restoration

techniques in conjunction with establishing

an industrial base. They maintain that only

with such a base can environmental impacts

be determined, and mitigation procedures

verified or disproved.

Along with their perception of inconsistent

goals, critics of the Prototype Program have

stated that the Area oil Shale Supervisor

(DOI’s control official for the lease tracts) is

forced to act in the dual role of promoter and

regulator and that these roles conflict to the

detriment of maintaining the environment. On

the one hand, the Supervisor is responsible

for advancing the Program in a timely manner. On the other hand, he is required to ensure that regulatory laws are obeyed, even

though adherence may disrupt or delay activit ies on the lease tracts, Critics have expressed the concern that, with his dual responsibility, the Supervisor may choose the

promoter role too often.

Some environmental activist groups also

claim that they were improperly excluded

from the design phase of the Prototype Program, and that they have subsequently been

excluded from the decisionmnaking processes

that have shaped its evolution. In particular,

they claim that the Oil Shale Environmental

Advisory Panel, which was established by

DOI to review the program’s actions and advise the Supervisor on key environmental

issues, is not truly a public body. Concern has

been expressed that the panel included too

many representatives of Government agencies and interest groups that may have a prodevelopment bias. In this regard, 3 of the 3 0

members of the original panel were associated with environmental activist groups. The

panel was recently reconstituted, and now

comprises 26 representatives of the following

organizations:

 the Bureau of Land Management;

● the U.S. Geological Survey:

 the Bureau of Mines;

● the Fish and Wildlife Service;

 the Water Power Resources Service (formerly the Bureau of Reclamation);

● the Bureau of Indian Affairs:

the Solicitor General’s Office of DOI;

the Environmental Protection Agency

(EPA);

one from each of certain Federal executive branch departments;*

two each from the State legislatures and

agencies of Colorado, Utah, and Wyoming, to be designated by the respective

Governors;**

one each from the regional planning

commissions or boards of supervisors in

areas of Colorado and Utah that include

the lease tracts; and

four to be designated by the Secretary of

the Interior including two persons active

in environmental or other public interest

matters and two persons active in industry or energy matters.***

Differences both in perception and in value

judgments have made environmental issues

the most highly polarized of oil shale’s many

issue areas. Disputes will no doubt persist for

the duration of the Prototype Program, and

will certainly be encountered in any other

commercialization programs. It is anticipated

that environmental conservation groups will

continue to monitor activities on and off the

lease tracts, and will appeal to the courts for

relief when they feel that environmental statutes are being violated. To date, appeals to

the courts have not significantly affected developer schedules.

Just as some of the technological goals of

the program are being met by DOE, some of

the environmental ones are being met by EPA.

An annotated listing of the Agency’s research

can be found in EPA’s Program Status Report,

“Oil Shale 1979 Update. ”’4 This publication
— .

Ch 5–Key Issues in the Prototype Program ● 69

provides details of EPA’s multimillion-dollar the support from DOE, this work falls outside

funding of oil shale environmental R& D.* Like The specific framework of the Prototype Pro- —

Many of these efforts are discussed in Ch.8 of vol.1. gram.

Legal and Political Issues

Legal and political uncertainties have pervaded the Prototype Program since its inception, One of the more complex legal issues

W a S associated with the ownership of the

Utah lease tracts. The suit over the in-lieu

lands has now been settled in favor of the

Federal Government. The issue of unpatented

mining claims, however, appears to be further clouded. The Court decided in favor of

the owners of unpatented mining claims in

Colorado, and if the decision is applied to unpatented claims overlying the Utah lease

tracts, ownership of the tracts could revert to

private parties, Continuation of tract development would then depend on negotiation with

the new owners.

‘The magnitude of the potential effects of

the validation of other pre-1920 claims will

depend on their number and location. Between 36,000 and 40,000 oil shale placer

claims were located before 1920 in the tristate region. Between 1920 and 1960, when

DOI stopped issuing patents, 2,326 claims

covering 349,088 acres were patented, In

1968, based on a detailed analysis in Colorado and on old records and a preliminary

review in Utah and Wyoming, DOI estimated

that there were approximately 36,000 unpatented shale claims remaining. There were

also about 16,500 unpatented metalliferous

claims that were located mostly during a

claims rush in 1966-67, just before withdrawal of oil shale land from any further locations

of any kind of mining claims. Most, if not all,

of these metalliferous claims have been canceled for lack of discovery or failure to satisfy

other requirements of the Mining Law See

table 3.

The pre-1 920 shale claims, according to

the DOI estimates, encompassed approximately 5 million acres. This is roughly twothirds of the Federal and half of the total land

with commercial potential. (See table 4), In

Colorado, the estimated 400,000 acres of unpatented claims generally are located along

the southern and western edges of the Piceance basin. The center of the basin, where

the richest shale lies and the present Prootype leases are located, is almost entirely

Federal land for the most part free of

pre-1920 claims. The claims in Colorado encompass only about one-fourth of the Federal

total acreage. In Utah and Wyoming, however, over two-thirds of the Federal land had

overlying unpatented claims, according to the

1968 DOI estimates, although it has been

more recently reported that no pre-1920

claims remain in Wyoming.5

More accurate and timely information

about the number and location of the unpatTable 3.–Mining Claims in the Tristate Oil Shale Region, 1968

Pre 1920011 shale

Post 192(I metalllferous

Dawsonite

Platinum

Gold gilsonite uranium others

Subtotal metalilferous

Total claims

Colorado

9000

3,450

2 150

600

6200

Number of claims

Utah Wyoming

15,000 12000

1,750 —

3550 5000

5,300 5,000

20 300 17000

.

Total

36,000

5,200

2 ,150

9150

16500

52. 500
70 . A History and Analysis of the Federal Prototype Oil Shale Leasing program

Table 4.–Nature of Claims on Oil Shale Lands With Commercial Potential, 1968

(thousands of acres, estimated)

Land with commercial potential

Tota l

Federally owned

Percent of tota l

Non-Federal oil shale land

011 shale patents

Indian, State, homestead, etc

Subtota l

Percent of total land

Unpatented claims

Pre-1966 (almost all 011 shale)

Percent of Federal lan d

Percent of total

1966-67 (all metalllferous) b

Percent of Federal land

Percent of total land

Total clalm s

Percent of Federal land

Percent of total lan d

Federal land without unpatented claims

Percent of Federal land

Percent of total land

Colorado—

1,800

1,420

79’YO

260

140

400

22%

400

28’Yo

22%

700

49Y0

39%

1,100

77’0/0

617,

320

23Y0

18’Yo

d unoffl Lld~ l

y rep~rfed~o have been sileo See reference 5

b n most c~ses canceled See :ext

Utah

4,900

3,780

77Y0

1,100

22%

2,600

69Y0

53Y0

400

11%

8Y0

3,000

79%

61 ~,

780

21 ?0

16’?/0

Wyoming Total —

4,300 11,000

2,670 7,870

62’Yo 72%

90 350

2,610 2,750

1,600 3,100

37?0 28Y0

2<200’

82%

51 Yo

400

15Y0

9%

2,600

97Y0

60Y0

70

3%

2Y0

5,200

66Y0

47’YO

1,500

19Y0

1470

6,700

85%

61‘h

1,170

1570

11 “/0

SOURCE Of flee of Technology Assessment derived Iron] Oeparlment of !he Infer,or data

ented claims should be available soon, Section 314 of The Federal Land Policy and Management Act (FLPMA)6 requires, for the first

time, that mining claims be recorded with the

Federal Government. The owner of an unpatented claim must have filed before October

22, 1979 (and must file before December 31 of

each subsequent year), with the appropriate

State land office, either a notice of intention

to hold the claim or an affidavit of any assessment work that was performed. A copy of the

notice or affidavit, including a description of

the location, must also be filed with the Bureau of Land Management in DOI, With this

information, it will be possible to determine

the possible effects of any future validation of

unpatented shale claims.

Two issues related to environmental protection have prompted legal action. The first

case began on December 21, 1976, when the

Environmental Defense Fund, the Colorado

Open Space Councilf the Friends of the Earth,

and the Denver Audubon Society filed a suit

against DOI that questioned DOI’S authority

to grant suspensions of lease terms. The case

was dismissed without prejudice because of

improper jurisdiction, and because indispensable parties (the lessees) were not included

among the defendants,

The second case opened on December 6,

1977, when the Environmental Defense Fund,

the Colorado Open Space Council, and the

Friends of the Earth filed suit in the U.S.

District Court in Denver seeking an injunction

against further development of tracts C-a and

C-b until site-specific EISS for each of the

tracts were prepared and processed according to the procedures established under the

National Environmental Policy Act (NEPA).

The defendants were the Secretary of the Interior, the Area Oil Shale Supervisor of the

U.S. Geological Survey, the director of the

Colorado State Office of the Bureau of Land

Management, Gulf Oil Corp. and Standard Oil

Co. of Indiana (the C-a lessees), and Ashland

Oil Co. and Occidental Oil Shale, Inc. (the C-b

lessees at that time).

The plaintiffs maintained that NEPA had

been circumvented in that the development

methods proposed for both tracts had not
Ch 5–Key Issues In the Prototype Program ● 71

been described and their effects evaluated in

the 1973 EIS which, according to the plaintiffs, only evaluated the leasing of lands,

Thus, a new site-specific EIS was required

for each tract. Approval of the detailed development plans (DDPs) in the absence of such

analyses was therefore unlawful. According

to the plaintiffs, the sole issue in the litigation

was the adequacy and the legality of the procedures followed in preparing, reviewing,

and approving the DDPs, The plaintiffs’ motion for summary judgment stated:7

Specifically, the plaintiffs contend that the

federal defendants must prepare and circulate an environmental impact statement

(“EIS”) prior to acting upon detailed development plans (“ DDPs’”) submitted by the lessees of federal prototype oil shale tracts C-a

and C-b and the numerous associated rightof-way applications across federal lands

. . . . It is crucial to note what plaintiffs’ motion does not seek. It does not seek to terminate the prototype oil shale leasing program.

It does not seek to force the lessees to relinquish their leases. It seeks only to have this

court require the federal defendants to prepare an EIS which analyzes the serious environmental and human health risks posed by

planned operations on the federal oil shale

tracts and by the associated rights-of-way

prior to approving these plans.

In response to this motion and the plaintiffs’ extensive exhibits, the defendants submitted a memorandum and exhibits that included the 1973 EIS, the modified DDPs for

the tracts, reports of public meetings held in

regard to the DDPs, and other supporting reports and correspondence. Judge Finesilver

reviewed the various submissions and other

information for several months. On August

28, 1978, he delivered a bench ruling upon

cross motions for summary judgment. The

record includes the following remarks:8

In summary, we have found that the agency

decisions made in ‘ 77 and ‘78 which determined that the DDPs and several rights-ofway applications could be approved without

the preparation of supplemental EIS and

made in full compliance with procedures

mandated by NEPA, those decisions cannot

be set aside by the Court, nor is there sufficient showing to warrant this Court in reversing that action , . . We are of the view

that there has been compliance by the Defendant, the Federal Defendants in this case

within the spirit and tenor of NEPA within

the parameters of the EIS . . . That there is

no viable action that has been substantiated

that would lie against the Defendants in this

case, The spirit and tenor of NEPA has continued throughout the implementation and

operation of the leases . . . We are of the

view further that the compliance of the Federal officials in this case has not been the

minimum mandated by NEPA or Federal regulations, but it has gone above and beyond

what we can describe as the minimal standards have (sic) that the compliance of activity by the Federal Defendants has been extensive in this project . . . Appropriate judgment

shall enter in favor of the Defendants, and

each of them individually against the Plaintiffs.

The plaintiffs appealed, and Judge Finesilver’s decision was affirmed by a three-judge

panel of the Ioth Circuit Court of Appeals in

April of 1980. A petition for a rehearing en

banc was denied. Plaintiffs had not decided

as of this writing, whether to appeal further.

Changes in the interpretation of environmental regulations have had immediate implications both for the Prototype Program and

for other developments that were being considered for the oil shale region. An example is

the questionable significance of the high

background levels of particulate, hydrocarbons, and ozone that were measured on the

lease tracts during the baseline monitoring

programs, This potential problem was identified by the lessees as a justification for the

suspensions in 1976. The ruling of EPA’s Regional Administrator, which was based on

analysis of the origin of ozone and hydrocarbons and the properties of rural fugitive dust,

appeared to remove the impediment to development, allowing a resumption of activities

late in 1977.

However, on March 3, 1978, EPA headquarters in Washington declared that Rio

Blanco County (in which tracts C-a and C-b

were located] and the southern half of Uintah
72 ● A History and Anaylis of the Federal prototype Oil Shale Leasing program

County (including tracts U-a and U-b) were

not in compliance with air quality standards

because of high ozone concentrations.” This

ruling was a reversal of EPA’s position in

mid-1977. It restored the impediment because

major construction, that would have increased the extent of the violation, would be

banned. The tract C-a lessees, Occidental Oil

Shale, and Rio Blanco County subsequently

petitioned the Circuit Court of Appeals to review EPA’s latest decision,10-12 1: The petitions

were filed on April 4, 1978. On September 11,

before the court could rule on the merits of

the case, EPA again reversed positions and

designated the areas as ones that “cannot be

classified.

13 

Should this most recent decision prove to

be the final one, then the issue is settled and

oil shale plants would be allowed in the area

if their control systems can be designed and

operated in compliance with other air quality

standards. However, some uncertainty lingers. In a letter dated November 8, 1978, to

the Area Oil Shale Supervisor, an EPA official stated:14

In my opinion the , ., settlement provides

additional, but probably not complete, certainty that development of an oil shale industry will not be significantly constrained by

the existing ozone concentrations.

Other uncertainties are associated with

forthcoming PSD regulations for other air pollutants, and for visibility maintenance, as discussed in chapter 8 of volume I.

Economic

In his 1973 decision statement on the Prototype Program, Secretary Morton provided

the following comments on economic aspects

of oil shale development:

Private sector participation in the design

of the program, the provisions incorporated

in the lease to encourage timely develop -

ment, and of course, the rapidly rising price

The Program has also been affected by political difficulties, partly because of the manner in which it was initiated and partly because of shifts in the political environment

during its implementation, Like the 1968 leasing attempt, DOI developed the Program within the provisions of the Mineral Leasing Act

of 1920, although it also considered more recent legislation. The lease terms were similar

to those developed for exploring and extracting petroleum resources on the Outer Continental Shelf, Direct subsidies and other aspects that would have required congressional

approvaI were avoided, and additional enabling legislation was not needed,

Thus, the Program was a product of the executive branch of the Federal Government. It

was strongly supported by individual Senators and Representatives, especially from the

oil shale States, but it did not enjoy majority

support in the Congress, and efforts to obtain

congressional approval of legislation that

would have benefited the lessees were not

successful. Examples include the failure of

DOI’S attempt to obtain secretarial discretion

in granting use of off tract lands for waste

disposal and for facility siting and the subsequent passage of FLPMA’s restrictions, the

rejection of a proposal to use Federal land for

housing areas in the town of Rangely, and the

denial of loan guarantees and other subsidies

for shale oil and other synthetic fuels. These

actions conveyed, to the lessees, an impression of congressional hostility or at least disinterest, and contributed to concerns about

the long-term economic feasibility of oil shale

development.

Issues

of crude oil, all suggest convincingly that

there is high interest in the prototype program.

But uncertainty in estimates about the cost

of production of shale oil is very great, and

for some technologies, estimates are quite

pessimistic, The prototype offering of six

sites was planned to allow trial of alternate

methods of extraction,
— ——————

Ch 5–Key Issues in the Prototype Program ● 73

However, the best incentive we have to offer is the availability. at a fair return to the

public. of the rich shale lands in the public

domain. Therefore, I do not believe that under present circumstances a subsidy is

either wise or necessary for this program.

At the time, conditions certainly appeared favorable for oil shale development, which

seemed to offer secure resources to those oil

companies that had previously relied on supplies from the Middle East, The recent tripling of world oil prices seemed to assure the

profitability y of oil shale projects.

However, with the preparation of detailed

engineering plans for specific oil shale plants,

construction cost estimates soon began a precipitous rise. With rising costs, and with the

emergence or intensification of risks and

problems that were not foreseen in 1974, the

attractiveness of oil shale projects declined.

Rising project costs were most obvious with

above-ground retorting technologies in the

early years of the Program, perhaps because

these technologies were sufficiently advanced to permit reasonably accurate cost

estimates. However, cost escalations have

since affected the relatively new concept of

MIS processing, which in 1976 was claimed

to be a much less costly approach to shale oil

extraction. In March 1976, the DDP for tract

C-b estimated a capital cost of $921 million

for a 50,000 bbl/d above-ground retorting facility. In February 1977, the modified plan estimated a cost of $443 million for a 57,000-

bbl/d facility based on Occidental’s MIS technology. It was predicted that the projec t

would reach commercial levels of production

by 1983. 16 In April 1978, a spokesman for Occidental stated that cost estimates had risen

to the range of $650 million to $750 million, 17

More recent estimates indicate a cost of at

least $1 billion, and that commercial-scale

operation is scheduled to begin in 1986. ‘18

The 1976 estimate corresponded to a unit

investment of $7,750/bbl of daily production,

the April 1978 estimate about $12,000 per

daily bbl, and the more recent estimate about

$17,500 per daily bbl. For comparison, recent

estimates for TOSCO 11 above-ground retorts

indicate an investment of about $25,000 per

daily bbl. The economic advantage of the MIS

approach has therefore decreased significantly.

A representative of Tosco has identified

the major constraints on oil shale development as: 19

1. risks inherent in scale-up of unproven

processing technologies.

2. risks of noncompliance with existing environmental regulations,

3. risks of more severe regulations in the

future, and

4, risks that the value of shale oil will be

regulated to below its fair market value

in comparison with imported crude.

Risks in the first category are real and will remain so until the first commercial-scale retorts are built and operated. With respect to

the second category, current State and Federal standards do allow initital levels of development on all lease tracts and on many privately owned sites. Risks in the third category

are real because future standards might be

imposed that could prohibit development of

large-scale plants, With respect to the fourth

category, shale oil producers can expect

world oil prices for their product. Those

prices are high, and most financial analysts

expect them to rise further. However, as described in chapter 6 of volume 1, the future

price of world oil is uncertain, It could be depressed in the future to below the recovery

cost of shale oil. Therefore, although concessions have been made to oil shale development, risks remain that raise questions about

the willingness of energy companies and financial institutions to invest in a capital-intensive, long-term project whose success

largely rests with unproven technology,
74 . A HIstory and Ana/ys/s of the Federa/ Prototype 011 Shale lea51f?g program

Chapter 5 References

‘Prototype Oii Shale Leasing Program, Department of the Interior, U.S. Geological Survey, Area

Oil Shale Office, Grand Junction, Colo., Jan. 15,

1979, p. 2

‘Hearings on Oversight—Prototype Oil Shale

Leasing, Subcommittee on Minerals, Materials,

and Fuels of the Senate Committee on Interior and

Insular Affairs, 94th Cong., 2d sess., Nov, 30,

1976, p. 56.

‘Hearings on Oil Shale Technologies, Subcommittee on Energy Research and Development, Senate Committee on Energy and Natural Resources,

95th Cong,, 1st sess., Mar. 14, 1977, pp. 83, 91.

‘Environmental Protection Agency, Oil Shale

1979 Update, June 1979 (EPA-600/7-79-809).

‘Synthetic Fuels QuarterJy Report, vol. 16, No.

4, p. 2-13.

‘)90 Stat. 2770, 30 U,S.C. 191.

‘Plain ti~~’s Memorandum in Support of Motion

for Summary Judgment, Civil Action No. 7 7 -

F-l 119, U.S. District Court for the District of Colorado, May 30, 1978, 108 pp.

‘{Ruling o.f Judge S. G. Finesilver, U.S. District

Court for the District of Colorado, Civil Action No.

77-F-I 119, Aug. 28, 1978, 35 pp.

“Federal Register, Mar. 3, 1978, p, 8892.

II]U.S. District Court of Appeals for the District

of Colorado, Civil Action No. 78-1323, Apr. 2 8 ,

1978.

“U.S. District Court of Appeals for the District

of Colorado, Civil Action No, 79-1325, Apr. 28,

1978,

IW, S, District Court of Appeals for the District

of Colorado, Civil Action No. 78-1326.

1‘Federal Register, Sept. 11, 1978, p. 40412,

I’Cameron Engineers, Inc., Synthetic Fuels, vol.

15, No, 4, December 1978, pp. 2-30.

“Decision Statement of the Secretary of the interior on the Prototype Oil Shale Leasing Program,

Department of the Interior, News Release, Nov.

28, 1973.

‘OOil Shale Tract C-b In~ormation Package, Ashland Oil, Inc., Occidental Oil Shale, Inc., May

1977, p. 4.

“R. J. Fernandes, “Address Before the Industry-Government Oil Shale Strategy Meeting, ”

Rocky Mountain Oil and Gas Association, Denver,

Colo., Apr. 18, 1978,

IHJ. Kyl, Occidental Oil Shale, Inc., personal

communication to OTA, U.S. Congress, December

1978.

‘“Supra No. 3, at pp. 168-170.
CHAPTER 6

Outlook
CHAPTER 6

Outlook

Objectives of the 1973 Program

The objectives of the Federal Prototype Oil

Shale Leasing Program, as stated in 1973 by

the Secretary of the Interior, are:

1.

2.

3.

4.

to provide a new source of energy to the

Nation by stimulating the development of

commercial oil shale technology by private industry;

to ensure the environmental integrity of

the affected areas and at the same time

develop a full range of environmental

safeguards and restoration techniques

that will be incorporated into the planning of a mature oil shale industry,

should one develop;

to permit an equitable return to all parties in the development of this public resource; and

to develop management expertise in the

leasing and supervision of oil shale development in order to provide the basis

for future administrative procedures,

The Program was designed with the concept that six lease tracts in three States

would be developed with significantly different mining and processing technologies, and

that commercial-scale production of about

250,000 bbl/d would be achieved by 1980,

However, the Wyoming leases were not sold,

and development of the Utah tracts was suspended. Activity in Utah is limited to environmental monitoring and review of candidate

development technologies. Before the ownership issue was resolved, the lessees stated

their intention to resume development. Now

that this issue is settled, and assuming unpatented claims are not an impediment, it will

still take several more years before the Utah

tracts can approach their initial production

target of 100,000 bbl/d.

At present, only two lease tracts are being

developed. Both are in Colorado and both involve similar mining and processing technologies. The more optimistic projection (Occidental’s) suggests that commercial levels of production will be achieved no earlier than 1986.

The tract C-a lessees predict commercial production in 1987, but at a lower level than envisioned originally, If both plans proceed on

schedule, commercial quantities of shale oil

(about 133,000 bbl/d) could be produced by

the late 1980’s. If unforeseen problems arise,

commercial production (the Program’s first

major objective) could be delayed until the

1990’s.

In its present form, the Program may not

reach the production levels projected in 1973,

and will certainly not reach them within the

original schedule. Until recently it was also

questionable whether the desired variety of

mining and processing technologies would be

tested. Underground mining to support modified in situ (MIS) processing appeared to be

the only mining method that would be tested

by the program, and it seemed possible that

the demonstration of above-ground retorting

(AGR) methods would be limited to Rio

Blanco’s trials of the Lurgi-Ruhrgas module

on tract C-a.

Testing AGR is very important to a full

evaluation of the technical, economic, and environmental aspects of oil shale development.

AGR may be a feasible option by itself, and it

also could be used to complement MIS processing. In MIS, at least 20 percent of the

shale in the development zone is mined out

and is not included in the MIS retorts. Options for disposing of the mined material are

surface disposal (a waste of the shale’s potential energy values), combustion for generating

power and process heat (oil shale is not a

very good solid fuel), or AGR. A facility that

would combine MIS with AGR would be very

efficient in terms of resource utilization.

The modified detailed development plan

for tract C-b does not specify AGR of mined

shale, although it is included as an option

77
78 . A History and Analysis of the Federal Prototype 011 Shale leasing program

without a stated time frame. ’ It is likely that

construction of an AGR facility will not begin

on tract C-b until after the commercial-size

MIS retorts have been operated for a few

years. If setbacks occur on either tract, demonstration of aboveground processing methods could be delayed until well into the

1990’s.

In 1978 the Department of the Interior

(DOI) acknowledged the need to offer additional leases to encourage testing of above-

-ground methods,

Finally, we recognize the need to encourage development of surface retorting technology, as well as other technologies which

are not now being used on tracts C-a and C-b,

and the substantial start-up time necessary

to begin a commercial endeavor using a new

development scheme.’

DOI also considered an adjunct leasing program specifically for in situ processing when

the Wyoming leases were not sold. Although

the original intention was to lease Wyoming

lands for in situ development, the greater interest among potential developers in the richer Colorado deposits led to the nomination of

four in situ tracts in that State, Work was

begun on a supplemental environmental impact statement (EIS) for the new lease offering. The supplemental program was canceled

when the tract C-a and C-b lessees switched

to MIS processing.

As noted in chapter 5, support for most of

the R&D programs aimed at commercialization of oil shale comes from the Department of

Energy (DOE). Thus, although the first aim of

the Prototype Program is to stimulate development, its implementation is by a Federal

department different from the one responsible for the Program. Any evaluation of the

Program must look at the full range of Government involvement when judging its success or failure.

With respect to the second goal of the

Program—ensuring environmental integrity

—it was anticipated that a framework would

be provided for the evolution of techniques to

restore the ecological balances that will be

upset by oil shale development. Environmental monitoring programs have been established on each tract, and data from these programs will aid in detecting any environmental

degradation resulting from development activities. Restoration techniques are also being

developed, but the efficacy of these methods

will not be verified until the tracts have been

in full operation for several years.

Environmental investigations are being

carried out by several agencies. As with support of commercialization, they are different

from the Department overseeing the Prototype Program. Both DOE and the Environmental Protection Agency (EPA) have environmental R&D programs. This raises some basic

questions about which agency is best suited

to accomplish the objectives and whether

there are more efficient or effective ways to

accomplish them. Again, an evaluation must

look at the complete range of activities being

undertaken, not just at the efforts of a single

agency.

The third Program objective—equitable return to all involved parties—has not yet been

reached, Its achievement is tied to commercial shale oil production and, as such, is subject to numerous uncertainties. The economic

and financial considerations of establishing

an industry, as well as the tradeoffs necessary to accomplish this, are discussed in volume I.

The fourth objective was to develop expertise in leasing and supervision. In this regard,

the Program has provided a training ground

for DOI officials. The oil shale industry is

unique among mining operations in that its

modern development has taken place under

laws and regulations such as those promulgated after the passage of the National Environmental Policy Act (NEPA) and the Clean

Air Act. More established mining industries

have had to adjust to environmental requirements, but their character has not been

shaped by them as significantly as has that of

the oil shale industry, where every process

must be designed for compliance with environmental standards. Neither industry nor
Ch 6–Outlook 79

Government could have anticipated the prob- mechanisms have not functioned as speedily

lems that have emerged in the course of the as might be desired by the developers, poliProgram. Both sectors, however, have devel- cies have been established that permit the deoped procedures for dealing with at least velopment of the lease tracts.

some of them. Moreover, although regulatory

New Initiatives

In 1978, DOI’S philosophy regarding additional leasing under the Program was expressed as follows:)

To proceed with substantial additional

leasing without the total experience which

we will gain in Colorado would be a total contradiction of our established policy. Our current policy is to follow the guidelines laid

down in the 1973 Oil Shale Environmental

Impact Statement—to do no further general

leasing until the prototype program has determined whether shale oil can be produced

in an environmentally and economically viable manner. This may require some additional leasing in the near future to ensure that all

available technologies for oil shale are adequately tested. However, this will be limited

to only a few leases within the existing program and not a new full-scale leasing program,

In late 1979, DOI’s Petroleum Imports Reduction Policy Group described the opportunities for additional leasing as follows:4

In announcing the prototype program, the

Secretary made a commitment to lease no

more than six tracts under the program, and

this has been taken as the lease limit for the

program. This restriction was also contained

in the programmatic EIS. Four tracts have

been let. The two in Colorado are undergoing

development: the two Utah tracts have been

stalled by a legal challenge from the State of

Utah. Consequently, there are two tracts of

5120 acres each which might be leased under the prototype program . . . The Department may not be limited to leasing two additional tracts, however. If the Prototype Program loses control over its tracts in Utah on

“in lieu land selection” grounds, four tracts

authorized under the Prototype Program

would be available for leasing.

In May of 1980, DOI announced several

decisions that mark a departure from these

earlier positions and that will significantly

alter the outlook for development. The

choices were made, according to DOI’S decision document, “In response to the President’s program to accelerate the development of a synthetic fuels industry and in full

consideration of the potential and problems

associated with the development of oil shale

resources on the public lands. . . .“5

DOI will lease up to four new tracts under

the Prototype Program. A task force will

recommend the number and possible location

of the new leases, the technologies to be encouraged, and the best strategy to accomplish

the leasing. The task force’s work is to be

done by mid-fall of 1980.

Several justifications are cited for additional Prototype leasing. First is to ensure

reaching a goal of 400,000 bbl/d of shale oil

by 1990. While recognizing that this could be

met by present projects, DOI indicates that

“modest additional leasing” will foster production. Second is the need to strengthen the

Program, which is characterized “as one of

only qualified success, ” particularly since

only one technology is being tested in only one

area. As the decision document notes:

Additional leasing under the Program will

permit us to gain the valuable broader experience first sought in the Program when

the six lease tracts were selected and offered in 1974.

DOI emphasizes that the new efforts

should be consonant with the purposes of the

Program. Technologies not now being developed are to be encouraged, although lease
80 ● A History and Analysis of the Federal Prototype 0il Shale Leasing Program

terms that stipulate the type of technology to

be employed are not necessarily envisioned.

At least one tract will be offered for multimineral development, Possible sites are not to

be geographically concentrated, in order to

reduce environmental and socioeconomic impacts.

Plans for a permanent leasing program will

be started concurrently. According to DOI,

“For the health of a maturing industry and

the energy security of the Nation, oil shale

production should continue to expand in the

1990’s and beyond. ” Because leasing to

achieve additional production “is not fully

consonant with the several purposes of the

Prototype Program, ” a comprehensive, permanent leasing program is proposed.

In preparation, four steps will be undertaken:

● a review of the Prototype Program;

● consultation with affected States, local

governments, industry, the environmental community, and the public;

 consideration of a range of leasing alternatives, including no further leasing;

and

● compliance with NEPA including preparation of a programmatic EIS.

The timetable calls for the review of the Prototype Program to be completed in 4 months,

with a goal of having the permanent program

‘‘in place within the next two years. ”

Justification for the permanent program includes “The constantly changing national

and international outlook for liquid hydrocarbons. . . .“ DOI states:

Failure to immediately initiate development of a permanent program poses the

distinct risk that an emergency situation in

the future would require the quick development and implementation of a poorly designed, crash leasing program, without adequate safeguards.

Land exchanges will not be given special

emphasis. Rather, greater priority will be

given to the leasing efforts. DOI judges exchanges as failing “too many tests as a desirable management tool. ” Among the shortcomings are the inability to require diligent

development and information sharing, which

means greater production cannot be assured.

Furthermore, bonuses, rents, and royalties

are not obtained and the States do not receive

shared revenues as they do from leasing. Finally, exchanges are viewed as inefficient

and costly because of the necessity to analyze

two or more tracts in order to effect the exchange. DOI does indicate it will fulfill its

obligation to consider pending exchanges.

The Department will request amendments

to the Mineral Leasing Act of 19206 and the

Federal Land Policy and Management Act of

1976 (FLPMA). ’ The former limits the maximum size of a lease tract to 5,120 acres (8

m i

2

), prohibits any individual or firm from

holding more than this acreage under lease,

and allows only one lease to be held by an individual or firm.” FLPMA specifically prohibits, outside the lease tracts, disposal of overburden or waste material and the siting of

surface facilities.’) DOI “will seek legislation

which would remove all three constraints . . .

Specifically, DOI will ask for:

. , . the authority to designate each lease

tract of a size sufficient to sustain long-term

commercial operations . , ., to issue permits

to lessees for fair market value to provide for

the off-lease disposal of shale and siting of

processing facilities, and to permit a firm to

hold a maximum of four leases nationwide

and two leases per State, with an additional

lease per State if the company is producing

on the first two leases , . , and is within 10

years of completing production on one of

them.

DOI is careful to note that they have not

reached any conclusions about the specifics

of their permanent leasing program, and that,

therefore, the application of the off lease

authority would be limited to the leases under

the Prototype Program, either the existing

ones or those to be issued under the Program’s extension.

Taken together, these actions confirm a

renewed interest on the part of the present
Ch 6–Outlook ● 8 1

administration in the development of oil shale

resources, The issues discussed in chapter 5

will move once again to the forefront of the

debates about this development,

Chapter 6 References

1 Sho]e Truct C-b—Modi~icution to Detailea’

Development Plon, Ashland Oil, Inc., and Occidental Oil Shale, Inc., February 1977.

‘G, Martin, Assistant Secretary for Land and

Water Resources, Department of the Interior, letter to OTA, U.S. Congress, Nov. 2, 1978.

‘Ibid.

‘C. Hall and M, Said, Ftxier(~l Oil Shale Leasing:

Leasing Options, LegfIl (ln(i Po]icy Constraints, Petroleum Imports Reduction Policy Group, Department of the Interior, Nov. 1, 1979, p. 14.

‘

) James A. Joseph, Under Secretary, Memorandum to the Secretary, “Decisions on the Oil Shale

Secretarial Issue Document, ’ U.S. Department of

the Interior, May 27, 1980. Quotations throughout

this section are from this Memorcln{/um.

‘)4 1 Stat. 437 (1920), 30 U.S, C. 181 et seq.

“90 Stat, 2743 (1976), 43 U.S.C, 1701 et seq.

‘{30 U,S,C. 181 and 241(a) (1976).

‘+90 Stat. 2786, 43 U.S.C. 1701.