Taxpayers group warns oil shale could cost billions

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Posted: 3:39 PM- WASHINGTON - Fast-tracking oil shale leases in the West could end up costing taxpayers billions of dollars in lost royalties and leave them with a big tab for restoring thousands of acres of land, the Washington-based Taxpayers for Common Sense charged Tuesday.

The nonprofit group said in a conference call with reporters that setting guidelines for oil shale now could result in lost royalty payments to government coffers if the industry is viable years from now.

"This could cost taxpayers billions - that's with a b - billions of dollars," Jill Lancelot, who founded Taxpayers for Common Sense, said on a call organized by the National Wildlife Federation, which opposes rushing into oil shale production. "This is a recipe for another giveaway to the oil and gas industry."

But one oil shale consultant blasted the group's assertion as erroneous.

Rep. Jim Matheson, D-Utah, pushed through the House last week a provision that would override a ban on finalizing rules for setting up a commercial oil shale leasing program. And his office is now hoping to insert that provision into an omnibus budget bill expected to pass later this week.

A draft of that spending bill includes the Matheson provision, though it's unclear yet whether the final version will address the extraction of oil shale, which supporters say is a vast untapped domestic resource. Oil shale is actually sedimentary rock that when heated produces a mixture of chemical compounds called kerogen that can be processed into a synthetic fuel.

Lancelot argued Tuesday that a draft regulation for oil shale leasing from the Bureau of Land Management includes a potential 5 percent royalty, far under the 12.5 percent royalty for other on-shore oil and gas leases.

Jeff Hartley, a consultant for Ecoshale, a subsidiary of Salt Lake City-based Red Leaf Resources that is working to develop oil shale on school trust lands, charged that the Taxpayers for Common Sense is a "front for environmental groups."

Hartley says the group's assertion isn't a fair comparison anyway. While the federal government sets a royalty rate of 8 percent for underground coal, with various discounts the average rate ends up between 3 percent and 6 percent, Hartley argues.

"It's inside the norm, not outside the norm," Hartley says. Besides, "Oil shale is in its infancy. It would make sense to give it a little tax relief until its fully developed."

The Wilderness Society, which also helped organize Tuesday's conference call, counters that 5 percent is hardly the norm and that a 2006 decision set royalties on tar sands - covered under the same provision as oil shale - at 12.5 percent.

Either way, Matheson said the opposition of environmental groups and others won't halt a program for oil shale leases on federal land. He says either his proposal will pass or the moratorium on finalizing that leasing program will be lifted.

Matheson's provision would allow states with oil shale resources - Utah, Colorado and Wyoming - to opt into a commercial oil shale leasing program on federal lands if the state passes a law choosing to do so. Utah may be the only state entering that deal if Congress sanctions the plan; Gov. Jon Huntsman Jr. favors tapping the resource, as do legislative leaders.

The governors of Colorado and Wyoming wrote to the BLM recently expressing concern over fast-tracking the leasing of federal lands for a yet-unproven technology.

- MATT CANHAM contributed to this story.