Tucked into a massive energy bill that would open the outer continental shelf to oil drilling are provisions that would slash future royalties owed to the federal government by companies prospecting in Rocky Mountain oil shale deposits.
Sponsored by Rep. Richard W. Pombo (R-Tracy) and passed by the House earlier this year, the bill would amend an existing requirement that the federal government receive a "fair return" from oil companies that hold oil shale leases on public lands. Instead, Pombo's bill, modeled after a Canadian law, would reduce royalties from the customary 12.5% of annual revenue to 1%.
For The Record
Los Angeles Times Tuesday October 17, 2006 Home Edition Main News Part A Page 2 National Desk 1 inches; 35 words Type of Material: Correction
Oil shale: An article in Sunday's Section A about oil shale royalties stated that the United States has about 800 million barrels of recoverable oil in shale deposits. The correct estimate is 800 billion barrels.
For The Record
Los Angeles Times Sunday October 22, 2006 Home Edition Main News Part A Page 2 National Desk 0 inches; 36 words Type of Material: Correction
Oil shale: An article in Section A on Oct. 15 about oil shale royalties said the United States had about 800 million barrels of recoverable oil in shale deposits. The correct estimate is 800 billion barrels.
Further, the bill could cut the reduced rate by as much as 80% if the price of oil fell. Over many years of oil production, the royalty discounts could amount to tens of billions in lost federal receipts, said James T. Bartis, an analyst at the Rand Corp. who wrote a widely used study of the economic prospects of the developing oil shale industry.
The provision would benefit the energy industry, which is a heavy contributor to Pombo's reelection campaign.
Pombo and others argue that oil companies need incentives to invest in the unproven billion-dollar technology, which squeezes oil from deep rock formations. Colorado, Utah and Wyoming have the world's largest known oil shale deposits, with estimates of up to 2 trillion barrels, although only about 800 million barrels are believed to be recoverable.
The U.S. Energy Department estimated in July that this year's nationwide oil demand will average 20.7 million barrels a day.
The Senate is considering its own version of the House bill: expanding offshore oil drilling. But it does not address oil shale royalties. A spokeswoman for Sen. Pete V. Domenici (R-N.M.), who chairs the Senate Energy and Resources Committee, said that although Domenici strongly favors oil shale development, the senator does not support including Pombo's provision in the Senate bill.
The Bush administration said in a statement that it had reservations about establishing oil shale royalty rates "prior to any demonstration that commercial production is feasible." Further, the White House said, it was concerned that the provisions could lower future government revenues.
Nonetheless, Pombo, chairman of the House Resources Committee, stands by his provision, a spokesman said.
