BLM amends oil shale rule to let royalty rates be set lease-by-lease

The US Bureau of Land Management announced final amendments to federal oil share regulations that give the Secretary of the Interior flexibility in setting rates lease-by-lease and require oil shale operations to include environmental protection plans.

Oil shale is a sedimentary rock containing kerogen, from which petroleum-like liquids can be extracted, BLM said. While the US has large oil shale deposits—including some on public lands in western Colorado, eastern Utah, and southern Wyoming—no commercial operations have been undertaken due to technological and economic constraints, as well as environmental impacts.

Federal oil shale management regulations provide a structure for the potential future development of this resource, the agency said.

The Jan. 10 amendments make royalty rates, which were set in 2008, more flexible, it said. The existing rule required commercial operators to pay 5% royalties in the first year of production, increasing by 1%/year until reaching a maximum 12.5% rate.

Under the amended rule, the 2008 royalty rates are the minimum for federal commercial oil shale leases, and the Interior Secretary may set higher rates on a lease-by-lease basis. This allows the secretary to consider all relevant factors, including geology, technology, costs, and market prices for oil and gas, aligning royalties with the latest market conditions, BLM said.

The amendments also strengthen environmental protections by requiring additional environmental information and planning to be included in an oil shale development plan, including a plan to protect water resources, an air-shed review, an integrated waste management plan, and an environmental protection plan, it added.

BLM said it began working to revise the rules for managing oil shale after the 2008 regulations were challenged in court. As it settled the lawsuit, the agency agreed to propose several amendments to the 2008 regulations.

In considering the public comments on the proposed rule, published in 2013, BLM said it determined that improvements to the 2008 oil shale regulations were necessary to better promote oil shale leasing and development policies which Congress established. These final amendments also reflect changes to the proposed amendments based on public comments, the agency said.

Contact Nick Snow at nicks@pennwell.com.

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