Oil-shale rules lower drillers' royalty payments

The U.S. Department of Interior on Monday gave energy companies a big break in the royalties they will be required to pay for oil-shale production on federal land.

Environmental groups accused the department of trying to "handcuff" the incoming Obama administration and "subsidize" global warming.

At stake are a supposed 800 billion barrels of recoverable oil locked in shale deposits in the so-called Green River Formation that

spans Utah, Colorado and Wyoming. Most of the oil from shale would come from deposits on Bureau of Land Management parcels.

The 322 pages of finalized federal rules establish a 5 percent royalty rate on a company's first five years of commercial development of an oil-shale deposit. The rate would rise 1 percentage point each year after that, up to 12.5 percent, which is the current going rate for conventional methods of onshore drilling for oil. States are paid about half of the revenues generated.

Stephen Allred, the Interior Department's assistant secretary of land and minerals management, said the lower rate represents a compromise following 75,000 public comments submitted to federal regulators on the subject. Allred said the rate is not so low that states won't get a fair return or too high to discourage industry from going after oil shale.

"This is a thoughtful approach," Allred said in a teleconference with media.

Allred added that in a "very unusual" circumstance, a company might receive a waiver on required royalty payments. He did not provide examples of such circumstances. He also said going after the equivalent of 110 years' worth of oil in shale, based on current U.S. demand, is a means toward reducing reliance on "unstable regions and unfriendly regimes" for oil.

But Karin Sheldon, director of the nonprofit conservation group Western Resource Advocates, said the finalized rules favor the Bush administration's "friends" in the oil industry.

"With low royalty rates and the consequences for our climate, the BLM's rules would subsidize global warming," Sheldon said in a statement. "The new regulations do not ensure a fair rate of return to federal taxpayers, nor do they protect Western communities' water supplies or environment that would be impacted by oil-shale development."

Environmental groups have accused the Interior Department of rushing to finalize rules on oil-shale development at a time when the technologies used to commercially harvest and refine oil from shale are unproven, a claim with which even Allred agreed Monday.