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Assessment of —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 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 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 indus- try 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 Estella B. Leopold Private Consultant of Washington William Brennan Charles H. Prien** Rancher Denver Research Institute Rio Manco County, Colo. John F. Redmond Robert L, Coble* Retired, Shell Oil Co. Massachusetts Institute of Richard D. Ridley Roland C. Fischer Occidental Oil Shale, Inc. Colorado River Water Conservation Raymond L. Smith District Michigan Technological University John D. Haun Thomas W. Ten Eyck Colorado School of Mines Rio Blanco Oil Shale Co. Carolyn A. Johnson Wallace Tyner Public Lands Institute Purdue University Sidney Katell Glen D. Weaver West Virginia University Colorado State University

*Resigned March 1979. **died April 1979.

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 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, 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 spe- cial 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 In- terior and of the Denver Regional Office of the General Accounting Office. Contents

Chapter Page 1. Introduction and Background ...... 1

2. An Initial Attempt at Oil Shale Leasing (1963-68)...... 9 Introduction , , ., ...... , ., ...... 9 The Political Environment ., , ...... , ...... , , ...... , , ., , . 9 Energy and the Economic Environment ...... , ...... 13 An Initial Leasing Program ...... ,., 16 A Revised Proposal and Its Demise ...... , ..., , , ...... , 22 Reasons for Failureofthe 1968 Program ...... , ,...... , ,, ,..., ,, . . . . . 24 Chapter preferences...... , ...... , ...... , ...... 25

3.Evolution of the Prototype Program ...... 29 Introduction...... 29 The Political Environment ...... , , ...... , ...... , ...... 29 Energy and the Economic Environment ...... 32 The Prototype Program Emerges . . . . . ,, .....,.., ...... 34 Chapters References...... 37

4.The Changing Scene Between 1974and1979...... 41 Introduction ., ...... , ...... , ...... 41 The Changing Economic Situation...... , ., ...... , ...... , . . . . 41 Problems on Colorado Tract C-a ...... 42 Problems on ColoradoTract C-b ...... 47 Problems on the Utah Tracts ...... ,.., ...... 48 In-LieuLands ...... ,., ...... , ., ,....., ...... , 48 Unpatented Claims...... 50 The Peninsula Mining Case ...... ,. 53 Environmental Problems ...... 53 Problems With theEnvironmental Baseline ., ...... , ..., ., ...... , . . 54 —. - ...... The Political Climate...... , ...... , . . . . , . . . . 55 Suspension Requests ...... 55 Events During the Suspension Periods...... 56 Resumption of Activitiesand Current Status ..,..., ...... 59 TractC-a...... 59 Tract C-b...... 59 Tracts U-a andU-b ...... 60 Chapter preferences...... , ..., ...... , , , ...... , ...... 60

5. Key Issues in the Prototype Program ...... 65 Introduction . . . . , ...... , ...... 65 Technological Issues . . . ., ...... 65 Environmental Issues. , ., ...... , ...... , ...... 66 Legal and Political Issues. ..., ., ...... , . 69 Economic Issues...... 72 Chapters References...... , ...... , ., ..., , ., , ...... 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. 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. Cost Estimates for 50,000-bbl/dS shaleOil 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 —Bureau of Land MIS — modified in situ DDP —detailed development plan NAAQS —National Ambient Air Quality DOE —Department of Energy Standards DOI —Department of the Interior NEPA —National Environmental Policy Act EIS — environmental impact statement PSD —prevention of significant EPA —Environmental Protection Agency deterioration ERDA —Energy Tosco —The Oil Shale Corporation [now Administration Tosco, Corp.) FLPMA —Federal Land Policy and Management USBM —U.S. Bureau of Mines Act CHAPTER 1 Introduction and Background —

CHAPTER 1 Introduction and Background

The oil shale deposits of the Green River acquire Federal oil shale lands by staking and formation occur in several geologic basins in filing placer mining claims, performing a few Colorado, Utah, and Wyoming and underlie hundred dollars worth of on the claim some 17,000 mi2 ( 11 million acres) of terrain. site, and paying small fees to purchase “pat- Nearly 72 percent of the land, overlying ents” that conveyed of both sur- about 80 percent of the oil shale resource, is face and rights. Physical discovery of in the public domain and is controlled by the the deposits was required. This requirement, U.S. Department of the Interior (DOI). Most of coupled with that for assessment work, re- the Federal land is located near the deposi- sulted in the location of claims along eroded tional centers of the basins and contains the water courses where the deposits are visible thickest and richest oil shale deposits. The re- and easily accessible. maining lands are controlled by individuals, private companies, and the governments of Numerous placer claims were filed during the three States. the petroleum shortages of 1915-20, and pat- ents for many of these were obtained by the Oil shale lands were acquired by the States prospectors or their successors. Today, these under the provisions of their respective state- patented claims, together with the earlier hood enabling acts. Private holdings were ac- homesteads, comprise the privately owned oil quired during the late 19th and early 20th shale lands in Colorado and Utah. Individual centuries by individual homesteaders, by the claims and homesteads were originally quite railroads during of the trans- small because of size restrictions imposed by continental rail line, or through patenting of both homesteading and mining laws. How- placer mining claims for oil shale and other ever, many of these small tracts were sub- , The railroad lands comprise odd- sequently purchased by large firms and were numbered sections of each township within unified into much larger development blocks. 20 miles on either side of the railroad right-of- Today, private interests (including the rail- way through the Wyoming oil shale basins. ) have clear title to 21 percent of the oil The total acreage of these holdings is very shale lands in Colorado’s Piceance basin, 9 large, but commercial development is inhib- ited by the small size of individual tracts, by percent of Utah’s Uinta basin, 24 percent of the Green River basin in Wyoming, and 10 their in a checkerboard pattern, percent of Wyoming’s Washakie basin. In and by the relatively poor quality of the oil shale resource, It is possible that the railroad general, the private holdings are located near the peripheries of the basins and contain properties could be developed in conjunction with leasing contiguous State or Federal sec- thinner deposits of lower grade oil shale than do the Federal lands near the basin centers. tions. At present, however, the best opportu- Some private tracts do contain high-quality nities for development on private lands ap- shale, and some are large enough to sustain a pear to lie with the holdings that have de- major facility. For example, Union Oil Co. ’s scended from homesteads and mining claims. 29,000 acres in Colorado are distributed over The Mining Law of 1872 and the Petroleum three noncontiguous tracts, at least two of Placer Act of 1897 did not specifically men- which should contain sufficient oil shale for tion oil shale, and it was not until 1920 that long-term development. In contrast, the hold- shale was finally determined to be subject to ings of some other firms, although similar in the placer provisions of the two laws. Prior to total acreage to Union’s, are subdivided into 1920, however, they were interpreted to al- numerous small tracts that are scattered low oil shale to be characterized as a locat- across the basins. For example, able mineral which permitted prospectors to 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 was alleged to have accepted bribes from an 30 noncontiguous tracts. It is questionable oil company in consideration of noncompeti- that any single tract would be large enough tive leasing of Naval Petroleum Reserve No. for commercial development. 3—the Teapot Dome field in Wyoming. In 1930, during the era of caution that followed Despite disadvantages with respect to the Teapot Dome scandals, President Hoover tract size and resource quality, it should be issued Executive Order 5327, which with- possible for a substantial to be ini- drew oil shale lands from leasing under the tiated on private holdings. Some companies Mineral Leasing Act and “temporarily” re- have taken preliminary steps along this path served them for the purpose of “investigation, when economic conditions have appeared es- examination, and classification. ” Since 1930, pecially favorable. But, private landowners the temporary order has been modified on a (generally major energy companies) have tra- few occasions. In 1933, for example, ditionally declined to commit to large-scale Hoover’s Executive Order 6016 permitted oil development pending a clarification of the and gas leases on the oil shale lands, and in Government’s position with regard to private 1935, President Roosevelt’s Executive Order access to public oil shale resources. If indus- 7038 authorized prospecting permits and de- try did invest in private tracts the Govern- velopment leases for sodium-bearing miner- ment could subsequently permit development als. The order has also been modified from on adjacent Federal lands that, according to time to time to permit reserve exploration and industry, had greater profit potential. disposition of specific surface rights in lim- As noted above, the private sector was ited areas. With these exceptions, Hoover’s first allowed access to public oil shale lands order remained in effect and essentially un- over a century ago, by passage of the 1872 altered for over 40 years. No oil shale leases Mining Law. The 1920 Mineral Lands Leas- were issued during this period. ing Act ended the process of claiming Federal In 1952, President Truman issued Execu- oil shale lands and imposed a leasing process tive Order 10355, which authorized the Sec- to promote private mining of oil shale and retary of the Interior to rescind the with- specific other minerals. The Act empowered drawal order. Subsequent Secretaries, how- the Secretary of the Interior to to any ever, have been reluctant to exert the author- qualified person or corporation “any deposit ity for fear of creating the environment for a of oil shale . . . belonging to the leasing scandal like Teapot Dome. In 1965, and the surface of so much of the public lands testifying before the Senate Committee on In- containing such deposits, or land adjacent terior and Insular Affairs, Undersecretary of thereto, as maybe required for the extraction the Interior John Carver, Jr., described the and reduction of the leased minerals . . .“ situation as follows: The Secretary was required to assess annual rentals of 50 cents per leased acre, and the The Secretary has not yet determined maximum size of an individual tract was lim- what recommendation should be made to ited to 5,120 acres (8 mi2). No individual or Congress, if any, for the resolution of any firm could hold more than this acreage under policy questions prior to the lifting of the lease in the United States. Except for these withdrawal order , . . No Secretary . . . can take any more than tiny and tentative steps provisions, the Secretary was given broad which have the effect of relinquishing title to discretionary powers to select lease tracts this resource without running great risks of and to shape the terms of development leases. misinterpretation . , . This reserve is so big Five oil shale lease applications were filed and so valuable that , . , it tends to freeze with DOI after 1920. Three leases were is- any kind of action, either congressional or sued, but all were subsequently canceled. administrative, In the early 1920’s, during the Harding ad- Interior’s hesitation was compounded by the ministration, Secretary of the Interior Fall uncertain status of unpatented mining claims .

Ch 1–Introduction and Background 5 on much of the Federal land and by a prevail- How did the terms of the lease offerings ing feeling that was not needed by affect their relative successes? the Nation, What forces and factors affected the From time to time, administrative inaction course of the Prototype Program? proved unacceptable to congressional dele- How has the Program succeeded or gates from Colorado, Utah, and Wyoming. failed in meeting its objectives? These legislators, with urging from State offi- cials and the , pressed DOI to What are its possible futures? lease the Federal oil shale lands with the ra- tionale that development was in the Nation’s Discussion begins with historical accounts of interest, would provide indigenous energy the two leasing programs, including analyses supplies, and would convey economic bene- of the forces at play during their evolutionary fits to the State and Federal Governments. phases. The programs are then contrasted in an attempt to explain why the Prototype of- In the 1960’s and early 1970’s, such pres- fering attracted private capital while its sure contributed to the formulation of two dif- ferent but related leasing attempts. The first predecessor did not. Finally, the objectives of the Prototype Program are reiterated, and was promulgated as part of a comprehensive the Program’s status is analyzed to determine oil shale program in the Johnson adminis- whether its objectives have been achieved or tration by Secretary of the Interior Stewart are likely to be achieved, given the current Udall between 1964 and 1968. Udall’s lease energy situation and economic climate. offerings failed to attract private participa- tion, Other portions of his program were car- The Prototype Program has been affected ried forward into the Nixon administration, by all of the key issues that currently cloud however, where they were supplemented by the future of the U.S. . In- the Federal Prototype Oil Shale Leasing Pro- cluded are legal issues associated with land- gram under the direction of Secretaries ownership, environmental issues surrounding Hickel and Morton. The Prototype Program the potential effects of development on the was successful in that private capital was area’s ecosystem, uncertainties associated committed to four lease tracts in Colorado with the development and promulgation of and Utah. The Program is continuing today, regulations under the National Environmen- although in substantially modified form. tal Policy Act and other legislation, economic issues regarding the cost of producing shale An understanding of the evolution of the oil for use in an uncertain energy future, and 1968 attempt, and of the past, present, and technological issues associated with emerg- possible future of the Prototype Program, is ing processes. These larger issues are dis- important to the formulation of effective Fed- cussed at length in volume I because their ef- eral oil shale policies. This volume provides a fects will be felt in all future approaches to history of both programs. Its purpose is to development, regardless of whether they are convey background information for answer- conducted within the aegis of an expanded ing the following questions: Prototype Program or as parallel efforts ex- . What political, economic, and energy ternal to the Program. Issue analysis is inten- supply situations prevailed when the tionally brief within this volume, and issues programs were initiated and how did are discussed only as required to clarify their these situations affect industry’s re- effects on the character and progress of the sponse to the lease offerings? 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 1968, DOI offered three Colorado lease tracts was strongly encouraged by Western-State to private industry. No acceptable bids were political interests to create a Federal oil shale received, and the leasing program was termi- policy, In response to this pressure, the De- nated. partment of the Interior (DOI) organized an Although it failed, the 1968 lease offering advisory board of private citizens to analyze triggered a series of actions that led to the the constraints on oil shale commercialization current Federal Prototype Oil Shale Leasing and to recommend procedures for initiating Program. Many of the attitudes, imperatives, and managing development of public oil shale and impediments that shaped the 1968 at- resources. In 1967, DOI incorporated some of tempt also influenced the evolution of the Pro- the board’s suggestions in a tentative leasing totype Program and its implementation in proposal that was withdrawn after public re- 1973 and 1974. This chapter describes the view, DOI” S approach to leasing was substan- evolution of the 1968 program and discusses tially revised after additional study, and in the reasons for its failure.

The Political Environment

As noted in chapter 1, the Secretary of the enhance the economies of their respective Interior was given authority in 1952 to lease States. Federal oil shale lands in the Western States, but DOI pursued a course of inaction for fear The proponents of private development of public oil shale lands expressed their desires of scandals and because no urgent need was to enhance economic stability and to counter felt for new fuel sources such as oil shale. In the 1960”s, congressional delegates from Col- the threat to national security posed by the Nation’s diminishing petroleum reserves and orado, Utah, and Wyoming responded to growing reliance on imported oil. Working DOI's inaction by urging Secretary Udall to formulate a development policy for Western against their efforts were legislators such as Illinois Senator Douglas, Senator Proxmire of oil shale. Particularly active were Colorado Wisconsin, and Senator Hart of Michigan. Representative Aspinall, Chairman of the These men emphasized the need for protect- House Committee on Interior and Insular Af- ing the public’s mineral-resource heritage fairs, and Senators Allott of Colorado, Han- and avoiding an oil shale by the ma- sen of Wyoming, and Moss of Utah on the cor- responding Senate committee. These propo- jor oil companies. Pressure from both advo- nents of oil shale development were sup- cacy positions affected all phases of Secre- tary Udall’s attempts to develop an effective ported in principle by Senator Bennett of oil shale policy. Utah, Senator Dominick of Colorado, and Rep- resentative I Harrison of Wyoming. Congres- At the same time, several articles ap- sional advocates were aided by the Gover- peared in the public press that were une- nors of Colorado, Utah, and Wyoming who quivocally concerned with the hazards of en- differed in their specific motivations and ob- couraging private control of the public lands. jectives, but were unified in their efforts to 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 Another analysis was offered by Mr. Chris Frederick, Colo., and a long-time critic of Welles in Harper’s Magazine. Welles, an private oil shale developers. Beginning in associate editor for Life magazine, appraised 1965, Mr. Freeman published a series of 38 the oil shale situation and pointed out that articles entitled “The Multi-Billion Dollar DOI’s leasing efforts had been, and would Grab of Oil Shale Lands, ” which alleged continue to be, influenced by strong political fraudulent efforts on the part of private in- forces, both favoring and opposing private dividuals, corporations, and Government offi- development of the public’s resources. He cials to dispose of the public oil shale lands. pointed out that little credence was given in Congress to claims of scandals. However, he Mr. Freeman’s style was provocative, and expressed concern that the oil industry was many of his allegations were controversial. moving into a position of control and de- However, his views reflected those of numer- scribed congressional attempts to counter ous citizens who were dissatisfied with the 2 these moves as follows: Government’s management of public re- sources. He was perhaps the most vocal oppo- While the oil industry’s attempts to domi- nent of Udall’s leasing efforts, and he periodi- nate shale research are well-documented, it cally referred to the Teapot Dome scandals to is impossible to verify the recurrent allega- characterize his concern about the DOI pro- tions about a Teapot Dome-size scandal—a gram. At Senate hearings in 1967, he pre- giant giveaway mounting into the billions of sented a written statement that included the dollars. What does emerge clearly is the fact following claims and allegations:1 that the government under dubious circum- stances allowed oil companies and land spec- Let me make one point crystal clear, I am ulators to gain ownership of many thousands for development of the West’s oil shale re- of acres of rich shale land, and readily ac- sources. I want progress, but I want real quiesced to the oil industry’s concept of a honest-to-goodness development of the public prudent Federal shale policy ., . Senator lands for the public benefit. I do not want: (1) Philip Hart of Michigan sees shale oil devel- Enrichment of speculators who use phony oil opment as a means of reducing the monopo- shale mining claims filed 47 years ago to buy listic power of the oil industry (which has public land containing 3,000,000 barrels of lately been expanding into many other ener- shale oil per acre for $2.50 per acre and then gy industries, including and nuclear sell them to the oil companies for $2,000 per power). Senators Robert Kennedy and Wil- acre. (2) Transfer of the public domain to the liam Proxmire—among others—sponsored control of a few monopolists who lock up the legislation designed in part to accomplish oil shale so it won’t compete with their Ara- this, bian and oil. (3) Disposal of the public oil shale lands or leasing of large blocks of oil Similar concerns and analyses were pro- shale lands before the recovery processes vided by Julius Duscha in an article in the are developed and the real values are made Atlantic Monthly. Mr. Duscha, a member of known to the public, (4) Robbery of the public the national news staff of the Washington through fraudulent, conniving, collusive or Post, described the congressional climate as self-serving actions by public officials who follows:3 are in cahoots with speculators and oil com- panies. Indeed, Gentlemen of the Senate, . . . the controversy over the shale oil present Department policies are leading lands involves a cast of strong characters in directly to these undesirable and deplorable positions of power and influence ., . The consequences . . . I must report to this distin- most influential proponent of immediate leas- guished body that I have found key officials ing is Congressman Aspinall . . . representa- and employees involved in handling oil shale tive of the congressional district containing in the Executive Branch, especially in the De- the richest of the shale deposits . . . “Natural partments of the Interior and Justice, and in resources were placed there to be used, ’ As- the Legislative Branch, sadly lacking in hon- pinall maintains, “not to be cooped up for fu- esty, and openness. ture 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 ry Udall at the Senate oil shale hearings in ground. ” 1967:5 Mr. Duscha provided the following recom- . . . I am afraid that in a sense we are all mendations for a national oil shale policy: affected with the Teapot Dome Syndrome. I . . . if the public interest is to be served, am sure that neither the Secretary nor any of Udall—and President Johnson—must first his assistants nor his administration are go- make certain that no legislation is pushed ing to be involved in anything which would through Congress forcing the government to effect a situation which would result in a mo- lease its shale lands before their true value nopoly or a windfall to any company if it can is known and before the cost of taking the oil possibly be avoided . . . So I hope that this out of the rock is determined . , . The govern- syndrome, which seems to pervade much of ment does not, however, necessarily have to your discussion and thinking, can be dis- develop the shale lands itself, What is neces- carded with the concept that no one (is) look- sary is that the government protect the pub- ing for such a windfall. lic interest in this great resource, once pri- Senator Allott was also concerned about the vate development of these Federal resources effects of delays at the Federal level on the is permitted , , , Large tracts of land are not needed for experimental work, and if it is long-range economic viability and commer- necessary, the government can lease small cial attractiveness of the oil shale industry. sections of its shale lands to facilitate re- He made the following statement regarding search. the problems of establishing an industry in competition with conventional petroleum and Colorado Senator Dominick responded by alternate synthetic fuels:h contrasting Duscha’s premises and conclu- sions with those of Mr. C. E. Reistle, chairman there would seem to be plenty of room of the board of and Refining Com- for everyone sincerely interested in develop- pany. Mr. Dominick made the following com- ing an oil shale industry both in terms of ments on the floor of the Senate in 1966:4 shale land and in terms of market opportuni- ty. However, in the final analysis the need . . . I do not agree with (Mr. Duscha) on his for and the emergence of an oil shale indus- analysis of the problem or his approach in try will be determined on a basis of econom- the article , . . The article (by Mr. Reistle) ics, Oil shale will have to compete with other shows quite clearly, in my opinion, the need energy sources and fuels . . . It would be for new energy resources in our country, re- most unfortunate if oil shale’s inability to sources which are not subject to being shut compete was as a result of either govern- off in the event of national emergency , , . ment action or government inaction, because This shows the absolute futility of taking a it would deny us the many benefits that could of this size and leaving it in result from such an industry . . . I am very the ground where no one can get at it. We strongly of the opinion that we are at the have been urging the Secretary of the Interi- point where, unless we can provide suffi- or to establish rules and regulations for the cient incentives to private industry, those leasing of those properties, I think it is impor- people who would normally be interested in tant that that be done instead of putting it on development of an oil shale process will turn the shelf as has been done, awaiting further to coal because of blocks put in their way, action and apparently waiting further devel- and . . . our oil shale industry . , . might even opment of research programs now going on. be wrapped up forever and completely by- Senator Allott of Colorado was also discon- passed in favor of other energy resources. I am sure that the Secretary does not want to tented with DOI’S hesitation and with what see this happen any more than I do. appeared to him to be a preoccupation with avoiding scandal. Mr. Allott made the follow- The opinions expressed by oil shale propo- ing comments during a dialogue with Secreta- nents in Congress were echoed by the Gover- 12 ● A H istory and Analysis of the leasing program nors of Colorado, Utah, and Wyoming, who Utah did not have an associated minerals in- provided statements for the record of the Sen- dustry, but the State did own substantial oil ate hearings that were convened in February shale lands. Governor Rampton’s statement of 1967 to consider a preliminary draft of conveys his support of oil shale development Udall’s initial leasing proposal. Colorado’s and the desire of the State to participate Governor Love provided the following expres- through leasing of its lands:9 sion of support:’ We are making available for lease to pri- The earliest possible development of our vate industry our State owned deposits of oil oil shale resource is essential to assuring a shale and will continue to do so, We believe solid long-range supplement to our domestic that the demand for energy will be such that petroleum supply , . . The problems which now obstruct the development of our oil conventional oil and gas resources will not meet our needs during the 1970’s. Considera- shale deposits are many and complex, but tion of economic and national defense indi- they are not insoluble. It is apparent, how- cate need for development of a domestic syn- ever, that a prompt and vigorous start must thetic fuel program . . . We urge that the pro- be made to achieve even such a long range gram be implemented to allow private indus- goal as a respectable capacity to produce oil try to develop both the State owned and the from oil shale not later than 1975. To decide federally owned , to wait until all of the problems have been identified, studied, and solved would, be- cause of the constantly changing effect of As discussed later, Udall’s initial leasing other economic factors, be tantamount to a proposal was released for public comment in decision not to foster the development of oil May of 1967. It offered leases, but restricted shale and in fact to discourage it. While we initial activities to research and development do not counsel hasty and ill-considered ac- (R&D) on small areas of the lease tracts, No tion, we are convinced that the immediate re- commitment was made to allow subsequent moval of certain major obstacles to oil shale commercial operations on the same tracts. development could assure that operations The initial proposal was strongly criticized by would permit an industry be commenced in congressional delegates from Colorado, Utah, due course. and Wyoming. The following statement by Wyoming’s support was equally positive, but Utah Senator Bennett is typical of their reac- was tempered by concern that a large-scale tions: ‘() leasing program could interfere with the trona mining industry, which was recovering I feel that the Department of the Interior sodium carbonate and bicarbonate from the should modify the proposed leasing regula- oil shale beds in Sweetwater County, Wyo. tions so that a healthy, comprehensive and Governor Hathaway provided the following ultimately profitable private industry can be statement to the Senate hearings:H developed on the public oil shale lands. The regulations as written will not, in my opinion, I did want . . . to express before your Com- achieve that objective. I believe that the ob- mittee the great interest which Wyoming has jective can best be achieved by strengthen- in the development of oil shale and associ- ing private industry’s role in developing the ated minerals. Secretary of the Interior oil shale potential . . . I do not believe Gov- Udall’s announcement on January 27 of a ernment can match the efficiency and econ- five-point oil shale development program sig- omy which are the natural results of indus- nals, we hope, a recognition by the Federal trial competition ., . I would suggest that Government to bring our vast oil shale re- perhaps Congress should assume the initia- serves into commercial production as early tive in writing into law what I consider to be as possible , , . In summary, Mr. Chairman, a reasonable and responsible leasing policy. let me say that Wyoming stands foursquare In any event, I assure you of my continuing behind the immediate development of an oil interest and support in Congress for early oil shale and associated minerals industry. shale development. Senator Dominick expressed his concern over But it is up to your Committee, Mr. Chairman, the authority given to the Secretary of the In- to put a brake on the present headlong rush terior to select among lease applicants and to to lease this land . . . The stakes are too high, determine whether the results of the prelimi- and the public interest is too transcendent, nary R&D efforts justified subsequent com- the pressures are too great, and the ques- mercial leasing. His statement includes the tions are too many to permit these decisions to be left to administrative discretion . . . following Although the participation of private en- In summary, the political environment terprise is clearly contemplated, almost no when DOI was formulating its leasing policy incentive seems to be offered to encourage was characterized by strong and conflicting the same. What does one gain by engaging in opinions, statements, and pressures. On [he the research and development program? one hand, oil shale proponents in Congress, in Frankly. an onerous rcsponsibility and far the governments of the affected States, and in too much discretion have been placed with the oil industry favored development in the in- the Secretary of the Interior. terest of economic benefit and national secu- In contrast. others in Congress raised rity. On the other hand, some vocal private equally strong objections to terms that ap- citizens feared that private access to the Fed- peared too lax and that might have permitted eral oil shale lands would lead to scandal and private development without significant re- abuse of the public trust. This viewpoint was turns to the public. This viewpoint was ex- conveyed most strongly by Mr. Freeman, pressed at the Senate hearings by Senator Other citizens and legislators feared that has- Proxmire as follows: 12 ty action by Interior would lead to an untime- ly disposal of public resources and to profit- . . . we appear to know virtually nothing eering by private industry. 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 It is likely that pressure from all sides af- costs, problems, and processes , . . I have seen no evidence to indicate that it is essen- fected Udall”s oil shale activities. Pressure in trial, or even desirable to develop these shale favor of rapid leasing undoubtedly spurred with the haste exernplified by the his efforts to prepare and promulgate leasing Secretary . . . Naturally the Secretary is regulations. Counterpressures undoubtedly under severe pressures from within the oil shaped the format and content of those regu- industry to proceed with a development plan. lations.

Energy and the Economic Environment

The energy situation and the economic en- In the mid-1960’s, this situation shifted as vironment in the early 1960’s did not encour- the Department of State began to encourage age heavy capital investment in a synthetic- foreign trade under the mandates of the fuels industry. Petroleum imports were re- Trade Expansion Act of 1962. Petroleum im- stricted by quotas promulgated under Presi- ports were initially excepted from the expan- dent Eisenhower’s Mandatory Oil Import sion policy because of their threat to the do- Control Program. Production of domestic oil mestic oil industry, which was generally rec- was still increasing, and oil prices in constant ognized as important to national security. In dollars were actually declining. The principal 1965, however, the State Department took the concern of domestic producers was that the position that increasing oil imports would be quotas might be lifted, triggering a flood of in the national interest, Particular attention underpriced foreign oil, 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 politi- Oil imports were of concern to domestic cal stability of that country. In 1965, Assist- energy companies considering involvement in ant Secretary of State Douglas MacArthur II Interior’s oil shale program. As discussed noted that: 13 below, domestic petroleum production was increasing, but reserves were declining, and increasing prosperity for the Venezue- lan “petroleum industry is essential if the efforts to locate new ones were largely unsuc- country is to remain an effective democracy cessful. The companies had several options to and a keystone in our relations with Latin assure a reliable flow of oil to their refining America. and distribution systems. First, they could continue exploration in the continental This policy was reflected in other executive United States. Second, they could explore branch departments, including DOI. Secreta- nonconventional areas such as Alaska and ry Udall regarded relaxing import quotas as a the Continental Shelf. Third, they could in- viable mechanism for encouraging competi- crease their reliance on imported crude and tion and efficiency within the domestic petro- refined products, Fourth, they could develop leum industry. This position was clearly ex- synthetic liquid fuels from coal or oil shale. pressed by Frank J. Barry, DOI Solicitor, in an address to the 1965 Oil Shale Symposium. 14 Their strategies were affected by a num- ber of technical, economic, and political fac- The basic justification for the (oil import) program is the assumption that if this coun- tors, including individual corporate positions try became involved in a , foreign oil sup- with regard to long-term petroleum and natu- plies would be cut off and we would be de- ral gas reserves, availability of investment pendent exclusively on domestic production. capital, expertise in technologies for synthet- Therefore, the rationale goes, it behooves us ic fuels, and Government policies. At the time to maintain an adequate domestic productive that Udall’s leasing proposals were being cir- capacity, Hence, oil imports are restricted to culated, DOI’s actions must have implied that a level which will not eliminate domestic pro- the executive branch had adopted a policy of ducers from our own market and will justify encouraging oil imports. This policy must their continued search for new oil fields and have discouraged serious consideration of oil their improvement of refining techniques. shale. Foreign oil, however, is highly competitive and its cheapness tends to sharpen the wits The Interim Report of the Oil Shale Ad- and encourage the perfection of the tech- visory Board also was discouraging. Although nical skill of domestic producers . , . You several members emphasized the importance should note that , . , the worst feature of pro- tectionism, namely, higher costs to the ulti- of developing oil shale as a national energy resource, Mr. Galbraith’s opinion expressed mate consumer, is limited by substantial im- 18 port levels for cheap, highly competitive for- the opposite point of view: eign oil. There is no showing of urgent economic or Early in 1966, Udall began to rescind quo- strategic need for oil from shale in the pres- tas on crude oil. Marked increases occurred ent or near future . . , Imports . . . are almost in the quantities of petroleum that entered certainly cheaper than oil from shale by pro- the Nation through eastern seaboard ports, spective processes. Hence, there is no press- despite the protests of domestic coal and oil ing peacetime need for oil from shale, Given producers, railroads, and utility companies, ’s the most rapid development, the share of oil Udall subsequently announced that he fa- from shale in total production will be negligi- ble for many years. Hence, it will not, in the vored eliminating quotas for refined products 16 foreseeable future, be an important wartime such as residual . Further reductions resource replacing any important present in import restrictions occurred in September supply of petroleum. We cite this because of 1966, shortly before Udall announced his strategic arguments are regularly advanced tentative leasing regulations for oil shale for oil shale development. They appear to re- lands. ’7 flect 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 indi- proximately 6.5 billion barrels (bbl) of petr~ viduals or groups would find in their econom- leum liquids, with domestic oil production ic interest, supplying about 64 percent and domestic This position was later disputed by Captain liquids and condensates an addi- Howard Moore, Director of Naval Petroleum tional 16 percent. Only about 20 percent 20 and Oil Shale Resources, at the Senate hear- would be obtained from foreign sources. ings on Udall’s January 1967, leasing propos- The report was a study in contrasts. It opti- al 19 : mistically projected U.S. petroleum produc- tion but documented the declining discoveries It is obvious from the standpoint of nation- al defense that if the oil shale reserves are to of new reserves. These discoveries peaked make a significant contribution, there must between 1950 and 1957 and afterwards de- exist at that time a viable oil shale industry. clined steadily to less than 3 billion bbl per It is unlikely that sufficient time or resources year in 1965. However, the report assumed will be available during a full scale emergen- that domestic oil industry could contribute cy for development of such an industry . , , over 4 billion bbl per year in 1980. This seem- This is of great importance today because ing inconsistency was rationalized by the present trends indicate the United States is assumption that additional discoveries could becoming a crude deficient nation and may in the future be forced to rely more and more be encouraged or even forced by the Govern- upon imported fuels to meet even peacetime ment’s import limitations, tax structures, demands . . . R&D expenditures, and leasing policies: in- dustry would find more oil if Government The following dialog subsequently took place made such discovery essential or economical- between Captain Moore and Senator Allott, a ly attractive. member of the Committee: The report’s most significant conclusion Senator Allott: I assume it is your point of about synthetic fuels was that they would not view— it has been mine for a long time—that be needed before 1980 and not even then un- development of a viable oil shale industry is a necessity for the national defense and the less the 20-percent reliance on oil imports be- national welfare. came a subject of national concern. Accord- ing to the report, synthetic fuels such as shale Captain Moore: It certainly is, Senator. oil would not be developed in the 1960’s and Senator Allott: And I assume also . . . that 1970”s because the processing technology the time is now, because . . . such processes was unpredictable, primitive, and expensive. ,.. are going to require a long leadtime and Private capital would not be invested, it con- the investment of vast amounts of money. cluded, because profitability and capital re- Captain Moore: Yes, sir. covery would always be threatened by cheap Thus, although the Department of Defense oil imports. favored rapid development, Galbraith and The same conclusions were stated by Wal- other economic and policy advisors continued ter Hibbard, Jr., of the U.S. Bureau of Mines to press for a more leisurely approach, in the (USBM), in testimony before the Senate Sub- belief that oil shale could not be a feasible re- committee on Minerals, Materials, and Fuels source either in peacetime or in time of war. in March of 1968. He cited a USBM study of There was further discouragement early in the potential need for shale oil and the oppor- 1968, when DOI published United States Pe- tunities and constraints on its development. troleum Through 1980, a report that pre- The study concluded that :21 dicted future fuel requirements and forecast Although the vast domestic resources of the roles of domestic and imported oil in meet- oil shale contain the equivalent of 70 times ing those needs, The report predicted that in the present domestic proved reserves of 1980 the United States would consume ap- crude petroleum, commercial development is 16 A History and Analysis 01 the Federal Prototype 01/ Shale Leas/rig Program

complicated by technologic gaps and eco- velopment expenses, which often amounted nomic and environmental problems. Reduc- to over 75 percent of total costs, In tion in production costs is prerequisite to the essence, most costs associated with conven- emergence of a significant commercial shale tional oil discovery were tax deductible—an oil industry, advantage not to be enjoyed by oil shale de- The study also concluded that, unless prob- velopers who would be forced to invest after- lems could be solved in the near future, sig- tax profits and then amortize the large front- nificant production would probably not occur end expenses over a period of many years, before 1980. Crude oil producers also enjoyed a depletion allowance of 27.5 percent of the value of the These reports forecast a bleak future for oil at the wellhead. The depletion allowance the industry. First, DOI assumed that synthet- for oil shale was set at 15 percent of the value ic fuels would not be needed before 1980 be- of mined and crushed shale prior to oil recov- cause new oil would be found before serious ery. Because raw oil shale has very little val- supply problems occurred, Second, through ue, the depletion allowance was worth only its control mechanisms, the Government about $0.05/bbl of shale oil after taxes. If would continue to suppress the price of con- shale oil were given the same depletion allow- ventional petroleum to below the cost of pro- ance as conventional crude oil (27.5 percent ducing synthetic fuels. Third, oil shale proc- of oil value), the would be worth about esses were regarded as technologically and $0.40bbl Therefore, oil shale proponents economically unsatisfactory. complained, taxation policies favored con- ventional crude oil over shale oil by a factor The oil industry therefore minimized oil of eight. shale activities and instead sought new petro- leum reserves, Attractive but expensive ex- In summary, at the time that Secretary ploration opportunities were pursued in Udall was preparing his leasing proposal, in- Alaska, in the Santa Barbara Channel, and dustry was not convinced of DOI’S commit- on the Continental Shelf. Little excess capital ment to oil shale development because the De- was available for ventures like oil shale de- partment appeared dedicated to conventional velopment which offered little promise of sub- petroleum for at least another decade. The stantial short-term gains and which would be high costs of seeking new oil left little surplus influenced by a Federal agency whose com- capital for oil shale, which was fiscally unat- mitment to their success was unclear. tractive under Government taxation policies, In view of these circumstances, it is probable The decision to seek new oilfields rather that industry would have responded negative- than to develop oil shale was favored by Fed- ly to any Federal oil shale leasing proposal, eral tax policies. Crude oil producers were al- and especially to the uniquely structured pro- lowed to write off certain exploration and de- posals that were presented in 1967 and 1968.

An Initial Leasing Program

In November 1963, Secretary Udall called withdrawal order be rescinded immediately for public comments on the formulation of and that leases be issued for private develop- new 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 recommenda- tory of the Interior John Kelly summarized tion because, in Kelly’s words: these comments at the First Symposium on Oil 23 The simple rescinding of Executive Order Shale in 1964. 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 quent testimony before the Senate Interior made by the Congress in the Mineral Leasing Committee:26 Act of 1920, and with the regulations promul- gated by the Secretaries of the Interior Although there were divisions of opinion, I under these laws. felt the report was extremely usefuI, And I still feel that way, because I think, like a Kelly also felt that the comments received did great searchlight, it illuminated the whole not touch on two crucial policy areas: the role landscape, It illuminated all of the policy of shale oil in the Nation’s total energy com- alternatives . . . I personally feel most strong- plex and its effects on developing economies ly that the Oil Shale Advisory Board and in the rest of the world. every member on it made a very big contribu- tion in focusing on this (leasing policy) as the Udall then appointed an Oil Shale Advisory controversial question. As a consequence, I Board to analyze the commercial potential of think the whole problem is illuminated and the Nation’s oil shale deposits and to recomm- we at least know what some of the alter- end specific plans for implementing their natives are, development by private interests or Govern- According to Chairman Fisher’s transmittal ment agencies, Its members were: letter, the members concurred in the follow- Joseph L. Fisher, president of Resources ing general concerns: for the Future, Inc. (Chairman of the Ad- All members agree that the public interest visory Board); should be safeguarded, however and when- Orlo E. Childs, president of the Colorado ever the resource might pass into a commer- School of Mines: cial development phase. The public interest Benjamin V. Cohen, attorney from Wash- includes careful attention to the conserva- ington, D. C.; tion . . . of , recreational, and John Kenneth Galbraith, professor at scenic values, as well as the wise use of Harvard University: mineral resources. It also includes protec- James M. Gavin, chairman of the board tion against speculation in public land of Arthur D. Little, Inc.; leases , ., The Board agrees that the Federal government, working in appropriate coop- Milo Perkins, economics consultant from erat ion with the States, should move positive- Tucson; and ly but cautiously to encourage private oil H. Byron Mock, attorney from Lake shale development, with full protection of the City, public interest in the broadest sense, and Their four meetings, between July 1964 and that it must expect to provide some of the January 1965, included a field trip to the oil support, directly or indirectly, of the re- search required. shale region, presentations by Federal offi- cials, and testimony from representatives of The following specific policy objectives industry, the Colorado State government, were suggested: trade associations, and other interested 1. to encourage advancement of the tech- groups. The Board’s Interim Report was sub- 24 nology of and the de- mitted in February 1965. (There was no fi- velopment of a competitive shale oil nal report, ) industry; The 12-page report was accompanied by 2. to encourage wide industry competition six minority opinions, one from each member and initiative in the development of tech- except Gavin, who had attended only the first niques of mining and recovery; meeting and resigned before the report was 3. to establish conservation goals and prepared, One analyst has likened the inter- standards for the recovery of the oil im report to “six dissents saying nothing. ”25 shale resource, for the protection of Udall’s appraisal was conveyed in subse- other values in and adjacent to oil shale 18 . A History and Analysis of the Federal Prototype 011 Shale Leasing program

lands, and for protection of public health continuation of favorable policies such as and related values; quotas on imported oil and high depletion 4. to prevent speculative use of leased Fed- allowances for domestic crude producers. eral lands to the detriment of oil shale Concern over speculation was coupled with a development; suspicion that shale oil could ultimately prove 5. to provide for reasonable revenues to to be much cheaper than conventional crude the Federal and State governments from oil. the use of Federal shale lands; and 6. to set up whatever Federal program may One of Galbraith’s major concerns was be decided upon in such a way that it that, without firm economic data, the Govern- can be administered effectively, ment would have to rely on industry estimates of the true cost of shale oil extraction. Im- The Board effectively returned full responsi- mediate leasing of large tracts was consid- bility for policy development and program de- ered undesirable until this true cost could be sign to DOI but did provide several alternate better defined. If shale oil were actually policy recommendations. The following three cheap, release of Government reserves would options were suggested for consideration: constitute a massive giveaway to the oil com- 1. continue Hoover’s withdrawal order and panies. If oil shale economics were marginal, initiate Government research (including the companies would buy up the leases to pre- with private firms) to develop vent others from entering the energy field. If conservation standards and practices costs were too high, leasing would be of no and to determine a market value for value because no shale oil would be produced shale oil, then use this value as the basis for many years, if at all. for subsequent leasing regulations; or In summary, Galbraith’s position was that 2. rescind the withdrawal order and offer private lands were adequate for initial field- a few commercial-size tracts for com- testing of oil shale technologies and that no petitive leasing by private industry with Federal lands should be released until the mandatory due-diligence and perform- value of the resource was established ance requirements to prevent specula- through Government research. His position tions; or was summarized in his minority opinion: 3. modify the withdrawal order but restrict initial leasing to a few small research- Having withstood thoughtfully designed size tracts with the option for commer- raids in the past, it is important that the cial leases contingent upon commercial government show equal wisdom and re- viability of the recovery processes to be straint in the present on behalf of our re- developed. sources for the future . . , The major oil com- panies are naturally concerned with protect- Option 1 was endorsed by Galbraith and ing their position in the event of the develop- echoed the opinions of some economists and ment of an oil shale industry by buying or Government officials who feared that any controlling oil shale acreage. However, with commercial leases would be purchased for one or two exceptions they seemed not now speculative purposes. In their opinion, the inclined to incur substantial development Federal lands thus accessed would not be costs to produce shale oil. Certainly for com- used to develop an industry but rather would panies with alternative sources of petroleum be hoarded for the time when conventional the economic attraction of oil shale is not petroleum reserves were exhausted. By this high. The incentive to control oil-bearing acreage is thus, for the time being, much technique, they feared, the oil companies greater than the incentive to produce from it, would prevent others from establishing an in- dustry in competition with conventional Cohen concurred with most of Galbraith’s petroleum. Without a competing domestic principles but also favored Option 3 (re- supply system, the companies could press for search 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 Gov- research leasing alone, without a commit- ernment to ensure that the lessees were not ment to subsequent commercial leasing, simply hoarding resources. Fisher agreed would fail. In any event, research alone that private lands were adequate for R&D, would not convey the economic benefits that but he supported leasing of research tracts were desired by oil shale proponents in Con- and favored accelerated Government re- gress. Finally, there was no assurance that search (including private contracts) in case industry would respond favorably to any pro- industry did not respond to the lease offering. gram because the severity of the energy-sup- He also recommended that the Government ply problem was not universally acknowl- announce its intention to offer commercial edged, and shale oil was unfavorably re- leases upon completion of the research garded compared with domestic petroleum phase. He suggested that commercial leases and with the then reliable oil supplies from be restricted to companies that either partici- fields. pated in the research-tract program or con- Udall’s predicament was complicated by ducted equivalent research on private lands. the fact that some Senators and Representa- Childs, Perkins, and Mock favored Option tives strongly opposed providing the oil indus- 2—immediate offering of a limited number of try with access to the public’s oil shale re- commercial leases. Childs warned that re- sources, while others wanted Congress to search leases would not interest industry consider new legislation to force a leasing unless they were the first stage in a commer- program. If enacted, such legislation would cial leasing program. Mock recommended have preempted DOI’S control of the oil shale that the lease terms be attractive to industry, lands and could have run counter to DOI’S particularly with respect to tract size, and policies. suggested that each tract be 5,120 acres, the The situation was further complicated in maximum allowed by the Mineral Leasing 1966 by a rush to file new mining claims on Act of 1920, He also recommended that indus- the Federal oil shale lands, precipitated by try participate in tract nomination and sug- the discovery of dawsonite. Dawsonite is a gested an adjustable royalty so that both in- potential source of aluminum—a locatable dustry and Government could receive fair re- mineral under the Mining Law of 1872—and turns, Perkins saw no need for the Govern- the private claimants believed that location of ment to become involved in process-related dawsonite claims could eventually lead to ac- R&D and recommended that such activities quisition of the Federal lands that contained be left to industry. He suggested Government the mineral. Dealing with these efforts occu- research in the areas of health and conserva- pied much staff time within DO1 during 1966 tion standards, water use, environmental and probably delayed the formulation of leas- considerations, and geological exploration, ing policies. Thus, in early 1965, Secretary Udall found The next milestone in policy development himself in a rather difficult position. The sug- was reached on January 27, 1967, nearly 2 gestions of potential developers and the gen- years after the Oil Shale Advisory Board sub- eral public conflicted with some of DOI’s fun- mitted its report. On that date, Secretary damental policies and did not address nation- Udall announced a comprehensive five-point al and international energy needs and supply program that reflected most of the concerns strategies. Udall had then attempted to elicit z expert guidance from the members of the Oil and suggestions of the Board members. ’ Its Shale Advisory Board, who agreed on general principal objectives were: goals but disagreed on appropriate policies. 1. to clear titles of oil shale lands and to Some members maintained that research was resolve ownership disputes that were in- mandatory to prevent speculation and to hibiting private investment in oil shale avoid a massive giveaway, Others held that development; 20 ● A History and Analysis of the Federal Prototype 01/ Shale Leas/rig Program

2. to allow consolidation of scattered pri- The public interest requires that in our ef- vate holdings through land exchange, forts to develop the technology of extracting thus creating more private sites suitable oil from shale, we write into every rule, regu- for large-scale development; lation, , and permit affecting the 3. to investigate nuclear in situ oil shale public lands those terms and conditions that processing; will: encourage competition in development and use of oil shale and related mineral re- 4. to conduct a lo-year federally funded re- sources; prevent speculation and windfall search program to establish oil shale’s profits; promote mining operation and pro- economic potential and shale oil’s mar- duction practices that are consistent with ket value; and good conservation management of overall re- 5. to sell provisional development leases sources in the region, encourage fullest use that would allow limited private access of all known mineral resources; provide rea- to Federal oil shale lands. sonable revenues to the Federal and State Governments. Although details were not provided in the an- nouncement, all objectives appeared at least This cautious position was further empha- mildly favorable to industrial cooperation. sized by the specific lease terms, which were 28 The proposed program addressed many is- published on May 10, 1967. sues influencing development, The first objec- The leasing proposal called for allocating tive would have clarified the ownership of 30,000 acres of Federal land to R&D. This disputed Federal lands and would have sim- area would be divided into several individual plified any subsequent leasing program. The tracts, with the size of each tract dependent second would have permitted private land- on the quantity and quality of the contained owners to consolidate their lands and to pur- oil shale resources. Lessees were to be sue development from a more favorable pos- selected by the Secretary on the basis of pro- ture, If this had been accomplished, leasing of posals and according to demonstrated need public lands might not have been so impor- for access to Federal land. Competitive bid- tant. Nuclear processing, the focus of the ding was not to be used. Tracts could be as third objective, appeared promising at the large as 5,120 acres. However, for the first time and further study could have benefited 10 years, the developers would be restricted industry. The research program (point 4) was to relatively small areas where small-scale primarily to determine fair values for oil research was to be conducted. Diligent R&D shale products so that the Government could was mandatory, and unless the lessees sus- ensure an equitable return from subsequent tained some level of progress, the leases leasing. Industry, too, certainly would have could be revoked. This requirement assured benefited from technical, economic, and that leases would not be purchased for re- resource-appraisal R&D, source-holding purposes nor to prevent other potential developers from gaining a lead in With regard to point 5, the announcement process development. stated that only provisional leases would be offered, and commercial leases would not be To assure diligence, and to enable DOI to sold until R&D had been successfully per- obtain a true picture of the costs of oil shale formed on the research tracts. Udall did not development, DOI required that the lessees describe the lease terms, but the term “provi- disclose all technical data acquired. Patent sional” was disturbing to industry in view of rights for all technologies developed on the Orlo Childs’ contention that restricted re- research tract would revert to the Govern- search leases would not attract industry, In- ment. The disclosure requirement, coupled dustry’s pessimism was not eased by the gen- with the patent provision, effectively re- eral tone of Secretary Udall’s presentation, moved a major incentive by eliminating any which included the following statement: 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 re- tative regulations. The Senate Committee on search expenditures, Interior and Insular Affairs provided a forum for receiving comments, for assessing Udall’s After the lo-year research phase, if DOI response, and for providing congressional and the lessees were so inclined, and if DOI guidance, The committee conducted two believed that commercial viability had been hearings on the program that emerged in demonstrated, the research leases could be 1967. The first, in February, received com- extended to cover commercial development. ments on the program announcement. Joseph No royalties would be paid to the Government Fisher, former chairman of the Oil Shale Ad- for shale oil produced until the commercial visory Board, acknowledged that the five- leases were executed. However, the Secre- point program was largely based on his rec- tary reserved the right to approve extensions ommendations. He re-emphasized the need and to determine how much of each lease for research to address the unknown value of tract would be opened for commercial activ- oil shale and the possible effects of its ex- ities. He also reserved the right to mandate 29 traction. Colorado’s Governor Love recom- the royalties for the commercial phase. A mended rapid action on the oil shale ques- minimum royalty of 3 percent of the gross val- ] ) tion. ’ The Director of Naval Petroleum and ue of mineral products was suggested. If the Oil Shale Resources expressed the Navy’s in- commercial venture proved profitable, the terest in oil shale development as a means of Government would share in the profits 31 providing fuel for national defense. The through a variable royalty, which would American Federation of Labor and the Na- range from 10 percent of net income in excess tional Farmers Union testified regarding dis- of 10 percent of capital investment, to 50 per- tribution of any Federal royalties that might cent of net income in excess of 20 percent of accrue from oil shale leasing. ’2 Sinclair Oil capital investment. warned that oil companies would not invest in These terms reveal the influence of the Oil research unless assured of eventual commer- Shale Advisory Board, Chairman Fisher’s cial operations. And Western-State congres- recommendation of research leasing is evi- sional delegates and the Governors of Utah dent, as are his suggestions for Government and Wyoming expressed their continued in- R&D and for subsequent commercial leases terest. 34 restricted to those companies that purchased research leases. Cohen’s concern over due Many of the witnesses and committee mem- diligence was adequately addressed, as was bers conveyed their appreciation of DOI’S Mock’s recommendation of a variable royal- progress. However, little was heard from the ty, with the size of the royalty left to the major oil companies that were most likely to discretion of the Secretary. Childs and Per- respond to any leasing proposal. Some indus- kins recommended commercial leases; these try officials expressed concern over the re- might be allowed but not for at least 10 years search focus of the leasing proposal, and ad- after the research leases were sold. Gal- vice was offered for improving its terms. braith’s concern over the unknown but prob- The second set of hearings was conducted ably enormous profit potential of oil shale is in September—after the tentative leasing evident throughout. regulations were published. It was during The January announcement of the pro- these hearings that Utah’s Senator Bennett gram’s framework and the May publication expressed his concern about Government in- of tentative leasing regulations were both terference with private enterprise, that Col- part of Secretary Udall’s efforts to evolve an orado’s Senator Dominick spoke regarding oil shale program that would be acceptable to the “onerous responsibility and far too much oil shale opponents and proponents alike. He discretion” given the Secretary, and that sought comments on the general framework Senator Proxmire called for “a halt to the and used them {in part) to structure the ten- 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 regula- mation without giving that information to all tions was almost universally unfavorable. In other companies. This provision completely his testimony, Secretary Udall summarized removes the incentive for carrying out a pro- the 36 specific comments submitted to his of- prietary research program and is in direct fice. According to DOI’s analysis, major con- conflict with the free enterprise system, cerns were expressed in 10 specific areas: The president of Union Oil Co. analyzed the the size of the royalties, the term of the profit-share royalty provisions of the regu- leases, the acreage to be allowed for re- lation:37 search and commercial activities, the non- competitive selection process, the relation- Under this provision a successful operator will find himself in a bracket paying 50 per- ship of leases to operations for recovering cent of his pretax profits without allowance associated minerals, the disclosure require- for royalty and depletion plus at least a cor- ments, the discretionary authority given to porate income tax of 48 percent of his pretax the Secretary, the restrictive provisions for profits remaining after allowance for royalty land exchanges, and miscellaneous provi- and depletion, It is submitted that these rates sions for conflicts with unpatented mining are excessive and unrealistic; and may I ad claims and automatic termination in the event lib that it is well known that the Arabs are that commercial operations ceased for any tough traders. But may I suggest Mr. Udall’s reason. suggested devices would receive the plaudits of Karl Marx if he were alive today, and no The position of most of the oil company re- doubt, John Kenneth Galbraith, who is alive spondents were summarized by an official of today, Continental Oil Co.:35 In summary, industrial officials stressed Our reaction is not a favorable one. Over- financial uncertainties and warned that the all it is our view that the rights to be granted elimination of proprietary rights to technical are circumscribed with restrictions and con- information would prevent companies from ditions to such an extent that sufficient eco- committing venture capital. Even if research nomic incentive will be lacking. It is our view were diligently pursued and feasible proc- that private industry will not be warranted esses were developed, subsequent commer- in making the necessary capital, organiza- tional, and technological commitments which cial operations could not be assured of ac- will be required. ceptable profits because the Secretary could impose extremely high royalties. In any case, These sentiments were echoed by an official 36 the phased leasing approach (uneconomical of Sun Oil Co. : research leases, followed perhaps by com- The proposed requirement on the disclo- mercial leases of unknown quality) would ne- sure of research information . . . would make cessitate large front-end capital commit- it impossible for a company to develop tech- ments without guarantee of adequate re- nology processes or engineering in for- turns.

A Revised Proposal and Its Demise

Secretary Udall described his next course proper program. Our target date for comple- of action 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 person- our 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 Febru- necessary 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 recommenda- Senator Proxmire characterized the report as tions to either modify the proposed regula- a “significant step” but re-emphasized his tions or to re-issue them in unmodified form. 39 desire for research to help the Government The group’s report, Prospects for Oil Shale determine a fair value for its oil shale re- Development—Colorado, Utah, and Wyoming, sources. He also questioned the need for leas- was finally released on May 29, 1968.J(J It ing, given the extent of the private holdings. recommended that DOI test the “market po- tential” of oil shale by leasing two different On September 10, DOI designated and de- types of deposits (one thin but outcropping, scribed three test-lease sites and set forth and one thick and buried), each sufficient to rules by which interested companies could supply a 35,000- to 50,00@ bbl/d plant for 20 drill exploratory coreholes on the sites. Each to 30 years. It was recommended that the test tract was sized to supply a 125, f)O()-bbl/d fa- leases be offered before the end of 1968 and cility. This size was larger than recom- that they be followed by production leasing mended by the DOI study group and appar- within 5 years, The test leases were not fully ently reflected industry’s desire for adequate described but their general framework de- resources. The initial deadline for explora- parted significantly from Udall’s May pro- tory drilling was November 15, but it was posal for research leasing. subsequently extended to December 12. The Oil Shale Corporation (Tosco) and Atlantic During the next few months, DOI expedited Richfield drilled coreholes on two of the pro- creation of a new leasing proposal that could posed tracts. drilled on be released before the presidential election in one of the same tracts. No exploration was November 1968. Secretary Udall first re- conducted on the third tract. quested comments on the general concept of test leasing as outlined in the DOI study On September 27, DOI published a first report. About 26 responses were contributed draft of the proposed lease form, which was before the closing date of August 31.”] In modified on October 2 and October 14. On generai, industry’s responses were quite fa- November 1, interested firms, were sent legal vorable and commended the Secretary on his descriptions of the tracts and were invited to abandonment of the research leasing regula- submit sealed bonus bids for their leases. tions. The major consistent objection was to Bids were to be submitted by December 20, the proposed sizes of the lease tracts, which after the November presidential election. industry representatives claimed were too small for economic operations. Few com- The final version of the lease form was ments were received from private individu- published on November 5. Its provisions were als. The Colorado newspaper editor Freeman, much less restrictive than those of the May who had presented scathing testimony at the proposal. Industry was allowed to retain 1967 hearings, furnished the following com- patents and technical information acquired ments: on the tracts, However, the Secretary was to be provided with all of the information ac- 1 request that you stop certain undesirable quired during tract development, and licens- features of the . . . program . . . which point ing of any new technology not related to refin- to fraud in the Interior Department opera- ing was required. Royalties for in situ opera- tions, if not fraud in the Justice Department and in Congress as well . . . The report, in my tions were fixed at 12.5 percent of the value judgment, evidences a great desire on the of shale oil produced. The royalty for above- part of the Department and its officials to -ground retorting was to be calculated on a conceal the oil shale . . . scandals which sliding scale, with a royalty of $0.14/ton of dwarf the Teapot Dome affair by at least a shale mined imposed for shale yielding 30 gal- hundred times. lons 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 shale lease sites, result in our conclusion gas.) In addition, minimum royalties of from that the program will not achieve the objec- $10 to $50/acre were to be collected after the tives for which it was designed. Seldom have eighth anniversary of the lease. Minimum we felt so strongly compelled to interject recommendations for industry action within royalties on the largest tract would have the pages of this report. In this instance amounted to over $100, C)C)()/year and should there appears to be a very real possibility have acted to discourage speculation, at least that if the test leasing program is not suc- by small investors if not by major oil C()~ipa- cessful, industry’s reason for nonparticipa- nies, As with the earlier proposal, devel- tion may be misunderstood. Already the opment was to be phased. However, the types word “apathy” has been used by news media of activities to be conducted during the R&D to describe industry interests. For this rea- phase were not restricted, and lessees were son we strongly recommend that each com- assured that commercial development would pany not intending to participate . . . state be permitted. their reasons in writing to the Secretary of the Interior. Cameron and Jones, Inc., a firm with exten- sive experience in the field of synthetic fuels, DO1 expected to receive several bids of $2o supplied the following analysis of the lease of- million to $3o million for each tract, In fact, fering:’z only three bids were submitted. One bid ($625.00) Was provided by a drilling operator. We believe that the . . . program is a major The other two were submitted by Tosco: and significant step towards the develop- $249,000 (for a lease valued by DOI at $3o ment of an oil shale industry, Several provi- million) and $250,000 (for a lease for which sions of the test lease form, however, and the DOI expected to receive $2o million). The bids timing of the entire programs coupled with were rejected, and the program was can- what we believe to be less than prime oil celed.

Reasons for Failure of the 1968 Program

The 1968 leasing attempt failed because: provided very discouraging information, which might have been countered if time had ● the energy-supply situation and the eco- nomic environment were not conducive permitted detailed exploration. For example, to investment in synthetic fuels; Tosco detected extensive ground water aqui- fers above the mining zone on one tract, and ● DOI did not appear committed to oil found geological defects that might have pre- shale development; cluded mine development. One of Tosco’s bids ● taxation policies favored conventional included a $2o million delayed bonus-bid pro- petroleum over oil from shale; vision that would have been executed if sub- ● according to industry, two of the lease tracts were too small (1,251 acres) to sequent exploration refuted the initial find- permit long-term commercial develop- ings. DOI declined the offer. ment; In summary, Secretary Udall was diligent ● industry was not involved in lease-tract in his attempts to develop an acceptable oil nomination, all feasibility studies were shale program. He was subjected to political conducted within DOI; and and public pressures both for and against ● only 3 months were allowed for potential private oil shale development. He attempted lessees to evaluate resource areas cov- to formulate a leasing program that would re- ering several square miles. lieve both types of pressure, but his early pro- The final point was crucial, because some of posals produced strong negative reactions industry’s attempts to characterize the tracts from private firms. His ultimate lease offer- ing, although deficient in some areas, might offering was certainly affected by its hasty have attracted positive industry response if promulgation between May of 1968 and the the climate had been different. The presidential election in November.

Chapter 2 References

‘Hearings on the Federal Oil Shale Program, “28 Federal Register (1963], revoking 43 CFR Senate Committee cm Interior and Insular Affairs, pt. 197 (1963) (Oil Shale Leases). 95th Cong., 1st sess. (1967), pp. 461-472. ‘{John M. Kelly, “A Synopsis of the Responses ‘Chris Wells, “oil Shale: Hidden Scandal or In- Received by the Department of the Interior in An- flated Myth?” Harper’s Mugazine, vol. 237, No. swer to Secretary Udall’s Request for Suggestions 1419, August 1968, pp. 61-65. on the Development of Oil Shale on the Public ‘Julius Duscha, “Bonanza in Colorado—Who Lands,” Quarterly of the Colorado School of Gets It?’” Atlantic Monthly, vol. 217, No. 3, March Mines, vol. 59, No. 3, July 1964, pp. 1-6. 1966, pp. 82-86. %upra No. 18. ‘Congressional Record-Senate, Mar. 7, 1966, 2’Supra No. 15, at pp. 61-97. pp. 5111-5115. Wupra No. 1, at pp. 5 and 24. “Supra No. 1, at p. 184. ‘-’’Five-Point Oil Shale Development Program ‘] Ibid,, at pp. 193 and 195. Announced,’” news release from the Office of the Ibid., at p, 92. Secretary, Department of the Interior, Jan. 27, “Ibid., at pp. 51-52. 1967. “Ibid., at p. 52. ‘l’’’ Proposed Regulations to Govern Oil Shale “’Ibid., at pp. 139-141. Leasing and Land Exchange Announced,”’ Office ‘] Ibid., at p. 142. of the Secretary, Department of the Interior, May “Ibid,, at pp. 311-312. 7, 1967. See also: 43 CFR, pt. 3170, and 32 Federal 1‘Douglas MacArthur II, Assistant Secretary of Register, May 10, 1967. State for C[)n~ression:]l Rel:i t ions, letter to Sena- %upra No. 1, at pp. 75-85. tor Gordon Allott, AUR. 9, 1965. “’Ibid., at pp. 85-96. ‘“Frank J, Barry, “A National Policy for Oil “I bid., at pp. 96-100. Shale: Factors to be Considered, ” Quarterly of the “Ibid,, at pp. 100-105 and 122-123. Colorado School of Mines, vol. 60, No. 3, July 1965, “Ibid,, at pp. 123-125. pp. 97-110. “Ibid., at pp. 24 and 28-53. “David D, Dominick, “Oil Shale—The Need for “Ibid,, at p. 495. a National Policy, ” Land and Water Law Review, “)Ibid,, at p. 499. vol. II, No. 1, 1967, p. 78. ‘-Ibid,, at pp. 250-251, 1’IWall Street Journal, Dec. 23, 1965, p. 2. ‘HIbid,, at p. 178. ‘-Supra No. 3, at p. 97. “]Stewart L, Udall, personal communication to ‘f’ Oil Shale Advisory Board, Interim Report to Russell J. Cameron, Feb. 7, 1968. (See: Synthetic the Secretary of the Interior, Department of the Fuels QuarterJy Report, vol. 5, No 1, March 1968, Interior, 1965. p. A-30.) ‘(!3upra No. 1, at pp. 54-60. “’Prospects for Oi] Shale Development—Colora- -“’Synthetic Fuels Quarterly Report, vol. 5, No. 3, do, Utah, and Wyoming, U.S. Department of the In- September 1968, pp. 47-49. terior, May 29, 1968. “Synthetic FueJs Quarterly Report, vol. 5, No. 2, ‘l Supra No. 20, at pp. 1-4 and A-99 to A-153. June 1968, pp. 42-53. “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 congressional climate in the early the Interior (DOI) organized an extensive R&D years of the new administration was similar program that included an evaluation of the to that in the 1964-68 era in that industry, nuclear approach to in situ processing, min- State government officials, and Western ing and rock mechanics studies, resource ex- State congressional delegates continued to ploration, mineral processing experiments, press for leasing of public oil shale lands, and other efforts, Out of this program came under the rationale that this was the fastest an improved understanding of the nature of way to create a large-scale oil shale industry. the resource and of the problems inherent in In 1969, DOI began structuring the Federal its development. At the same time, the Gov- Prototype Oil Shale Leasing Program which, ernment intensified its efforts to clear like the 1968 attempt, was intended to be a clouded titles to the oil shale lands in its con- first step towards an expanded leasing effort. trol, an activity that would have simplified This chapter discusses the forces that moti- the process of leasing those lands for private vated the Government to initiate the Proto- development. Little progress was made type Program and describes the energy-sup- towards consolidating scattered private ply and economic factors that affected its tracts, partially because of a lack of interest emergence. Discussion ends with the lease on the part of industry and partially because in 1974. The conduct of the Program of DOI’S involvement in the clouded-title since then is discussed in the following issue. chapter.

The Political Environment

As discussed in chapter 1, DOI administra- In contrast, the DOI officials appointed by tors prior to the Nixon administration were President Nixon took the position that private concerned about the possibility of creating industry should be involved in developing the leasing scandals like Teapot Dome. They public’s oil shale resources, Under Secretary therefore resisted pressure by industry and Hickel, DOI sought to develop a leasing pro- regional political interests to lease public oil gram that would assure enthusiatic industry shale lands in the Western States. Industry response. The effort was continued by Secre- and Western State officials were largely ex- tary Hickel’s successor, Rogers Morton. cluded from policy and program design, de- In his June 4, 1971, Clean Energy Message spite their keen interest in the implemen- to Congress, President Nixon instructed the tation of a successful leasing program. DOI’S Secretary of the Interior to expedite a leasing initial leasing proposal reflected a cautious program that would lead to oil shale develop- approach to dealing with industrial devel- ment on public lands. By June 29, DOI had opers, and industry rejected its terms. The prepared and released a program statement second proposal was hastily conceived and and a draft environmental impact statement although its terms were much more liberal, (EIS) for the Prototype Program, Leases were time constraints and the prevailing energy- to be sold about 18 months later, in late 1972. supply situation contributed to its failure. 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 courage private enterprise to develop the maximum size of a lease tract (from 5,120 Nation’s mineral resources . . . Positive Fed- acres under the Mineral Leasing Act of 1920 eral leadership— without undue intrusion to 10,240 acres), and would have increased into the proper concerns of the private sec- tor—is the other ingredient needed to pro- the number of leases that could be held by vide the economic and administrative cli- one individual or association from one for the mate necessary to foster . . . fuels develop- entire United States to one per State. ment under private initiative. In commenting on the emerging oil shale The administration’s patent policy an- program at 1971 Senate hearings, Assistant nounced on August 23, 1971, which permitted Secretary of the Interior Hollis Dole made the private participants in Federal programs to following statement about the desirability of ] retain patent rights, is further evidence of its private participation: philosophy about private development of pub- There is a strong increasing interest and lic resources. Secretary Udall’s desire to pro- support by State and local governments, in- tect the Federal interest in oil shale technol- dustry, and the general public in oil shale de- ogy was a major concern to industry during velopment. We believe the proposed program the 1964-68 leasing attempt, Under Secretary can accomplish its stated goal and provide a Morton, the issue of proprietary rights was new source of energy for the Nation by stimu- resolved in favor of the private parties. Most lating the timely development of commercial of the questions about the proper nature of oil shale technology by private enterprise . . . Government-industry relationships that in- I know I do not have to call it to your atten- tion, but I do want to reiterate, that the name hibited DOI’S policy development under the of the game and the way we do business here previous administration appear to have been in our country is under the private enter- replaced by uniform support for private in- prise system. So, therefore, I think we should volvement. give it the broadest latitude in allowing it to work. DOI acknowledged that, technically and economically, oil shale development was still DOI officials were consistently opposed to not completely feasible. However, the real Government involvement in oil shale commer- barriers to commercialization were believed cialization other than leasing. An example is to be largely legal and political, DOI’S percep- DOI’S response to S. 2510, which was intro- tion of the technical status of oil shale opera- duced by Senator Moss of Utah in 1971 to tions is indicated in figure 1, taken from the provide a Government-owned development 1968 publication Prospects for Oil Shale De- corporation. In his testimony on the bill, As- velopment t—Colorado, Utah, and Wyoming. 2 sistant Secretary Dole commented: As shown, several years before the Prototype . . . we feel that industry is capable and Program began, DOI regarded such basic willing to assume the enormous costs that operations as aboveground retorting, under- are involved. We feel that by putting this ground mining, upgrading, and product uti- solely and largely upon the private sector lization to be reasonably well developed. that more people will become involved in this Other operations such as aboveground min- and more rapid progress will be made be- ing, in situ fracturing, and dispos- cause of the need of private industry to get a al were not well understood and needed fur- return on their investment , . . As far as oil ther research. Economic aspects were also shale is concerned, we feel very definitely not clearly defined. However, estimates that private enterprise can develop it, and based on pilot plant and semiworks studies because of the various admonitions by Con- gress we feel they should be allowed to do indicated the possibility of commercializa- so , . . We believe that S.251O . . . runs tion, given a sound resource base supported counter to the philosophy of the present Min- by a research, development, and demonstra- ing and Minerals Policy Act, which specifies tion program. The resource base was to come that the Government’s principal role is to en- from the Prototype Oil Shale Leasing Pro Ch 3–Evolution of the Prototype Program ( 1969-74) . 31

Figure 1 .—Status of Oil Shale Technologies in 1968

t a OIL SHALE DEPOSIT c IN-SITU (3) CONVENTIONAL (2) (3A) NATURAL Room and piJlar (1 A) (2C) HYDRAULtC JJL r 1 Cut and fill (4) (2C) ELECTRIC UNDERGROUNO FRACTURING MINING Block caving (36) (2A) CHEMICAL I OPEN PIT (3B) { J{ (4) NUCLEAR

CRUSHING (1Q +

I 7 (2b) GAS DRIVE PRODUCT (2B) ARTIFICIALLY } . RECOVERY

(1C) THERMAL AND CHEMCALTREATING

(2C) HYDROGENATION :~&:~~kcr=uw { 1------

CODE -- Im- State of knowledge applicable to 011 shale AMMONIA (lC) 1 Reasonably well demonstrated (lC) ARWATICS (2A) 2 Some experimental knowledge (Ic) 3 Little known DK3TILLATE FUEL OIL SPECIALTIES (3A) 4 Conceptual RESIDUAL FUEL OIL (lC) LQUEFIEO PETROLEUM GAB PITCH (lC) — wl[h know(edge sfemm(ng from [ (lC) A Shale experience B petroleum or other Industry experience C Both

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, The guidelines and accompanying actions e.g., the Bureau of Mines and the Geological were soon affected by emerging environmen- Survey. tal regulations, Because of the passage of the National Environmental Policy Act (NEPA) in Political and legal problems related to 1969, DOI was forced to give unprecedented clouded land titles, rights of private access to consideration to the environmental aspects of Federal mineral lands, restrictions on propri- oil shale development in developing the leas- etary information, and the definition of a fair ing procedures. Such issues had not been em- return for the public’s resources were harder phasized previously. By the time of the Pro- to address in a single development program. totype Program’s inception, however, envi- DOI believed that with a proper leasing pro- ronmental concerns were becoming institu- gram, the technical and economic uncertain- tionalized as protective measures were ties would be resolved, and there would be time and motivation to clarify the complex enacted at all levels of government. legal and political issues. Therefore, DO1 pro- NEPA had an immediate effect on the Pro- ceeded to prepare a set of guidelines for im- totype Program. Although a preliminary EIS mediate leasing action, and to encourage the was issued for the Program in 1971, potential involvement of industry and the affected environmental effects were described only in States in all phases. 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. cause DOI’S preliminary EIS considered no Special attention was given to its treatment of alternative programs, it was therefore inade- land reclamation problems, air quality and quate under the law.4 The statement was water quality impacts, and effects on wild- withdrawn and a much larger and more com- life, as well as the absence of an assessment prehensive document prepared. of alternate energy sources. ] In 1971 and In summary, the political environment 1972 court decisions in Calvert Cliffs Coordi- within the executive branch was quite differ- nating Committee v. the Atomic Energy Com- ent from the one that dominated the 1964-68 mission and the Natural Resources Defense program, A major DOI objective was to facili- Council v. Morton required that development tate a leasing program to allow the federally alternatives be considered in any environ- controlled oil shale resources to be privately mental statement prepared under NEPA. * Be- developed. At the same time, DOI had to con- tend with the new system of environmental *Calvert cliffs Coordinationg committee Inc. v, U.S Atomic legislation, and to structure the leasing pro- Energy Commission, 449 F.2d 1109 (D.C. cert. de- gram to ensure that the development of the oil nied, 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 legis- shale industry complied with environmental lalive history and intended effect of the requirement for an en- laws. Balancing these objectives was often vironmental impact statment, see Richard N. L. Andrews, difficult because not all of the implications of ‘‘Impact Statements and Ipact Assessment, in Environment tal Impact Assessment (Marian Blisset ed.). Engineering foun- the laws were clearly understood at that dation, 1975, at pp. 16-18. time.

Energy and the Economic Environment

There were at least two reasons why the production from the new frontier area on the Prototype Program had strong backing from North Slope of Alaska, but not sufficiently to the executive branch of the Federal Govern- counter the increasing import dependency. ment. First, the administration viewed oil After 1980, total domestic production, in- shale development as an integral part of its cluding the North Slope, would decline. Oil overall strategy to reduce dependence on im- demand, on the other hand, was predicted to ported oil. Imports were regarded as a threat increase steadily and to nearly double be- both to national security and to achieving a tween 1970 and 1985. Imports were expected favorable balance of international payments. to supply the shortfall, and by 1980 to com- Second, local and State interest in develop- prise nearly 50 percent of oil demand. * It was ment remained high, and these interests were predicted that even with reasonably low expressed in Washington, D.C, world oil prices, the dollar export would have a destabilizing effect on the Nation’s econ- In figure 2, projections are shown for the omy. components of the Nation’s oil-supply system as they were viewed by the National Petro- The trend in prices of domestic and im- leum Council in 1971. A similar illustration ported petroleum from 1968 (the time of was used by DO1’S Oil Shale Coordinator in a Secretary Udall’s leasing attempt] to 1974 1973 decision document that played a con- (the time of the Prototype Program’s imple- tinuing role in the Program’s justification mentation] is shown in figure 3, In 1968, both over the next few years. As shown, domestic oil production in the lower 48 States was pre- *The estimates of total demand were high but projections of dicted to decline steadily from its peak in the relative contributions of domestic and foreign sources were 1970, and by 1985 to account for less than 50 generally accurate. Figure 2 predicts a domestic production in 1975 of about 11 million bbl/d, about 60 percent of projected percent of the oil demand. The drop in pro- demand. Actual production was only 8.4 million bbl/9. but it duction would be compensated for by rising was about 60 percent of actual demand. Ch 3–Evolut/on of the Prototype Program ( 1969-74) ● 33

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

260

25 — 25

22.5

20 — 20 18.4 ~ ‘verse” Imports

147 15 — 15

~ L I I 115 North 98 ~ ““P’ — 10

u. s. Crude, ~ condensate NGL

5 —5

0 —o 1960 1965 1970 1975 1980 1985

SOURCE U S Energy Outook An /nitial Appraisal 7971-1985 The National Petroleum Council July 1971 p 27 supplies were cheap but imports had a mod- ported . In November 1973, Secretary est price advantage that discouraged domes- Morton called for bids on six oil shale leases tic exploration and high-risk ventures like oil under the framework of the Prototype Pro- shale development. Beginning with the Tehe- gram. ran pricing agreement of 1971, posted prices of Middle East oil began to rise at a slightly With the supply shortages caused by the higher rate. The agreement coincided with Arab embargo, domestic energy companies President Nixon’s request that DOI expedite concentrated on obtaining any new source of an oil shale leasing program, In October of oil, including oil from shale. In evaluating the 1973, a major military confrontation oc- Prototype Program, the companies certainly curred in the Middle East and the Arab oil anticipated extremely high petroleum prices embargo followed, directed against the in the 1980’s when the oil shale plants would United States and other countries that sup- 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 price for oil from shale. In 1960, for example, Petroleum Union Oil Co. proposed to market shale oil at about $3.00/bbl, delivered to California.5 The 12 average price for conventional crude that 11 year was $2.88 /bbl. In 1968, when the aver- 10 age price for crude was $2.94 /bbl, a DOI study indicated that shale oil would have to 9 sell for $3.59/bbl to yield a 12-percent rate of 8 return on investment, DOI also estimated that the price could be reduced to $2.73 /bbl, with improved mining and processing technol- ogies, which would have made it competitive ~ 5 with conventional crude.

4 Although shale oil was marginally competi- 3 tive before 1973, it appeared highly attrac- tive after OPEC instituted its new pricing pol- 2 icies. The prevailing opinion among indus- 1 try’s financial analysts was that liquid fuels 1968 1969 1970 1971 1972 1973 1974 could be produced from oil shale at a much

SOURCE Off Ice of Technology Assessment lower price. Analysts also certainly weighed the favorable provisions of the Prototype leases against the unknown but potentially volume I, under stable conditions when oil high costs of environmental protection that supplies are reliable, shale oil has never been would accrue to the successful bidders. They able to compete for long with crude petro- apparently decided that the potential profits leum. In late 1973, however, there were indi- to be realized from competition with high- cations that the future price for imported oil priced foreign oil outweighed the risks associ- would be much higher than the expected ated with investment in oil shale.

The Prototype Program Emerges

In November 1971, DOI requested lease- rence. It was believed that these diverse con- tract nominations from industry and from the ditions would encourage a range of develop- State governments. Twenty tracts were sub- ment technologies. DOI suggested in situ sequently nominated: thirteen in Colorado, processing for the Wyoming tracts; open pit four in Utah, and three in Wyoming, In April mining for one Colorado tract and wet under- of 1972, DOI designated six tracts to be of- ground mining for the other; and dry under- fered for leasing—two in each of the States. ground mining for both of the Utah tracts. (See figure 4.) On April 30, 1973, the final EIS Dispersion of the tracts would also permit an was released. evaluation of socioeconomic effects on three It is noteworthy that the tracts were dis- different regions. Impacts would be dis- persed over three States, The reason was persed over a broader economic base than if partly technical because the sites included all the sites were concentrated in a single four very different resource conditions in demographic area. It is likely that the deci- terms of oil shale grade and thickness, over- sion was also influenced by a desire for ex- burden thickness, and ground water occur- tensive 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 : GREEN — -- i (RIVER WYOMING

● Rock Springs W-a & W-b BASIN / WASHAKIE

d BASIN

-- -. –– --— -- — -- > ‘ ~ SAND I WASH D Salt Lake City UTAH BASIN COLORADO ●

UINTA

BASIN PICEANCE~

i I

I o

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 on new domestic sources of petroleum. The announced the dates for the sales of leases. high risks and many uncertainties that at- In his news release he stated: tend dependence on foreign supplies of ener- gy make it imperative that we explore ex- I recognize that estimates for future de- peditiously all of our promising alternative mand are uncertain, but our best estimates, energy supplies. and the course of recent events affecting our , leave no doubt that in the The leasing program I have approved will years ahead we must place greater reliance 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- other conditions. Among these were the re- shale oil reserves can be developed at ac- moval of mandatory licensing for any new ceptable economic and environmental costs. technologies developed on the lease tracts (a The program’s goals were: controversial aspect of the 1968 offering), credit against payments for extraordinary ● to provide a new energy source to the environmental protection costs, a diligence Nation by stimulating development of incentive that allowed offsetting the fourth commercial oil shale technology by pri- and fifth bonus payments by investments vate industry; made prior to their due dates, and forgive- ● to ensure the environmental integrity of ness of part of the bonus if the lease was re- the affected areas and at the same time linquished within 3 years. for en- to develop a full range of environmental vironmental costs were considered a valid safeguards and restoration techniques aid in meeting environmental protection re- for incorporation into the planning of a quirements that were still evolving. The dili- mature oil shale industry, should one de- gence incentive was to prevent the lessees velop; from withdrawing to a resource-holding posi- ● to permit an equitable return to all par- tion in which little development work was ties in the development of the public re- performed. Bonus forgiveness was an escape source; and mechanism by which a lessee could withdraw ● to develop management expertise in the without sacrificing all of the initial bid. leasing and supervision of oil shale de- velopment as a basis for future adminis- Overall, the lease terms at least partially trative procedures. compensated for the risks of developing an untested technology under rapidly changing The terms of the leases were generally fa- economic and social conditions, and with vorable to industry participation although in unknown environmental restrictions. In the some ways they were more strict than those context of the energy and oil price situation of of the 1968 offering, For example, the lessees the 1973-74 period, the terms were sufficient- would have to spend 2 years characterizing ly attractive to elicit industrial involvement. the environmental baseline, including identi- fying and counting the numerous plants and Dates for the sale of individual leases were animal species and measuring air and water staggered between January 8 and June 11, quality. They would also have to monitor the 1974, to allow firms several opportunities to environment over the operating lifetime of the bid. Sale dates and other details of the Pro- processing facilities. The leases were also gram’s initiation are presented in table 1. The less generous with respect to timing of the winning bids totaled nearly $450 million for bonus payments with which the leases were slightly over 32 mi2 (20,500 acres) of surface, purchased. Payments were to be made in five The high bid was over $210 million, offered equal installments, one at the time of sale and by a joint venture of Co. and Stand- the others on the subsequent anniversaries of ard Oil Co. of Indiana. the sale date, In the 1968 offering, bonuses The development technologies indicated in were also to be paid in five installments, but the table are those suggested by DOI in the the first payment was not due until the EIS and in other documents. They were sub- seventh anniversary. In the 1968 program, sequently adopted by the lessees in their ini- royalties paid to the Government for the sale of tial detailed development plans. At the time of shale oil could be credited against the first the lease offering, DOI projected that the six bonus payment, if the royalties were paid tracts would be producing a total of 250,000 before the due date of the bonus installment. barrels per day by 1980. However, no bids The more stringent payment schedule of were submitted for the two Wyoming tracts the Prototype leases was compensated for by that were proposed for in situ development. Ch 3–EVOItion o/ the Prototype Program (/969-74) 37

The Wyoming shales are relatively lean and of bidder response. Prospective bidders per- interbedded 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 Location Date of sale ‘Winning bidder Winning bid Development concept C-a Colorado 1 /8/74 RIO Blanco 011 Shale project $210305,600 Open-pit mining, above-ground retorting {Gulf 011 Standard 011 of Indiana) C-b Colorado 2/ 12/74 C-b Shale 011 project (Atlantic 117788,000 Underground mining aboveground (Richfield, Tosco Shell, Ashland) retorting ~ Utah 3/ 12/74 White River Shale 011 Development 75,596,800 Underground mining, aboveground

b (Sun 011 Phillips Petroleum) retorting U.b Utah 4/9/74 White River Shale 011 Corp 45 107200 Underground mining aboveground (Sun 011, Phillips Standard of Ohio) retorting’ W-a Wyoming 5/ 14/’74 None In situ (suggested by DOI ) W-b Wyoming 6/11 174 None In situ (suggested by DO I )

Chapter 3 References

‘Hearings on oil Shale, Subcommittee on Miner- Joint Statement Be-fore the Colorado Interior Leg- als, Materials, and Fuels of the Senate Committee islative Committee on Oil Shale, Coal, and Related on Interior and Insular Affairs, 92d Cong., 1st Minerals, July 23, 1974. 6 sess., Nov. 15, 1971, Committee Serial 92-12, pp. Prospects for Oil Shale Development—Colora- 33-47. do, Utah, and Wyoming, Department of the Interi- 2Ibid. or, May 29, 1968. ‘Ibid., at pp. 19-25. 7“Decision Statement of the Secretary of the In- ‘Ibid., at p. 42. terior on the Prototype Oil Shale Leasing Pro- 5F. L. Hartley (Chairman and President, Union gram, ” Department of the Interior, Office of the Oil Company of California] and J. M. Hopkins (Act- Secretary, News Release, Nov. 28, 1973. ing President of Union’s Synthetic Fuels Division), 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 partici- changing 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 and 1976 (the year of the suspensions re- leases assumed that the recent tripling of the quests), estimated costs for an oil shale plant world oil prices would make shale oil compet- tripled. itive in the energy marketplace. This assump- Various increments of the cost escalation tion was based on preliminary financial esti- are attributable to general inflation, to ex- mates completed during the stable economic traordinary cost increases for capital , period that preceded the Arab oil embargo and before detailed studies were performed to increased costs of environmental protec- on specific facilities on specific sites in the oil tion, and particularly to the improved accu- shale region. As noted in chapter 6 of volume racy of later, more detailed engineering studies. ” Regardless of the reasons, the les- I, subsequent economic estimates were much sees were alarmed by the sharp reduction in less favorable, Table 2 shows the upward trend in estimates of investment require- their potential profits, and their distress was ments for shale oil plants, and the trend is exacerbated by problems encountered during further illustrated in figure 5, As shown, be- predevelopment activities on the lease tracts. tween 1973 (the year of the lease offerings)

Table 2.–Cost Estimates for Oil Shale Processing Plants

b Time of estimate Estimated costa $ million Source of estimate Reference 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 850-900 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 freshly stripped overburden would begin to (DOI) indicated that tract C-a appeared be returned- to the mined-out area, and the pit amenable to open pit mining because of the would thereafter be backfilled at the same relatively thin overburden covering the oil time that new areas were being mined. In the shale zones, and that aboveground retorting interim, mining and processing wastes would would most likely be employed. Rio Blanco Oil be disposed of on 84 Mesa, a highland to the Shale Project, the lessee, incorporated this northeast. * Retorts and other processing concept in its initial development plan, which facilities would be permanently located on an was submitted to the Area Oil Shale Super- area adjoining the tract north boundary. visor’s Office in March of 1974. Figure 6 is a The use of off tract lands for waste disposal sketch of the proposed open pit mine design. and processing sites was a key feature. In Rio Blanco’s concept for developing the tract evolving the plan, Rio Blanco analyzed alter- is shown in figure 7, Mining would begin in native development concepts with ‘respect to one corner of the tract, and the pit would *This specific site was not considered in the environmental gradually be enlarged until it encompassed impact statement (EIS). The EIS discussed off tract disposal only the entire tract surface. After several years, 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 co : 700

L : 400 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 Boundaries

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 % EXISTING MOON LAKE KAY::: (y TRANSMISSION LINE : i 1O NE 7 I

4IIKE - LLtU 1 HIC m RANSMISSION -’K’dlk!!Jj u ~ PIPELINE ~— \ LINE 1 1 N TELEPHONE CABLE

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T I

jk

-?

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T o 3 5 R 102 W

SOURCE RIo Blanco oiI Shale Project Detailed Development Plan Tract C-a Gulf Oil Corp and 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 opera- of spent shale. In order to facilitate these tion, and overall environmental impact, but experiments, the Department is with- rejected them all. 9 10 Underground mining was from all forms of appropriation rejected because resource recovery would be under public land laws . . . certain lands in only one-fifth that of a comparable open pit the vicinity of the tracts offered for lease. mine. Ontract disposal of solid wastes was The referenced Act allows the Secretary of rejected because the area covered could not the Interior to perform work on his own initia- have been mined by open pit without exces- tive or in cooperation with others involving sive materials handling, Underground mining the improvement, management, use, and pro- of the disposal area was rejected because re- tection of the lands and resources under source recovery would be only one-fourth of DO1’S jurisdiction. Under this broad authori- that achievable by open pit mining of the en- ty, and with the concurrence of DO1’S Solici- tire tract. Finally, several sites within the tor, leases were awarded for tracts C-a and tract boundaries were considered for the C-b on the basis of proposals that included processing facilities but were rejected be- the possible use of off tract lands for waste cause of the economic advantages of mining disposal. In the case of tract C-b, off tract the entire surface. areas were relatively small, involving only about 250 acres. Rio Blanco, however, pro- Rio Blanco had reason to expect that DOI posed to use about 6,400 acres of off tract would allow the use of off tract lands. In 1970, land for development of tract C-a. This was DOI’S Solicitor had expressed the opinion an area larger than the tract itself. that DOI had authority to allow such usage. Furthermore, several references to off tract It is apparent from testimony presented by land use were made in the 1973 EIS. For ex- DOI after the leases were awarded that DOI ample, in the volume on specific impacts of oil was not fully confident of its powers to award shale development, it was stated that: 11 off tract land use. In February 1974, Secre- tary Morton testified:” about 256 million cubic yards of loose waste (overburden) material could be dis- We have a legal opinion from our solicitor posed of offsite in Water Gulch which lies to that we would have the authority to grant ad- the west of the (C-a) tract. ditional areas if this became necessary. I Two options were also described for disposal would like to make sure that we were not on thin ice from a legal point of view , . , Speci- of processed shale, both involving off tract fic authority for the grant of such rights un- disposal areas, ” Finally, the EIS noted that:’{ der a general leasing program for oil shale is If this (C-a] tract is mined by surface min- not apparent. However, the prototype pro- ing methods, it is expected that the entire gram is of a different nature ., . Particular surface would be excavated , . . questions have arisen about the disposal of spent shale. At this time, it is not clearly This would be possible only if the processing known what the effect of spent shale dispos- facilities were located off tract. Offsite land al piles will be. This matter can only be de- use was also mentioned in DOI’S advertise- termined by actual experimentation with ment of the lease sales in 1973, as follows:14 and study of disposal sites, This is a very proper type of study to conduct under a pro- The Department recognizes that in some totype program . . . However, the question of situations lands outside the leased tracts granting off lease disposal sites, other than may be required . . . for and other pur- sites used for investigations, studies, and ex- poses . . . Moreover, since this is a prototype periments, may arise. Accordingly, the De- rather than a general leasing program, the partment has proposed statutory language Department may in the future find it desir- which would give it full authority to grant able to conduct investigations, studies, and offsite tracts if they are needed. experiments under section 101 of the Public Lands Administration Act (13 U.S.C. 1362), The proposed language was included in particularly in connection with the disposal 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 authority to allow commercial operations out- Leasing Act of 1920. Among the provisions of side of the lease-tract boundaries. these bills were a doubling in the size of tracts that could be leased and the granting A similar issue had arisen during the con- of secretarial discretion regarding use of off- struction of the trans-Alaska oil pipeline tract areas. These amendments were impor- when DOI had sought to issue a special land tant. because the Prototype Program was use permit for disposal outside the pipeline based on section 21 of the Act, which author- right-of-way. The action was challenged and, izes the Secretary of the Interior to lease oil in Wilderness Society v. Morton, the court shale deposits on public lands “and the sur- ruled that—since the Leasing Act provided face of so much of the public lands containing specific authorization for the basic activity such deposits, or land adjacent thereto, as (pipeline rights-of-way )—the Act”s specific limitation could not be ignored by using spe- may be required for the extraction and reduc- 20 tion of the leased minerals. “16 However, the cial land use permits. same section provides that no lease may ex- The decision was reached in 1973, after ceed 5,120 acres. No consideration is given to the Prototype Program was developed but be- use of off tract areas for waste disposal. fore the leases were sold. DOI’S Solicitor re- In the opinion of the Comptroller General of viewed the lessees’ development proposals in the United States, the provisions of the Public light of the decision and concluded that the Lands Administration Act did allow DOI to ruling also applied to the Prototype Program. use off tract lands for waste disposal in con- On December 20, 1974, Rio Blanco applied nection with a research and testing program. for permission to use off tract areas, but early 7 The provisions were not clear with regard to in 19 5, DOI denied the application. 17 commercial operations. In the absence of a This sequence of events was documented clear legislative charter, DOI hesitated to in 1976 during hearings on H.R. 11163, a DOI- allow the lessees to proceed with develop- sponsored bill to amend the Mineral Leasing ment plans that depended to a large degree Act to allow secretarial discretion regarding on such strategies. To do so could have been use of off tract areas by participants in Fed- interpreted as a violation of the Mineral eral leasing programs. The following ex- Leasing Act, change took place between Mr. Chris Far- Many in Congress responded negatively to rand, Deputy Undersecretary of the Interior, DOI’S proposed legislation. The statement of and Congressman Jim Johnson of Colorado:: Congressman Vanik of Ohio is illustrative of those who opposed it: 18 Mr. Farrand. We specified in the original en- vironmental impact statement that we antici- Using (the Public Land Administration Act) pated it would be developed by open pit and as precedent, the Secretary of the Interior that the disposal of some of the spent shale will allow mill ions of tons of shale waste to would be made offsite. be dumped on adjacent Federal lands that We also indicated in a withdrawal notice are not leased by the oil compinies under the that we published at about the time that the Pro tot type Leasing Program. This seems to me notice of sale was issued that we were with- a very severe stretching o f the apparent in- drawing certain lands around the tract for tent of (the Act). possible use in experiments with spent shale Although the language of the bills required disposal sites. that the Government be reimbursed the fair Third, in a letter to Senator Jackson in Jan- market rental for any off tract land used in uary of 1974, we indicated we had authority support of oil shale leasing,”) some members to allow offsite disposal or to make lands of Congress saw the bill as a giveaway to in- available for such disposal through an exist- dustry. In any event, the bills did not pass the ing program we call the special land-use per- 93d Congress, and DOI was left without clear mitsystem. 46 . A H/story and Analysis of the Federal Prototype 011 Shale Leasing program

Unfortunately, partially as a result of the depths. He expressed concern that waste decision in the trans-Alaskan pipeline case disposal on the mesa would preclude future and as a result of a review by our Solicitor’s development of its resources by open pit min- office, we found we did not have the authori- ing, and that roughly $10 billion in mineral ty to grant off site disposal. For that reason, values would be lost to the public as a result.22 we have come back to Congress to ask for an amendment to the Mineral Leasing Act to DOI argued that the overburden on the mesa allow us to utilize lands in the vicinity of oil was too thick for open pit mining, and that shale leases and make them available to the resource recovery by underground mining lessees only for very specified purposes at- would be reduced only about 5 percent by the tendant to the development of an oil shale additional weight of waste materials from lease itself. tract C-a.23 Mr. Johnson. But it was originally your inten- Congress rejected the bill. The kinds of op- tion and understanding that you had this au- position it faced were summed up in the testi- thority at the time you entered into the con- mony of Senator Haskell of Colorado,24 He tract for C-a, the lease contract, and both parties understood this was the case? noted, first, that the Mineral Leasing Act seemed clear in denying authority for off tract Mr. Farrand. There was apparently some disposal. Second, he called attention to the disagreement within the Department but we original C-a detailed development plan (DDP) conveyed to the public and perhaps to the lessees themselves that we had the authori- that indicated the tract could accommodate ty. It was our mistake because we did not open-pit mining with ontract disposal while have that authority. This is the best I can producing 50,000 bbl/d for 30 years, Finally, say. It was an error, * he expressed a concern that DOI was at- tempting to promote oil shale beyond the The bill was designed to allocate an addi- levels initially contemplated for the Prototype tional 6,400 acres of Federal land for use in Program. development of the lease tracts. About 4,100 acres would have been used for 84 Mesa dis- The latter concern was also expressed by posal area, The off tract processing facilities Representative Schroeder of Colorado in con- would have occupied an additional 1,500 nection with her bill to prohibit dumping of acres, and the balance would have been used spent oil shale on any Federal lands not spe- as waste transportation corridors and for cifically included under the Prototype leases. other purposes. DOI’s position was that the Her testimony on the bill includes the follow- additional land would allow Rio Blanco to ing statement:25 maximize resource recovery without reduc- . . . I strongly believe that oil shale devel- ing access to oil shale resources on the off- opment carried forth under the supervision tract areas. Mr. Farrand noted in his testi- of the Federal Government should proceed at mony that open pit mining would allow recov- a pace which permits careful and complete ery of 5 billion bbl of shale oil. If underground evaluation of its impacts, I believe we will mining had to be substituted because of the only have such evaluations if development is ban on use of offtract areas, only about 1 carried forth according to the schedule of billion bbl could be recovered. such programs as the Department of the Inte- rior’s Prototype Oil Shale Leasing Programs This position was disputed by a U.S. Geo- in Colorado and Utah . . . Any more efforts logical Survey analyst who maintained that than this become the sort of crash program the 84 Mesa site contained more oil shale for which the Federal Government is famous than did tract C-a, although at greater I think everyone who bid on these Col- orado tracts thought it would be enough land *Environmental protection groups had questioned off tract to carry on the prototype programs the leas- disposal as early as 1972 in comments on the draft EIS. They ing program envisioned, met with the Colorado Director of BLM in December 1973, before the lease sales. to protest. DOI should have been well The sentiments expressed in connection aware of the opposition. with amendments to the Mineral Leasing Act ———

Ch 4–The Changing Scene Between 1974 and 1979 ● 47 continued to prevail. The Federal Land Policy under certain interpretations of air quality and Management Act of 1976 includes the fol- regulations. This problem, although unusual, lowing: illustrates the problems cited by the tract lessees with respect to regulatory uncertain- Nothing in this Act, or in any amendments made by this Act, shall be construed as per- ties. Because of its importance and because mitting any person to place, or allow to be similar circumstances were encountered on placed, spent oil shale, overburden, or by- the other lease tracts, the problem of high products from the recovery of other minerals background emissions is discussed in a sepa- found with oil shale, on any Federal land rate part of this chapter. other than Federal land which has been 26 leased for the recovery of shale oil . . . The legal, political, and environmental Rio Blanco encountered other problems on problems encountered on tract C-a, when tract C-a when environmental monitoring pro- coupled with the uncertain economic feasibil- grams measured high background levels of ity of oil shale development, led to Rio Blan- emissions, apparently from co’s request for a suspension of lease terms in sagebrush and other vegetation, that might July of 1976, Details of the request are dis- have precluded any significant development cussed later.

Problems on Colorado Tract C-b

In the original development plan, tract C-b Figure 8. —A Multiple-Level Room. and-Pillar was to be developed by underground room- Oil Shale Mine and-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 proj- ect unattractive economically and forced evaluation of other options. Multilevel room-and-pillar mining is de- picted 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 process- ing, 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 adja- cent levels. Oil shale forms the support ma- trix for the entire mine. Except for roof bolts and grout no other structural materials are usually required. The great thickness of the Green River for- mation deposits are very favorable for room- SOURCE Hear/rig on 01/ Shale Leas/rig Subcommittee on Minerals Materials and Fuels of the he Senate Commitee on Interior and InsuIar Affairs and-pillar mining because large underground 94th Cong 2d sess Mar 17 1976 p 83 48 ● A H/story and Analysis of the Federal Prototype 011 Shale Leasing Program

equipment can be used, with resulting high As on tract C-a, the C-b lessees also meas- production rates and low costs. The economic ured high background levels of air pollutants. feasibility is sensitive to the mechanical prop- These problems were further compounded by erties of the oil shale, because they determine the unfavorable project cost estimates that the amount of shale in the support pillars. were revealed late in 1974, Tosco and Atlan- The stronger the shale, the smaller the pillars tic Richfield began to reconsider their com- and the higher the resource recovery. Shale mitment to the leasing program, and on De- that is weak because of natural fractures will cember 29, 1975, they assigned their in- require large pillars. Under these conditions, terests to Ashland and Shell, withdrew from resource recovery would be low, and mining the tract, and forfeited their investments in costs very high. the lease. The reasons cited for the with- drawal were inflation, questionable economic Preliminary studies indicated that the feasibility, and lack of governmental support shale on tract C-b was strong. However, later in clarifying the effects of the background tests showed that much of the shale in the emissions on future tract development. mining zone was badly fractured, and that support pillars would have to be larger than Ashland and Shell were left with the task anticipated. Resource recovery would have of revising the development plan for the tract. been unacceptably low. Because the ven- They were unable to do so with confidence ture’s economic feasibility depended on high within the time constraints imposed by the resource recovery, the lessees determined lease terms, and in March of 1976, they re- that the original development concept could quested a suspension of operations. The re- not be pursued, quest is discussed later in this chapter.

Problems on the Utah Tracts

Relatively few technical surprises were en- tled and unsurveyed, and boundaries of many countered on tracts U-a and U-b, but the base- townships could not be located. Consequent- line monitoring programs also measured lev- ly, the Federal Government allowed the State els of naturally occurring pollutants that to delay transfer of these sections until sur- occasionally exceeded ambient air quality veys could be completed, Subsequently, the standards. The Utah lessees were further af- Government appropriated entire townships fected by legal battles between the Federal for parks, monuments, national forests, and Government, the State of Utah, and private Indian reservations, These lands were re- firms over ownership of lands encompassing moved from possible acquisition by the State. the tracts. In lieu of these lands, Utah was allowed to se- lect other areas in other townships. The in- In-Lieu Lands lieu lands could be arranged in contiguous parcels, whereas the four sections originally Ownership rights are clouded over much of granted by the Statehood Act were noncon- the oil shale area, but the situation in Utah is tiguous. particularly complicated by circumstances associated with the granting of Utah’s state- The Statehood Act allowed transfer of Fed- hood. Under the Statehood Enabling Act of eral land to the State only if the land con- 1894, Utah was allowed to take title to four tained no valuable minerals, In 1918, Utah sections of land in each township, with the in- sued for an exemption to this rule, but lost.27 tent that proceeds from the sale or use of In 1927, Congress changed the law to allow these sections would be applied to public edu- selection of mineral lands under the state- cation. At that time, much of Utah was unset- hood 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, desirous of creating an oil shale industry that the law was changed again to allow selection could have significant environmental conse- of mineral-bearing in-lieu lands provided that quences. The statement had not been com- the corresponding statehood-grant sections pleted as of March 1974 when the Utah tracts also contained minerals, 29 In 1960, another were leased, 32 change allowed selection of any unappropri- ated public lands regardless of their mineral Between January 8 and February 12, 1974, character. Specifically included were the oil leases to tracts C-a and C-b were sold for a shale lands withdrawn by President Hoover’s total of nearly $330 million—about $33,000 Executive Order 5327. per acre. If the lands requested by Utah were By 1960, Utah’s stockpile of in-lieu lands regarded as having equivalent market value, had reached 562,000 acres; this was subse- their transfer would have meant a loss of quently reduced to 225,000 acres through the over $5 billion in mineral values to the U.S. selection process. * In February 1963, Secre- Treasury. Secretary Morton wished to avoid tary of the Interior Udall, at the request of or at least reduce this loss. on February 14, Colorado Representative Aspinall, instructed 1974, he notified Utah’s Governor Rampton the Bureau of Land Management (BLM) to that DOI would not exchange the in-lieu lands postpone transfer of additional mineral-bear- on an acre-for-acre basis but would rather ing land until Congress could consider the exchange lands of equal monetary value to ramifications of the 1960 amendment. Mr. the statehood grant sections, thereby follow- ing the precedent set by Secretary Udall in Aspinall introduced a bill that would have 33 prevented the States from selecting in-lieu 1967, lands with much greater value than the state- hood sections, but the bill did not pass. In On February 26, Senator Moss of Utah complained about Secretary Morton’s posi- 1965 BLM announced that it was prepared to 34 resume its review of in-lieu applications, 30 tion as follows: However, in January 1967, Secretary Udall told the Utah government that DOI would not The Secretary knows that his position is transfer in-lieu lands of disparate value, not legally sound. He is afraid, however, of the political repercussions, the unfounded citing as authority for this position the provi- < sions of the Taylor Grazing Act. Neverthe- charges of “giveaway’ which will be hurled less, Utah continued to apply for in-lieu selec- at him, if he does what the law requires and approves the selection lists. Therefore, to- tions and between September 1965 and No- morrow the State will file suit for declara- vember 1971 submitted 10 separate applica- tory and injunctive relief, seeking what has tions for transfer of 194 parcels of land total- been its due for 80 years . . . Since December ing 157,225.9 acres, The land was located in of 1973, I have been considering filing suit as the oil shale area of the Uinta basin and in- best friend of the thousands of school chil- cluded the present sites of lease tracts U-a dren in Utah who are and have been denied and U-b, rights granted to them by the Congress many years ago . . . Now, however, since the State Interior delayed action on these applica- is taking affirmative steps to bring suit, we tions and initiated an EIS specifically di- have determined to support . . . its efforts . . . rected to the transfer of the Utah lands. The I cannot sit idly by and allow the Secretary of rationale was that the transfer would give a the Interior to delay, procrastinate and ob- substantial block of oil shale land to a State fuscate a matter which is clear on its face. The statute in question . . . states clearly that selections for lands lost shall be based *other Western States were also granted school indemnity on equal acreage. The statute does not re- lands. At present the States are entitled to the following acre- ages: Arizona California-180.000: Colora- quire equal value, To apply a new rule by ad- doIdaho ministrative fiat is unconscionable, arbi- trary, and capricious. 50 ● A H/story and Analysis of the Federal Prototype 011 Shale Leasing Program

On March 4 1974, Utah filed suit against ful to Congress’ consistent purpose, in provid- Secretary Morton in the U.S. District Court in ing for indemnity selections, of giving the Salt Lake City, seeking an order to compel States the rough equivalent of the school land him to rule on the in-lieu requests without grant sections that were lost through pre- reference to the value of the parcels involved. emption or private entry before they were In 1976, the court ruled that the Secretary surveyed. was to determine if the applications complied with the requirements of the law allowing Other problems, relating to the existence of transfer of mineral lands, and to refrain from unpatented mining claims overlying the Utah tracts, and an application for a State lease to comparing the value of the lands requested to develop the same areas, also existed in Utah. the sections granted at the time of state- hood.” The court further concluded that the National Environmental Policy Act was not Unpatented Mining Claims applicable and that an environmental state- ment was not required. (DOI’S EIS was subse- Before enactment of the Mineral Leasing quently abandoned. ) On September 14, 1976, Act in 1920, oil shale was subject to disposi- DOI appealed the ruling to the 10th District tion under the oil placer provisions of the min- Court of Appeals in Denver, where the case ing laws. No new oil shale claims could be lo- remained until August 1978 when the earlier cated after enactment of the Leasing Act; decision was upheld. ‘b however, section 37 contained a savings clause which preserved “valid claims exist- Tracts U-a and U-b were leased on June 1, ent at date of the passage of this Act and 1974, during the court contest in Salt Lake thereafter maintained in compliance with the City. The lessees were not overly disturbed by (mining) laws under which initiated, which the conflict, because Governor Rampton and claims may be perfected under such laws, in- Secretary Morton had agreed that the lease cluding discovery. ” 38 terms would remain in effect regardless of the court’s ruling. The agreement was signed The savings clause allows those who had before the leases were sold. Under the direc- properly located claims to perfect them by tion of the court, proceeds from the lease continuing operations to satisfy the require- sales (some $78 million as of May 1976) were ments for a patent. Under the oil placer provi- invested in treasury bonds with the proceeds sions, claims had to be located in tracts of no to go to the winner of the litigation, more than 20 acres per individual and no more than 160 acres per association of claim- On May 19, 1980, the U.S. Supreme Court ]7 ants. In practice, almost all of them before reversed the decision of the Circuit Court. It 1920 were located as 160-acre association upheld the Secretary of the Interior’s deci- placer claims. The law requires that each sion to refuse Utah’s applications for State in- claim be individually “located” (staked and demnity selections of public lands that were marked), that there be an actual “discovery” grossly disparate in value to the original (exposure) of a “valuable mineral deposit, ” school land sections. The Court held that within the limits of each claim, and that the under section 7 of the Taylor Grazing Act, land be “chiefly valuable” for the oil shale which requires the Secretary to classify pub- deposit. lic lands within Federal grazing districts as proper for school indemnity selections, the Claims continue indefinitely with or with- Secretary is vested with broad discretion in out mineral production, The Mining Law re- establishing criteria for classification; and quires that at least $100 worth of assessment that the “grossly disparate value standard” (development) work be performed each year used in rejecting Utah’s selection was a valid until each claim is patented, although work exercise of that discretion. The Court found can be combined for contiguous claims in that the Secretary’s action was wholly faith- 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 tracts were covered with unpatented min- the annual assessment work is not performed ing claims, if revenues were held in reserve on or for the benefit of a claim during any pending the outcome of litigation. If the Gov- year, the claim can be relocated by the origi- ernment won, the revenues would be handled nal claimants, or by others as long as this the same as with the other tracts, and the takes place before the original locators have State of Utah would receive its percentage resumed work. Complete title to the surface share as provided by the Mineral Leasing and subsurface of a placer claim can be ob- Act. If the courts ruled in favor of the holders tained by submitting an application for a pat- of the unpatented claims, then the claimants ent, performing at least $500 worth of assess- would divide the money. 40 However, all Fed- ment work, and paying a fee of $2.50/acre eral and State leases would be declared void. plus any survey costs. The right to mine and This procedure, which assumed agreement make use of the surface exists whether or not by the mining claimants (and hence no cancel- the claim is patented, but, prior to isssuance lation of leases) was not, in fact, im- of a patent, surface use is limited to that re- plemented. quired for the claimant’s mineral operations. After issuance of a patent, the owner can do Despite the uncertainties—the lessees whatever he wants with the land. On either could not rely on permission to proceed with patented or unpatented claims, there is no re- tracts could be lost—the White River Shale quirement that mineral production ever be Project purchased the leases and proceeded commenced, nor any requirements related to with development. Evidently, the participants the timing, method, or pattern of develop- were confident that the Government would ment. ultimately prevail, or that they would be able to negotiate acceptable terms with the pri- The validity of pre-1920) oil shale mining vate claimants, if they prevailed. On June 1, claims has been the subject of considerable 1974, leases were issued for the Utah tracts. dispute for many years, The dispute centers on the meaning of the valuable mineral de- This confidence may have been related to posit criterion as applied to oil shale and the DOI”S aggressive program to invalidate the consequences of failure to perform assess- outstanding mining claims. On November 19, ment work prior to 1971. The uncertain sta- 1973, BLM initiated four contest proceedings tus of pre-1920 claims blanketing the proto- against certain claims in Colorado, seeking to type oil shale leases in Utah was one of the invalidate them on the theory that a mining principal bases for the court-ordered suspen- claim could be valid only if the deposit could sion of activities, granted at the request of the have been developed, extracted, and mar- lessees. keted at a reasonable profit at the time of lo- In the late 1960’s, DOI began a legal cam- cation, and if the marketability had continued paign to resolve the ownership issue. By 1974 without substantial interruption from the all of the disputed titles in Wyoming and half date of location to the time of the contest pro- of those in Colorado had been cleared in fa- ceedings. In 1970, BLM succeeded in invali- vor of the Government: none of the Utah titles dating three of the oil shale claims on other had been cleared, including the claims on grounds, but the DOI hearing officer vali- tracts U-a and U-b, ” dated six claims belonging to Shell Oil Co. and others, rejecting BLM’s marketability theory. At the time of the lease offerings it ap- BLM filed an appeal brief in 1970 seeking in- peared that the Utah claims would be settled validation of the remaining six claims. in the Government’s favor and industrial bid- ders were apparently relying on this outcome. On June 28, 1974, the DOI Board of Land In 1971, DOI Solicitor Melich ruled that DOI Appeals reversed the hearing officer, ac- had authority to sell the leases, even though cepted 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 The initial decision, in 1924, by DOI’S local soon settled because on August 20, Shell Oil register and receiver, found that the claims Co. filed a complaint in the District Court in were invalid because oil shale deposits of suf- Denver seeking a reversal of the Board’s rul- ficient value to be marketable had not been ing. exposed and the required assessment work had not been performed. The commissioner of In 1976, the District Court reversed the the land office reversed this initial decision, Board’s decision and ruled that the claims at 41 citing evidence that had been submitted issue were valid. The court held that DOI which purported to show that rich lower was bound by prior departmental precedent 42 strata could be profitably worked, and con- in the 1927 case of Freeman v. Summers cluding, without any discussion, that there which recognized that oil shale was a had been a discovery of the valuable strata. valuable mineral subject to appropriation At the end of 1924, DOI’S First Assistant under the mining laws and that established Secretary Finney reversed the commission- the legal basis in patenting pre-1920 claims er’s decision and declared the claims null and for more than 30 years of Department prac- void, finding there had been no proof of suffi- tice. The court said that by not requiring any cient assessment work and that there was no showing of present marketability for oil shale probative evidence demonstrating that the claims, the Freeman case established a lower, unexposed beds were valuable for separate and more liberal valuable mineral mining purposes. test than that applied to other locatable min- erals, The court reasoned that, since Con- Finney’s decision was the final appeal gress had twice considered the issue of oil available as a matter of right. Two requests shale patentability and had implicitly “rati- for rehearing or retrial were denied. Con- fied” the Freeman decision by not reversing it siderable pressure, however, was brought to legislatively, and since investors had relied bear on DOI by oil shale mining claimants upon the Freeman rule for over half a cen- from Colorado and their representatives in tury, DOI was not permitted to adopt the Congress. The Secretary of the Interior exer- present marketability test as a new standard cised his supervisory power to order the case for evaluating the pre-1920 claims. reopened and retried, and held an open meet- ing attended only by oil shale mining claim- The Freeman case arose from a protest ants and their supporters at which the issue filed in 1923 by pre-1920 mining claimants of discovery of the richer lower strata against homestead entries made by Summers through geologic inference rather than actual in 1920. The shale claims had been located on exposure was extensively discussed. In 1927, the same land in 1918. If the claims were Finney wrote and the Secretary signed a new valid at the time of the homestead entries and and final decision upholding the mining claim- continued to be valid at the time the protest ants” protest, a decision with which neither was filed, the claimants had a prior right to DOI’S Solicitor nor any of his attorneys obtain patents for both the surface and the agreed. 43 subsurface, and the homestead entries would have to be canceled. There could be no dis- The decision was mainly concerned with pute concerning the basic mineral nature of the issue that had been the primary focus the land, since it had been classified as min- throughout the proceedings: the extent to eral in character in 1916. However, the min- which geologic inference could be used to ing claimants, in order to establish the initial support a discovery of the richer lower and continuing validity of their claims, had to strata, However, it also addressed the value show that they had discovered a valuable issue: mineral deposit on each claim, that the land While at the present time there has been was chiefly valuable for such deposit, and no considerable production of oil from that they had performed the required annual shales, due to the fact that abundant quan- assessment work. tities 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 erals the Interior Department’s profitability value and of the fact that it constitutes an test is a permissible interpretation of the enormously valuable resource for future use ‘‘valuable mineral requirement. 47 by the American people, The implications of this Supreme Court deci- It is not necessary, in order to constitute a sion for the unpatented claims in Utah are not valid discovery under the general mining yet clear. laws sufficient to support an application for patent, that the mineral in its present situa- tion can be immediately disposed of a t a pro- The Peninsula Mining Case fit . . . 44 A further complication arose in 1974 when DOI appealed the 1976 District Court deci- Peninsula Mining, Inc., a Utah firm, applied sion. The Tenth Circuit Court of Appeals af- for State leases for 46,000 acres of land in firmed the lower court decision and held that the Uinta basin, including tracts U-a and U-b. the Department was bound by the Freeman 45 Peninsula contended the Utah legal code re- precedent. The U.S. Supreme Court agreed quired that the State must lease land, where to review, on June 2, 1980 the Supreme Court available, to the first qualified applicant to issued its opinion affirming the decisions of satisfy the appropriate filing procedures, the lower court that oil shale was a valuable which Peninsula Mining did on June 21, 1974. mineral and rejecting the application of the Utah rejected the lease applications. present marketability standard. The case, Andrus v. Shell Oil CO., 46 held that oil shale is On December 11, 1974, Peninsula sued the a valuable mineral that is patentable under State of Utah in the Third Judicial District the savings clause of the Mineral Leasing Act Court of Salt Lake County, pleading that Utah of 1920. In its decision the Court noted that had complied with applicable laws, that title before 1920 there had been uncertainty should have been granted by the Federal Gov- about whether oil shale was patentable ernment within a reasonable time, and that under the mining laws since there was no the State was therefore entitled and obli- commercial production of shale oil. The Court gated to issue a lease for the area. On March found that by enacting the Mineral Leasing 5, 1975, proceedings were stayed pending Act of 1920 that withdrew oil shale from dis- resolution of Peninsula’s petition to intervene position under the mining law, Congress at in the Utah indemnity selection case. The pe- least implicitly recognized that oil shale had tition was subsequently denied, Utah’s motion been locatable. Since oil shale was not then to vacate the stay order and to dismiss the commercially valuable, the Court reasoned complaint was also denied by the State court, that Congress must not have intended any and the stay is still in effect .48 consideration of the present profitability of In 1976, therefore, the lessees of tracts U-a shale in determining whether a claim was and U-b were uncertain of the ultimate identi- patentable. To support its conclusion, the ty of their landlord. Depending on court deci- Court cited the Freeman decision and depart- sions in a number of lawsuits, the landlord mental practices over 33 years in issuing could be the Federal Government, the State of more than 523 patents as evidence of the con- Utah, or one of a number of private parties. temporaneous administrative construction of The uncertainty remains in light of the the 1920 Act by those charged with its imple- Supreme Court decision in Andrus v. Shell Oil men tat ion. co. In a footnote. the Court recognized that a separate value test exists for oil shale: Environmental Problems (The) history indicates only that a present marketability standard does not apply to oil The Utah lessees also encountered high shale. It does not affect our conclusion in backround levels of naturally occurring air United States v. Coleman that for other min- 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 develop- similarly related to natural sources. Because ment, the lessees applied to DOI for a suspen- of the ownership conflict and because the sion of lease provisions on July 19, 1976.49

Problems With the Environmental Baseline

Under the provisions of the leases, the When we discovered this to be a problem lessees were required to monitor air and we immediately contacted the Environmental water quality, as well as other environmental Protection Agency, asked them whether in characteristics on the tracts and their en- fact the situation had to be resolved legis- virons. The purpose was to compile a body of latively or whether it could be resolved ad- data that would define the baseline condi- ministratively. The answer the Secretary re- tions before development. Any changes after ceived from Administrator Train was that they believed that in July an amendment then development started could then be associated pending before the Congress would solve the with the related activities. The monitoring problem, but barring that they thought they programs were to cover a Z-year period. could deal with it administratively and were Early in the programs, air quality measure- in fact undertaking some studies to deter- ments detected concentrations of particu- mine whether a change in the standards or a late, , and that occa- change in the approach to the ambient air sionally exceeded the National Ambient Air quality problems might be appropriate. Quality Standards (NAAQS) that were pro- mulgated under the Clean Air Act of 1970. * I have received a draft, internal copy, of This situation was regarded as serious at the their study, which indicates that when they time because the Act prohibited additional in- set the (standards) they did not understand dustrial development in areas of excessive all the interrelationships between hydrocar- air , i.e., areas where pollutant con- bons and oxides, and in fact they may have to centrations exceeded any of the NAAQS. adjust the geographical boundaries for which they set ambient air quality stand- The discovery was surprising because ards. there is very little industry near the tracts. It was subsequently hypothesized that the pol- If they do, it might resolve the problem, lutants might be emitted by natural sources Without administration or legislative help, within the oil shale areas or by industries and however, I remind you that the situation municipalities outside of the region. Par- presents an absolute impediment; that there ticulate were related to windblown dust; hy- can be no legal action to develop those leases drocarbons to emissions from nearby gas- under the conditions that appear to exist at fields or more likely from sagebrush and this point. other vegetation; and ozone to long-distance

air transport50 51 from the Salt Lake City air- The area of uncertainty in the standards re- shed. lates to the reactions between hydrocarbons The leases prohibited further development and nitrogen oxides (both of which are regu- until the pollution problem was solved, or un- lated) to form ozone. It was not clear that high til the NAAQS were modified, A DOI official hydrocarbon concentrations would necessar- described the situation as follows: 52 ily constitute a health hazard in the oil shale area where concentrations of nitrogen oxides were very low.53 What was clear was that the *The laws and standards that regulate air quality in the oil tracts could not be developed under the law shale region are discussed in ch. 8 of vol. 1. as then interpreted. Ch 4–The Changing Scene Between 1974 and 1979 ● 55

The Political Climate

During the mid-1970’s, it was generally billion for developing new energy sources. recognized that achieving energy independ- The proposal was not approved by Congress, ence would require the cooperation of domes- Also in 1975, the House of Representatives tic oil producers, at least in the near term, struck a $6 billion loan-guarantee provision However, there were growing concerns about the high profits that oil companies had made from the authorization bill for the Energy Research and Development Administration during the Arab oil embargo, Government (ERDA). * The provision was strongly sup- subsidies for production, environ- mental impacts of , and ported by the participants in the Prototype Program, Had it passed, it could have re- the costs of extracting fuels from oil shale, Pressures mounted to divest the integrated moved some, although not all, of the financial uncertainty of oil shale development. The operations of the major oil companies as a House also rejected a Senate bill that would means for increasing competition in the ener- have allowed use of public land for research gy industry. on in situ processing. In 1976, a bill was intro- Perhaps it was these concerns that duced to authorize $3.5 billion in loan guaran- prompted Congress to reject several pieces of tees and $500 million in price supports for legislation that would have supported syn- synthetic fuels. The bill was defeated in com- thetic fuel production in general, and bene- mittee. When coupled with the economic, geo- fited oil shale developers in particular. As technical, environmental, and legal problems, mentioned previously, Congress did not pass the political climate led all of the lessees to the bill that would have allowed Rio Blanco to reconsider continued involvement in the leas- use off tract lands, but instead adopted the ing program. language of FLPMA. In 1975, President Ford proposed an Energy Independence Authority that would have provided as much as $100

Suspension Requests

By the end of 1975, the original develop- required full payment of the first three bonus ment concepts for tracts C-a and C-b had payments but the fourth and fifth could be been invalidated. On tract C-b, management partially or even fully offset by investments in was disrupted by the withdrawal of two of tract development. In order to qualify for the the original partners. In Utah, the lessees had benefits of the offset provision, investments no assurance that the development of the had to be made prior to the fourth and fifth tracts could proceed at all, but the lessees anniversaries of the lease sales. That is, at were sure that resolving the ownership issues least one-fifth of the original bonus bid (plus would require months, or even years. For all interest) had to have been spent on the tract of the tracts, obtaining the necessary legisla- before the fourth anniversary and an addi- tive or administrative solutions to the air tional one-fifth before the fifth anniversary. If quality problem promised to be a lengthy no work were done, the total amount of the process. All of these uncertainties introduced bonus bid would have to be paid to the Gov- the strong possibility of significant delays in ernment, Therefore, any delays that lowered the development schedules. the amounts of investment in the fourth and fifth years reduced the financial attractive- Potential delays were of considerable eco- ness of the projects. Many millions of dollars nomic concern to the lessees. The lease terms 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 origi- the weak shale.’)’ The request also cited the nal schedules. potential conflict with the Clean Air Act reg- ulations, and the need for time to consider The lessees saw only three possibilities: legislation to allow off tract land use. In addi- . to relinquish the leases, tion, the transmittal letter mentioned a hos- . to expedite preparation of new develop- governmental attitude towards the oil in- ment plans and to press for resolution of dustry, as exemplified by price controls on legal and regulatory uncertainties, or petroleum and proposed legislation for sever- ● to request suspension of lease require- ence taxes and divestiture, However, the ments until the uncertainties could be re- principal foundation of the request was the solved. need for further studies of a concept for de- veloping the tract that would minimize wast- The first choice would have entailed the sac- ing the public’s resources. An 18-month sus- rifice of three-fifths of the bonus bids for a pension was requested. On August 20, DOI’S total financial loss of over $270 million (see Area Oil Shale Supervisor granted a 12- table I ) if all participants withdrew. The Pro- month suspension (from September 1, 1976 to totype Program would have ended, and its September 1, 1977). The lessees were re- termination would have eliminated a commer- quired to continue environmental monitoring cialization opportunity that was still attrac- programs. tive to industry. The second alternative would have involved much risk, even if only techni- On July 2, 1976, Rio Blanco requested a 2- cal crash programs were required that were year suspension on tract C-a, citing the high completely controlled by the companies. background levels of natural air pollutants, These risks were magnified by the necessity denial of off tract land use, economic uncer- of involvement with the courts and the regula- tainty, the absence of a favorable political tory agencies. The third possibility was al- climate, and the need to prepare new devel- lowed by the provisions of the Mineral Leas- opment plans that would maximize resource ing Act of 1920, as amended, but only for the 56 58 recovery. DOI granted a l-year suspension purposes of encouraging the greatest ulti- 54 (until September 1, 1977) with the provision mate recovery of the mineral. for continuation of baseline environmental The lessee’s concerns may have been re- monitoring. lated to the uncertain economic feasibility of oil shale development, However, the leases On July 19, 1976, the lessees of tracts U-a did not authorize suspensions for economic and U-b requested a 2-year suspension, citing reasons. In order to qualify for a suspension, that the time was needed for additional study a lessee would have to provide a justification to develop methods for improving resource in terms of resource recovery and conserva- recovery with acceptable costs, to determine tion. On March 3, 1976, the remaining tract whether the tracts could be developed in com- C-b partners requested a temporary suspen- pliance with air quality regulations, and to sion to study whether lands owned by the develop an economically feasible retorting lessees could be exchanged for lands near the technology. DOI granted a l-year suspension tract, thereby increasing the resource base (from November 1, 1976 to November 1, that could be concurrently developed and 1977).’>[] Continuation of baseline environmen- overcoming some of the problems created by tal monitoring was required,

Events During the Suspension Periods

During the suspension period, environmen- removed through actions by the Environmen- tal 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 particulate that are most harmful to human DOI’S Area Oil Shale Supervisor, EPA’s Re- health and welfare. Urban dust tends to con- gion VIII Administrator stated:60] tain more smaller sized particles, which are often made up of industrial particulate, EPA does not feel that the air quality as represented by measurements on the Federal either alone or adhering to natural particles. lease tracts precludes the development of These are often contaminated with industrial the oil shale resources. Utilization of inter- vapors and gases, automotive exhaust fumes, pretative rulings, existing regulations, and rubber tire particles, and other materials policy statements would indicate that if a that have been related to adverse health ef- facility is designed to meet all appropriate fects. State and Federal emission regulations and the applicable “incremental type” ambient In summary, EPA concluded that stringent standards, i.e., State and PSD, it may be con- hydrocarbon emission regulations in the oil structed. shale area would have little effect on ozone concentrations in the atmosphere. It also con- It is noteworthy that the statement implies cluded that rural dust is substantially and that changes in policy were not required to significantly different from suspended par- accommodate development. EPA conclu- ticulate in urban areas, and is less likely to sions were based in part on analyses of the cause harm, even if present in concentrations nature of fugitive dust in rural areas and the in excess of the NAAQS. problems with high ozone concentrations in areas that contained no man-related sources The Region VIII EPA Office drafted a rural of ozone or its precursor hydrocarbons.’)’ ozone policy that allowed construction of new Since ozone and its precursors can be trans- hydrocarbon sources in rural areas where ported long distances, EPA’s analysis indi- baseline ozone and hydrocarbon concentra- cated that regulatory actions directed at pro- tion exceeded ambient air quality guidelines, tecting air quality in rural areas would be provided that the facilities complied with more effective if applied to the distant urban emission standards and regulations for pre- areas that were the likely sources for the pol- venting additional degradation in air quality. lutants. In addition, it was indicated that The policy was proposed only if the new areas like the oil shale region, which have low sources were not near cities with populations ambient concentrations of nitrogen oxides, larger than 200,000. It was however, never are less subject to air quality degradation as adopted by EPA in Washington. a result o f hydrocarbon emissions from new sources (like oil shale plants) than are indus- A rural fugitive dust policy was also trialized urban areas with high concentra- drafted, but never adopted, that allowed con- tions of nitrogen oxides. Because of the insen- struction of new particulate sources in rural sitivity of ozone concentrations to changes in areas where baseline particulate concentra- the concentration of hydrocarbons, controls tions exceeded the NAAQS, provided that the implemented in the oil shale region would sources complied with emissions standards have little effect on ozone levels. and used the best available pollution control methods. It was proposed that the emissions The fugitive dust analysis indicated a dif- from the new sources, when added to emis- ference between dust in urban areas and in sions from other man-related sources in the rural areas. Rural dust is generally wind- same area, could not exceed the particulate blown material from sparsely vegetated land standard developed for the area. and unpaved roads. It is typically native soil and is not contaminated with industrial par- The second environmental problem was re- ticulates, absorbed industrial fumes, or other lated to the standards for prevention of sig- potentially toxic substances. Furthermore, nificant air quality deterioration (PSD) that dust in rural areas is generally composed of were proposed by the Colorado relatiely large particles: it is the smaller size Control Commission for controlling sulfurdi- 58 . A History and Analysis of the Federal Prototype 011 Shale Leasing program

oxide (S02) concentrations. The Colorado technology. * MIS processing reduces the standards that applied to the oil shale region need for aboveground facilities because the are compared below with the corresponding retorts are underground. Waste disposal, al- Federal standards. though still a substantial problem, is consid- erably less than in aboveground retorting Allowable increase in SO2 concentration, g/m 3 operations. Because large, permanent under- ground openings are not needed, the tech- Colorado PSD Federal PSD standard for nique was believed to be applicable to struc- standard for Category I turally weak shale deposits like those en- Class 11 areas ureas countered on tract C-b. Furthermore, it was Annual average ...... 15 3 claimed at that time that MIS processing Maximum during any would produce shale oil for about half the 24-hr period . . . ., . . . . 100 15 cost of aboveground retorting, and that re- Maximum during any 3-hr period ., ...... 700 75 source recovery would increase fourfold (from 300 million to 1.2 billion bbl). An atmospheric dispersion modeling study performed by the Colony Development Opera- On March 1, 1977, the tract C-b lessees tion indicated that the Colorado 3-hour PSD submitted a modified DDP to DOI’s Area Oil standard could not be satisfied by even the Shale Supervisor that changed the approach smallest practical oil shale retort, and would to tract development to MIS processing. On certainly be exceeded by a commercial-scale May 25, Rio Blanco submitted a plan for de- retort even if the best available air pollution veloping tract C-a by MIS methods, rather control methods were used. Thus, oil shale than by open pit mining and aboveground re- plants would be prohibited in Colorado’s oil torting as originally proposed. At the same shale regions.62 In March 1977, hearings time, Rio Blanco also applied for an extension were held concerning the proposed regula- of the suspension period beyond the Septem- tions. Considerable testimony was presented ber 1 deadline, if the problems with environ- both favoring and opposing the regulations. mental baseline measurements were not re- solved prior to that time. The request was The PSD standards for the oil shale region denied because the issue was resolved by the were subsequently revised to agree with the (l EPA Regional Administrator on July 5. On Federal standards. ’ According to the Colony August 30, DOI approved the modified DDP study, this revision would have permitted an for tract C-b’s MIS operations. On September industry of at least 400,000 bbl/d in the Pice- 64 1, suspensions for tracts C-a and C-b were ance basin. It also would allow other devel- terminated. On September 22, DOI approved opments (such as powerplants) to be built in the modified DDP for tract C-a. the oil shale area and other parts of the State. The suspensions for Utah leases were not Also during the suspension periods, the terminated at the original November 1 dead- technological approaches to developing line. On April 17, 1977, the Utah lessees filed tracts C-a and C-b were revised. As noted a complaint in the U.S. District Court in Salt previously, Tosco Corp. and Atlantic Rich- Lake City, seeking an injunction against the field withdrew from the C-b tract in Decem- Federal Government to prevent continuation ber 1975 as a result of escalating project cost of the lease provisions until the issues sur- estimates. On November 2, 1976, Shell Oil Co. rounding ownership of the lease tracts were withdrew from the tract because of contin- resolved. On July 1, Judge Ritter granted the ued economic uncertainties, and on Novem- injunction because:65 ber 4, Ashland Oil Co. (the last of the original four participants) announced a a. If plaintiffs proceed with development of with Occidental Oil Shale, Inc. The compa- the leased deposits, they would be sub- nies proposed to develop tract C-b with Oc- *MIS processing and other oil shale technologies are de- cidental’s modified in situ (MIS) retorting scribed 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 ments and preparation of the Detailed resources expended in development. Development Plan, b. If plaintiffs retain the leases, but do not The injunction was issued with an effective proceed with development, they would suffer the loss of monies paid as bonus date of May 31, 1977, and was to continue un- payments that otherwise could be spent til ownership of the land and the right to de- on development. velop the tracts were settled by the resolution c. If plaintiffs relinquish the leases, they of the suits between Utah and DOI, Peninsula would risk the loss of the monies ex- Mining and Utah, and DOI and the holders of pended to date on bonus and rental pay- rights to unpatented mining claims.

Resumption of Activities and Current Status Tract C-a Rio Blanco is also considering Lurgi-Ruhr- gas aboveground retorts to process the shale In January 1978 shaft sinking began on this that must be mined to create the in situ re- tract in preparation for a modular MIS retort torts. Current plans are to invest $100 million demonstration program. The program was to in a modular retort development program in involve five sequential retorts of increasing which a 4,40@ ton/d Lurgi- module size, and was to be completed by 1981. These would be used to produce about 2,000 bbl/d of retorts were to be based on a concept devel- crude shale oil. An agreement for the engi- oped by DOE’s Lawrence Livermore Labora- neering design phase of the program was tory. They were to lead to commercial-scale signed by Rio Blanco and American Lurgi operations by 1987 in which MIS retorts Corp. on July 16, 1979, The plant could be in would be used in conjunction with TOSCO 11 operation within about 3 years. Commercial- retorts to produce 76,000 bbl/d of crude shale scale operations at about 76,000 bbl/d could oil. In 1979, Rio Blanco executed a licensing be attained by 1987 if there are no further agreement with Occidental Oil Shale that project delays. provided access to proprietary technical in- formation acquired during Occidental’s field Tract C-b experiments with MIS retorting. Also in 1979, Rio Blanco submitted another modified DDP In February 1978, a contract was let for in which its schedule was changed to include shaft sinking on this tract in preparation for the operation of three modular MIS retorts an MIS retorting demonstration, Shaft sink- through 1981. The first retort will be about 30 ing and the preparation of surface facilities ft on each side and 200 ft high, and will be began in early 1978 and are continuing. On used to develop techniques for rubbling and December 15, 1978, Ashland Oil Co. an- combustion. It was-scheduled to be burned in nounced its withdrawal from the tract effec- June of 1980, The second retort will be 60 ft tive February 14, 1979, leaving Occidental as on each side and 400 ft high and will also be the sole developer. Ashland’s decision was burned in 1980, The third experiment may in- prompted by:66 volve two parallel retorts, each 60 ft on each economic studies that suggest in- side and 400 ft high, or a single retort meas- . . . creased capital and operating costs may re- uring 60 ft by 150 ft by 400 ft high, Rubbling duce profitability in the face of technical, po- will be completed late in 1980 and the burn is litical and regulatory uncertainties. This de- scheduled for mid-1981. Additional retorts cision is in keeping with Ashland’s corporate may be constructed and burned after the end policy to emphasize projects that promise of 1981. The retorts will probably be of com- cash flow commensurate with capital re- mercial size and may be as high as 700 ft. quirements. 60 ● A H/story and Analysis of the Federal Prototype 0il Shale Leas/rig Program

Ashland transferred its share of the lease to Tracts U-a and U-b Occidental at nominal cost, but retained the right to recover its development investment of Ownership of these Utah tracts is still un- about $37.5 million from any sales revenues certain. Although the U.S. Supreme Court that may ultimately result from commercial found in favor of the Federal Government in operations on the tract, the in-lieu lands case, they found in favor of On July 25, 1979, Occidental sold a half- the Colorado claimholders in the case of the interest in the tract for $110 million to Ten- unpatented mining claims. Although the neco Oil Co. The tract will be developed joint- claims in question are in Colorado, the out- ly by the companies, Tenneco would have full come could have implications for future de- rights to use Occidental’s MIS technologies velopment in Utah. If the precedent is applied both on the tract and in any other develop- to the unpatented mining claims overlying ment ventures in which it may become in- tracts U-a and U-b and if these claims were volved. Full-scale commercial production of declared valid under the precedent of the 57,000 bbl/d is anticipated in 1986. No plans Shell Oil decision, the existing Federal leases have been announced to process the mined in Utah could be affected, The issue remains shale in aboveground retorts. unsettled as of the time of this writing.

Chapter 4 References

‘Department of the Interior, Prospects for Oil ty Studies in Times of Rapid Cost Escalation, ” Shale Development—Colorado, Utah, and Wyom- Chemtech, September 1977, pp. 551-552. ing, May 1968, pp. 40-79. ‘C. S. Gist, et al., “A Simple Method for Evaluat- ‘R. N, Hall and L. H. Yardumian, “The Econom- ing Alternatives to a Proposed Environmental ics of Commercial Shale Oil Production by the Alteration, ” Quarterly of the Colorado School of TOSCO II Process, ” paper presented at the 61st Mines, vol. 70, No. 4, October 1975, pp. 29-74. Annual Meeting of the American Institute of 10Rio Blanco Oil Shale project, Detailed Develop- Chemical Engineers, Los Angeles, Calif,, Dec. 5, ment Plan: Tract C-a, Gulf Oil Corp. and Standard 1968. Oil Co. (Indiana), March 1976, pp. 7-2-1 to 7-2-20. ‘The National Petroleum Council, U.S. Energy “Department of the Interior, Final Environmen- Outlook—An Interim Report, Washington, D. C,, tal Statement for the Prototype Oil Shale Leasing 1972, Program, 1973, p. HI-11. 4S. Katell and P. Wellman, An Economic Anal- 12Ibid., at p, IV-18. ysis of Oil Shale Operations Featuring Gas Com- 13Ibid., at p, IV-48. bustion Retorting, Bureau of Mines Technical 1438 Federal Register, 33188, Nov. 3, 1973. Progress Report No. 81, 1974. 15Hearings on Oil Shale Development Part 11, ‘J. C. Whitaker, Striking a Balance—Envi- Subcommittee on Mines and Mining of the House ronment and Natural Resources Policy in the Nix- Committee on Interior and Insular Affairs, 93d on-Ford Years, American Enterprise Institute for Cong., 2d sess., Feb. 25-26, 1974, Committee Seri- Public Policy Research, Washington. D. C., 1976, al 93-37, pp. 77-78. pp. 221-236. 16Ibid., at p, 67. ‘)J, J. Schantz, Jr,, and H. Perry, “Oil Shale—A 17Ibid,, at p. 66. New Set of Uncertainties, ” Natural Resources 18Ibid., at p. 63, Journal, vol. 18, No. 4, October 1978, pp. 775-785. 19Ibid., at p. 68. J, F. Nutter and C. S, Waitman, “Oil Shale Eco- 20WiJderness Society v, Morton, 479 F. 2d 842 nomics Update, ” paper presented to the Southern (1973), cert. denied, 411 U.S. 917. California Section, American Institute of Chem- “Hearings on Spent Oil Shale, Subcommittee on ical Engineers, Anaheim, Calif., Apr. 18, 1978. Mines and Mining on the House Committee on In- “E, D. Oliver and A. J, Moll, “Economic Feasibili- terior 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, ‘JFreemun v. Summers, 52 L,D, 201 ( 1927). p. 19. 4{ Hearings on S. l?esl .37{] Before the Sen(~te ‘G. L. Snyder, letter to J. C. Reed, Jr., Chief, Of- Comm. on Public Lands and Surveys, 71st Cong., fice of Environmental Geology, U.S. Geological 3d sess, 22, 24 (1931), Survey, Ivlar. 13, 1975, ‘} Supra No. 42, at pp. 206-207. - ‘Supra No. 21, a t p. 31. ‘r7Andrus v, SheiJ oil Co., 591 F. 2d 597 (lOth ~ l(~il Shale Lwlsing, Hearing before the Subcom- Cir., 1979). mit tee on Minerals, Materials, and Fuels, (l]mmi t- 1’)Andrus v. Shell oil Co., U.S. . No. tee on Interior and Insular Affairs, U.S. Senate, 78-1815, June 2, 1980 (Slip opinion). 94th Cong,, 2d sess., Mar, 17, 1976, pp. 9-24. ‘-Ibid., n. 11, p. 15. U.S. v. Colernun, 390 U.S. 599 -’H,R. 1622, 94th Cong., 2d sess. See also supra (1968). No. 21, at pp. 9-12. “JFor discussion, see Cameron Engineers, Inc., “)90 Stat. 2786, 43 U.S.C. 1701 et seq. (1977 Synthetic Fuels Quarterly Report, vol. 14, No. 3, Supp. ). September 1977, p. 5-28. - Unitc~i St~ites v. Sweet, 245 U.S. 563( 1919). 4’)He(]rings on Oversight—Pr{)t[)ty~le Oil Shale -’+44 Stat. 1026-1027 [Act of January 25, 1927, Leasing, Subcommittee on Minerals, Materials, ch. 57). and Fuels of the Senate Committee on Interior and (’For a discussion of these changes, see Camer- Insular Affairs, 94th Cong,, 2d sess.. Nov. 30, on En8ineers, Inc., Synthetic Fuels, vol. 11, No. 1, 1976, pp. 76-80. hlarch 1974, p. 2-22, ‘)’’ Ibid., at p. 3. “’Supra No. 29, at p. 2-23. ‘l Ibid., at p. 51, “48 Stat, 1269 (1 934], 43 U.S.C. 315 et seq. For ‘JIbid., at p. 3. discussion, see Rocky hloun ta in Division, the Pace ‘{ Ibid., at p. 62. Companv Consultants and En~ineers. Inc., C(lmcr- ‘] Ibid.. at p, 58. ) on S~7n thetic F’ucl.s Report, VO]. 16, No. 3, Sep- ‘ ’Ibid., at p. 73. tember 1979, p. 5-11. ‘l’ Ibid,, at p. 66, ‘Supra No. 29, at p. 2-23. ‘I Ibid., at p. 49, { ‘Supra No. 31, ~;[~mer[)n Heport at p. 5-13. ‘l’{ Truct C-a Annual Progress Report, Septemher “Supra No. 15, at pp. 124-125. 1977 - December 1978, Rio Blanco Oil Shale Cot, { Unreported decision; U.S. District Court, Denver, Colo., March 1979, p. 1-1-2. Southern District of CJtah, Judge Ritter, May 25, ‘l’) Supra No. 49, at pp. 71.72, and 76-80. 1976. F’or discussion, see supra No. 31, at p. 5-14. ‘“J. A. Green, EPA Region VIII Administrator, “’586 F. 2(1 756( 1978). letter to P. A. Rutledge, Area Oil Shale Super- ‘ An(~rus v. UtfIh, – — U.S. – — , No. visor, July 5, 1977, 78-1522, hla~r 19, 1980 (Slip Opinion). ‘ll Supra No. 49, at pp. 101-105. “{4 1 stat, 4:37 ( 1 920), 30 U. S.(;, 193. ‘%ameron Engineers, Inc., Synthetic Fuels, vol. ‘“‘Potenti[il Future Role of Oil Sh:ile: Prospects 14, No. 2, June 1!377, p. 2-6. :i nd Cons train ts, Project In(fepenflence Task ‘l{ Supra No. 48, at pp. 2-12 and 2-13. l’{~rc[~ Iiep[~rt, 19741 pp. 92-98, ‘)} Supra No, 62. “’ht. hfelich, memorandum to the Assistant Sec- ““]Supra No. 48, at p. 5-19. ret:~ ri for Public I,and hlanagernent, Department ‘l’lPrototype oil Shale Leasing Program, Depart- of the Interior, Oct. 28, 1971. ment of the Interior, U.S. Geological Survey, Area 1’She~) [ji] V. ~rL(/ru,s, 426 h’ Supp. 894 (D, Co]. Oil Shale Office, Grand Junction, Colo., Jan. 15, 1 977]. 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 These deficiencies were partially compen- the time of the lease sales, it was widely sated for by other aspects of thc Program assumed by Government and industry spokes- such as the ‘involvement of State government men that shale oil production was close to and public in the design and subsequent commercial feasibility and that commerciali- phases, the leasing terms, and the provisions zation efforts would commence once industry for environmental protection. In addition it was allowed access to rich oil shale deposits was intended that the Program change over on Federal lands. Thererefore, the Program time as knowledge was gained and problems was focused solely on the leasing issue. I t encountered. Many such problems arose as lacked some of the features of Secretary the Program proceeded. These, along with Udall’s program. such as consolidating scat- the uncertainties they engendered, slowed tcred private holdings and clearing disputed the Program’s progress, disrupted the origi- land titles. It also did not provide supporting nal development schedules, and raised seri- R&D to resolve the technical problems that ous doubts about continuation of the entire ef- were apparent at the time and, more impor- fort. This chapter summarizes some of the tantly, to provide expertise when new prob- technological, political, legal, environmental, lems were encountered on the tracts. All of and economic issues that surrounded the Pro- these efforts and capabilities rested in other gram, and describes their effects on its branches of the Department of the Interior schedules and status. (DOI) or in other Federal agencies.

Technological Issues

The problems with low rock strength that first test retort, and a struct ural failure oc- were encountered on tract C-b led the lessees curred in the second retort soon n after the rub- to adopt modified in situ (MIS) processing; de- ble was ignited. Operation of the second re- velopment schedules were delayed by at least tort (the sixth that Occidental has created a t a year as a result.. Technologica1 uncertain- Logan Wash) has been completed and data ties were also associated with MIS because it have been acquired, However, MIS appears had not been tested in shales similar to those to have some technological problems. * To ex- found on C-b. Similar complications arose pedite the development of the first commer- when Rio Blaco decided to switch from open cial-scale retort, the second design will be pit mining and above-ground retorting to MIS. further tested in Phase II, also at Logan Wash. The Government is contributing $24 Process development work for the MIS million (52 percent) of the Phase 11 cost. technique includes partial Government fund- ing of a retort development program on Occi- The tract C-a lessees are also in the proc- dental’s land along Logan Wash in Colorado. ess-development stage as a result of their In Phase I of this project, the Department of adoption of MIS methods. As mentioned pre- Energy (DOE) provided $14 million for com- viously, this tract original MIS concept was paring two retort that were being considered for commercial-scale operations * The problems with MIS and the other developement technol- on tract C-b. Oil recoverv was poor from the ogies 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 Law- of Lurgi-Ruhrgas retorts for the mined por- rence Livermore Laboratory. It comprises a tion of the shale. mathematical model supported by small-scale It should be noted that DOE—and its pred- experiments in simulated in situ retorts. Rio ecessors the Federal Energy Administration Blanco had planned to advance its status and the Energy Research and Development with a modular retort development program Administration—has been the primary Fed- on tract C-a. Now that Rio Blanco has access eral agency stimulating private industry’s de- to Occidental’s MIS technology, it should be velopment of commercial oil shale technolo- possible to accelerate the program. Shaft gies. DOE has, and continues to finance a va- sinking in preparation for the modular pro- riety of mining and processing technologies. gram has been completed, However, prob- Some projects are of an R&D nature; others lems with large inflows of ground water ne- are specifically aimed at commercialization. * cessitated modifying the mining plan and de- Certain goals of the Prototype Program, layed the ignition of the first retort. The possi- therefore, are being supported outside the bility of testing aboveground processes also formal framework of the Program, exists with the announcement that Rio Blanco has obtained a license to investigate the use *See vol. I, ch. 5, p. 172 for a description of DOE’S programs.

Environmental Issues

Oil shale development, and the Prototype Oil shale’s critics, on the other hand, main- program in particular, is permeated with tain that there are more attractive energy highly controversial issues, because the phys- sources than shale oil, that critical environ- ical and social environments will be altered. mental information is lacking, and that it will Careful planning and numerous safeguards be very difficult, if not impossible, to develop will be needed to confine the disruptions to oil shale without unacceptable environmental acceptable levels. This reality was acknowl- damage. They further maintain that commer- edged by the Program’s authors and by the cial-scale facilities should not be permitted tract lessees whose development work is gov- until there are better answers to the techno- erned by environmental statutes and who logical and environmental questions. They state support for protecting the environment. generally approve of Government support of The developers are also concerned about en- research activities aimed at answering these vironmental standards that could preclude questions. However, they view as inappropri- profitable projects. ate any Government actions that are directed at near-term commercialization, land ex- To the proponents of oil shale development, changes for the purpose of creating com- the potential economic, social, and environ- mercial-size tracts, attempts to lease addi- mental benefits appear to outweigh the disad- tional tracts within the Prototype Program, vantages. They maintain that the only way to large-scale subsidy programs, offtract waste obtain the benefits is to proceed with develop- disposal, increases in lease tract size to en- ment while concurrently working on control courage larger scale operations, and suspen- and restoration techniques to minimize the sions of leasing provisions in an attempt to ecological damage. They further maintain avoid due diligence requirements. that sufficient work has been done with re- spect to spent shale disposal, airborne emis- Proponents and critics also disagree about sions, and land restoration, and that there is the overall purpose of the Prototype Program, adequate information to justify taking the at least with respect to its goal of environ- next step. mental protection. The Secretary of the Inte- —

Ch. 5–Key Issues In the Prototype Program ● 67 rior, in his decision statement regarding the established, while maintaining environmental Program, identified as one of its major goals:1 integrity. Although DOI incorporated environ- mental protection provisions into the tract To insure the environmental integrity of the affected areas and, concurrently, define, leases, critics have expressed concern that describe, and develop a full range of environ- these provisions are not adequate to prevent mental safeguards and restoration tech- damage to the physical and social environ- niques that can reasonably be incorporated ments. They argue that the Program should into the planning of a mature oil shale indus- have been structured as an R&D effort, try. rather than as the first step towards a com- This statement has led to much controversy. mercial oil shale industry. Some concerns For example, the phrase “insure integrity’* over the evolution of the Program were ex- could be interpreted to imply preservation of pressed by a representative of the Colorado the existing environment. This would pre- Open Space Council in 1977 testimony before clude oil shale development on any scale as the Senate: well as many other activities within or near The prototype program is still active but it the affected areas. Another interpretation is a much different beast than the limited, ex- would imply that adverse impacts will be perimental program as advertised. Serious minimized and mitigated and that some form problems have plagued the program since of ecological balance, although not necessari- the final design was announced in November ly the original one, will be established on com- 1973. We trace these problems to the con- pletion of the development work. This inter- tinuous efforts to re-define and/or expand the program and the lack of specific criteria pretation would allow development if under- by which to judge the success or failure of taken in recognition of environmental re- the program, to govern the workings of the quirements and regulations. Critics tend to program and time limits. These efforts have prefer the former interpretation; proponents been made by the lessees, the Department of the latter. The phrase “that can reasonably Interior and other Federal agencies, and by be incorporated, ” similarly allows differing Congress. In other words, instead of running interpretations. a carefully controlled and defined experi- ment, whose results of success or failure In 1976, a DOI official restated the Depart- would be equally informative, it has been an ment’s philosophy regarding the Prototype attempt to make it succeed by almost any Program as follows:’ means . . . I would like to briefly list the items: One is suspension of bonus payments The Department of the Interior has not due on the oil shale leases, . . . the attempt to changed its views on the importance of our add two more lease tracts supposedly for in oil shale resources and the value of the Pro- situ development to the prototype program, totype Program to learn how best to develop land trades that have been proposed, sub- this resource under strict controls. In an- sidy programs that have been proposed, and nouncing suspension of operations on August off-site dumping. 20, 1976, the Secretary stated that “We have not relinquished our goal of demonstrating DOI has not accepted the definition of the the feasibility of shale oil production on a Prototype Program as an R&D project, and commercial basis. “ The Department does not has continued to act to support facilitating consider the problems facing oil shale devel- development of a base for an oil shale in- opment to be insurmountable either individ- dustry. Officials emphasize that one of the ually or in aggregate. Program’s major objectives was to develop Some environmental conservation groups have identified these and other aspects of the *The statement also critixized DOI's actions with respect to Program as basic inconsistencies. They main- preparation of an environmental impact statement (EIS) for the Colony project, These actions were taken outside of the Pro- tain that commercialization cannot proceed, gram and With not he discussed here. The additional leases pro- nor can a base for such commercialization be posed for in situ developement are discussed later environmental safeguards and restoration the Solicitor General’s Office of DOI; techniques in conjunction with establishing the Environmental Protection Agency an industrial base. They maintain that only (EPA); with such a base can environmental impacts one from each of certain Federal execu- be determined, and mitigation procedures tive branch departments;* verified or disproved. two each from the State legislatures and agencies of Colorado, Utah, and Wyo- Along with their perception of inconsistent ming, to be designated by the respective goals, critics of the Prototype Program have Governors;** stated that the Area oil Shale Supervisor one each from the regional planning (DOI’s control official for the lease tracts) is commissions or boards of supervisors in forced to act in the dual role of promoter and areas of Colorado and Utah that include regulator and that these roles conflict to the the lease tracts; and detriment of maintaining the environment. On four to be designated by the Secretary of the one hand, the Supervisor is responsible the Interior including two persons active for advancing the Program in a timely man- in environmental or other public interest ner. On the other hand, he is required to en- matters and two persons active in indus- sure that regulatory laws are obeyed, even try or energy matters.*** though adherence may disrupt or delay activ- it ies on the lease tracts, Critics have ex- Differences both in perception and in value pressed the concern that, with his dual re- judgments have made environmental issues sponsibility, the Supervisor may choose the the most highly polarized of oil shale’s many promoter role too often. issue areas. Disputes will no doubt persist for the duration of the Prototype Program, and Some environmental activist groups also will certainly be encountered in any other claim that they were improperly excluded commercialization programs. It is anticipated from the design phase of the Prototype Pro- that environmental conservation groups will gram, and that they have subsequently been continue to monitor activities on and off the excluded from the decisionmnaking processes lease tracts, and will appeal to the courts for that have shaped its evolution. In particular, relief when they feel that environmental stat- they claim that the Oil Shale Environmental utes are being violated. To date, appeals to Advisory Panel, which was established by the courts have not significantly affected de- DOI to review the program’s actions and ad- veloper schedules. vise the Supervisor on key environmental issues, is not truly a public body. Concern has Just as some of the technological goals of been expressed that the panel included too the program are being met by DOE, some of many representatives of Government agen- the environmental ones are being met by EPA. cies and interest groups that may have a pro- An annotated listing of the Agency’s research development bias. In this regard, 3 of the 30 can be found in EPA’s Program Status Report, members of the original panel were associ- “Oil Shale 1979 Update. ”’4 This publication ated with environmental activist groups. The panel was recently reconstituted, and now comprises 26 representatives of the following : the Bureau of Land Management; ● the U.S. Geological Survey: the Bureau of Mines; ● the Fish and Wildlife ; the Water Power Resources Service (for- merly the Bureau of Reclamation); ● the Bureau of Indian Affairs: —.

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 per- claims that were located mostly during a vaded the Prototype Program since its incep- claims rush in 1966-67, just before withdraw- tion, One of the more complex legal issues al of oil shale land from any further locations W a S associated with the ownership of the of any kind of mining claims. Most, if not all, Utah lease tracts. The suit over the in-lieu of these metalliferous claims have been can- lands has now been settled in favor of the celed for lack of discovery or failure to satisfy Federal Government. The issue of unpatented other requirements of the Mining Law See mining claims, however, appears to be fur- table 3. ther clouded. The Court decided in favor of the owners of unpatented mining claims in The pre-1 920 shale claims, according to the DOI estimates, encompassed approxi- Colorado, and if the decision is applied to un- mately 5 million acres. This is roughly two- patented claims overlying the Utah lease thirds of the Federal and half of the total land tracts, ownership of the tracts could revert to with commercial potential. (See table 4), In private parties, Continuation of tract develop- Colorado, the estimated 400,000 acres of un- ment would then depend on negotiation with patented claims generally are located along the new owners. the southern and western edges of the Pice- ance basin. The center of the basin, where ‘The magnitude of the potential effects of the richest shale lies and the present Pro- the validation of other pre-1920 claims will otype leases are located, is almost entirely depend on their number and location. Be- Federal land for the most part free of tween 36,000 and 40,000 oil shale placer pre-1920 claims. The claims in Colorado en- claims were located before 1920 in the tri- compass only about one-fourth of the Federal state region. Between 1920 and 1960, when total acreage. In Utah and Wyoming, how- DOI stopped issuing patents, 2,326 claims ever, over two-thirds of the Federal land had covering 349,088 acres were patented, In overlying unpatented claims, according to the 1968, based on a detailed analysis in Col- 1968 DOI estimates, although it has been orado and on old records and a preliminary more recently reported that no pre-1920 review in Utah and Wyoming, DOI estimated claims remain in Wyoming.5 that there were approximately 36,000 unpat- ented shale claims remaining. There were More accurate and timely information also about 16,500 unpatented metalliferous about the number and location of the unpat-

Table 3.–Mining Claims in the Tristate Oil Shale Region, 1968 . Number of claims Colorado Utah Wyoming Total Pre 1920011 shale 9000 15,000 12000 36,000 Post 192(I metalllferous Dawsonite 3,450 1,750 — 5,200 2 150 2 ,150 Gold gilsonite uranium others 600 3550 5000 9150 Subtotal metalilferous 6200 5,300 5,000 16500 Total claims 20 300 17000 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)

Colorado— Utah — Wyoming Total Land with commercial potential Total 1,800 4,900 4,300 11,000 Federally owned 1,420 3,780 2,670 7,870 Percent of total 79’YO 77Y0 62’Yo 72% Non-Federal oil shale land 011 shale patents 260 90 350 Indian, State, homestead, etc 140 2,610 2,750 Subtotal 400 1,100 1,600 3,100 Percent of total land 22% 22% 37?0 28Y0 Unpatented claims Pre-1966 (almost all 011 shale) 400 2,600 2<200’ 5,200 Percent of Federal land 28’Yo 69Y0 82% 66Y0 Percent of total 22% 53Y0 51 Yo 47’YO 1966-67 (all metalllferous)b 700 400 400 1,500 Percent of Federal land 49Y0 11% 15Y0 19Y0 Percent of total land 39% 8Y0 9% 1470 Total clalms 1,100 3,000 2,600 6,700 Percent of Federal land 77’0/0 79% 97Y0 85% Percent of total land 617, 61 ~, 60Y0 61‘h Federal land without unpatented claims 320 780 70 1,170 Percent of Federal land 23Y0 21 ?0 3% 1570 Percent of total land 18’Yo 16’?/0 2Y0 11 “/0

d u noffl Lld~ly rep~rfed~o have been sileo See reference 5 b n most c~ses canceled See :ext

SOURCE Of flee of Technology Assessment derived Iron] Oeparlment of !he Infer,or data ented claims should be available soon, Sec- improper jurisdiction, and because indispens- tion 314 of The Federal Land Policy and Man- able parties (the lessees) were not included agement Act (FLPMA)6 requires, for the first among the defendants, time, that mining claims be recorded with the Federal Government. The owner of an unpat- The second case opened on December 6, ented claim must have filed before October 1977, when the Environmental Defense Fund, 22, 1979 (and must file before December 31 of the Colorado Open Space Council, and the each subsequent year), with the appropriate Friends of the filed suit in the U.S. State land office, either a notice of intention District Court in Denver seeking an injunction to hold the claim or an affidavit of any assess- against further development of tracts C-a and ment work that was performed. A copy of the C-b until site-specific EISS for each of the notice or affidavit, including a description of tracts were prepared and processed accord- the location, must also be filed with the Bu- ing to the procedures established under the reau of Land Management in DOI, With this National Environmental Policy Act (NEPA). information, it will be possible to determine The defendants were the Secretary of the In- the possible effects of any future validation of terior, the Area Oil Shale Supervisor of the unpatented shale claims. U.S. Geological Survey, the director of the Two issues related to environmental pro- Colorado State Office of the Bureau of Land tection have prompted legal action. The first Management, Gulf Oil Corp. and Standard Oil case began on December 21, 1976, when the Co. of Indiana (the C-a lessees), and Ashland Environmental Defense Fund, the Colorado Oil Co. and Occidental Oil Shale, Inc. (the C-b lessees at that time). Open Space Councilf the Friends of the Earth, and the Denver Society filed a suit against DOI that questioned DOI’S authority The plaintiffs maintained that NEPA had to grant suspensions of lease terms. The case been circumvented in that the development was dismissed without prejudice because of methods proposed for both tracts had not Ch 5–Key Issues In the Prototype Program ● 71 been described and their effects evaluated in cient showing to warrant this Court in re- the 1973 EIS which, according to the plain- versing that action , . . We are of the view tiffs, only evaluated the leasing of lands, that there has been compliance by the De- Thus, a new site-specific EIS was required fendant, the Federal Defendants in this case for each tract. Approval of the detailed devel- within the spirit and tenor of NEPA within the parameters of the EIS . . . That there is opment plans (DDPs) in the absence of such no viable action that has been substantiated analyses was therefore unlawful. According that would lie against the Defendants in this to the plaintiffs, the sole issue in the litigation case, The spirit and tenor of NEPA has con- was the adequacy and the legality of the pro- tinued throughout the implementation and cedures followed in preparing, reviewing, operation of the leases . . . We are of the and approving the DDPs, The plaintiffs’ mo- view further that the compliance of the Fed- tion for summary judgment stated:7 eral officials in this case has not been the minimum mandated by NEPA or Federal reg- Specifically, the plaintiffs contend that the ulations, but it has gone above and beyond federal defendants must prepare and circu- what we can describe as the minimal stand- late an environmental impact statement ards have (sic) that the compliance of activi- (“EIS”) prior to acting upon detailed develop- ty by the Federal Defendants has been exten- ment plans (“ DDPs’”) submitted by the les- sive in this project . . . Appropriate judgment sees of federal prototype oil shale tracts C-a shall enter in favor of the Defendants, and and C-b and the numerous associated right- each of them individually against the Plain- of-way applications across federal lands tiffs. . . . . It is crucial to note what plaintiffs’ mo- tion does not seek. It does not seek to termi- The plaintiffs appealed, and Judge Finesil- nate the prototype oil shale leasing program. ver’s decision was affirmed by a three-judge It does not seek to force the lessees to relin- panel of the Ioth Circuit Court of Appeals in quish their leases. It seeks only to have this April of 1980. A petition for a rehearing en court require the federal defendants to pre- banc was denied. Plaintiffs had not decided pare an EIS which analyzes the serious envi- as of this writing, whether to appeal further. ronmental and human health risks posed by planned operations on the federal oil shale Changes in the interpretation of environ- tracts and by the associated rights-of-way mental regulations have had immediate impli- prior to approving these plans. cations both for the Prototype Program and In response to this motion and the plain- for other developments that were being con- tiffs’ extensive exhibits, the defendants sub- sidered for the oil shale region. An example is mitted a memorandum and exhibits that in- the questionable significance of the high cluded the 1973 EIS, the modified DDPs for background levels of particulate, hydrocar- the tracts, reports of public meetings held in bons, and ozone that were measured on the regard to the DDPs, and other supporting re- lease tracts during the baseline monitoring ports and correspondence. Judge Finesilver programs, This potential problem was identi- reviewed the various submissions and other fied by the lessees as a justification for the information for several months. On August suspensions in 1976. The ruling of EPA’s Re- 28, 1978, he delivered a bench ruling upon gional Administrator, which was based on cross motions for summary judgment. The analysis of the origin of ozone and hydrocarb- record includes the following remarks:8 ons and the properties of rural fugitive dust, In summary, we have found that the agency appeared to remove the impediment to devel- decisions made in ‘ 77 and ‘78 which deter- opment, allowing a resumption of activities mined that the DDPs and several rights-of- late in 1977. way applications could be approved without the preparation of supplemental EIS and However, on March 3, 1978, EPA head- made in full compliance with procedures quarters in Washington declared that Rio mandated by NEPA, those decisions cannot Blanco County (in which tracts C-a and C-b be set aside by the Court, nor is there suffi- 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 The Program has also been affected by po- not in compliance with air quality standards litical difficulties, partly because of the man- because of high ozone concentrations.” This ner in which it was initiated and partly be- ruling was a reversal of EPA’s position in cause of shifts in the political environment mid-1977. It restored the impediment because during its implementation, Like the 1968 leas- major construction, that would have in- ing attempt, DOI developed the Program with- creased the extent of the violation, would be in the provisions of the Mineral Leasing Act banned. The tract C-a lessees, Occidental Oil of 1920, although it also considered more re- Shale, and Rio Blanco County subsequently cent legislation. The lease terms were similar petitioned the Circuit Court of Appeals to re- to those developed for exploring and extract- 10-12 view EPA’s latest decision, 1 : The petitions ing petroleum resources on the Outer Conti- were filed on April 4, 1978. On September 11, nental Shelf, Direct subsidies and other as- before the court could rule on the merits of pects that would have required congressional the case, EPA again reversed positions and approvaI were avoided, and additional enabl- designated the areas as ones that “cannot be ing legislation was not needed, classified. 13 Thus, the Program was a product of the ex- ecutive branch of the Federal Government. It Should this most recent decision prove to was strongly supported by individual Sena- be the final one, then the issue is settled and tors and Representatives, especially from the oil shale plants would be allowed in the area oil shale States, but it did not enjoy majority if their control systems can be designed and support in the Congress, and efforts to obtain operated in compliance with other air quality congressional approval of legislation that standards. However, some uncertainty lin- would have benefited the lessees were not gers. In a letter dated November 8, 1978, to successful. Examples include the failure of the Area Oil Shale Supervisor, an EPA offi- 14 DOI’S attempt to obtain secretarial discretion cial stated: in granting use of off tract lands for waste disposal and for facility siting and the subse- In my opinion the , ., settlement provides quent passage of FLPMA’s restrictions, the additional, but probably not complete, cer- rejection of a proposal to use Federal land for tainty that development of an oil shale indus- housing areas in the town of Rangely, and the try will not be significantly constrained by denial of loan guarantees and other subsidies the existing ozone concentrations. for shale oil and other synthetic fuels. These actions conveyed, to the lessees, an impres- Other uncertainties are associated with sion of congressional hostility or at least dis- forthcoming PSD regulations for other air pol- interest, and contributed to concerns about lutants, and for visibility maintenance, as dis- the long-term economic feasibility of oil shale cussed in chapter 8 of volume I. development.

Economic Issues

In his 1973 decision statement on the Pro- of crude oil, all suggest convincingly that totype Program, Secretary Morton provided there is high interest in the prototype pro- the following comments on economic aspects gram. of oil shale development: But uncertainty in estimates about the cost of production of shale oil is very great, and Private sector participation in the design for some technologies, estimates are quite of the program, the provisions incorporated pessimistic, The prototype offering of six in the lease to encourage timely develop- sites was planned to allow trial of alternate ment, and of course, the rapidly rising price methods of extraction, — ——————

Ch 5–Key Issues in the Prototype Program ● 73

However, the best incentive we have to of- the April 1978 estimate about $12,000 per fer is the availability. at a fair return to the daily bbl, and the more recent estimate about public. of the rich shale lands in the public $17,500 per daily bbl. For comparison, recent domain. Therefore, I do not believe that un- estimates for TOSCO 11 above-ground retorts der present circumstances a subsidy is indicate an investment of about $25,000 per either wise or necessary for this program. daily bbl. The economic advantage of the MIS At the time, conditions certainly appeared fa- approach has therefore decreased signifi- vorable for oil shale development, which cantly. seemed to offer secure resources to those oil A representative of Tosco has identified companies that had previously relied on sup- the major constraints on oil shale develop- plies from the Middle East, The recent tri- 19 ment as: pling of world oil prices seemed to assure the profitability y of oil shale projects. 1. risks inherent in scale-up of unproven processing technologies. However, with the preparation of detailed 2. risks of noncompliance with existing en- engineering plans for specific oil shale plants, vironmental regulations, construction cost estimates soon began a pre- cipitous rise. With rising costs, and with the 3. risks of more severe regulations in the emergence or intensification of risks and future, and problems that were not foreseen in 1974, the 4, risks that the value of shale oil will be attractiveness of oil shale projects declined. regulated to below its fair market value Rising project costs were most obvious with in comparison with imported crude. above-ground retorting technologies in the Risks in the first category are real and will re- early years of the Program, perhaps because main so until the first commercial-scale re- these technologies were sufficiently ad- torts are built and operated. With respect to vanced to permit reasonably accurate cost the second category, current State and Feder- estimates. However, cost escalations have al standards do allow initital levels of devel- since affected the relatively new concept of opment on all lease tracts and on many pri- MIS processing, which in 1976 was claimed vately owned sites. Risks in the third category to be a much less costly approach to shale oil are real because future standards might be extraction. In March 1976, the DDP for tract imposed that could prohibit development of C-b estimated a capital cost of $921 million large-scale plants, With respect to the fourth for a 50,000 bbl/d above-ground retorting fa- category, shale oil producers can expect cility. In February 1977, the modified plan es- world oil prices for their product. Those timated a cost of $443 million for a 57,000- prices are high, and most financial analysts bbl/d facility based on Occidental’s MIS tech- expect them to rise further. However, as de- nology. It was predicted that the project scribed in chapter 6 of volume 1, the future would reach commercial levels of production price of world oil is uncertain, It could be de- by 1983. 16 In April 1978, a spokesman for Oc- pressed in the future to below the recovery cidental stated that cost estimates had risen cost of shale oil. Therefore, although conces- to the range of $650 million to $750 million, 17 sions have been made to oil shale develop- More recent estimates indicate a cost of at ment, risks remain that raise questions about least $1 billion, and that commercial-scale the willingness of energy companies and fi- operation is scheduled to begin in 1986. ‘18 nancial institutions to invest in a capital-in- The 1976 estimate corresponded to a unit tensive, long-term project whose success investment of $7,750/bbl of daily production, 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, Depart- II]U.S. District Court of Appeals for the District ment of the Interior, U.S. Geological Survey, Area of Colorado, Civil Action No. 78-1323, Apr. 28, Oil Shale Office, Grand Junction, Colo., Jan. 15, 1978. 1979, p. 2 “U.S. District Court of Appeals for the District ‘Hearings on Oversight—Prototype Oil Shale of Colorado, Civil Action No, 79-1325, Apr. 28, Leasing, Subcommittee on Minerals, Materials, 1978, and Fuels of the Senate Committee on Interior and IW, S, District Court of Appeals for the District Insular Affairs, 94th Cong., 2d sess., Nov, 30, of Colorado, Civil Action No. 78-1326. 1976, p. 56. 1‘Federal Register, Sept. 11, 1978, p. 40412, ‘Hearings on Oil Shale Technologies, Subcom- I’Cameron Engineers, Inc., Synthetic Fuels, vol. mittee on Energy Research and Development, Sen- 15, No, 4, December 1978, pp. 2-30. ate Committee on Energy and Natural Resources, “Decision Statement of the Secretary of the in- 95th Cong,, 1st sess., Mar. 14, 1977, pp. 83, 91. terior on the Prototype Oil Shale Leasing Program, ‘Environmental Protection Agency, Oil Shale Department of the Interior, News Release, Nov. 1979 Update, June 1979 (EPA-600/7-79-809). 28, 1973. ‘Synthetic Fuels QuarterJy Report, vol. 16, No. ‘OOil Shale Tract C-b In~ormation Package, Ash- 4, p. 2-13. land Oil, Inc., Occidental Oil Shale, Inc., May ‘)90 Stat. 2770, 30 U,S.C. 191. 1977, p. 4. ‘Plain ti~~’s Memorandum in Support of Motion “R. J. Fernandes, “Address Before the Indus- for Summary Judgment, Civil Action No. 77- try-Government Oil Shale Strategy Meeting, ” F-l 119, U.S. District Court for the District of Col- Rocky Mountain Oil and Gas Association, Denver, orado, May 30, 1978, 108 pp. Colo., Apr. 18, 1978, ‘{Ruling o.f Judge S. G. Finesilver, U.S. District IHJ. Kyl, Occidental Oil Shale, Inc., personal Court for the District of Colorado, Civil Action No. communication to OTA, U.S. Congress, December 77-F-I 119, Aug. 28, 1978, 35 pp. 1978. “Federal Register, Mar. 3, 1978, p, 8892. ‘“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 tal’s) suggests that commercial levels of pro- Shale Leasing Program, as stated in 1973 by duction will be achieved no earlier than 1986. the Secretary of the Interior, are: The tract C-a lessees predict commercial pro- duction in 1987, but at a lower level than en- 1. to provide a new source of energy to the visioned originally, If both plans proceed on Nation by stimulating the development of schedule, commercial quantities of shale oil commercial oil shale technology by pri- (about 133,000 bbl/d) could be produced by vate industry; the late 1980’s. If unforeseen problems arise, 2. to ensure the environmental integrity of commercial production (the Program’s first the affected areas and at the same time major objective) could be delayed until the develop a full range of environmental 1990’s. safeguards and restoration techniques that will be incorporated into the plan- In its present form, the Program may not ning of a mature oil shale industry, reach the production levels projected in 1973, should one develop; and will certainly not reach them within the 3. to permit an equitable return to all par- original schedule. Until recently it was also ties in the development of this public re- questionable whether the desired variety of source; and mining and processing technologies would be 4. to develop management expertise in the tested. Underground mining to support modi- leasing and supervision of oil shale de- fied in situ (MIS) processing appeared to be velopment in order to provide the basis the only mining method that would be tested for future administrative procedures, by the program, and it seemed possible that the demonstration of above-ground retorting The Program was designed with the con- (AGR) methods would be limited to Rio cept that six lease tracts in three States Blanco’s trials of the Lurgi-Ruhrgas module would be developed with significantly differ- on tract C-a. ent mining and processing technologies, and that commercial-scale production of about Testing AGR is very important to a full 250,000 bbl/d would be achieved by 1980, evaluation of the technical, economic, and en- However, the Wyoming leases were not sold, vironmental aspects of oil shale development. and development of the Utah tracts was sus- AGR may be a feasible option by itself, and it pended. Activity in Utah is limited to environ- also could be used to complement MIS proc- mental monitoring and review of candidate essing. In MIS, at least 20 percent of the development technologies. Before the owner- shale in the development zone is mined out ship issue was resolved, the lessees stated and is not included in the MIS retorts. Op- their intention to resume development. Now tions for disposing of the mined material are that this issue is settled, and assuming unpat- surface disposal (a waste of the shale’s poten- ented claims are not an impediment, it will tial energy values), combustion for generating still take several more years before the Utah power and process heat (oil shale is not a tracts can approach their initial production very good solid fuel), or AGR. A facility that target of 100,000 bbl/d. would combine MIS with AGR would be very efficient in terms of resource utilization. At present, only two lease tracts are being developed. Both are in Colorado and both in- The modified detailed development plan volve similar mining and processing technolo- for tract C-b does not specify AGR of mined gies. The more optimistic projection (Occiden- 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 upset by oil shale development. Environmen- construction of an AGR facility will not begin tal monitoring programs have been estab- on tract C-b until after the commercial-size lished on each tract, and data from these pro- MIS retorts have been operated for a few grams will aid in detecting any environmental years. If setbacks occur on either tract, dem- degradation resulting from development ac- onstration of aboveground processing meth- tivities. Restoration techniques are also being ods could be delayed until well into the developed, but the efficacy of these methods 1990’s. will not be verified until the tracts have been in full operation for several years. In 1978 the Department of the Interior (DOI) acknowledged the need to offer addi- Environmental investigations are being tional leases to encourage testing of above- carried out by several agencies. As with sup- -ground methods, port of commercialization, they are different from the Department overseeing the Proto- Finally, we recognize the need to encour- type Program. Both DOE and the Environmen- age development of surface retorting tech- tal Protection Agency (EPA) have environ- nology, as well as other technologies which mental R&D programs. This raises some basic are not now being used on tracts C-a and C-b, and the substantial start-up time necessary questions about which agency is best suited to begin a commercial endeavor using a new to accomplish the objectives and whether development scheme.’ there are more efficient or effective ways to accomplish them. Again, an evaluation must DOI also considered an adjunct leasing pro- look at the complete range of activities being gram specifically for in situ processing when undertaken, not just at the efforts of a single the Wyoming leases were not sold. Although agency. the original intention was to lease Wyoming lands for in situ development, the greater in- The third Program objective—equitable re- terest among potential developers in the rich- turn to all involved parties—has not yet been er Colorado deposits led to the nomination of reached, Its achievement is tied to commer- four in situ tracts in that State, Work was cial shale oil production and, as such, is sub- begun on a supplemental environmental im- ject to numerous uncertainties. The economic pact statement (EIS) for the new lease offer- and financial considerations of establishing ing. The supplemental program was canceled an industry, as well as the tradeoffs neces- when the tract C-a and C-b lessees switched sary to accomplish this, are discussed in vol- to MIS processing. ume I. As noted in chapter 5, support for most of The fourth objective was to develop exper- the R&D programs aimed at commercializa- tise in leasing and supervision. In this regard, tion of oil shale comes from the Department of the Program has provided a training ground Energy (DOE). Thus, although the first aim of for DOI officials. The oil shale industry is the Prototype Program is to stimulate devel- unique among mining operations in that its opment, its implementation is by a Federal modern development has taken place under department different from the one responsi- laws and regulations such as those promul- ble for the Program. Any evaluation of the gated after the passage of the National Envi- Program must look at the full range of Gov- ronmental Policy Act (NEPA) and the Clean ernment involvement when judging its suc- Air Act. More established mining industries cess or failure. have had to adjust to environmental require- With respect to the second goal of the ments, but their character has not been Program—ensuring environmental integrity shaped by them as significantly as has that of —it was anticipated that a framework would the oil shale industry, where every process be provided for the evolution of techniques to must be designed for compliance with envi- restore the ecological balances that will be ronmental 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, poli- Program. Both sectors, however, have devel- cies have been established that permit the de- oped 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 addi- In May of 1980, DOI announced several tional leasing under the Program was ex- decisions that mark a departure from these pressed as follows:) earlier positions and that will significantly alter the outlook for development. The To proceed with substantial additional leasing without the total experience which choices were made, according to DOI’S deci- we will gain in Colorado would be a total con- sion document, “In response to the Presi- tradiction of our established policy. Our cur- dent’s program to accelerate the develop- rent policy is to follow the guidelines laid ment of a synthetic fuels industry and in full down in the 1973 Oil Shale Environmental consideration of the potential and problems Impact Statement—to do no further general associated with the development of oil shale leasing until the prototype program has de- resources on the public lands. . . .“5 termined whether shale oil can be produced in an environmentally and economically via- DOI will lease up to four new tracts under ble manner. This may require some addition- the Prototype Program. A task force will al leasing in the near future to ensure that all recommend the number and possible location available technologies for oil shale are ade- of the new leases, the technologies to be en- quately tested. However, this will be limited couraged, and the best strategy to accomplish to only a few leases within the existing pro- the leasing. The task force’s work is to be gram and not a new full-scale leasing pro- done by mid-fall of 1980. gram, Several justifications are cited for addi- In late 1979, DOI’s Petroleum Imports Re- tional Prototype leasing. First is to ensure duction Policy Group described the oppor- 4 reaching a goal of 400,000 bbl/d of shale oil tunities for additional leasing as follows: by 1990. While recognizing that this could be In announcing the prototype program, the met by present projects, DOI indicates that Secretary made a commitment to lease no “modest additional leasing” will foster pro- more than six tracts under the program, and duction. Second is the need to strengthen the this has been taken as the lease limit for the Program, which is characterized “as one of program. This restriction was also contained only qualified success, ” particularly since in the programmatic EIS. Four tracts have only one technology is being tested in only one been let. The two in Colorado are undergoing area. As the decision document notes: development: the two Utah tracts have been stalled by a legal challenge from the State of Additional leasing under the Program will Utah. Consequently, there are two tracts of permit us to gain the valuable broader ex- 5120 acres each which might be leased un- perience first sought in the Program when der the prototype program . . . The Depart- the six lease tracts were selected and of- ment may not be limited to leasing two addi- fered in 1974. tional tracts, however. If the Prototype Pro- gram loses control over its tracts in Utah on DOI emphasizes that the new efforts “in lieu land selection” grounds, four tracts should be consonant with the purposes of the authorized under the Prototype Program Program. Technologies not now being devel- would be available for leasing. oped 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 sirable management tool. ” Among the short- be employed are not necessarily envisioned. comings are the inability to require diligent At least one tract will be offered for multi- development and information sharing, which mineral development, Possible sites are not to means greater production cannot be assured. be geographically concentrated, in order to Furthermore, bonuses, rents, and royalties reduce environmental and socioeconomic im- are not obtained and the States do not receive pacts. shared revenues as they do from leasing. Fi- nally, exchanges are viewed as inefficient Plans for a permanent leasing program will and costly because of the necessity to analyze be started concurrently. According to DOI, two or more tracts in order to effect the ex- “For the health of a maturing industry and change. DOI does indicate it will fulfill its the energy security of the Nation, oil shale obligation to consider pending exchanges. production should continue to expand in the 1990’s and beyond. ” Because leasing to The Department will request amendments achieve additional production “is not fully to the Mineral Leasing Act of 19206 and the consonant with the several purposes of the Federal Land Policy and Management Act of Prototype Program, ” a comprehensive, per- 1976 (FLPMA). ’ The former limits the maxi- manent leasing program is proposed. mum size of a lease tract to 5,120 acres (8 2 In preparation, four steps will be under- mi ), prohibits any individual or firm from taken: holding more than this acreage under lease, and allows only one lease to be held by an in- ● a review of the Prototype Program; dividual or firm.” FLPMA specifically prohib- ● consultation with affected States, local its, outside the lease tracts, disposal of over- governments, industry, the environmen- burden or waste material and the siting of tal community, and the public; surface facilities.’) DOI “will seek legislation consideration of a range of leasing alter- which would remove all three constraints . . . natives, including no further leasing; and Specifically, DOI will ask for: ● compliance with NEPA including prepa- .,. the authority to designate each lease ration of a programmatic EIS. tract of a size sufficient to sustain long-term commercial operations . , ., to issue permits The timetable calls for the review of the Pro- to lessees for fair market value to provide for totype Program to be completed in 4 months, the off-lease disposal of shale and siting of with a goal of having the permanent program processing facilities, and to permit a firm to ‘‘in place within the next two years. ” hold a maximum of four leases nationwide Justification for the permanent program in- and two leases per State, with an additional cludes “The constantly changing national lease per State if the company is producing on the first two leases , . , and is within 10 and international outlook for liquid hydrocar- years of completing production on one of bons. . . .“ DOI states: them. Failure to immediately initiate develop- DOI is careful to note that they have not ment of a permanent program poses the reached any conclusions about the specifics distinct risk that an emergency situation in the future would require the quick develop- of their permanent leasing program, and that, ment and implementation of a poorly de- therefore, the application of the off lease signed, crash leasing program, without ade- authority would be limited to the leases under quate safeguards. the Prototype Program, either the existing ones or those to be issued under the Pro- Land exchanges will not be given special gram’s extension. emphasis. Rather, greater priority will be given to the leasing efforts. DOI judges ex- Taken together, these actions confirm a changes as failing “too many tests as a de- renewed interest on the part of the present Ch 6–Outlook ● 81 administration in the development of oil shale will move once again to the forefront of the resources, The issues discussed in chapter 5 debates about this development,

Chapter 6 References

1 Sho]e Truct C-b—Modi~icution to Detailea’ ‘) James A. Joseph, Under Secretary, Memoran- Development Plon, Ashland Oil, Inc., and Occiden- dum to the Secretary, “Decisions on the Oil Shale tal Oil Shale, Inc., February 1977. Secretarial Issue Document, ’ U.S. Department of ‘G, Martin, Assistant Secretary for Land and the Interior, May 27, 1980. Quotations throughout Water Resources, Department of the Interior, let- this section are from this Memorcln{/um. ter to OTA, U.S. Congress, Nov. 2, 1978. ‘)4 1 Stat. 437 (1920), 30 U.S, C. 181 et seq. ‘Ibid. “90 Stat, 2743 (1976), 43 U.S.C, 1701 et seq. ‘C. Hall and M, Said, Ftxier(~l Oil Shale Leasing: ‘{30 U,S,C. 181 and 241(a) (1976). Leasing Options, LegfIl (ln(i Po]icy Constraints, Pe- ‘+90 Stat. 2786, 43 U.S.C. 1701. troleum Imports Reduction Policy Group, Depart- ment of the Interior, Nov. 1, 1979, p. 14.