[Federal Register Volume 70, Number 110 (Thursday, June 9, 2005)]
[Notices]
[Pages 33753-33759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-11394]
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DEPARTMENT OF THE INTERIOR
Bureau of Land Management
Potential for Oil Shale Development; Call for Nominations--Oil
Shale Research, Development and Demonstration (R, D & D) Program
AGENCY: Bureau of Land Management (BLM), Interior.
ACTION: Notice.
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SUMMARY: The BLM solicits the nomination of parcels to be leased for
research, development and demonstration of oil shale recovery
technologies in Colorado, Utah, and Wyoming.
DATES: Nominations for oil shale research, development and
demonstration (R, D& D) leases can be made June 9, 2005 through
September 7, 2005.
ADDRESSES: Please send nominations to the BLM state director for the
state in which the parcel you are nominating is located: Ron Wenker,
State Director, BLM, Colorado State Office, 2850 Youngfield Street,
Lakewood, Colorado, 80215-7076; Sally Wisely, State Director, BLM, Utah
State Office, 324 South State Street, Suite 301, P.O. Box 45155, Salt
Lake City, Utah, 84145-0155; Bob Bennett, State Director, BLM, Wyoming
State Office, 5353 Yellowstone Road, P.O. Box 1828, Cheyenne, Wyoming,
82003.
FOR FURTHER INFORMATION CONTACT: Jim Edwards, BLM, Colorado State
Office, 303-239-3773; Jim Kohler, BLM, Utah State Office, 801-539-4037;
Phil Perlewitz, BLM, Wyoming State Office, 307-775-6144.
SUPPLEMENTARY INFORMATION: BLM is initiating a demonstration project
under which small tracts may be leased for oil shale research,
development and demonstration, pursuant to BLM's authority to lease
Federal lands for oil shale development under section 21 of the Mineral
Leasing Act, 30 U.S.C. 241.
The United States holds significant oil shale resources, primarily
within the Green River Formation in Colorado, Utah and Wyoming. These
oil shale resources underlie a total area of 16,000 square miles, which
represents the largest known concentration of oil shale in the world.
Federal lands comprise roughly 72% of the total surface oil shale
acreage and 82% of the oil shale resources in the Green River
Formation.
For a considerable time, some have believed that oil shale has the
potential to be a major source of domestic energy production. BLM has
considered the merits of working to promote the
[[Page 33754]]
development of oil shale resources on public lands.
In 2003, BLM established its own Oil Shale Task Force. The Oil
Shale Task Force was established to address: (1) Access to
unconventional energy resources (such as oil shale) on public lands;
(2) impediments to oil shale development on public lands; and (3)
industry interest in research and development and commercial
opportunities on public lands; and (4) Secretarial options to
capitalize on the opportunities.
By Federal Register notice, 69 FR 67935-67938 (November 22, 2004),
the Bureau of Land Management requested comments on a proposed draft
oil shale research and development lease form. The comment period was
initially to end December 22, 2004, but was extended to January 31,
2005. Comments were received from 32 entities, and BLM has reviewed the
comments it received. The comments were incorporated, as appropriate,
into the final oil shale research and development lease form which is
attached as Appendix A. The comments and BLM's responses are summarized
in Appendix B.
The BLM is soliciting for nomination parcels to be leased for
research, development and demonstration of oil shale recovery
technologies. The BLM has concluded that initiating steps to help
facilitate oil shale research and development efforts is worthwhile.
The BLM intends to initiate a phased or staged approach to oil
shale development. The first step, which BLM is taking today, is to
develop a research, development and demonstration leasing program. BLM
believes this effort will significantly enhance the collective
knowledge regarding the viability of innovative technologies for oil
shale development on a commercial scale. The second step BLM intends to
initiate is to develop a regulatory framework for a commercial oil
shale leasing program to ensure that any commercial development of oil
shale on BLM lands is both environmentally and fiscally responsible.
The BLM intends to ensure that a commercial oil shale development
program demands rigorous technological and environmental oversight,
requires the best available practices to minimize impacts, and ensures
that states and local communities have the opportunity to be involved
in the development of a commercial program.
By initiating a research, development and demonstration leasing
process, the BLM can provide itself, state and local governments, and
the public, with important information that can be utilized as BLM
works with communities, states and other Federal agencies to develop
strategies for managing any environmental effects and enhancing
community infrastructure needed to support the orderly development of
this vast resource. This will be valuable information for a rulemaking
addressing commercial oil shale leasing.
The BLM opted for a staged program to ensure that lessons learned
during the 1973/74 Oil Shale Prototype program are diligently applied
to achieve desirable results. The Oil Shale Prototype program initiated
a full commercial operation before the economic viability of the
technologies of the time could be determined. The approach created
expectations of an economic boom which never materialized. The
Prototype Program impacted the communities in which the projects were
located and left the Department with the responsibility for
reclamation.
This initiative is designed to build on the experience of the 1973/
74 Oil Shale Prototype. This program will be carefully staged, or
phased, to ensure that the current oil shale extractive technologies
are perfected to operate at economic and environmentally acceptable
levels before expansion to commercial operations can be authorized on
public lands. The BLM oil shale program design allows tracts of land up
to 160 acres to be used to demonstrate the economic feasibility of
today's technologies over a period of ten years. Given the capital
intensive nature of the technologies involved, the timeline of
development is very sensitive to variations in the price outlook for
conventional oil. Furthermore, BLM believes that the time required is
uncertain enough that it should entertain requests for an extension of
time for up to five years where obvious significant progress has been
made towards perfecting the technology during the primary period of ten
years.
BLM believes that if the research and development efforts are sub-
economic, the small research, development and demonstration projects
will be more easily dismantled. Lands may be reclaimed with minimal
adverse environmental impact. For states and local communities, a
staged process can minimize social impact, because the projects would
be small in size and scope.
By this notice, BLM is soliciting the nomination of parcels, not to
exceed 160 acres, for the conduct of oil shale research, development
and demonstration. Applicants may also identify up to an additional
contiguous 4960 acres which the applicant requests BLM to reserve for a
preference right lease to be awarded following: (1) The demonstration
that the applicant's technology tested in the original lease of up to
160 acres has the ability to produce shale oil in commercial
quantities; (2) evaluation pursuant to the National Environmental
Policy Act that concludes that commercial scale operations of the
applicant's technology at that site does not pose environmental or
social risks unacceptable to BLM; (3) provision of adequate bond to
cover all costs associated with reclamation and abandonment of the
expanded lease area; and (4) consultation with state and local
governments on a strategy to mitigate socio-economic impacts, including
but not limited to, the infrastructure to accommodate the required
workforce.
Nominations will be reviewed by an interdisciplinary team. BLM will
request the participation of a representative of each of the states of
Colorado, Utah and Wyoming, as appropriate, as well as the Departments
of Defense and Energy. The review will consider the potential of
proposals to advance knowledge of effective technology, economic
viability and the means of managing the environmental effects of oil
shale development. BLM also would conduct NEPA analysis of the
environmental effects of a proposal prior to the award of a research,
development and demonstration lease. Depending on the quality of
applications, and the potential environmental, social and economic
conditions on the site or in the region associated with the proposal,
BLM may award one or more leases in each of the states.
Lease nominations must at a minimum contain the following
information:
(1) Name, address, and telephone number of the applicant, and the
representative of the applicant who will be responsible for conducting
the operational activities.
(2) Statement of qualifications to hold a mineral lease under the
Mineral Leasing Act (MLA) of 1920. Qualification requirements can be
found in 43 CFR Subpart 3502.
(3) Description of the lands, not to exceed 160 acres, in
accordance with the instructions in 43 CFR 3110.5-2, together with any
rights-of-way required to support the development of the oil shale
research, development and demonstration lease.
(4) If requesting additional lands be reserved for a preference
right lease,
[[Page 33755]]
such lands must be described, and must not (together with the lands
described in paragraph 3 above) exceed 5120 acres.
(5) A narrative description of the proposed methodology for
recovering oil from oil shale, including a description of all equipment
and facilities needed to support the proposed technology.
(6) A narrative description of the results of laboratory and/or
field tests of the proposed technology.
(7) A schedule of operations for the life of the project and
proposed plan for processing, marketing and the delivery of the shale
oil to the market.
(8) A map of existing land use authorizations on the nominated
acreage.
(9) Estimated oil and/or oil shale resources within the nominated
acreage boundary.
(10) The method of oil storage and/or spent oil shale disposal.
(11) A description of any interim environmental mitigation and
reclamation.
(12) The method of final reclamation and abandonment and associated
projected costs .
(13) Proof of investment capacity, and a description of the
commitments of partners, if any.
(14) A statement from a surety qualified to furnish bonds to the
United States government of the bond amount for which the applicant
qualifies under the surety's underwriting criteria.
(15) A non-refundable application fee of $2000.00
Applicants should prominently note any information submitted with
their application that contains proprietary trade secrets the
disclosure of which to the public would cause commercial or financial
injury to its competitive position. BLM will protect the
confidentiality of the information to the extent permitted by the
Freedom of Information Act (FOIA). Any FOIA requests for such
information will be handled in accordance with the regulations at 43
CFR 2.23.
The time required for NEPA analysis may differ depending on whether
the application is for a tract that has previously been the subject of
NEPA analysis, the method of oil shale or shale extraction and whether
the application involves mining or in-place shale oil recovery.
Accordingly some research, development and demonstration leases may be
awarded prior to others.
Dated: May 19, 2005.
Thomas P. Lonnie,
Assistant Director, Minerals, Realty and Resource Protection.
Appendix A--United States Department of the Interior, Bureau of Land
Management, Oil Shale Research, Development and Demonstration (R, D &
D) Lease
This lease is entered into on ----------------,-------- to be
effective on --------,---- (the ``Effective Date''), by the United
States of America (the ``Lessor''), acting through the Bureau of
Land Management (hereinafter called the ``Bureau''), of the
Department of the Interior (the ``Department''), and --------------
------ (the ``Lessee''), pursuant and subject to the provisions of
the Mineral Leasing Act of February 25, 1920 as amended (30 U.S.C.
181-287), hereinafter called the ``Act'', more specifically section
21 of the Act (30 U.S.C. 241), and to the terms, conditions, and
requirements (1) of all regulations promulgated by the Secretary of
the Interior (the ``Secretary'') in 43 CFR Part 3160, including
Onshore Oil and Gas Orders, and 43 CFR Part 3590, including
revisions thereof hereafter promulgated by the Secretary (and not
inconsistent with any specific provisions of this lease), all of
which shall be, upon their effective date, incorporated in and, by
reference, made a part of this lease. To the extent the provisions
of this lease are inconsistent with the requirements of any
regulation or order, the lease terms govern.
Section 1. Definitions
As used in this lease:
(a) ``Authorized Officer'' means any employee of the Bureau of
Land Management delegated the authority to perform the duty
described in the section in which the term is used.
(b) ``Commercial Quantities'' means quantities sufficient to
provide a positive return after all costs of production have been
met, including the amortized costs of capital investment.
(c) ``Leased Lands'' means the lands described as follows: ----
----------------
(d) ``Oil shale'' means a fine-grained sedimentary rock
containing: (1) organic matter which was derived chiefly from
aquatic organisms or waxy spores or pollen grains, which is only
slightly soluble in ordinary petroleum solvents, and of which a
large proportion is distillable into synthetic petroleum, and (2)
inorganic matter, which may contain other minerals. This term is
applicable to any argillaceous, carbonate, or siliceous sedimentary
rock which, through destructive distillation, will yield synthetic
petroleum.
(e) ``Preference lease area'' means the area reserved for
leasing during the term of this lease to which Lessee may earn a
preference lease right. The preference lease area for this lease is
described as follows: --------------------
(f) ``Shale oil'' means synthetic petroleum derived from the
destructive distillation of oil shale.
Section 2. Grant to Lessee
The Lessee is hereby granted, subject to the terms of this
lease, the exclusive right and privilege to prospect for, drill,
mine, extract, remove, beneficiate, concentrate, process and dispose
of the oil shale and the products of oil shale contained within the
Leased Lands. In accordance with plans of operation approved
pursuant to section 8, the Lessee may utilize or dispose of all oil
shale and oil shale products, together with the right to construct
on the Leased Lands all such works, buildings, plants, structures,
roads, power lines, and additional facilities as may be necessary or
reasonably convenient for the mining, extraction, processing, and
preparation of oil shale and oil shale products for market. The
Lessee has the right to use so much of the surface of the Leased
Lands as may reasonably be required in the exercise of the rights
and privileges herein granted.
Section 3. Lessor's Reserved Interests in the Leased Lands
The Lessor reserves:
(a) The right to continue existing uses of the leased lands and
the right to lease, sell, or otherwise dispose of the surface or
other mineral deposits in the lands for uses that do not
unreasonably interfere with operations of the Lessee under this
lease.
(b) The right to permit for joint or several use, such easements
or rights-of-way, including easements in tunnels or shafts upon,
through, or in the Leased Lands, as may be necessary or appropriate
to the working of the Leased Lands or other lands containing mineral
deposits subject to the Act, and the treatment and shipment of the
products thereof by or under authority of the Lessor, its lessees,
or permittees, and for other public purposes. Lessor shall condition
such uses to prevent unnecessary or unreasonable interference with
rights of the Lessee.
Section 4. Lease Term
The lease is issued for a term of ten years with the option for
an extension not to exceed five years upon demonstration to the
satisfaction of the authorized officer that a process leading to
production in commercial quantities is being diligently pursued,
consistent with the schedule specified in the approved plan of
operations. The lease is subject to conversion to a twenty-year
lease under the conditions specified in section 23.
Section 5. Rentals: Non-commercial Production
The Lessee shall pay the Lessor the statutorily established
annual rental in advance for each acre or fraction thereof during
the continuance of the lease of $.50. Rental is payable annually on
or before the anniversary date of the lease. Rentals for any lease
year shall be credited by the Lessor against any royalty payments
for that lease year.
The failure to pay rental by the anniversary date shall be
grounds for termination of the lease. Should the Lessee fail to pay
the full amount by the anniversary date, BLM will notify the Lessee
of this failure and provide you with a grace period of 15 days from
the day you receive notice to make payment in full. Should no
payments be received during the grace period, the lease shall
terminate
[[Page 33756]]
without the need for further administrative proceedings.
Section 6. Royalties
(a) As long as the Lessee is not producing commercial quantities
from the leasehold, as determined by the Lessor, the Lessor waives
the requirement for royalty on any production.
(b) Lessee shall file with the proper office of Lessor, no later
than 30 days after the effective date thereof, any contract or
evidence of other arrangement for sale or disposal of production. At
such times and in such form as Lessor may prescribe, Lessee shall
furnish detailed statements showing the amounts and quality of all
products removed and sold from the lease, the proceeds therefrom,
and the amount used for production purposes or unavoidably lost.
(c) Payments under this lease shall be subject to the
regulations in 30 CFR Part 218, Subpart E.
Section 7. Bonds
(a) Prior to conducting operations on this lease, the Lessee
shall provide a bond payable to the Secretary in the amount
determined by the authorized officer, conditioned upon compliance
with all terms and conditions of the lease and the plan of
operations. This bond shall be of a type authorized by 43 CFR 3104.1
and must be sufficient to cover all costs associated with
reclamation and abandonment activities. The authorized officer may
require additional bond upon determining that it is necessary to
assure full compliance for the operations conducted under this
lease. The Lessee shall have the right to submit information to
demonstrate that a lesser amount would be sufficient to remedy
noncompliance and appeal the determination to the State Director.
(b) Upon request of the Lessee, the bond may be released as to
all or any portion of the Leased Lands affected by exploration or
mining operations, when the Lessor has determined that the Lessee
has successfully met the reclamation requirements of the approved
development plan and that operations have been carried out and
completed with respect to these lands in accordance with the
approved plan.
Section 8. Plan of Operations
(a) Prior to conducting operations on the Leased Lands,
including exploration, the Lessee shall submit a plan of operations
for review and approval by the authorized officer. This plan shall
be submitted in accordance with the requirements of 43 CFR Part 3160
or 43 CFR Part 3590, depending on the nature of the proposed
activity. It shall include a description of best management
practices for interim environmental mitigation and reclamation.
(b) The authorized officer shall make the final determinations
as to which regulations govern the proposed activity and notify the
Lessee of any additional requirements. The authorized officer may
condition the approval on reasonable modifications of the plan to
assure protection of the environment.
(c) After plan approval, the Lessee must obtain the written
approval of the authorized officer for any change in the plan
approved under subsection (a).
(d) The Lessee shall file annual reports describing progress
toward the achievement of the goals of the demonstration project.
Section 9. Operations on the Leased Lands
(a) The Lessee shall conduct all operations under this lease in
compliance with all applicable Federal, State and local statutes,
regulations, and standards, including those pertaining to water
quality, air quality, noise control, threatened and endangered
species, historic preservation, and land reclamation, and orders of
the authorized officer (written, or if oral, reduced to writing
within ten days). The Lessee shall employ best management practices
to minimize impacts to other resource values.
(b) The Lessee shall avoid, or, where avoidance is
impracticable, minimize, and where practicable correct, hazards to
the public health and safety related to its operations on the Leased
Lands.
(c) Lessee shall carry on all operations in accordance with
approved methods and practices as provided in the operating
regulations designated as applicable under section 8 above and
approved operations plan. Activities will be conducted in a manner
that minimizes adverse impacts to the land, air, water, cultural,
biological, visual, and other resources, including mineral deposits
not leased herein, and other land uses and users.
(d) The Lessee shall comply with all applicable state and
Federal laws.
Section 10. Water Rights
All water rights developed on the lease by the Lessee through
operations on the Leased Lands shall immediately become the property
of the Lessor. As long as the lease continues, the Lessee shall have
the right to use those water rights free of charge for activities
under the lease.
Section 11. Development by In Situ Methods
Where in situ methods are used for the production of shale oil,
the Lessee shall not place any entry, well, or opening for such
operations within 500 feet of the boundary line of the Leased Lands
without the permission of, or unless directed by the authorized
officer.
Section 12. Inspection
The Lessee shall permit any authorized officer or representative
of the Lessor at any reasonable time:
(a) To inspect the Leased Lands and all surface and underground
improvements, works, machinery, and equipment, and all books and
records pertaining to operations and surveys or investigations under
this lease; and
(b) To copy and make extracts from any books and records
pertaining to operations under this lease.
Section 13. Monitoring, Reports, Maps, etc.
(a) The Lessee shall submit to the Lessor in such form as the
latter may prescribe, not more than 60 days after the end of each
quarter of the lease year, a report covering that quarter which
shall show the amount produced from the Lease by each method of
production used during the quarter, the character and quality
thereof, the amount of products and by-products disposed of and
price received therefor, and the amount in storage or held for sale,
and such information concerning the generation of waste products or
impacts to the environment specified in the Addendum to this lease.
This report shall be certified by an agent(s) having personal
knowledge of the facts who has been designated by the Lessee for
that purpose.
(b) The Lessee shall prepare and furnish at such times and in
such form as the Lessor may prescribe, maps, photographs, reports,
statements and other documents required by 43 CFR Part 3160 or 3590,
as appropriate.
(c) The Lessee shall conduct surveys and monitor environmental
effects as specified in the Addendum to this lease.
Section 14. Assignment
The Lessee may assign any interest in this lease with the
approval of the authorized officer, subject to the Assignor
retaining liability for all obligations that accrued prior to the
assignment and the provision of bond by the Assignee for all
liabilities arising after the assignment. The Assignor shall
maintain bond for liabilities arising in the period prior to the
assignment, unless the assignee provides bond for the entire period
of the lease.
Section 15. Heirs and Successors in Interest
Each obligation of this lease shall extend to and be binding
upon, and every benefit shall inure to, the heirs, executors,
administrators, successors, or assigns of the respective parties
hereto.
Section 16. Relinquishment of lease
The Lessee may relinquish in writing at any time all rights
under this lease. Upon Lessor's acceptance of the relinquishment,
Lessee shall be relieved of all future obligations under the lease.
The Lessee shall promptly pay all royalties due and reclaim the
relinquished acreage in accordance with the plan of operations.
Section 17. Remedies in Case of Default
If the Lessee fails to comply with applicable laws, regulations,
or the terms, conditions, and stipulations of this lease and the
noncompliance continues for a period of 30 days after service of
notice thereof, this lease shall be subject to cancellation. The
Lessor may (1) suspend operations until the required action is taken
to correct noncompliance, or (2) institute appropriate proceedings
in a court of competent jurisdiction for the forfeiture and
cancellation of this lease as provided in Section 31 of the Act (30
U.S.C. 188) and for forfeiture of any applicable bond. If the Lessee
fails to take prompt and necessary steps to (a) prevent loss or
damage to the mine, property, or premises, (b) prevent danger to the
employees, or (c) avoid, minimize or, repair damage to the
environment, the Lessor may enter the premises and take such
measures as he may deem necessary to prevent, or correct the
damaging, dangerous, or unsafe condition of the mine or any other
facilities upon the Leased Lands. Those measures shall be at the
expense of the Lessee.
[[Page 33757]]
Section 18. Delivery of Premises in Case of Forfeiture
(a) At such time as all or portions of this lease are returned
to Lessor, the Lessee shall deliver to the Lessor the land leased,
wells, underground support structures, and such other supports and
structures necessary for the preservation of the mine workings on
the leased premises or deposits and place all workings and wells in
condition for suspension or abandonment. Within 180 days thereof,
Lessee shall remove from the premises all other structures,
machinery, equipment, tools, and materials as required by the
authorized officer. Any such structures remaining on the Leased
Lands beyond the 180 days, or approved extension thereof, shall
become the property of the Lessor. Lessee shall either remove all
such property or shall continue to be liable for the cost of removal
and disposal in the amount actually incurred by the Lessor.
(b) Lessee shall reclaim all lands which have been disturbed and
dispose of all debris or solid wastes in an approved manner in
accordance with the schedule established in the plan of operations
and maintain bond coverage until such reclamation is complete.
Section 19. Protection of Proprietary Information
(a) This lease, and any activities thereunder, shall not be
construed to grant a license, permit or other right of use or
ownership to the Lessor, or any other person, of the patented
processes, trade secrets, or other confidential or privileged
technical information (hereafter in this section called ``technical
processes'') of the Lessee or any other party whose technical
processes are embodied in improvements on the Leased Lands or used
in connection with the lease.
(b) Notwithstanding any other provision of this lease, the
Lessor agrees that any technical processes obtained from the Lessee
which are designated by the Lessee as confidential shall: (1) Not be
disclosed to persons other than employees of the Federal Government
having a need for such disclosures and (2) not be copied or
reproduced in any manner. The Lessor further agrees this material
may not be used in any manner that will violate their proprietary
nature.
(c) Prior to any disclosure pursuant to a Freedom of Information
Act (FOIA) request, the Bureau will notify the submitter of the
specific information which it has initially determined to release
and give it thirty (30) days to provide a justification for the
nondisclosure of the information under exemption 4 or other relevant
exemptions of FOIA. The submitter's justification should address in
detail, pursuant to the procedures in 43 CFR 2.23, whether the
information:
(1) Was submitted voluntarily and falls in a category of
information that the submitter does not customarily release to the
public; or
(2) If the information was required to be submitted, how
substantial competitive or other business harm would likely result
from release.
If after reviewing the submitted information, BLM decides to
release the information over the submitter's objections, it will
notify the submitter that it intends to release the information 10
workdays after the submitter's receipt of the notice.
Section 20. Lessee's Liability to the Lessor
(a) The Lessee shall be liable to the United States for any
damage suffered by the United States in any way arising from or
connected with Lessee's activities and operations conducted pursuant
to this lease, except where damage is caused by employees or
contractors of the United States acting within the scope of their
authority or contract.
(b) The Lessee shall indemnify and hold harmless the United
States from any and all claims arising from or connected with
Lessee's activities and operations under this lease.
(c) In any case where liability without fault is imposed on the
Lessee pursuant to this section, and the damages involved were
caused by the action of a third party, the rules of subrogation
shall apply in accordance with the law of the jurisdiction where the
damage occurred.
Section 21. State Director Review and Appeals
The Lessee shall have the right to request State Director Review
and to appeal orders or decisions of the BLM under 43 CFR Subpart
3165.
Section 22. Special Stipulations
The special stipulations that are attached to and made a part of
this lease are imposed upon the Lessee, and the Lessee's employees
and agents. The failure or refusal to comply with these stipulations
shall be deemed a failure of the Lessee to comply with the terms of
the lease. The special stipulations may be revised or amended, in
writing, by mutual consent of the Lessee and Lesser following
appropriate notice to the public.
Section 23. Conversion Rights.
(a) Upon documenting to the satisfaction of the authorized
officer that it has produced commercial quantities of shale oil from
the lease, the Lessee has the exclusive right to convert the
research and development lease acreage to a commercial lease and
acquire any or all portions of the remaining preference lease area
up to a total of 5,120 contiguous acres upon:
(1) Payment of a bonus based on the Fair Market Value of the
lease, to be determined by the Lessor utilizing criteria to be
developed through the rulemaking described in subsection (b) or
other process for obtaining public input;
(2) Documentation of the Lessee's consultation with State and
local officials to develop a plan for mitigating the socio-economic
impacts of commercial development on communities and infrastructure;
(3) Provision of adequate bond to cover all costs associated
with reclamation and abandonment of the expanded lease area; and
(4) BLM's determination, following analysis pursuant to the
National Environmental Policy Act (NEPA), that commercial scale
operations can be conducted, subject to mitigation measures to be
specified in stipulations or regulations, without unacceptable
environmental consequences.
(b) Such commercial lease shall contain terms consistent with
regulations to be developed by the Secretary pursuant to section 21
of the Act and stipulations developed through appropriate NEPA
analysis.
(c) Such commercial lease may be issued for a term of 20 years
and so long thereafter as shale oil is produced from the Leased
Lands in commercial quantities. Such commercial lease shall be
subject to payment of rents and royalties to the Lessor at the
established rates at the time of lease conversion, or at such
reduced rate that the Lessee demonstrates is necessary to permit the
economic development of the oil shale resource. The royalty shall be
subject to the readjustment of lease terms at the end of the 20th
lease year and each 20 year period thereafter.
Section 24. Reimbursable Costs
In applying for required approvals, the lessee under the oil
shale research, development and demonstration, lease shall reimburse
BLM for those costs itemized in Addendum B to this lease.
Appendix B--Summary and Analysis of Comments on Oil Shale R&D Lease
The BLM sought and received comments on the following issues
related to a proposed lease form for oil shale R&D.
(1) What terms (duration, royalty, rental, acreage, diligence,
option for additional acreage) should BLM include in the R&D lease
to provide short-term incentives, and also encourage long-term
commercial development;
(2) The adequacy of a 40-acre lease for a successful
demonstration of oil shale technology;
(3) The methodology for conversion of an R&D lease to a
commercial lease;
(4) The criteria to qualify a company or individual to acquire
an R&D lease and what documentation should be required;
(5) The level of National Environmental Policy Act (NEPA)
documentation that would be appropriate for R&D leasing; and
(6) The appropriate methodology for determining fair market
value for conversion to a commercial lease.
A discussion of the comments and resultant changes in this
republished final R&D form is as follows:
One of the major changes is that the acreage has been increased
from 40 acres to 160 acres, as many of those submitting comments
indicated that the 40 acres were not sufficient for successful R&D.
The following section-by-section discussion follows the original
format, which was published in the Federal Register on November 22,
2004. In addition, the R&D lease form contains clarifications and
other minor changes mentioned in the comments.
Lease Terms
Comments were received on the various lease terms as follows:
Duration
Comments were received recommending an initial lease term
ranging from 30 months to 20 years. Several comments recommended
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that a term of 10 years would be appropriate. In light of the
sensitivity of the necessary investment to fluctuations in
projections of conventional oil prices, the BLM has determined that
R&D leases will be issued for an initial term of 10 years with an
option to extend for up to 5 additional years upon demonstration
that a process leading to commercial production is being diligently
pursued.
Rental
Comments received ranged from no rental to $5.00 per acre for an
R&D lease. Comments were also received regarding rental rates for
commercial leases ranging from 50 cents to $1000 per acre. However,
the statute, 30 U.S.C. 241, specifically requires that rental be
paid at the rate of 50 cents per acre per annum.
Royalty
Several comments stated that requiring royalty during the R&D
phase would be counter-productive to the development of viable
recovery technologies. Some comments suggested that royalty
assessment during the R&D phase is a disincentive to research and
development. Other comments suggested royalties be paid based on
tons of rock mined or equivalent barrels of oil produced. After
considering the potential capital and labor intensive nature of
developing oil shale technology, it was concluded that royalty
during the R, D & D phase could be a disincentive to the R, D and D
efforts. As a result, it was decided that the R, D & D lease form
waive the requirement for payment of royalty on any production until
such time as the lessee is producing in commercial quantities.
Diligence
One comment suggested that the R&D lease should contain certain
diligence requirements agreed to in the plan of operations but did
not specify what these diligence requirements might be. Another
comment stated that the diligence requirement should be very clear,
requiring development in 10 years, similar to coal leases. Other
comments suggested that R&D leases should not be held for
speculation and one comment suggested that a lessee be required to
submit a plan of operations to the BLM within 2 years of lease
issuance and to commence onsite operations within 5 years of lease
issuance.
BLM agrees that a plan of operations is needed. In addressing
this issue, the revised lease form requires the applicant/lessee to
submit a plan of operation. A plan of operation should clearly state
what the lessee plans to do on the lease, a scheduling (timing) of
activities, and describe the methodology for such activities. The
submitted plan will be approved by the authorized officer, who will
review the plan on an annual basis to ensure that the lessee is
diligently executing the approved plan.
Adequacy of the 40 Acre Lease
Numerous comments stated that the 40 acre lease tract was too
small, especially considering the provision requiring a 500 foot
buffer from the lease line. Recommended lease acreage ranged from 40
acres to 1280 acres. In response to these comments, BLM has
determined that the R&D lease acreage should be increased to 160
acres because this acreage is large enough to accommodate any R&D
activity that can be envisioned, including the construction of
ancillary surface facilities. The BLM also received comments
concerning the need for defining specific acreage to be held
available for award upon a successful demonstration. BLM has
concluded that a successful R, D &D lease may be converted to a
commercial lease of up to 5,120 acres, subject to the outcome of
further NEPA review. To allow for efficient conversion to commercial
operation, the BLM has determined that an R, D & D lease will
include a reservation of additional acreage not to exceed 5,120
acres (preference rights area) to which the lease could be expanded
if the R, D & D lease is successful and the environmental effects
are acceptable.
Methodology for Converting to a Commercial Lease
A few comments suggested that R&D leases should not be converted
to commercial leases, rather commercial leasing should be a new
program based on competitive leasing. Some comments suggested that
conversion should be based on nominations (by potential lessees),
who should have the exclusive right to convert to a 5,120 acre
commercial lease with bonus payments at the time of the lease
conversion. Some comments asked that BLM specifically identify the
``perimeter outline for a potential commercial lease'' at the front
end of the lease application process. One comment went on to say
that failure to delineate a potential commercial lease ``will
unavoidably subject the R&D lease to unacceptable risk.'' A few
comments suggested that lease conversion be done based on
preferential rights without competitive bidding or assessments for
fair market value.
After careful analyses of the comments, it was concluded that
conversion should be based on the ability of the lessee to produce
commercial quantities of shale oil from the lease, documentation of
consultation with state and local governments on the mitigation of
socio-economic impacts and BLM's determination, following NEPA
analysis, that the environmental consequences of developing the
preference right area are acceptable. Then, the lessee would have
the exclusive right to convert the R, D & D lease acreage to a
commercial lease and acquire any or all portions of the remaining
preference lease area up to a total of 5,120 acres, as allowed under
the Mineral Leasing Act (30 U.S.C. 241), upon payment of a bonus to
be determined by the BLM using criteria developed through rulemaking
or other means of securing public input. The definition of the term
``preference lease area'' has been added to the final lease form.
Criteria To Qualify a Company or an Individual To Acquire an R&D
Lease
Some comments asked that the R&D leasing program not be used as
a license for (land) speculation. One comment urged that the intent
of the R&D program be made very clear by moving the last sentence on
page A-2 of the Federal Register Notice to the top of the page. The
sentence reads as follows: ``The intent of the leases is to further
the development of technologies for the economic production of oil
shale.'' Several comments suggested that a potential lessee should
demonstrate or possess technological experience, research
capability, financial strength, and the ability to satisfy bonding
requirements. Some suggested that among the above requirements, that
BLM should not issue leases to companies or individuals that cannot
clean up their mess or that have a history of regulatory non-
compliance. A few comments suggested that only applicants with
environmentally friendly projects be considered.
BLM maintains that the essence of the oil shale R, D& D lease is
to further the development of technologies for the economic
production of oil shale, while minimizing negative impacts on the
environment. Therefore, to address the issues raised in comments,
the criteria for lessee qualification will be based on possession of
technology and the experience to advance such technology, while
protecting the environment (land, air, water, cultural, biological,
visual, and other resources) and utilizing best management practices
to minimize impacts during the life of the project.
Supporting documentation for applicant qualification should
include but is not limited to the description of the technology to
be used including the results of laboratory and/or field tests, a
plan of operations, proof of investment capacity, and
partnership(s).
The Appropriate Level of the National Environmental Policy Act
(NEPA) Analysis for R, D & D Leases
A majority of the comments suggested that a regional
programmatic environmental impact statement be completed before
initiating a leasing action. Some comments expressed concerns that
oil shale development may pose much greater impact to plants and
wildlife than conventional oil and gas drilling. One comment
suggested that the proposed R&D could negatively impact National
Park lands in Colorado, Utah and Wyoming. Another comment suggested
that ``unlimited water use for leasing activities'' could result in
water depletion, which could affect four endangered Colorado River
fish. A few comments suggested that the existing Resource Management
Plans (RMPs) should be sufficient for R&D leasing.
BLM has determined that, given the small scale of the leases to
be awarded, site-specific NEPA analyses would be more appropriate
than a regional programmatic environmental impact statement (EIS)
document. One of the principal reasons to offer small research and
development leases before issuing commercial leases for oil shale is
to obtain a better understanding of the environmental effects of the
new technologies and the effectiveness of various mitigation
measures. The complexity of the analysis required for the R&D lease
will depend on the location, the type of project proposed and the
type of technology to be used. The impacts to ground water and
fisheries would certainly be among the issues to be analyzed. More
intensive NEPA analysis will be performed before the
[[Page 33759]]
award of a preference right lease, using information generated
during the R&D phase. Approval of conversion to a commercial lease
will depend upon the Secretary's determination that a commercial
operation on the acreage selected could be conducted in an
environmentally acceptable manner. BLM is prepared to ensure
adequate compliance with NEPA and the Endangered Species Act (ESA).
Methodology for Determining Fair Market Value
There were three comments relating to fair market value. One
comment suggested that the BLM should determine fair market value by
using the valuation system used by the Utah State Tax Commission.
The second comment suggested that it could be counter productive to
require payment of market value in transitioning from R&D to
commercial lease. This comment went on to state that a fixed
conversion fee should be set at the greater of $1,000/acre or $1.00
per barrel of oil equivalent produced and removed from the R&D site.
The last comment suggested that the BLM ``examine the carrying costs
of comparable private oil shale lands and strive for parity with
private land holders.''
The issue of determining the Fair Market Value to be paid at
conversion is a complex one. Accordingly, BLM has decided it should
be addressed later in a rulemaking or other public process.
Other Comments
Section 10--Water Rights
Several comments suggested that the section (Section 10) on
water rights should be rewritten for clarity. Some expressed concern
that the language on water rights could be construed to mean that
water rights development off the Leased Lands will automatically
become the property of the lessor upon termination of the lease. One
comment suggested that the lessor should reimburse the lessee, at a
fair market value, for costs associated with the development of the
water rights.
The language on water rights has been rewritten to clarify that
only water rights developed on the lease will be relinquished by the
lessee upon termination of the lease.
Research Parks
A few comments suggested the idea of research parks, which
``would be best operated on the Ua/Ub in Utah or the Anvil Points in
Colorado.'' A comment suggested that rather than conventional
leasing, a better approach may be to utilize ``government land as a
technology proof test center.'' One of the comments suggested that
BLM make Ua/Ub and Anvil Points sites available as ``research
parks,'' because some level of infrastructure exist on these sites.
However, these comments did not elaborate on the idea or give a
framework under which the idea could be feasible in advancing the
course of oil shale extraction, associated technology and subsequent
commercial operation. One of the comments cites the relationship
between the Canadian oil sands industry and the provincial and
federal governments as a possible model. Again, the comment did not
explain how the relationship informs the BLM project.
Some comments were in opposition to the idea of Research Parks.
They believe that it is an idea that offers no protection to
proprietary trade data, and lacks equitable accountability for
environmental responsibilities.
Anvil Point is currently undergoing reclamation at great
expense. The Utah facility is currently under a closure order while
issues relating to the buildup of methane are resolved. Accordingly,
at this time, BLM is unwilling to assume the liability for any
additional reclamation costs or environmental risks which would be
associated with its operation of these sites as public facilities.
Any further use should be dependent on the willingness of bonded
private entities to accept the responsibility for any additional
liabilities.
Bonding
A majority of the comments suggested that the criteria for
awarding leases should include a requirement for a potential lessee
to demonstrate, in advance, the ability to obtain a sufficient
reclamation bond. One comment suggested that the bond amount be set
at $20,000,000. A comment suggested that oil shale bonding should be
structured like the oil and gas bonds. Another suggested that any
bond posted for ``reclamation performance'' should be made payable
to the state regulatory authority where the project is located in
addition to the lessor, BLM.
After a thorough review of the bonding comments, BLM determined
that the existing language in the draft form (under Section 7--
Bonds) is an appropriate mechanism to ensure adequate bonding for
the R, D & D leases. The draft language states that the ``bond shall
be of a type authorized by 43 CFR 3104.1 and must be sufficient to
cover all costs associated with reclamation and abandonment
activities.'' It was concluded that the sufficiency of a bond will
be best determined by an authorized officer.
Section 11--Development by In Situ Methods
Fracture Length
One comment questioned ``how to either prove or enforce the
limits of fracturing.'' In response to this issue, the phrase ``nor
shall induced fracture extend to within 100 feet from the boundary
line'' has been deleted.
500 Feet Perimeter Limit
Some comments suggested that the requirement that ``the lessee
shall not place any entry, well, or opening for such operations
within 500 feet of the boundary line of the Leased Lands' be
modified. One comment stated that the limitation should be
eliminated, because it reduces the effective R & D area to
approximately 2.35 acres. This requirement has been addressed by
increasing the size of the R, D & D lease to 160 acres, while
retaining the 500 foot perimeter to protect against removal of
resources associated with other properties.
[FR Doc. 05-11394 Filed 6-8-05; 8:45 am]
BILLING CODE 4310-AG-P