Interior Secretary Salazar seeks review of oil shale contracts

Interior Secretary Ken Salazar asked the Interior Department’s inspector general Tuesday to investigate a controversial, last-minute move by the Bush administration to lock in favorable royalty rates and lenient environmental regulations for a series of oil shale leases on federal land in Colorado and Utah.

The investigation represents a significant expansion of the department’s probe of Bush-era oil shale policy -- and the oil industry’s role in shaping it.

Investigators are expected to examine whether Interior officials followed department protocol when pushing through an unusual set of lease amendments, and whether those officials bowed to pressure from industry or other outside groups.

Salazar said the investigation could result in a “range of options” including leaving the amendments in place or canceling them.

“There are serious questions about whether those lease addenda are in fact legal,” he said in a conference call with reporters, “and in fact whether or not they should be rescinded.”


In a news release, Salazar added: “Taxpayers deserve answers to serious questions about why these lease addenda were granted at the 11th hour, under what circumstances, and at what potential expense to the federal treasury.”

The Times’ Washington bureau reported last week that Interior officials were reviewing the highly unusual amendments, which could be worth billions to shale leaseholders, including Royal Dutch Shell, which holds three of the six leases.

A Shell spokeswoman said it would be inappropriate for the company to comment on an investigation “that was just requested today.”

On Tuesday, Salazar acknowledged publicly for the first time that the department’s inspector general -- and the Justice Department -- are already engaged in a broader oil shale probe that has centered on former Interior Secretary Gale Norton and whether she negotiated for a future Shell job while overseeing the government’s oil shale leasing process.

Norton went to work for Shell nine months after resigning from Interior in 2006.

Salazar criticized Bush administration shale policy as a U.S. senator and distanced himself from it again Tuesday.

Along with the new investigation, he announced a second round of research, development and demonstration leases for oil shale, part of what he cast as an effort to ensure “responsible” development of the vast stores of petroleum trapped in the rocks of the Mountain West, and to ensure that the oil shale program provides “a fair value to taxpayers.”

Developing oil shale involves heating rocks to extreme temperatures to release a petroleum product. Salazar said the research leases would help answer questions about the long-sought technology, including how much water and electricity it would require and how the development would affect wildlife, climate change and surrounding communities.

The second round of leases differ significantly from the first leases issued under the Bush administration -- most notably by limiting leaseholders to a maximum 640 acres, instead of 5,120 acres.

Western Republicans harshly criticized the new leasing program, accusing Salazar of discouraging industry development of shale technology.

Rep. Doc Hastings of Washington, the top Republican on the House Natural Resources Committee, called the Salazar leases “a recipe for more inaction.”

Rep. Rob Bishop (R-Utah), chairman of the Congressional Western Caucus, called the announcement “political packaging at its best,” adding, “The bottom line is that Secretary Salazar’s new oil shale policies reflect, once again, the lack of commitment on behalf of this administration to achieve real domestic energy independence.”

The American Petroleum Institute, the lobbying arm of U.S. oil companies, welcomed the second round of shale leases but expressed concern over the diminished land available.

“Slashing the size of the potential commercial lease diminishes the incentives for investment, and ignores the enormous up-front costs and risks undertaken to develop these technologically complex resources,” the institute said in a statement.

Environmental groups cheered the moves, particularly the new investigation.

“The history of oil shale has been plagued with scandal and cronyism, and today’s announcement shows why we need a better approach to America’s energy,” said Bobby McEnaney, lands advocate for the Natural Resources Defense Council. “We are encouraged that Secretary Salazar is looking to make decisions based on an open and accountable system that will protect our land, not the corporate favoritism of the previous administration.”

Environmentalists complained that the leases allowed oil companies to pay royalties as low as 5% -- well below the federal government average for oil and gas leasing.

The Times’ Washington bureau reported last week that internal e-mails show Interior officials expected the amendments to generate a “nuclear bomb” of controversy, and that Shell officials expressed similar concerns -- and strategized over how to persuade the incoming administration to leave the amendments in place.

Bush-era Interior officials have defended the amendments.

C. Stephen Allred, assistant secretary of the Interior in the last years of the administration, disputed in an interview last week that there was any effort to lock in favorable lease terms before a less-business-friendly Obama administration came in.