[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

[[Page 33758]]

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