Nevetheless, there are some who wish to prevent completely any commercial activity on the public domain. These so-called "protectionists" thus oppose the development of oil shale at any time or for any reason. But if the real problems of conservation are met and solved in a forthright manner and if Congress finds that oil shale development is in the national interest, then any continued objections by these protectionists will not be justified. 2. Water It has long been recognized that water will be crucial in the commercial development of oil shale, and recently major oil companies have been buying up water rights adjacent to oil shale.100 The future of the waters of Colorado, Wyoming and Utah is inextricably tied up with the Colorado River Storage Project Act " 101 and with current legislation and interest agreements affecting the allocation of waters in the Upper and Lower Colorado River Basins. It is clearly to the advantage of Colorado, Wyoming and Utah to appropriate their unused share in Upper Colorado River waters as soon as possible.102 Utilization in the oil shale industry is ideally suited for such appropriation." 3. Acreage limitations 103 The question of acreage limitations is one of the most vexing problems confronted when one tries to prescribe fair leasing terms. Irregularity in grade and in thickness of the shale beds makes the amount of oil recoverable from under different surface acreage vary greatly. For instance, a 5,120-acre plot (the maximum allowed under the existing Mineral Leasing Act) in the richest parts of the shale formation would contain 18 billion barrels, an amount equal to nearly 60 per cent of the Nation's proved reserves of petroleum.104 Leasing by competitive bid is one answer to this problem. The Government could specify a fixed dollar amount to be paid by the bidders and each bidder would then calculate the least number of acres he would be willing to receive for that cost. The winner would be the company bidding the lowest number of acres. Undersecretary of Interior Carver said, "I see no reason why a competitive situation could not be cranked adequately into a leasing system." 105 Congress will not be without helpful precedents in its search for fair leasing procedures. In Part One of this paper other recent developments in domestic petroleum leasing policy were traced. Of particular note is the Outer Continental Shelf Lands Act, 100 which created procedures outside of the Mineral Leasing Act for competitive leasing of offshore oil reserves. Further, it may now behoove the United States to look to Canada as a source for leasing precedents. Historically, Canada has given greater emphasis to hard-rock mining laws in deriving leasing principles for the development of its petroleum resources. 107 The United States might well follow that example with respect to its oil shale. In 1963, for instance, production was begun in the Athabascan Tar Sands. Dominion control of Canadian oil lands had been relinquished to the provinces in 1930; 108 therefore, it is Alberta that has been responsible for the formulation of a policy for the development of its tar sands. In 1963 Alberta issued the first production permit for 31,500 barrels per day to Great Canadian Oil and Sand Ltd.10 The Alberta government in a statement of policy dated October 19, 1962, affirms that production from the oil sands will be authorized at levels so as not to interfere unduly with present or foreseeable markets for conventionally produced Alberta crude oil. 100 See the recent excellent article: Delaney, Water for Oil Shale Developmnt, 43 DENVER L.J. 75 (1966). 101 70 Stat. 105 (1956), 43 U.S.C. § 620 (1964). 102 Legislation for the establishment of a national wild rivers system was proposed in the last session of Congress. S. 1446, 89th Cong., 1st Sess. (1965). One of the crucial implications of the bill is that future water appropriations may be foreclosed on any river to be included within the wild river system. The Green River of Wyoming is scheduled for possible inclusion in the system. This fact could foreseeably do great damage to the future development of oil shale in Wyoming. 103 In November 1965, the Interior Department agreed to sell to Colony Development Co. up to 7.200 acre-feet of water annually at a sliding charge from $8.50 to $10.40 an acre foot. The contract will run for a term of 40 years. Wyoming State Tribune, Dec. 2, 1965, p. 3. 104 Senate Hearings on Oil Shale, supra note 3, at 35. 105 Id. at 62. 100 Cf. note 49 supra. 107 Thompson, Basic Contracts Between Petroleum Land Policies of Canada and the United States, 36 U. COLO. L. REV. 187 (1964). 108 Id. at 211. 109 New York Times, April 8, 1963, p. 153. 4. Revenues Along with acreage limitations, the question of revenues is basic to any leasing policy. Further, it is a question which only Congress is authorized to settle. Separate aspects of this basic problem include royalties, taxation and depletion allowances, and the distribution of government income. Under the existing Mineral Leasing Act, 37.5 percent of the revenue from oil shale leases would be allocated to the state in which the lands are located, 52.5 percent would go to the Reclamation Fund, and 10 percent would go to general receipts." 110 In formulating an oil shale policy, Congress may change this distribution as it sees fit. Congress also must make an equitable determination with respect to royalties. TOSCO and Governor Love of Colorado have recommended a royalty of 5 per cent." As was seen, the Outer Continental Shelf Lands Act prescribes a minimum royalty of 121⁄2 per cent for offshore leases."12 The issue of depletion allowances on oil revenues is one of foremost importance to the developing oil shale industry. At the present time the Internal Revenue Service has ruled a that an allowance of 15 per cent, as specified by Statute," "14 will be given on shales after mining. Representative Aspinall (D-Colo.) is seeking to clarify this ruling by specifying that the allowance is to come after retorting instead of after mining.115 In addition, crude oil producers receive a depletion allowance of 271⁄2 per cent, and the developers of oil shale seek to have themselves included in this greater allowance category." 5. New entries 116 It was pointed out earlier 117 that leaders in the oil shale industry must be careful lest they run afoul of anti-trust laws prohibiting unfair competition practices which would work to the disadvantage of new entrants into the field. Apart from anti-trust considerations, a concern has also been expressed that the high capital requirements for entry into the oil shale industry will prevent small companies from successfully competing with large, established companies. This is a problem which may exist during the development of any new industry, but it is clear that further delay by the government in opening the industry to development will only serve to entrench more firmly those major companies with private landholding and experimental sites. The Atomic Energy Acts of 1946 118 and 1954 119 dealt with this same problem by placing in the public domain certain patent rights acquired by companies who had established themselves in the industry during its early, governmentally controlled stages. The 1954 Act also requires licensees to make a full disclosure of any unpatented technology possessed by them at the time their license is granted. Congress might use similar procedures in order to insure fair treatment for all participants in oil shale development. 6. Speculation The Department of Interior has often expressed its fear that "speculative tendancies" 120 brood menacingly over prospective oil shale devleopment. But it should be pointed out that the "do-nothing" attitude of that Department has probably contributed more than any other single factor to speculation in oil shale land and adjacent water rights. Byron Mock, a member of the Oil Shale Advisory Board, recently said: At least to me, the taint of Teapot Dome and its application to the oil shale reserves of the Federal Government will best be laid to rest by opening all or part of the Federal oil shale lands to competitive leasing with performance requirements written in that eliminate those who cannot or will not develop the reserve. This does not mean that all should be opened at once but in my opinion some should be. To some the withholding of the federal oil shale reserves from development may be construed to be as great a granting of favors 210 THE OIL SHALE ADVISORY BOARD, op. cit. supra note 77, at 9. 111 See p. 8 supra. 112 See p. 75 supra. 13 Unpublished. 14 INT. REV. CODE OF 1954. § 613. 115 H.R. 10896, 88th Cong., 2d Sess. (1964). 116 LOSCO. op. cit. supra note 68, at 30-32. 117 See p. 67 supra. 118 60 Stat. 755 (1946), 42 U.S.C. 2062 (1964). 119 60 Stat. 919 (1954), as amended, 42 U.S.C. §§ 2011-2281 (1964). 120 DEP'T. INTERIOR SYNPOSIS, op. cit. supra note 3, at 41. to those who wish to restrict competition in that field as would be the C. "THE NATIONAL INTEREST": ITS BROAD CONSIDERATIONS In the preceding section immediate and specific considerations for leasing policy formation were discussed. As was noted, choices are available in each of these areas, and such choices can be readily tested, adopted and changed, if necessary, during the forthcoming development of an oil shale industry. The present section will explore broader considerations having to do with the general "national interest." Such issues as are involved here are difficult to define and the policy choices within them are often hard to evaluate. The writer feels that some of these issues must underlie the otherwise unexplained opposition which has so far prevented the development of oil shale. The future of oil shale depends in large measure upon the frank and open discussion of these issues. Once it can be shown that production of shale oil is in the best national interest, then the major obstacle to oil shale development will have been removed. 1. Defense needs and national security Captain K. C. Lovell, Director of Naval Petroleum and Oil Shale Reserves, Department of Defense, says unequivocally 122 that the immediate development of oil shale is necessary for national security. Citing figures showing projected increases in domestic demand and increased reliance on foreign oil (an estimated 30 per cent from foreign sources by 1983), he urges that development be commenced just as soon as possible. It is clear that the new oil shale industry cannot produce "instant oil." Humble Oil Company estimates a lead time of from eight to ten years before facilities could accomplish "on stream" production. Thus, Captain Lovell urges that to wait for war or a national emergency would be to wait too long before attempting to mobilize necessary shale oil production. 2. Foreign trade and the control of imports As we noted in Part One, the State Department is committed to the expansion of foreign trade whenever such expansion would not endanger the national security. It was seen that Secretary of Interior Udall has recently indicated his desire to increase the importation of foreign oil into this country. It is obvious that such importation of foreign oil has a profound effect upon our domestic petroleum industry. It may well be that those who oppose the development of oil shale really do so because they favor an increase in the importation of foreign oil. 124 But the strongest answer to those favoring increased imports is that such a policy would only serve to worsen the present balance-of-payments problem. Further, recent months have witnessed a series of unsettling events in foreign oil-producing countries. The government of Indonesia has recently taken over that country's major oil-production and refining facilities, which had, until that time, been owned and operated by American companies. The government of Venezuela has recently levied increased taxes on American companies producing oil there."2 These companies are being rudely reminded that "the power to tax is the power to destroy." In Libya, American companies have just undergone a difficult year. The Libyan government revised its concession agreements with American companies and now requires a significant increase in royalty payments." 126 125 All of these events show a trend which indicates the dangers to the United States inherent in its heavy reliance upon foreign oil. 3. Control of the "energy mix" Congress must consider future energy requirements and the "energy mix” which would best meet these requirements. But in planning for the future, Con 121 Mock, supra note 12. at 67. 122 Senate Hearings on Oil Shale, supra note 3, at 64. 123 Reistle, supra note 1. 124 Wall Street Journal, Dec. 31, 1965, p. 6. 125 Wall Street Journal, Jan. 6, 1966, p. 14. 126 Wall Street Journal, Jan. 6. 1966, p. 14, Jan. 5. 1966, p. 9. Dec. 29, 1965, p. 18. See also, "Mideast Oil: Big Supply, Little Savvy," Wall Street Journal Dec. 6, 1965, p. 10. gress must scrupulously avoid preferential treatment that constitutes a manipulation of energy sources in disregard of the demands of the open market. To do otherwise would be to engage in "end-use" control: 128 Oil shale should be allowed to take its place, along with other fuel sources, in providing for the Nation's future needs. Atomic energy and coal 127 are two other potentially competitive sources of fuel. In the past the government has given a great boost, through subsidies, to the atomic energy industry. Some with a vested interest in securing a favored position for nuclear power may be opposed to the development of oil shale. But the oil shale industry should not now be prohibited from competing on equal terms with this and other energy sources if a genuine need for the production of shale oil can be shown, 4. Control of the market As was noted in Part One, Rostow, de Chazeau, Kahn, and others are strongly critical of the petroleum industry and its apparent enjoyment of freedom from government regulation. They denounce in particular production control by state prorationing statutes and what appears to be industry control over market prices. Domestic exploration activity and domestic crude reserves are at their lowest points since 1949.129 Now the critics of the petroleum industry may find it convenient to oppose the development of oil shale because they fear that such development would allow for a revival of the domestic petroleum industry. But such fears are irrational and unfair. In the first place, the oil shale industry should obviously be allowed to develop on its own merits. In the second place, there are indications that it will be the mining and chemical industries, and not petroleum, which will be most instrumental in the development of oil shale. Private enterprise as a whole will contribute new technology, new capital and new market demands for the production of shale oil. Nothing prevents the government from creating new answers and establishing a workable relationship with private enterprise in this new endeavor. In regard to all these considerations involving the national interest, Byron Mock most recently said: By the time the report [of the Oil Shale Advisory Board] came out it seemed to me that we had resolved two questions. First, there was no public interest that justified holding up an oil shale industry. As a consequence thereof there was no public interest that necessitated indefinite delay of lifting the withdrawal on federal oil shale lands. The second conclusion was that there were definable public benefits to be achieved from opening the oil shale reserves.' 130 CONCLUSION The requisites for the development of oil shale are clearly present. Capital, technology and manpower await the "go-ahead." Only the formulation of a national oil shale policy is lacking, and now Congress should provide for that lack. Today the federal government holds a "monopoly" in leasable oil shale lands. The legislation of leasing procedures for these lands will, in effect, be a description of the terms by which this monopoly will be exercised. The federal government in its capacity as oil shale landlord has the present potentiality for becoming "Big Government" in the ugliest sense of the word. But this need not be the case. Congress, with the cooperation of the Department of the Interior and interested representatives of private enterprise, has the authority and the ability to balance carefully the best interests of all parties to the present oil shale controversy. If the balancing is properly done, a policy will be forthcoming which is "national" rather than "federal" in character to the extent that it best provides for the "national interest." The basic question which confronts those who would attempt to formulate a national policy for the development of oil shale should not be whether the federal government should reserve oil shale lands for public, as opposed to private, development. The capital expenditure for research and commercial production by the Colony Development Co. is evidence that private enterprise is already 127 Some oil companies are presently purchasing coal properties and developing techniques for making gasoline from coal. See Wall Street Journal, Oct. 20, 1965, p. 1. 128 For instance, the TVA (which has evolved into a government power monopoly) has announced that it may build a nuclear power unit next year "if the price is right." See Wall Street Journal, Dec. 20, 1965. p. 4. 12 Wall Street Journal. Jan. 6, 1966. 130 Mock, supra note 12, p. 65. committed to the economic feasibility of private development. Further, in the light of the traditional technological superiority of private industry in this country, future shale oil production will best be done by our private mining. chemical and petroleum industries. To argue otherwise would be to make a basic departure from the principles of capitalism. The first basic policy question which must be answered is, "When and under what terms for the distribution of revenues (i.e., income taxes, rents, royalties. bonuses, etc.) will private industry be allowed to compete for the leasing of publicly owned oil shale lands?" Boiled down, the question becomes one of timing and of dollars. Ultimately, it is the market place which will best determine the adequacy of the answers given to this first policy question. For if the revenue terms are set so as to prohibit the competition of shale oils in the market place, or if leasing is not allowed at a time when there is a market demand for the product, then the value of this resource will have been lost and the national interest defeated. The second basic policy question concerns government control. Assuming that the first policy question has been answered by the implementation of competitive leasing procedures and fair revenue distribution terms, then the remaining policy question asks, "Under what forms and degrees of government control will the production of oil shale be allowed?" Here the national interest is not so susceptible to testing in the market place. For here government controls will affect such areas as conservation, national security, social well-being and world peace-areas where an economic evaluation is often impossible. The success or failure of the national policy touching these areas will only ultimately be tested by historical judgment. 131 The days of the free-miner tradition have passed. In 1935, the last of the public domain in the United States was closed to entry prior to classification under the homestead laws. Thus was marked the passing of the American Frontier, an institution which had been celebrated by Frederick Jackson Turner and his disciples as the "world's greatest instrument of democracy." To others, its passing was a sign that "America had come of age.' 122 The formulation and carrying forward of a national oil shale policy could well evoke like reactions in the days ahead. To some, it may spell the end of "freedom" within the oil industry. Others may recognize it as a new industry's "coming of age." But no matter what the reaction to that policy may be, its determination is best left to the legislative forum. While it can be said that a political and economic climate favorable to the development of oil shale has been lacking in the past, it is hoped that such a climate is now improving. No one of the numerous administrative problems confronting the development of oil shale are insoluble. There are none for which early answers cannot be given. Apparently all that has been lacking is sufficient impetus within the federal government to move from dead center in seeking these answers. It is only suggested now that the Congress get to the task at hand. Otherwise the twenty-first century and the discovery of new energy sources will be upon us and this vast national asset will have been left wasting in the ground where it is of benefit to no man. [Ed. note. The basic research for Mr. Dominick's article was done early in 1966. The author informs that since that time some significant developments have occurred with respect to a national oil shale policy. These developments are: 1. Further increases in oil importation allowances were made by Secretary of the Interior Udall in September, 1966. 2. Foreign governments in recent months have increased their demands upon American producing companies for higher royalty, tax and concession payments on foreign produced oil. In November, 1966, Mid-East governments threatened complete confiscation of United States oil facilities. 3. There has been increased interest in the feasibility of in-situ retorting of shale oil by underground nuclear explosion. This interest is being carried forward by the Bureau of Mines (see Oil and Gas Journal, August 15, 1966, p. 44), the Division of Peaceful Nuclear Explosives of the Atomic Energy Commission and a joint venture of some fifteen private companies. In 1966, the 89th Congress 1 By Executive Orders of Franklin Roosevelt. Nov. 26. 1934, and Feb. 5, 1935, based upon authority for such withdrawal found in the Act of June 25, 1910. established a National Conservation Program (36 Stat. 961 (1910)). Coupled with the above mentioned Executive Orders was the Taylor Grazing Act of 1934 (48 Stat. 1269 as amended (1934), 43 U.S.C. § 315 (1964)). 132 ROBBINS, OUR LANDED HERITAGE 423 (1962). |