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<br />NEWS PHorOIlYMEL SCIHELTl
<br />Colorado's shale country: To some it's a threatened wilderness, to others a vast energy source, and !o oil firms ~ future bonanzd,
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<br />Oi' shale mining risley but potentially rich
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<br />lIy Jl:l"t' nOst::.; and
<br />mnlAlW ,I. ~(,IISF;1Ut;R
<br />N~w.SI.1f
<br />If you listen to the speeches giv<>n by
<br />oil company ('xecutives and talk to their
<br />publlc relations men, you get the im-
<br />prC'ssion oil shale df'vf'lopment is a very
<br />risky businf'ss inrlerd.
<br />To a degrl"(' it i~. But o\'('r the past sl"
<br />mlmths the prlct' Of oil [rom nt>w S(lurces has
<br />goot> trnm $~ 10 $10 II barrel and thl" risks ha\'e
<br />dlmlnlshNll'onsidt'rably. The half.dozt>n !irms
<br />('ommiUed to major inYt'stml'nts in oil shale
<br />plants stand to make I'normous profits - hIgh-
<br />er in the ]ongrun than the- so-calll'd "windfall
<br />pro[its" whirh recl'ntly drew he-ated congres-
<br />sionalrl'bukes.
<br />Major oii firms are nOlorious!}. c!ost'd.
<br />mouthed about their plans and riscal projec-
<br />tions. nut top eXt'cuth'es wilh severa] campa_
<br />nit'S involved In all shale den"]opment consent.
<br />('d In intervil'ws with the Rorky lW>unlll.jn N('ws
<br />on the condition that thrir namt>s and those of
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<br />their companies wouldn't hE' published In con.
<br />neclion with their remarks.
<br />The projectiong they outlined and one
<br />Internal corporal!" mt:'morandum paint a pic.
<br />ture of an industry whose time has rome,
<br />The fij;(un's f'lrovld('d by the compllnil"s \\"l"r,.
<br />ba~ed upon a SO,OOl).barrel+a-day mining and
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<br />Last ola series
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<br />retorting operation using the most advanct'd
<br />technologies now availabl('.
<br />EstimatE'S of operating cos~ range from
<br />$2.50 to $3 fnr each barrel of oil produred,
<br />Tho II e fig\lre-lI lnrlurle payrolls, SUf'lpIln,
<br />property tax("S, maintenance nnd the other day-
<br />to+day costs of mining, crushing and t'E'torting
<br />shall', upgrading the Ilroduct and disposing of
<br />the wastes. They don't Include capital costs,
<br />lnte-N'st paymf"nls or Income taxes,
<br />The cOnstrurtion cost at one pIllnt and re]at-
<br />ed facilities and equipment prohab!y would be
<br />about S350 million in 1973 dollaI1i. That (igure
<br />lnrludt"s onl,y a small rontlng('ncy reser\"l",
<br />and, slm'e- no one hall ever built a tun scale
<br />commercia] all lIhall" plant, a larger reserve
<br />IJmbahly will be nE'Med to cope with the unt'x.
<br />pectf"d. Omsequ('ntly, $400 million 1s the com.
<br />monly quoted figure for planning purposell.
<br />Assuming costs In these ranges, the ~'mfits
<br />that ran bto experted over a 20-yenr project lite
<br />are a good deal higher than lndu~try's rlt'r!ilst.
<br />ent clamoring for govE'rnment subsidies and
<br />lncentln's would Indicate.
<br />It the shale oil product sold for $10 II. barrel,
<br />lore:-;ampl(>, Industr).l"xerull\.es ca1cu]atethey
<br />could realize II.n IInnual ratl" of relurn on capiul
<br />of nearly 20 {l('r rent.
<br />'!"hat me.'l.n~ a firm could borrow all the
<br />('apltal npedt"d tnr an oil sha]l'o{,eration at 20
<br />"ere,em InterE'st lInd still break t>\.en. Hut tile
<br />oil giants, and nf"arly everyon(> e]so:." who l.~n't
<br />fol't'ed to turn to his n(>i.>:hborhooclloan shark
<br />can f'llsily borrow mun(>y at murh IUIIl.'r Inl('r:
<br />est rales - abollt 9 percent fur largt> corr>ora_
<br />lions.
<br />:\foreol'{"r, no firm financE'S II ~'rojed enlire-
<br />1). \11th borro.....('d rapital.
<br />'I"IfillT.I.II'Pt;[}
<br />Although the oil l'nmpanies mosl Intimalely
<br />lnvnhed with shale Ul"\.("]opment ail are bu.~i1y
<br />IJutlmg t~clher financing packages to fund
<br />pruJlOSro oil shalt2' Il]anls, they wun't talk about
<br />the arrllng('mf"nts the)"re making, the mix or
<br />~lockholder l'quit.v and bormwed monf"Y tht'y
<br />mtl"~d to, use or lhe prl"cise Inlerest rate~
<br />thl"). re wl]hng to ~ay.
<br />A 20 .f",r ('(Ont rate or return, howl"ve-r, l~
<br />a~t tw\{'~ thl" raIl" genrrally sought by corpo-
<br />ratIons eyrmg prosrJf'ctil't' in\.l'stmenls. Thf're-
<br />fore" such II. rate pm\.ides ample insurance
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<br />/lgarnst many of the risks Sf) often clll!d by
<br />IndustryspokE'sme-n.
<br />BE'fore shale oil Is rl"ady for distrihution to
<br />tf'finNies, it's upgradf'd throllgh It ehl"mical
<br />process knnvm nhydl'>1.l:"f'flllllnn. Th\~ pro<"f'SS,
<br />wtJkh Is In('III(Il'd in r[>st find "tafil r~tirnalf"S.
<br />eliminal(>s all the SUllJhur and most of the nitro-
<br />genJn the raw Ilhalf' 0;1.
<br />Slatl" and federal air pollution fl"!ltriction'
<br />~h,'r\,ly limit the amount uf sulfur and nllro~en
<br />oxides whkh !X'tro]eum users may rl'lease Into
<br />the ahnosphl':'rl'. Cons<,qul'nt]y, crudf's lov.' In
<br />suHur aml nltl"Of.:en - like "hllll' nil - com.
<br />Oland higher prkcs than thO!ie frum other
<br />sources.
<br />Industry executiv<,s ('sUmalr that shale oil
<br />will sell for 70 rl'nts to $1 more ll. harre] bt'-
<br />eause of Its spcrial pTflIX"rlil's, If $10 A harrell~
<br />the going price for regul.:lr t'!"II<Irs, shale uil
<br />will sell tor nl"arly SIl, Ooosting tile annual re-
<br />turn on eapltal to more than 2G l>erc('nl.
<br />.'IWUU::\IS, tJ:>i("Y.ltTATXTIT';!o\
<br />\Vhill" thl, ri~urt' makes thl" I,rospf"r!s tor 011
<br />shale look rosy,I!l('re rt>!naln pmblrm" nnd
<br />tmcl"rt.:llntles _ somf" of th('m (,Dmmon to lhe
<br />entire petro]('um Industry and others peculiar
<br />to IhE' hardware IInd tf"dll\olOJ.:i('~(>ff)11 shll]e.
<br />Probably the most iml>ot.lunt o\'el"nll uncer-
<br />l.'\inty surrounds the price of oil. U, for exam-
<br />ple, govl'mment prke rollb;o...ks or a ren("\\"l"d
<br />aoondance ot Inl'xpensh.(' [ort'ign ('mdl' Senl
<br />the price of shale oil down to $6 a barr('I, the
<br />pleture("{luld changeslgnifkll.nlly.
<br />But even If that werl' to happt'o, tl\h1'8'1
<br />(('Olll'h,t1I"<! on pal:" t6)
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