UPDATE 3-US Interior head seeks probe of oil shale leases

The department said Tuesday it will soon begin accepting applications for a second round of research leases that will allow companies to develop and test oil shale technology on public lands in Colorado, Utah and Wyoming.

Ken Neubecker, vice president of fishing conservation group Colorado Trout Unlimited, said he believes large-scale commercial development of oil shale is probably unsustainable in his region.

"Still, we can't truly answer the questions we have about water use, energy use, the environment and other long-term impacts without knowing what it will take to develop," he said. "These new leases and the new administration at Interior might actually try and do just that, and only that."

As the department proceeds with new leases, Salazar said changes made to the six existing leases by the previous administration need to be officially reviewed.

The modifications would allow companies holding the leases originally issued in January 2007 to opt for "favorable" conditions and low royalty rates whenever they begin commercial oil shale development.

He said that, before taking any final action on the leases, he wanted the inspector general to gather the details surrounding the contract changes.

One of the issues the inspector general will look into is the previous administration's decision to set the initial royalty rate for commercial oil shale production at 5 percent.

Last February, Interior pulled a Bush plan to offer more research oil shale leases due to the low royalty rates and the large size of the parcels offered.

Salazar said the new leases would be more tailored to research that will answer questions about environmental impact and potential water use associated with oil shale development on a commercial scale.