Shale oil project's planned community survives despite Exxon pullout

By , Staff correspondent of The Christian Science Monitor

Battlement Mesa won't be the West's newest ghost town after all.

For nearly one month after the Exxon Corporation abruptly announced the cancelation of its Colony Oil Shale Project in western Colorado, the future of the community being built to support workers and their families was uncertain.

Local officials were concerned that Exxon would simply close down Battlement Mesa, with its partially completed roads, schools, utilities, and housing for 25 ,000 people. But after a meeting between company representatives and local officials, Frederick Dennstedt, a senior vice-president of Exxon USA, announced May 26 the company would not sell Battlement Mesa and would continue its development of the half-finished project at a scaled-down level.

Recommended: Could you pass a US citizenship test?

Mr. Dennstedt also left the door open for a possible restart of the project, referring to Battlement Mesa as a valuable resource should the oil shale operation be reactivated. When and if that happens will largely depend on why Exxon decided to abandon the Colony Project when it did. Exxon has given only vague reasons for the decision, but industry experts point to a number of factors:

* When Exxon bought 60 percent of the oil shale project, it had no experience in the technology, and officials of the co-owner, Tosco Corporation, say early cost estimates were naively low. One official reason Exxon cited for its decision was increasing cost estimates for the project.

* Another factor may have been concern with the ability of Tosco to continue to carry its 40 percent of the project. In order to raise the money necessary, Tosco obtained loan guarantees from the federal government under a contract that allowed the government to pull out if the cost of the project rose over 34 percent of the original estimate.

* As a result of Exxon's decision, Tosco exercised an option forcing Exxon to buy Tosco out--a move that will give Exxon more freedom than it had before. Experts have criticized Tosco's process for cooking the oil out of shale as overly complex. Now Exxon will have the option of exploring other technologies.

* Another important financial factor was the Reagan administration's decision to oppose extension of the energy tax credit. According to the executive of another oil shale operation, this would immediately reduce the return on an oil shale plant by 2 percent.

These considerations, combined with the recent softening of oil prices, account for Exxon's surprise decision.

When and if Exxon officials decide to restart Colony, however, they may find their local welcome far cooler than it was the first time. The Bureau of Land Management is already tacking on a new requirement that federal oil shale lease holders have a specific shutdown plan.

Flaven Cerise, a commissioner in Garfield County, where Colony is located, has suggested requiring the 5 to 10 year repayment of property taxes to make sure the local government is protected if a company withdraws unexpectedly. And members of the Rifle Chamber of Commerce, most of whom lost large amounts of money when Exxon withdrew, are drafting a plan to designate all oil shale reserves as a strategic resource and put its development under the auspices of the Department of Defense in an effort to take the ''bust'' out of the oil shale industry.

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...