A new budget bill to be unveiled soon drops a provision, pushed by Rep. Jim Matheson, D-Utah, that would have allowed states to choose whether companies could pursue oil shale extraction within their borders. But, so far, the bill also doesn't re-enact a ban on finalizing rules for leasing federal lands for oil shale extraction.

Matheson says Congress would have to formally approve another ban by Tuesday, and if not, the Interior Department could move forward on a leasing program that would allow companies to tap oil shale deposits on federal tracts.

Tuesday's development came after Democrats agreed to drop their limitations on off-shore drilling that had faced a promised White House veto. Matheson's state-approval language was tied to that off-shore measure, but nevertheless, without Congress moving to re-enact the oil shale ban, leasing can move forward.

"One of two options was going to work out: Either that [state approval] language was going to be in there or there was going to be no moratorium at all," Matheson said. "Either way works for me."

Another ban could be inserted into the budget bill before final passage, but such a move may also be targeted by Republican leaders and President Bush, all of whom have argued for oil shale extraction as a way to wean the country off foreign sources of energy.

Oil shale is actually sedimentary rock that when heated produces a mixture of chemical compounds called kerogen that can be processed into a synthetic fuel.

Several environmental groups this week started galvanizing their troops to oppose any measure that would allow oil shale leases on federal tracts.

And Tuesday, the Washington-based government watchdog group Taxpayers for Common Sense, normally known for their anti-earmark concerns, charged that allowing oil shale to move forward could cost taxpayers billions of dollars in lost royalties and leave them with a big tab for restoring thousands of acres of land.

The nonprofit group said in a conference call with reporters that setting guidelines for oil shale now could result in lost royalty payments to government coffers if the industry is viable years from now.

"This could cost taxpayers billions - that's with a b - billions of dollars," Jill Lancelot, who founded Taxpayers for Common Sense, said on a call organized by the National Wildlife Federation, which opposes rushing into oil shale production. "This is a recipe for another giveaway to the oil and gas industry."

Jeff Hartley, a consultant for Ecoshale, a subsidiary of Salt Lake City-based Red Leaf Resources that is working to develop oil shale on school trust lands, charged that the Taxpayers for Common Sense is a "front for environmental groups."

Hartley says the group's assertion isn't a fair comparison anyway. While the federal government sets a royalty rate of 8 percent for underground coal, with various discounts the average rate ends up between 3 percent and 6 percent, Hartley argues.

"It's inside the norm, not outside the norm," Hartley says. Besides, "oil shale is in its infancy. It would make sense to give it a little tax relief until it's fully developed."

The Wilderness Society, which also helped organize Tuesday's conference call, counters that 5 percent is hardly the norm and that a 2006 decision set royalties on tar sands - covered under the same provision as oil shale - at 12.5 percent.

tburr@sltrib.com