Notice2023-00842
Modifications to the Bid Adequacy Procedures for Offshore Oil and Gas Lease Sales
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 19, 2023
Issuing agencies
Interior DepartmentOcean Energy Management Bureau
Abstract
The Bureau of Ocean Energy Management (BOEM) announces and invites comments on its intention to change its bid adequacy procedures (BAPs), which ensure the United States receives fair market value (FMV) from Outer Continental Shelf (OCS) oil and gas lease sales. BOEM proposes to discontinue the use of both tract classification and delayed valuation methodology. Instead, BOEM proposes to use a statistical lower bound confidence interval (LBCI), at the 90 percent confidence level, as a measure of bid adequacy. BOEM is also proposing other, minor adjustments to its BAPs to clarify and streamline its processes.
Full Text
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<title>Federal Register, Volume 88 Issue 12 (Thursday, January 19, 2023)</title>
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[Federal Register Volume 88, Number 12 (Thursday, January 19, 2023)]
[Notices]
[Pages 3433-3435]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-00842]
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DEPARTMENT OF THE INTERIOR
Bureau of Ocean Energy Management
[Docket No. BOEM-2023-0008]
Modifications to the Bid Adequacy Procedures for Offshore Oil and
Gas Lease Sales
AGENCY: Bureau of Ocean Energy Management, Interior.
ACTION: Notification of procedural changes; request for comments.
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SUMMARY: The Bureau of Ocean Energy Management (BOEM) announces and
invites comments on its intention to change its bid adequacy procedures
(BAPs), which ensure the United States receives fair market value (FMV)
from Outer Continental Shelf (OCS) oil and gas lease sales. BOEM
proposes to discontinue the use of both tract classification and
delayed valuation methodology. Instead, BOEM proposes to use a
statistical lower bound confidence interval (LBCI), at the 90 percent
confidence level, as a measure of bid adequacy. BOEM is also proposing
other, minor adjustments to its BAPs to clarify and streamline its
processes.
DATES: BOEM must receive your comments by March 6, 2023.
ADDRESSES: You may submit comments by either of the following methods:
<bullet> <a href="http://Regulations.gov">Regulations.gov</a> web portal: Navigate to <a href="http://www.regulations.gov">http://www.regulations.gov</a> and under the ``Search'' tab, in the space
provided, type in Docket ID: BOEM-2023-0008. Select the document that
you would like to comment on and click on the ``Comment'' button to
submit your comments. You may also view other comments already posted
to the docket.
<bullet> In written form by mail or other delivery services: Send
comments in an envelope labeled ``Comments for the proposed revised
BAP'' and addressed to Mr. Matt Frye, Chief, Resource Evaluation
Division, Office of Strategic Resources, Bureau of Ocean Energy
Management, 45600 Woodland Road, Sterling, VA 20166-9216.
<bullet> For additional information on sending comments, see the
``Public Participation and Availability of Comments'' heading under the
SUPPLEMENTARY INFORMATION section of this notice.
The proposed, revised procedures are available for review at:
<a href="https://www.boem.gov/oil-gas-energy/energy-economics/lease-sales-and-fair-market-value">https://www.boem.gov/oil-gas-energy/energy-economics/lease-sales-and-fair-market-value</a>. A copy of BOEM's current BAP entitled ``Summary of
Procedures for Determining Bid Adequacy at Offshore Oil and Gas Lease
Sales, Effective March 2016 with Central Gulf of Mexico Sale 241 and
Eastern Gulf of Mexico Sale 226'' is available on BOEM's website at:
<a href="https://www.boem.gov/sites/default/files/oil-and-gas-energy-program/Energy-Economics/Fair-Market-Value/Summary-of-Procedures-For-Determining-Bid-Adequacy.pdf">https://www.boem.gov/sites/default/files/oil-and-gas-energy-program/Energy-Economics/Fair-Market-Value/Summary-of-Procedures-For-Determining-Bid-Adequacy.pdf</a>.
FOR FURTHER INFORMATION CONTACT: Mr. Matt Frye, Chief, Resource
Evaluation Division, Office of Strategic Resources, at (703) 787-1514
or email at <a href="/cdn-cgi/l/email-protection#24494550500a42565d4164464b41490a434b52"><span class="__cf_email__" data-cfemail="7b161a0f0f551d09021e3b19141e16551c140d">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Background and Summary of Changes
In administering the offshore oil and gas leasing program under the
OCS Lands Act, the Secretary of the Interior is required to ensure that
the Federal Government receives FMV for the lease rights granted and
the rights conveyed. To carry out this responsibility since 1983, BOEM
(and its predecessor agency) has used a two-phase, post-sale bid
evaluation process to assess the adequacy of bids received in Federal
offshore oil and gas lease sales. Under its BAP, BOEM reviews all high
bids and evaluates all tracts to ensure that FMV is received for each
OCS lease issued. The BAP relies on both evidence of market competition
and in-house estimates of tract value.
Currently, in phase 1 of the BAP, BOEM reviews all bids for legal
sufficiency and anomalies to establish the set of bids to be evaluated
for each tract. All tracts receiving legal bids are
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then classified \1\ as ``drainage or development'' (DD), ``confirmed or
wildcat'' (CW), or ``unknown'' if undetermined at this phase. All CW
tracts are tested for geologic and economic viability and high bids are
accepted for tracts that BOEM determines to be nonviable. A nonviable
tract is considered by BOEM not to have the potential capability of
being explored, developed, and produced profitably under economic
conditions present at the time of the lease sale. The remaining CW
tracts are then reviewed under phase 2. All DD and unknown tracts begin
at phase 2.
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\1\ For definitions of BOEM tract classification, please refer
to current bid adequacy procedures published on BOEM website:
<a href="https://www.boem.gov/sites/default/files/oil-and-gas-energy-program/Energy-Economics/Fair-Market-Value/Summary-of-Procedures-For-Determining-Bid-Adequacy.pdf">https://www.boem.gov/sites/default/files/oil-and-gas-energy-program/Energy-Economics/Fair-Market-Value/Summary-of-Procedures-For-Determining-Bid-Adequacy.pdf</a>.
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In phase 2 of the BAP, BOEM may use its probabilistic discounted
cash flow simulation model to generate up to four measures of bid
adequacy to help determine if a tract's high bid may be accepted. These
four measures are: mean range of values (MROV), delayed mean Range of
values (DMROV), adjusted delayed values (ADV), and revised arithmetic
measure (RAM). The MROV is a single value that represents the maximum
cash payment that a bidder can offer for acquiring the tract's drilling
and development property rights and still expect to make a normal rate
of return on their investment. The DMROV is intended to allow a
determination of whether, in cases where the high bid is below the
MROV, leasing revenues consisting of the cash bonus plus royalties or
profit shares would be greater if the high bid were to be accepted,
rather than rejected and the tract reoffered in the next available
sale. BOEM calculates the tract's MROV and DMROV and designates the
lesser of these two measures as the ADV. The RAM represents the average
of the highest qualified bid, all other qualified bids that are at
least 25 percent of the highest qualified bid, and the MROV. If the
high bid is equal to or greater than any of these measures, the
Regional Director may accept the highest qualified bid as
representative of FMV for the tract.
In October 2019, the Government Accountability Office (GAO)
published a report entitled ``Offshore Oil and Gas: Opportunities Exist
to Better Ensure a Fair Return on Federal Resources'' (GAO-19-531). In
its report, GAO provided four recommendations to BOEM, including a
recommendation to have a third party ``examine the extent to which the
bureau's use of delayed valuations assures the receipt of fair market
value, and make changes--such as terminating the use of delayed
valuations or amending its model's assumptions--as appropriate.'' In
response, BOEM committed to examine its use of delayed valuation and to
identify any appropriate changes.
After a 2-year comprehensive technical review of the delayed
valuation methodology, BOEM intends to replace the delayed valuation
methodology with a statistical lower bound confidence interval (LBCI)
at a 90 percent confidence level as a decision criterion for accepting
or rejecting qualified high bids on tracts offered in OCS oil and gas
lease sales. Following extensive testing of the alternative approaches
using both historical and current lease sale tract data and existing
BOEM cash flow simulation models, BOEM determined that the LBCI
approach would be the most appropriate substitute for the delayed
valuation methodology. The LBCI is a statistical concept that captures
the lower bound of a range of values encompassing the true unknown mean
of the risked present worth \2\ of the resources at the time of the
lease sale. The LBCI incorporates the uncertainty of parameters unique
to the valuation of each OCS oil and gas lease sale tract. These
parameters may include, but are not limited to, subsurface
characterization of reservoir properties, cost and timing of the
development, and projected revenues. Unlike the delayed valuation
methodology, the LBCI approach would not require that BOEM estimate the
time delay period between the current OCS oil and gas lease sale and
the projected next lease sale. As such, BOEM finds the LBCI to be a
better approach going forward.
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\2\ Risked present worth is a net present value of the potential
oil and gas resources contained in a tract adjusted for the
geological risks of not finding hydrocarbons and the uncertainties
associated with the development and economic parameters of that
tract at the time of the lease sale.
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Additionally, BOEM proposes to discontinue the use of tract
classification in the BAP to streamline the bid review process. BOEM
has found that this classification process has had minimal impact on
its procedural analysis of FMV; since 1997, only approximately 1
percent of tracts have been classified as DD, and the remaining tracts
have been classified as CW. The classification process has therefore
been of limited utility to BOEM in the existing BAP. Therefore, in the
proposed revised BAP, the formal tract classification process would be
removed and all tracts receiving legal bids in phase 1 would be passed
on to phase 2 unless the tract is determined to be nonviable. In phase
2, BOEM may use its probabilistic discounted cash flow simulation model
to generate up to two measures of bid adequacy: LBCI and RAM. A tract's
highest qualified bid would then be compared to the applicable measures
of bid adequacy. If that bid is equal to or greater than either of
these measures, the Regional Director may accept the highest qualified
bid as representative of FMV for the tract.
BOEM is also proposing other minor revisions to its procedures, for
example, the removal of the ``Definitions'' section to streamline the
document and ensure clarity.
BOEM intends to assess bids using the revised BAP, once finalized,
during lease sales included in the next National OCS Oil and Gas
Leasing Program.
Public Participation and Availability of Comments
All comments will be made publicly available in the docket. BOEM
will consider all comments before finalizing the revised BAP.
All interested parties can submit written comments to BOEM. BOEM
will protect privileged or proprietary information that you submit in
accordance with the Freedom of Information Act (FOIA) and OCS Lands
Act. To avoid inadvertent release of such information, interested
parties should mark all documents and every page containing such
information with ``Confidential--Contains Proprietary Information.'' To
the extent a document contains a mix of proprietary and nonproprietary
information, interested parties should clearly mark the portions of the
document that are proprietary and those that are not. Exemption 4 of
FOIA applies to trade secrets and commercial or financial information
that you submit that is privileged or confidential.
Please be aware that BOEM's practice is to make all other comments,
including the names and addresses of individuals, available for public
inspection. Before including your address, phone number, email address,
or other personal identifying information in your comment, please be
advised that your entire comment, including your personal identifying
information, may be made publicly available at any time. In order for
BOEM to consider withholding from disclosure your personal identifying
information, you must identify, in a cover letter, any information
contained in the submittal of your comments that, if released, would
constitute a clearly unwarranted invasion of your personal privacy. You
must also briefly describe any possible harmful consequences of the
disclosure,
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such as embarrassment, injury, or other harm.
Even if BOEM withholds your information in the context of its BAP
modification process, your submission is subject to FOIA, and if your
submission is requested under FOIA, your information will be withheld
only if a determination is made that one of FOIA's exemptions to
disclosure applies. Such a determination will be made in accordance
with the Department's FOIA regulations and applicable law.
BOEM will make available for public inspection, in their entirety,
all comments submitted by organizations and businesses, or by
individuals identifying themselves as representatives of organizations
or businesses.
Authority: 43 U.S.C. 1331 et seq. (Outer Continental Shelf Lands
Act, as amended) and 30 CFR part 556.
Amanda Lefton,
Director, Bureau of Ocean Energy Management.
[FR Doc. 2023-00842 Filed 1-18-23; 8:45 am]
BILLING CODE 4340-98-P
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