[Federal Register Volume 68, Number 162 (Thursday, August 21, 2003)]
[Notices]
[Pages 50549-50552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-21472]


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DEPARTMENT OF THE INTERIOR

Minerals Management Service


Outer Continental Shelf (OCS) Beaufort Sea Alaska, Oil and Gas 
Lease Sale 186

AGENCY: Minerals Management Service, Interior.

ACTION: Final Notice of Sale (NOS) 186, Beaufort Sea.

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SUMMARY: The MMS will open and publicly announce bids received for 
blocks offered in Oil and Gas Lease Sale 186 on September 24, 2003, in 
accordance with provisions of the OCS Lands Act (43 U.S.C. 1331-1356, 
as amended) and the implementing regulations (30 CFR part 256).

DATES: Public bid reading will begin at 9 a.m. on Wednesday, September 
24, 2003, at the Wilda Marston Theatre, Z. J. Loussac Public Library, 
3600 Denali Street, Anchorage, Alaska. All times referred to in this 
document are local Anchorage, Alaska times, unless otherwise specified.

ADDRESSES: A FNOS 186 package containing this Notice of Sale and 
several supporting and essential documents referenced herein are 
available from: Alaska OCS Region, Information Resource Center, 
Minerals Management Service, 949 East 36th Avenue, Room 330, Anchorage, 
Alaska 99508-4302, Telephone: (907) 271-6438 or 1-800-764-2627.
    These documents are also available on the MMS Alaska OCS Region 
Internet site at http://www.mms.gov/alaska.
    Filing of Bids: Bidders must submit bids to the Alaska OCS Region, 
949 East 36th Avenue, Third Floor, Anchorage, Alaska 99508, between the 
hours of 8 a.m. and 4 p.m. on normal business days, prior to the Bid 
Submission deadline of 10 a.m., Tuesday, September 23, 2003. If bids 
are mailed, the envelope containing all of the sealed bids must be 
marked as follows:
    Attention: Mr. Tom Warren, Contains Sealed Bids for Sale 186.
    If bids are received later than the time and date specified above, 
they will be returned unopened to the bidders. Bidders may not modify 
or withdraw their bids unless the Regional Director, Alaska OCS Region 
receives a written modification or written withdrawal request prior to 
10 a.m., Tuesday, September 23, 2003. Should an unexpected event such 
as an earthquake or travel restrictions be significantly disruptive to 
bid submission, the Alaska OCS Region may extend the Bid Submission 
Deadline. Bidders may call (907) 271-6010 for information about the 
possible extension of the Bid Submission Deadline due to such an event.

    Note: Four blocks in the easternmost Beaufort Sea area are 
subject to jurisdictional claims by both the United States and 
Canada. This Notice refers to this area as the Disputed Portion of 
the Beaufort Sea. The section on Method of Bidding identifies the 
four blocks and describes the procedures for submitting bids for 
them.

    Area Offered for Leasing: MMS is offering for leasing all whole and 
partial blocks listed in the document ``Blocks Available for Leasing in 
OCS Oil and Gas Lease Sale 186'' included in the FNOS 186 package. All 
of these blocks are shown on the following Official Protraction 
Diagrams (which may be purchased from the Alaska OCS Region):
    [sbull] NR 05-01, Dease Inlet, revised September 30, 1997
    [sbull] NR 05-02, Harrison Bay North, revised September 30, 1997
    [sbull] NR05-03, Teshekpuk, revised September 30, 1997
    [sbull] NR 05-04, Harrison Bay, revised September 30, 1997
    [sbull] NR 06-01, Beechey Point North, approved February 1, 1996
    [sbull] NR 06-03, Beechey Point, revised September 30, 1997
    [sbull] NR 06-04, Flaxman Island, revised September 30, 1997
    [sbull] NR 07-03, Barter Island, revised September 30, 1997
    [sbull] NR 07-05, Demarcation Point, revised September 30, 1997
    [sbull] NR 07-06, Mackenzie Canyon, revised September 30, 1997
    Official block descriptions are derived from these diagrams; 
however, not all blocks included on a diagram are being offered. To 
ascertain which blocks are being offered and the royalty suspension 
provisions that apply you must refer to the document ``Blocks Available 
for Leasing in OCS Oil and Gas Lease Sale 186.'' The Beaufort Sea OCS 
Oil and Gas Lease Sale 186 Locator Map is also available to assist in 
locating the blocks relative to the adjacent areas. The Locator Map is 
for use in identifying locations of blocks but is not part of the 
official description of blocks available for lease. Some of the blocks 
may be partially encumbered by an existing lease, or transected by 
administrative lines such as the Federal/State jurisdictional line. 
Partial block descriptions are derived from Supplemental Official OCS 
Block Diagrams and OCS Composite Block Diagrams, which are available 
upon request at the address, phone number, or internet site given 
above.
    Lease Terms and Conditions: On February 20, 2003, MMS published a 
Notice of Availability (68 FR 8306) of the proposed Notice of Sale for 
Sale 186, which included proposed lease terms and conditions providing 
for a minimum bid amount of $62 per hectare and a rental rate of $13 
per hectare, consistent with past OCS sales in the Alaska OCS Region. 
After further consideration, MMS has determined that the minimum bid 
levels for Sale 186 should be reduced and rentals set on a sliding 
scale. MMS announced the intent to make these changes in a Federal 
Register notice published July 17, 2003, (68 FR 42420) to give 
potential bidders and other interested parties ample time to consider 
these changes in preparing for the lease sale. These changes, now 
adopted do not affect minimum royalty requirements, or royalty 
suspension volumes.
    Initial Period: Ten years.
    Minimum Bonus Bid Amount: Offer all blocks in Zone A with a minimum 
bid of $37.50 per hectare and all blocks in Zone B with a minimum bid 
of $25 per hectare. Refer to the Beaufort Sea OCS Oil and Gas Lease 
Sale 186 Locator Map mentioned above.
    Rental Rates: The Lessee shall pay the Lessor, on or before the 
first day of each lease year which commences prior to a discovery in 
paying quantities of oil or gas on the leased area, a rental as shown 
in the table below.
    Minimum Royalty Rates: The Lessee shall pay the Lessor, at the 
expiration of each lease year which commences after a discovery of oil 
and gas in paying quantities, a minimum royalty of $13 per hectare, or 
fraction thereof, until the start of royalty-bearing production.
    Royalty Rates: A 12\1/2\ percent royalty rate will apply for all 
blocks.

[[Page 50550]]



  Summary Table of Minimum Bids, Minimum Royalty Rates and Rental Rates
------------------------------------------------------------------------
 Terms  (values per hectare)         Zone A                Zone B
------------------------------------------------------------------------
Royalty Rate................  12\1/2\% fixed......  12\1/2\% fixed
Minimum Bid.................  $37.50..............  $25.00
Minimum Royalty.............  $13.00..............  $13.00
Rental Rates:
    Year 1..................  $7.50...............  $2.50
    Year 2..................  $7.50...............  $3.75
    Year 3..................  $7.50...............  $5.00
    Year 4..................  $7.50...............  $6.25
    Year 5..................  $7.50...............  $7.50
    Year 6..................  $12.00..............  $10.00
    Year 7..................  $17.00..............  $12.00
    Year 8..................  $22.00..............  $15.00
    Year 9..................  $30.00..............  $17.00
    Year 10.................  $30.00..............  $20.00
------------------------------------------------------------------------

    Royalty Suspension Areas: Royalty suspension provisions apply to 
first oil production. Royalty suspensions on the production of oil and 
condensate, prorated by lease acreage and subject to price thresholds, 
will apply to all blocks. Royalty suspension volumes (RSV) are based on 
2 zones, Zone A and Zone B, as depicted on the Locator Map and listed 
in the document ``Blocks Available for Leasing in the Beaufort Sea OCS 
Oil and Gas Lease Sale 186.'' More specific details regarding royalty 
suspension eligibility, applicable price thresholds and implementations 
are included in the document ``Royalty Suspension Provisions, Sale 
186'' in the final NOS 186 package. Minimum royalty requirements apply 
during RSV periods. Depending on surface area and zone, leases will 
receive a RSV as follows:

------------------------------------------------------------------------
                                                      Zone A     Zone B
                                                     million    million
                     Hectares                        barrels    barrels
                                                       RSV        RSV
------------------------------------------------------------------------
770 or less.......................................         10         15
771-1540..........................................         20         30
1541 or above.....................................         30         45
------------------------------------------------------------------------

The RSV only applies to liquid hydrocarbon production, i.e., oil and 
condensates. Natural gas volumes that leave the lease are subject to 
original lease-specified royalties. The market value of natural gas 
will be determined by MMS's Minerals Revenue Management (MRM) office. 
MRM will value the natural gas from Sale 186 based on its potential 
uses and applicable market characteristics at the time the gas is 
produced.
    The lessee must pay royalty on production that would otherwise 
receive royalty suspension from automatic relief (in 30 CFR 260), and 
such production will count towards the RSV, in any calendar year during 
which the arithmetic average of the daily closing prices for the nearby 
delivery month on the New York Mercantile Exchange (NYMEX) for oil 
exceeds the adjusted product price threshold.
    (a) The adjusted ceiling price threshold for light sweet crude oil 
in any year, say t, is determined by inflating an oil price of $28 per 
barrel beginning in base year 1994. This base year price is modified by 
the percentage change in the implicit price deflator for the interval 
between 1994 and year t, resulting in the adjusted oil price threshold 
for year t. For example, if the deflator from 1994 through 2003 
indicates that inflation totaled 15 percent, then the adjusted price 
threshold in calendar year 2003 would become $32.20 per barrel for oil. 
Royalty on all oil production in calendar year 2003 would be due if the 
2003 average NYMEX oil price exceeded $32.20 per barrel.
    (b) MMS will provide notice when adjusted price thresholds are 
exceeded.
    (c) In cases where the actual average price for the product exceeds 
the adjusted price threshold in any calendar year, royalties must be 
paid in the following calendar year. (See 30 CFR 260.122(c) for more 
detail.)
    A fixed oil price floor applies, below which oil and condensate 
would be produced both royalty-free except for the required minimum 
royalty of $13 per hectare, and would not count against the RSV. Until 
the total RSV allocation is exhausted, if the arithmetic average of the 
daily closing oil prices for the specified time period is below the 
price floor, then any oil produced during that time period would be 
royalty-free and would not be subtracted from the lease's remaining 
RSV. If the arithmetic average of the daily closing oil prices falls 
below the floor price after the original RSV is exhausted, the lessee 
receives no additional royalty-free production.
    (a) The price floor for light sweet crude oil is set at a fixed $18 
per barrel with no adjustment for inflation. The comparison with the 
price floor is based on the arithmetic average of the daily closing 
prices for the ``nearby delivery month'' on the NYMEX for light sweet 
crude oil with no adjustments for inflation. ``The period of 
assessment'' for which the average daily prices are calculated is a 
quarter of a calendar year with the calendar year quarters being 
January-March, April-June, July-September, and October-December.
    (b) MMS will provide notice in the Federal Register or directly to 
lessees when the average NYMEX quarterly oil price is below $18 per 
barrel.
    The price ceiling and floor provisions expire when aggregate 
production excluding floor production volumes of oil (and condensate) 
has used up the lease's original RSV amount.
    For purposes of the RSV, a lease operating under an approved unit 
agreement must have its own qualifying well, as defined in 30 CFR 
250.115. Otherwise, production allocated to it from a well in another 
lease in the unit is not eligible for royalty relief.
    Stipulations and Information to Lessees: The documents entitled 
``Lease Stipulations for Oil and Gas Lease Sale 186'' and ``Information 
to Lessees for Oil and Gas Lease Sale 186'' contain the text of the 
Stipulations and the Information to Lessees that apply to this sale. 
This document is included in the FNOS 186 package.
    Method of Bidding: Procedures for the submission of bids in Sale 
186 are described in paragraph (a) below. Procedures for the submission 
bids for the four blocks in the Disputed Portion of the Beaufort Sea 
will differ as described in paragraph (b) below.

[[Page 50551]]

    (a) Submission of Bids. For each block bid upon, a bidder must 
submit a separate signed bid in a sealed envelope labeled ``Sealed bid 
for Oil and Gas Lease Sale 186, not to be opened until 9 a.m., 
Wednesday, September 24, 2003.'' The total amount of the bid must be in 
whole dollars; any cent amount above the whole dollar will be ignored 
by MMS. Details of the information required on the bid(s) and the bid 
envelope(s) are specified in the document ``Bid Form and Envelope'' 
contained in the final NOS 186 package.
    (b) Submission of Bids in the Disputed Portion of the Beaufort Sea. 
Procedures for the submission of bids on blocks 6201, 6251, 6301, and 
6361 in Official Protraction Diagram NR 07-06 will differ from 
procedures in paragraph (a) above as follows:
    Separate, signed bids on these blocks must be submitted in sealed 
envelopes labeled only with ``Disputed Portion of the Beaufort Sea,'' 
Company Number, and a sequential bid number for the company submitting 
the bid(s). The envelope thus would be in the following format: 
Disputed Portion of the Beaufort Sea Bid. Company No: 00000. Bid No: 1.
    On or before September 24, 2008, the MMS will determine whether it 
is in the best interest of the United States either to open bids for 
these blocks or to return the bids unopened. The MMS will notify 
bidders at least 30 days before bid opening. Bidders on these blocks 
may withdraw their bids at any time after such notice and prior to 10 
a.m. of the day before bid opening. If the MMS does not give notice by 
September 24, 2008, the bids will be returned unopened. The MMS 
reserves the right to return these bids at any time. The MMS will not 
disclose which blocks received bids or the names of bidders in this 
area unless the bids are opened.
    The MMS published a list of restricted joint bidders, which applies 
to this sale, in the Federal Register at 68 FR 22415 on April 28, 2003. 
Bidders submitting joint bids must state on the bid form the 
proportionate interest of each participating bidder, in percent to a 
maximum of five decimal places, e.g. 33.33333 percent. MMS may require 
bidders to submit other documents in accordance with 30 CFR 256.46. MMS 
warns bidders against violation of 18 U.S.C. 1860 prohibiting unlawful 
combination or intimidation of bidders. Bidders must execute all 
documents in conformance with signatory authorizations on file in the 
Alaska OCS Region. Partnerships also must submit or have on file a list 
of signatories authorized to bind the partnership. Bidders are advised 
that MMS considers the signed bid to be a legally binding obligation on 
the part of the bidder(s) to comply with all applicable regulations, 
including paying the one-fifth bonus bid amount on all high bids. A 
statement to this effect must be included on each bid (see the document 
``Bid Form and Envelope'' contained in the FNOS 186 package).
    Bonus Bid Deposit: Each bidder submitting an apparent high bid must 
submit a bonus bid deposit to MMS equal to one-fifth of the bonus bid 
amount for each such bid submitted for Sale 186. Under the authority 
granted by 30 CFR 256.46(b), MMS requires bidders to use electronic 
funds transfer (EFT) procedures for payment of the one-fifth bonus bid 
deposits, following the detailed instructions contained in the document 
``Instructions for Making EFT Bonus Payments'' included in the FNOS 186 
package. All payments must be electronically deposited into an 
interest-bearing account in the U.S. Treasury (account specified in the 
EFT instruction) by 1 p.m. Eastern Time the day following bid reading. 
Such a deposit does not constitute and shall not be construed as 
acceptance of any bid on behalf of the United States. If a lease is 
awarded, MMS requests that only one transaction be used for payment of 
the four-fifths bonus bid amount and the first year's rental.

    Please Note: Certain bid submitters [i.e., those that do NOT 
currently own or operate an OCS mineral lease OR those that have 
ever defaulted on a one-fifth bonus payment (EFT or otherwise)] will 
be required to guarantee (secure) their one-fifth bonus payment 
prior to the submission of bids. For those who must secure the EFT 
one-fifth bonus payment, one of the following options may be 
provided: (1) A third-party guarantee; (2) an Amended Development 
Bond Coverage; (3) a Letter of Credit; or (4) a lump sum payment in 
advance via EFT. The EFT instructions specify the requirements for 
each option.

    Withdrawal of Blocks: The United States reserves the right to 
withdraw any block from this sale prior to issuance of a written 
acceptance of a bid for the block.
    Acceptance, Rejection, or Return of Bids: The United States 
reserves the right to reject any and all bids. In any case, no bid will 
be accepted, and no lease for any block will be awarded to any bidder, 
unless the bidder has complied with all requirements of this Notice, 
including the documents contained in the associated final NOS Sale 186 
package and applicable regulations; the bid is the highest valid bid; 
and the amount of the bid has been determined to be adequate by the 
authorized officer. The Attorney General of the United States may also 
review the results of the lease sale prior to the acceptance of bids 
and issuance of leases. Any bid submitted which does not conform to the 
requirements of this Notice, the OCS Lands Act, as amended, and other 
applicable regulations may be returned to the person submitting that 
bid by the Regional Director and not considered for acceptance. To 
ensure that the Government receives a fair return for the conveyance of 
lease rights for this sale, high bids will be evaluated in accordance 
with MMS bid adequacy procedures.
    Successful Bidders: As required by MMS, each company that has been 
awarded a lease must execute all copies of the lease (Form MMS-2005 
(March 1986) as amended), pay by EFT the balance of the bonus bid 
amount and the first year's rental for each lease issued in accordance 
with the requirements of 30 CFR 218.155, and satisfy the bonding 
requirements of 30 CFR 256, subpart I. Each bidder who is a successful 
high bidder must have on file in the Alaska OCS Region a currently 
valid certification (Debarment Certification Form) certifying that the 
bidder is not excluded from participation in primary covered 
transactions under Federal non-procurement programs and activities. A 
certification previously provided to that office remains currently 
valid until new or revised information applicable to that certification 
become available. In the event of new or revised applicable 
information, MMS will require a subsequent certification before lease 
issuance can occur. Persons submitting such certification should review 
the requirements of 43 CFR, part 12, subpart D. A copy of the Debarment 
Certification Form is contained in the FNOS 186 package.
    Affirmative Action: MMS requests that, prior to bidding, Equal 
Opportunity Affirmative Action Representation Form MMS 2032 (June 1985) 
and Equal Opportunity Compliance Report Certification Form MMS 2033 
(June 1985) be on file in the Alaska OCS Region. This certification is 
required by 41 CFR 60 and Executive Order No. 11246 of September 24, 
1965, as amended by Executive Order No. 11375 of October 13, 1967. In 
any event, prior to the execution of any lease contract, both forms are 
required to be on file in the Alaska OCS Region.
    Jurisdiction: The United States claims exclusive maritime resource 
jurisdiction over the area offered. Canada claims such jurisdiction 
over the four easternmost blocks included in the sale area. These 
blocks are located in Official Protraction Diagram NR 07-06 as block

[[Page 50552]]

numbers 6201, 6251, 6301, and 6361. Nothing in this Notice shall affect 
or prejudice in any manner the position of the United States with 
respect to the nature or extent of the internal waters, the territorial 
sea, the high seas, or sovereign rights or jurisdiction for any purpose 
whatsoever. Bid submission procedures pertaining to blocks in this 
Disputed Portion of the Beaufort Sea are described in paragraph (b) 
under Method of Bidding.
    Notice of Bidding Systems: Section 8(a)(8) (43 U.S.C. 1337(a)(8)) 
of the OCS Lands Act requires that, at least 30 days before any lease 
sale, a Notice be submitted to Congress and published in the Federal 
Register. This Notice of Bidding Systems is for Sale 186, Beaufort Sea, 
scheduled to be held on September 24, 2003.
    In Sale 186, all blocks are being offered under a bidding system 
that uses a cash bonus and a fixed royalty of 12 1/2 percent with a 
royalty suspension of up to 30 million barrels of oil equivalent per 
lease in Zone A of the sale area or with a royalty suspension of up to 
45 million barrels of oil equivalent per lease in Zone B of the sale 
area. The amount of royalty suspension available on each lease is 
dependent on the area of the lease and specified in the Sale Notice. 
This bidding system is authorized under 30 CFR 260.110(a)(7), which 
allows use of a cash bonus bid with a royalty rate of not less than 12 
1/2 percent and with suspension of royalties for a period, volume, or 
value of production, and an annual rental. Analysis performed by MMS 
indicates that use of this system provides an incentive for development 
of this area while ensuring that a fair sharing of revenues will result 
if major discoveries are made and produced.
    Specific royalty suspension provisions for Sale 186 are contained 
in the document ``Royalty Suspension Provisions, Sale 186'' included in 
the FNOS 186 package.

    Dated: August 15, 2003.
Thomas A. Readinger,
Acting Director, Minerals Management Service.
[FR Doc. 03-21472 Filed 8-20-03; 8:45 am]
BILLING CODE 4310-MR-P