[Federal Register Volume 88, Number 12 (Thursday, January 19, 2023)]
[Notices]
[Pages 3433-3435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[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:
     Regulations.gov web portal: Navigate to http://www.regulations.gov 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.
     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.
     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: 
https://www.boem.gov/oil-gas-energy/energy-economics/lease-sales-and-fair-market-value. 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: 
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.

FOR FURTHER INFORMATION CONTACT: Mr. Matt Frye, Chief, Resource 
Evaluation Division, Office of Strategic Resources, at (703) 787-1514 
or email at [email protected].

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: 
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.
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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