Leasing of Sulphur or Oil and Gas in the Outer Continental Shelf

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 256

RIN 1010-AC18

Leasing of Sulphur or Oil and Gas in the Outer Continental Shelf

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This rule amends the regulations of MMS to allow the

authorized officer to extend the 90-day time period within which we

must accept or reject the high bids received on Outer Continental Shelf

(OCS) tracts offered for sale. Unforeseen circumstances including a

flood, a furlough, and an extremely high bid response may create a need

for more time to evaluate bids. The rule gives the authorized officer

authority to extend the time period for 15 working days or longer,

beyond 90 days after the date on which the bids are opened, when

circumstances warrant.

EFFECTIVE DATE: This rule is effective July 18, 1996.

FOR FURTHER INFORMATION CONTACT:

Dr. Marshall Rose, Chief, Economic Evaluation Branch, telephone (703)

787-1536.

SUPPLEMENTARY INFORMATION: The time to accept or reject bids is

established under the regulations at 30 CFR 256.47. The authorized

officer must accept or reject the high bids within 90 days after the

bid opening, except for tracts or blocks identified by the Secretary of

the Interior as subject to:

(1) Another nations's claims of jurisdiction and control which

conflict with the claims of the United States, or

(2) Defense-related activities that may be incompatible with

mineral exploration/development activities. Any bid not accepted within

that period is deemed rejected.

In the Central Gulf of Mexico Sale 157, held April 24, 1996, we

received 1,381 bids on 924 tracts, 632 of which passed to Phase 2 for

detailed reviews. This unprecedented response by industry in Sale 157

resulted from the enactment of the Outer Continental Shelf Deep Water

Royalty Relief Act (Pub. L. 104-58, DWRRA) and other factors, such as

higher natural gas and oil prices. Consequently, MMS is unable to

conduct and complete the entire bid review process within the 90 days,

i.e., by July 22, 1996. If we do not modify the timing restriction

before the 90 days expire for Sale 157, dozens of high bids received on

tracts offered in that sale may be rejected because of our inability to

complete the statutorily mandated review for fair market value.

Therefore, in accordance with 5 U.S.C. 553(b)(3)(B), this rule is

effective July 18, 1996. It is in the public interest to ensure that

adequate time is available to give all high bids a full and appropriate

review and to ensure the receipt of fair market value.

The 90-day period was established in 1982 because of the change

from nomination to areawide sales and from presale to postsale

evaluations. Since then, MMS has held mainly areawide sales. The DWRRA

amended the Outer Continental Shelf Lands Act and defined a new bidding

system which provides for royalty suspensions. The deep water incentive

law did not amend the requirement that we receive fair market value for

tracts leased. Any lease sale held before November 28, 2000, must use

the new bidding system for all tracts located in water depths of 200

meters or more in the Gulf of Mexico west of 87 degrees, 30 minutes

west longitude. The large number of bids received in response to the

new statutory requirements resulted in an increased workload which we

expect will exceed our ability to complete the bid review process

within 90 days as required by 30 CFR 256.47(e)(2).

This rule allows the authorized officer authority to extend the

time period for 15 working days or longer when circumstances warrant.

Recent examples include floods and furloughs; however, other

circumstances such as an excessive unanticipated workload may arise

which could warrant the need for a longer time for bid evaluation.

This rule addresses a housekeeping issue and will enable us to

adjust the bid acceptance/rejection time period to meet changing

conditions. It recognizes that 90 days may not be enough time to

complete the review process, which would result in the rejection of the

high bids which we fail to evaluate within 90 days. This would result

in fewer leases being issued because of failure to complete the bid

review process within time and resource constraints. The Government may

receive less bonus and rental monies.

Today, without authority to extend the bid review period, the 1982

90-day rule is arbitrarily too rigid and may not allow sufficient time

given the current complexities inherent in evaluating certain tracts.

It is in the public interest to ensure that adequate time is available

to give all high bids a full and appropriate review, to ensure the

receipt of fair market value, and ultimately to increase natural gas

and oil supplies.

This rulemaking finalizes the rule, with one substantive

modification, as originally proposed and published in the Federal

Register (61 FR 24466, May 15, 1996). Seven respondents--a trade

organization and six companies--submitted comments on the proposed rule

during the public comment period. The MMS reviewed and analyzed the

comments. The following is a discussion of the comments received and

our response.

Narrative Responses to Comments

Comment: Although MMS now pays interest on the one-fifth bonus held

during the evaluation period, industry must set aside the four-fifths

of the bonus and first year rental to pay for the lease when and if

awarded. Delays in rejecting a lease may cause a company to miss

participating in a significant opportunity elsewhere. Delays in

awarding leases can cause delays in planning further seismic

evaluation, hazard surveys, rig commitment, and budgeting of wells. On

the other hand, industry does not want the retention of the 90-day

period to result in the rejection of the high bids because MMS does not

have sufficient time to evaluate them.

Response: We realize that any extension beyond the 90 days could

result in some missed opportunities and impact exploration and

development activities, but MMS must fulfill its duty to obtain fair

market value for offshore leased tracts. Because we accept tracts

sequentially during the bid review period, on only a small portion of

tracts will MMS require more than 90 days to

[[Page 34731]]

complete the evaluation. We plan to extend the bid review period only

when circumstances beyond our control arise, such as weather

conditions, furloughs, or an unusually large number of unanticipated

tracts receiving bids causing disruptions in our workload. We would

rather ensure that adequate time is available to give all high bids a

full and appropriate review, than have to reject high bids for

insufficient time to evaluate, which could be the case without this

rule. To accommodate the concern to keep the review time extension as

short as possible, MMS has reduced the minimum extension time from 30

days as proposed to 15 working days in the final rule.

Comment: The ``authorized officer'' should not be allowed authority

to extend the time period for more than 30 days. This extension of time

should only apply to the evaluation of Sale 157 bids and should not be

for additional time caused by a change in the bid adequacy procedures,

for example, elimination of the 3-bid rule.

Response: Our recent experience with floods and furloughs, which

resulted in extensions of the bid review period for 14 and 9 days each,

would indicate that it is unlikely that the authorized officer will

extend the time period for more than 15 working days. As a result, we

have modified the proposed 30 days to 15 working days. However, in

those rare circumstances that may arise which could warrant a longer

time for bid evaluation, this rule gives the authorized officer the

flexibility to respond appropriately and in the public interest. With

respect to Sale 157, more than three times the normal number of tracts

went to Phase 2 for further evaluation, only a small percentage of

which was attributable to the elimination of the 3-bid rule. The

excessive workload burden is a result primarily of industry competition

and bidding in Sale 157 and not a change in the bid adequacy

procedures.

Comment: The fact that a tract is covered by the DWRRA should not

be a factor in evaluating the high bid on that tract.

Response: The MMS must fulfill its duty to obtain fair market value

for offshore leased tracts. The fact that a tract may benefit from the

DWRRA will normally cause the bidders to adjust their bids accordingly.

Therefore, any bid review procedure should take this effect into

consideration as well.

Comment: The regulation and the notice granting the extension

should make clear the event or circumstances which require the

extension.

Response: Based on past experience, the rule does not list all

possible reasons, or combination of reasons, that could trigger an

extension. Examples of circumstances that might apply are: Inclement

weather that results in closing the office; damage to the building

(e.g., explosion, fire, or water); lack of electrical power; etc. Any

announcement of an extension beyond the 90-day period will include the

reasons warranting the extension.

Comment: An extension to accept or reject the high bids is

acceptable provided the additional time is warranted, and the sale

schedule in the Central and Western Gulf of Mexico is not seriously

affected. The alternative of rejecting high bids not evaluated because

of insufficient time does not serve the best interest of the companies

or the Government.

Response: We, like the companies, do not want to extend the bid

review period any more than absolutely necessary because MMS wants to

continue to meet our sales schedule. We also realize that companies

might delay exploration and development decisions because considerable

amounts of financial resources, which could be better employed

elsewhere, are tied up during this period. Any extensions should be for

the minimum time warranted and affect a small number of tracts.

Comment: The 90-day period would be sufficient if MMS limited its

evaluation efforts in Phase 2 to those tracts where there is current

activity or new production offsetting a tract receiving bids.

Response: Because we are required to receive fair value for all

tracts leased, the existing bid adequacy procedures do not limit Phase

2 evaluation efforts only to those tracts where there is current

activity or new production offsetting a tract receiving bids. The rule

recognizes that more than 90 days may be needed to complete the

process. We will continue to review our procedures and, based on

knowledge gained from experience in lease sales, may identify

modifications which might reduce the length of the bid review period.

Author: This document was prepared by Mary Vavrina, Offshore

Resource Evaluation Division, MMS.

Executive Order (E.O.) 12866

This rule does not meet the criteria for a significant rule

requiring review by the Office of Management and Budget (OMB) under

E.O. 12866.

Regulatory Flexibility Act

The Department of the Interior (DOI) has determined that this rule

will not have a significant economic effect on a substantial number of

small entities. Any direct effects of this rulemaking will primarily

affect the lessees and operators--entities that are not, by definition,

small due to the technical complexities and financial resources

necessary to conduct OCS activities. Small entities are more likely to

operate onshore or in State waters--areas not covered by this rule. The

indirect effect of this rulemaking on small entities that provide

support for offshore activities has also been determined to be small.

When small entities work on the OCS, they are more likely to be

contractors rather than lessees. While these contractors must follow

the rules governing OCS operations, we are not changing the rules that

govern actual operations on a lease. We are only modifying the rules

governing the actual acceptance or rejection of a high bid for a lease.

Paperwork Reduction Act

The rule has been examined under the Paperwork Reduction Act of

1995 and has been found to contain no new reporting and information

collection requirements.

Takings Implication Assessment

The DOI certifies that this rule does not represent a governmental

action capable of interference with constitutionally protected property

rights. A Takings Implication Assessment prepared under E.O. 12630,

Government Action and Interference with Constitutionally Protected

Property Rights, is not required.

E.O. 12988

The DOI has certified to OMB that the rule meets the applicable

reform standards provided in Section 3(b)(2) of E.O. 12988.

National Environmental Policy Act

The DOI has determined that this rule does not constitute a major

Federal action significantly affecting the quality of the human

environment; therefore, an environmental impact statement is not

required.

Unfunded Mandate Reform Act of 1995

The DOI has determined and certifies according to the Unfunded

Mandates Reform Act, 2 U.S.C. 1502 et seq., that this rule will not

impose a cost of $100 million or more in any given year on local,

tribal, or State governments or the private sector.

List of Subjects in 30 CFR Part 256

Administrative practices and procedures, Continental shelf,

Government contracts, Incorporation by reference, Oil and gas

exploration,

[[Page 34732]]

Public lands--mineral resources, Reporting and recordkeeping

requirements, Surety bonds.

Dated: June 27, 1996.

Sylvia V. Baca,

Assistant Secretary, Land and Minerals Management.

For the reasons set forth in the preamble, we amend 30 CFR part 256

as follows:

PART 256--LEASING OF SULPHUR OR OIL AND GAS IN THE OUTER

CONTINENTAL SHELF

1. The Authority citation for part 256 continues to read as

follows:

Authority: 43 U.S.C. 1331 et seq.

2. Section 256.47(e)(2) is revised to read as follows:

Sec. 256.47 Award of leases.

* * * * *

(e) * * *

(2) The authorized officer must accept or reject the bid within 90

days. The authorized officer may extend the time period for acceptance

or rejection of a bid for 15 working days or longer, if circumstances

warrant. Any bid not accepted within the prescribed time period,

including any extension thereof, is deemed rejected.

* * * * *

[FR Doc. 96-17013 Filed 7-2-96; 8:45 am]

BILLING CODE 4310-MR-M