Leasing of Sulphur or Oil and Gas in the Outer Continental ShelfBonus Payments With Bids

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 256

RIN 1010-AC49

Leasing of Sulphur or Oil and Gas in the Outer Continental

Shelf--Bonus Payments With Bids

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Final rule.

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SUMMARY: This rule gives MMS the authority to require Federal offshore

Outer Continental Shelf (OCS) lands lease bidders to use any single

method for submitting \1/5\ bonus payments with OCS bids.

EFFECTIVE DATE: The rule is effective August 27, 1999.

FOR FURTHER INFORMATION CONTACT: Jan Arbegast, Program Analyst, at

(703) 787-1227.

SUPPLEMENTARY INFORMATION: On March 31, 1999, we published a Notice of

Proposed Rulemaking (64 FR 15320), titled ``Leasing of Sulphur or Oil

and Gas in the Outer Continental Shelf--Bonus Payments with Bids,''

revising 30 CFR 256.46(b). Our 30-day comment period closed on April

30, 1999. We received four comments. This final rule

[[Page 40765]]

amends the regulation at 30 CFR 256.46(b).

Since the mid-1950s, the Federal Government has received bonus bid

payments to acquire leases offered at OCS lease sales. Prospective

bidders submit the required \1/5\ bonus payment in the form of a check

or bank draft, which accompanies a sealed bid on a specific offshore

tract of submerged land. Since August 1997, we have offered prospective

bidders the option of using electronic funds transfer (EFT) to submit

their \1/5\ bonus payment rather than a check or bank draft. As

technology has progressed and as banking transactions become routinely

automated, we need to have in place a rule that allows us to require

automated payment such as EFT or other methods that may be more

efficient. This revision allows flexibility so that we can require the

specific method of bonus payment that is most efficient and

administratively advantageous to the Government and industry.

Comments on the Rule

We received comments from Pogo Producing Company, Murphy

Exploration & Production Company, Texaco Exploration and Production,

Inc., and the American Petroleum Institute. Generally, those who

commented favored EFT as a method of submitting the \1/5\ bonus bid

amount.

Comments and Responses to Issues

Comment: Concerning timing of the \1/5\ bonus payment,

prefer payment by the apparent high bidder on the day following the

sale (as currently done) rather than a prepayment on or before the day

of the sale.

Response: At this time, we have no plans to change the timing of

the EFT bonus payment.

Comment: The mandated use of EFT could cause problems for

some companies under some circumstances. Request that MMS maintain

highest level of confidentiality of bids and address any potential

transmission and receipt problems.

Response: Regarding confidentiality, the bid submission process has

not changed. The EFT transaction is completed only after public bid

opening. A bidder needs only to complete one EFT transaction for all of

its high bids instead of submitting separate cashier's checks for each

bid. For a few companies, there may be initial start-up costs and

problems, but the benefit to the Government and long-term benefit to

the bidder outweigh any initial problems. We have used EFT as an

optional method of bid submission in the last four Gulf of Mexico (GOM)

OCS lease sales (since August 1997). Companies of various sizes have

bid via EFT. The EFT transaction system has worked very efficiently

with administrative savings for both bidders and the Government. In the

two most recent GOM lease sales, over 90 percent of the \1/5\ high

bonus bid amounts were transmitted via EFT. The MMS continues to treat

all submitted bids with appropriate security and will continue to

assist bidders who experience any transmission problems.

Comment: Because all companies may not find EFT convenient

or always possible, EFT should remain an option for such payments.

Response: The final rule gives MMS the flexibility to specify the

method of payment for bonus bids in the notice of sale. The MMS will

carefully monitor each sale and will determine which method(s) of

payment for bid submission is most advantageous to both the Government

and industry for that particular sale. In certain circumstances, having

EFT as a \1/5\ bonus bid submission option may be desirable. However,

maintaining EFT \1/5\ bonus bid submission as an optional form of

payment negates much of the administrative savings to the Government

since a separate process and infrastructure must be in place to accept

paper transactions. Eliminating this paper transaction process produces

most of the cost savings to the Government.

Comment: MMS should codify general guidelines for EFT

payments in the regulations rather than publish them in each notice of

sale.

Response: The MMS believes that the proposed and final sale notice

packages are better vehicles for detailed administrative guidance for

submitting bids via EFT or for other bid submission guidance, which may

change as technology and business practices evolve.

Procedural Matters

Federalism (Executive Order (E.O.) 12612)

According to E.O. 12612, the rule does not have significant

Federalism implications. A Federalism assessment is not required.

Takings Implications Assessment (E.O. 12630)

According to E.O. 12630, the rule does not have significant Takings

Implications. A Takings Implication Assessment is not required.

Regulatory Planning and Review (E.O. 12866)

This document is not a significant rule and is not subject to

review by the Office of Management and Budget under E.O. 12866.

(1) This rule will not have an effect of $100 million or more on

the economy. It will not adversely affect in a material way the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local, or tribal governments or

communities.

Ultimately, this rule is administratively advantageous to

prospective bidders on the OCS. It will save time and administrative

burden in their bid-preparation paperwork process and will also use

current technology, improving efficiency both for industry and the

Government.

(2) This rule will not create a serious inconsistency or otherwise

interfere with an action taken or planned by another agency. Using EFT

is common practice in private industry. Through the use of electronic

commerce, we reduce the number of transactions required by bidders. A

bidder can initiate one EFT transaction for all of its high bids rather

than individual checks for each high bid. This does not interfere with

other agencies' actions.

(3) This rule does not alter the budgetary effects or entitlements,

grants, user fees, or loan programs or the rights or obligations of

their recipients. This rule has no effect on these programs or rights

of the programs' recipients.

(4) This rule does not raise novel legal or policy issues. As

previously stated, the intent of this rule is to give the Government

flexibility in requiring a specific form of bonus payment, including

EFT. It is commonplace in private industry and creates no novel policy

issues.

Civil Justice Reform (E.O. 12988)

According to E.O. 12988, the Office of the Solicitor has determined

that this rule does not unduly burden the judicial system and meets the

requirements of Secs. 3(a) and 3(b)(2) of the Order.

National Environmental Policy Act (NEPA)

This rule does not constitute a major Federal action significantly

affecting the quality of the human environment. A detailed statement

under the NEPA of 1969 is not required.

Paperwork Reduction Act (PRA) of 1995

This regulation does not require information collection, and a

submission under the PRA is not required.

[[Page 40766]]

Regulatory Flexibility Act (RFA)

The Department certifies that this document will not have a

significant economic effect on a substantial number of small entities

under the RFA (5 U.S.C. 601 et seq.). This revised rule does not have a

significant effect on a substantial number of small entities. We are

revising this rule to allow us the flexibility to select the method for

a prospective bidder at an OCS lease sale to submit a bonus payment. If

we select EFT for the method of submitting bonus payments, it will be

easy for small companies to submit bonus payments because any small

company has access to a commercial bank that routinely uses EFT. All

current lessees must transmit the remaining 80 percent of their bonus

payment and their first year rental payment via EFT. The regulation has

been effective since 1984. This should not be a significant burden. The

cost for establishing an account for a small company should be nominal.

The bank will charge a fee per wire transfer which may be as high as

$30, but if a company has a large volume of wire transfers, the bank

may only charge about a dollar or less per wire transfer. In the worst

case scenario, if 30 small companies (average for recent sales) submit

a bid during a lease sale, at $30 per EFT wire transfer, the total cost

for all small companies for a typical sale is $900.

This rule only affects lessees on the OCS. We use Standard Industry

Code 1381, Drilling Oil and Gas Wells, to characterize this group.

There are 1,380 firms that drill oil and gas wells onshore and

offshore. Of these, approximately 130 companies who are offshore

lessees/operators need to follow our rule. According to Small Business

Administration (SBA) estimates, 39 companies qualify as large firms and

91 as small firms. The SBA defines a small business as having either

(a) annual revenues of $5 million or less for exploration service and

field service companies, or (b) less than 500 employees for drilling

companies and for companies that extract oil, gas, or natural gas

liquids.

The rule gives us the flexibility to make adjustments to determine

which method of bid submission is preferable (based on technological

advances) for a bidder at an OCS lease sale to submit a bonus payment.

We believe both bidders and MMS realize this efficiency. When using

EFT, which is now commonplace, a bidder will need to advise its

commercial bank to submit its bonus payment via EFT. When using EFT,

the bidder will contact the MMS Royalty Management Office designated in

the final sale notice for the proposed lease sale.

If EFT is used, overall lessee (prospective bidder's) costs will

decrease as well as bid preparation time. This is not a major rule. The

cost of implementation should be minimal, regardless of company size.

Since one EFT transaction can be used per sale, and it costs $30 for

the wire transfer compared to the administrative costs (e.g., fees

charged to the companies by the bank to prepare cashier's check, staff

time to cancel checks on bids a company does not win, and committing

and estimating funds needed for cashier's check earlier in the bidding

process compared to the immediacy of EFT transactions) of preparing a

cashier's check for each individual bid, there is little doubt that

using EFT is more cost effective and more efficient than writing a

separate check for each high bid.

The rule should not affect the price that a company will charge for

its product or service. It should increase efficiency and decrease

administrative burden. The rule should not cause any company to go out

of business. In fact, this rule will give MMS the ability to establish

on a sale-by-sale basis, the most efficient and effective payment

method for both MMS and industry. If EFT is used, hundreds of dollars

in staff time may be saved by MMS and industry.

Some small companies may consider a change in the method by which

they submit bids at lease sales to be significant (from paper check to

EFT). Other companies may think the change is trivial. Several small

companies may experience a short-term effect as they revise current

business practices. The rule should not have a significant economic

effect on any company qualified to participate in OCS lease sales.

The Small Business and Agriculture Regulatory Enforcement Ombudsman

and 10 Regional Fairness Boards were established to receive comments

from small businesses about Federal agency enforcement actions. The

Ombudsman will annually evaluate the enforcement activities and rate

each agency's responsiveness to small business. If you wish to comment

on the enforcement actions of MMS, call toll-free (888) 734-3247.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

This rule is not a major rule under (5 U.S.C. 804(2)) the SBREFA.

This rule:

(a) Does not have an annual effect on the economy of $100 million

or more. This rule will increase the efficiency and reduce the

administrative burden of both the Government and private industry.

(b) Will not cause a major increase in costs or prices for

consumers, individual industries, Federal, State, or local government

agencies, or geographic regions. This rule will decrease costs and time

for prospective bidders preparing for bid submission. It will reduce

the Government's administrative burden as well. If EFT is used, the

Government and industry will save potentially hundreds of dollars in

bid preparation time and administrative costs. Since one EFT

transaction can be used per sale, and it costs $30 for the wire

transfer compared to the administrative costs of preparing a cashier's

check for each bid, there is little doubt that using EFT is more cost

effective and more efficient.

(c) Does not have significant adverse effects on competition,

employment, investment, productivity, innovation, or ability of U.S.-

based enterprises to compete with foreign-based enterprises. The rule

will increase productivity, innovation, and ability of U.S.-based

enterprises.

Unfunded Mandate Reform Act (UMRA) of 1995

This rule does not impose an unfunded mandate on State, local, or

tribal governments or the private sector of more than $100 million per

year. The rule does not have a significant or unique effect on State,

local, or tribal governments or the private sector. A statement

containing the information required by the UMRA (2 U.S.C. 1531 et seq.)

is not required.

List of Subjects in 30 CFR Part 256

Administrative practice and procedure, Continental shelf,

Environmental protection, Government contracts, Intergovernmental

relations, Oil and gas exploration, Public lands-mineral resources,

Public lands-rights-of-way, Reporting and recordkeeping requirements,

Surety bonds.

Dated: July 12, 1999.

Sylvia V. Baca,

Assistant Secretary, Land and Minerals Management.

For the reasons stated in the preamble, Minerals Management Service

(MMS) amends 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.

[[Page 40767]]

2. In Sec. 256.46, revise paragraph (b) to read as follows:

Sec. 256.46 Submission of bids.

* * * * *

(b) MMS requires a deposit for each bid. The notice of sale will

specify the bid deposit amount and method of payment.

* * * * *

[FR Doc. 99-19262 Filed 7-27-99; 8:45 am]

BILLING CODE 4310-MR-P