Federal Register / Vol. 79, No. 201 / Friday, October 17, 2014 / Notices 62461 

Dated: October 14, 2014. 

Alma Ripps, 

Chief, Office of Policy. 

[FR Doc. 2014–24808 Filed 10–16–14; 8:45 am] 

BILLING CODE 4310–EE–P 

DEPARTMENT OF THE INTERIOR 

Bureau of Ocean Energy Management 

[Docket No. BOEM–2014–0069; 

MMAA104000] 

Modifications to the Bid Adequacy 

Procedures 

AGENCY: Bureau of Ocean Energy 

Management (BOEM), Interior. 

ACTION: Notification of procedural 

change and clarification of definitions. 

SUMMARY: The Bureau of Ocean Energy 

Management (BOEM) is giving notice of 

its intent to change a criterion and to 

clarify selected definitions in its 

existing Bid Adequacy Procedures for 

ensuring receipt of Fair Market Value 

(FMV) on Outer Continental Shelf (OCS) 

oil and gas leases. In particular, BOEM 

proposes to remove the ‘‘Number of 

Bids Rule’’ that is currently applicable 

in Phase 1 of the Bid Adequacy 

Procedures. A copy of current 

procedures, ‘‘Modifications to the Bid 

Adequacy Procedures,’’ published at 64 

FR 37560 on July 12, 1999, can be 

obtained from the BOEM Web site at 

http://www.boem.gov/Oil-and-GasEnergy-Program/Leasing/RegionalLeasing/Gulf-of-Mexico-Region/BidAdequacy-Procedures.aspx. BOEM 

invites comments during a 45-day 

comment period following publication 

of this notice. 

DATES: Comments can be submitted 

electronically through the Federal 

eRulemaking Portal at http://

www.regulations.gov (Docket ID: 

BOEM–2014–0069) or postmarked no 

later than December 1, 2014. All 

comments received or postmarked 

during the comment period will be 

made publically available in the docket. 

BOEM will consider all comments and 

intends to publish the revised Bid 

Adequacy Procedures prior to or in 

conjunction with the Central Gulf of 

Mexico Planning Area Lease Sale 235 

Final Notice of Sale. 

ADDRESSES: You may submit comments, 

identified by the docket number, by any 

of the following methods: 

• Federal rulemaking portal: http://

www.regulations.gov. Follow the 

instruction for submitting comments. 

• Mail: Department of the Interior, 

Bureau of Ocean Energy Management, 

Economics Division, Attention: 

Marshall Rose, 381 Elden Street, MS– 

3310, Herndon, Virginia 20170–4817. 

Public Availability of Comments 

Before including your name, address, 

phone number, email address, or other 

personal identifying information in your 

comment, you should be aware that 

your entire comment—including your 

personal identifying information—may 

be made publicly available at any time. 

While you can ask us in your comment 

to withhold your personal identifying 

information from public review, we 

cannot guarantee that we will be able to 

do so. 

FOR FURTHER INFORMATION CONTACT: Dr. 

Marshall Rose, Chief, Economics 

Division, at (703) 787–1536. The revised 

Bid Adequacy Procedures are described 

below. 

SUPPLEMENTARY INFORMATION: In the first 

phase of its tract evaluation procedures 

for OCS oil and gas lease sales, BOEM 

considers the number and 

characteristics of bids received on a 

tract to help determine whether the 

tract’s high bid can be accepted without 

further evaluation. BOEM is proposing 

to eliminate these factors of 

consideration from the initial part of the 

tract evaluation and bid acceptance 

process. 

What is the regulatory authority for 

BOEM’s procedures to accept or reject 

high bids on tracts? 

The FMV procedures used to 

determine the adequacy of the high bids 

received for OCS oil and gas leases 

clarify the steps involved in the 

authorized officer’s decisions on bid 

awards set forth in BOEM regulations at 

30 CFR 556.47. 

What definitions apply to these 

procedures? 

BOEM is proposing to revise several 

bid adequacy definitions in its Bid 

Adequacy Procedures guidelines for 

clarity. These changes do not alter the 

fundamental meaning or application of 

these terms to the Bid Adequacy 

Procedures. 

Bid Adequacy Procedures are the 

guidelines followed by BOEM in 

determining which high bids to accept 

and reject following receipt and opening 

of bids in an OCS oil and gas lease sale. 

Number of Bids Rule is one of the 

criteria employed in Phase 1 of the Bid 

Adequacy Procedures to determine 

whether to accept a tract’s high bid 

without a further BOEM evaluation in 

Phase 2. Under this rule, the high bid on 

Confirmed and Wildcat tracts receiving 

three-or-more Qualified Bids may be 

accepted as representative of FMV if: (1) 

The third highest Qualified Bid on a 

tract is within 50 percent of the tract’s 

highest Qualified Bid, and (2) the tract’s 

highest Qualified Bid per acre is within 

the top 75 percent of all high Qualified 

Bids per acre for all tracts receiving 

three-or-more Qualified Bids within the 

tract’s designated water depth category. 

(See ‘‘Modifications to the Bid 

Adequacy Procedures,’’ Federal 

Register, Volume 64, No. 132, July 12, 

1999, Pps. 37560–37562, at http://

www.boem.gov/Oil-and-Gas-EnergyProgram/Leasing/Regional-Leasing/

Gulf-of-Mexico-Region/Bid-AdequacyProcedures.aspx.) 

Mean Range of Values (MROV) is 

BOEM’s estimate of the dollar measure 

of a tract’s expected net present value, 

assuming that tract is leased in the 

current sale. It reflects the maximum 

amount a bidder could afford to pay as 

a cash bonus for the tract while 

expecting to earn a specified after-tax 

rate of return. The calculation of the 

MROV considers exploration and 

economic risk, sales value, exploration, 

development and production costs, 

royalties, and corporate income taxes 

allowing for depreciation of certain 

capital investments and depletion of the 

cash bonus as estimated by the MROV. 

Delay-adjusted Mean Range of Values 

(DMROV) is BOEM’s estimate of the 

amount of a tract’s high bonus bid 

needed in the current sale which, when 

added to the present value of 

anticipated royalties from accepting the 

tract’s high bid and leasing the tract, 

equals the discounted sum of the tract’s 

expected high bonus bid and present 

value of anticipated royalties in the next 

sale if the high bid is rejected and the 

tract re-offered and sold in that next 

sale. The MROV estimated by BOEM for 

the tract in the next sale is used as the 

proxy for the next sale’s high bid on the 

tract, under projected economic, 

engineering and geologic conditions, 

including potential drainage. If the high 

bonus bid in the current sale exceeds 

the DMROV, then the present value of 

leasing receipts from selling the tract in 

the current sale are expected to be 

greater than those from rejecting the 

tract’s high bid in the current sale and 

selling the tract in the next sale. 

Revised Arithmetic Measure (RAM) is 

BOEM’s representation of the average 

‘‘bid’’ on certain tracts, and includes in 

its calculation all Qualified Bids on the 

tract that are equal to at least 25 percent 

of the tract’s high bid, as well as the 

MROV for the tract as estimated by 

BOEM. 

Unusual Bidding Patterns typically 

refers to a situation in which two or 

more companies bid on some tracts or 

subset of tracts far more often or less 

often than would normally be expected. 

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62462 Federal Register / Vol. 79, No. 201 / Friday, October 17, 2014 / Notices 

Legal Bids are those bids that comply 

with the applicable regulations (30 CFR 

part 256) and the Notice of Sale, e.g., 

bids that, among other things, are at 

least equal to the specified minimum 

bid level. Any bids that fail to comply 

with the applicable regulations and 

Notice of Sale are returned to the 

bidder. 

Qualified Bids are ‘‘Legal Bids’’ that 

are not disqualified by BOEM for 

violating anti-competitive bidding 

practices. 

Confirmed Tract is a previously 

leased tract having a well(s) that 

encountered hydrocarbons and may 

have produced. It contains some oil 

and/or gas resources, the volume of 

which may or may not be known. 

Development Tract is a tract that has 

nearby productive (past or currently 

capable) wells with indicated 

hydrocarbons and that is not interpreted 

to have a productive reservoir extending 

under the tract. There should be 

evidence supporting the interpretation 

that at least part of the tract is on the 

same general structure as the proven 

productive well. 

Drainage Tract is a tract that (1) is 

currently being drained by a producing 

well on a nearby leased tract, or (2) 

could be drained by a currently-nonproducing well that is capable of 

producing oil or gas on a nearby leased 

tract if the well were placed on 

production. The reservoir from which 

the nearby well is currently producing 

or capable of producing is interpreted to 

extend with producible hydrocarbon 

resources to the tract that is subject to 

drainage. 

Wildcat Tract is a tract that has 

neither nearby productive (past or 

currently capable) wells, nor is 

interpreted to have a productive 

reservoir extending under the tract. It 

has high geologic risk in addition to 

sparse well control. 

Water Depth Category is a 

classification of sea level depth, 

currently specified in the Gulf of 

Mexico for bid adequacy purposes as 

being either: (1) Less than 400 meters; 

or (2) 400 meters or more. If different 

classifications subsequently are used for 

a Gulf of Mexico sale, they will be 

described in the Final Notice of Sale. 

Tracts offered in a sale held outside the 

Gulf of Mexico will be considered to 

reside in the same, single water depth 

category encompassing the entire sale 

area, unless specified otherwise in the 

Final Notice of Sale. 

Viable Tract is a tract considered by 

BOEM to have the potential capability 

of being explored, developed and 

produced profitably. Viable Tracts are 

those located on a prospect for which 

the risk-weighted, most-probable 

resource size equals or exceeds that of 

nearby proxies that were deemed 

economic in the relevant cost regime 

and at similar anticipated future prices. 

The probability of success used in 

determining the risk-weighted, mostprobable resource size is at or below the 

highest level anticipated for any 

economically positive tract or prospect 

that received a bid in the current sale, 

was evaluated by BOEM, and is located 

in the same cost regime. 

Non-viable Tract is a tract considered 

by BOEM not to have the potential 

capability of being explored, developed 

and produced profitably. Non-viable 

Tracts are: (1) Tracts that received bids 

but that are not associated with any 

discernible prospect or geophysical 

anomaly that might indicate 

hydrocarbon presence; or (2) tracts 

located over known prospects that are 

judged to offer sub-economic quantities 

of risked resources. The latter include 

tracts that are located on a prospect for 

which the most probable risked resource 

size is less than or equal to that of 

nearby proxies that were deemed 

uneconomic for the relevant cost regime 

and at similar anticipated future prices. 

Determination by BOEM of whether a 

tract is non-viable involves a rigorous 

assessment of whether or not the tract 

is likely to be profitable, but not a 

calculation of the tract’s precise 

monetary value. 

Phase 1 is the first phase of the twophased Bid Adequacy Procedures 

applied in each sale to ensure that the 

government receives the FMV for the 

offshore oil and gas lease rights that it 

sells. In Phase 1, a tract’s high bid may 

be accepted as representative of FMV if 

the tract passes the Number of Bids Rule 

or if the tract is classified as Confirmed 

or Wildcat and judged to be non-viable 

by BOEM. If application of either of 

these criteria does not result in the 

tract’s acceptance in Phase 1, the tract 

is passed to Phase 2 for further 

evaluation. 

Phase 2 is the second phase of the Bid 

Adequacy Procedures. In Phase 2, 

Viable Tracts and associated prospects 

are subjected to a complete geological 

review and economic evaluation for the 

purpose of establishing the FMV of 

received bids. BOEM conducts an 

individual economic evaluation of each 

tract that is passed to Phase 2, resulting 

in the generation of certain measures of 

tract value represented by the MROV, 

DMROV and RAM. The high bid 

typically is considered for acceptance if 

it exceeds any one of these three 

measures. 

What procedural change is being 

proposed? 

BOEM is proposing that the Number 

of Bids Rule in Phase 1 would no longer 

apply under the revised Bid Adequacy 

Procedures. Instead, the high bid on a 

Confirmed or Wildcat Tract could be 

accepted in Phase 1 only if BOEM 

judges the tract to be non-viable. Tracts 

not accepted in Phase 1, and hence 

subject to further evaluation in Phase 2, 

would include Confirmed and Wildcat 

Tracts that BOEM judges to be Viable, 

along with all Drainage and 

Development Tracts. Consistent with 

current practice, all tracts included in 

Phase 2 evaluations will be subject to a 

full-scale review for the purpose of 

determining bid adequacy. For a 

description of the current guidelines, 

see ‘‘Modifications to the Bid Adequacy 

Procedures,’’ Federal Register, Volume 

64, No. 132, July 12, 1999, Pps. 37560– 

37562, at http://www.boem.gov/Oil-andGas-Energy-Program/Leasing/RegionalLeasing/Gulf-of-Mexico-Region/BidAdequacy-Procedures.aspx. 

What problem is being addressed by the 

proposed procedural change? 

Periodically, BOEM reviews its Bid 

Adequacy Procedures in light of its 

mandate to ensure receipt of FMV for 

the lease rights it sells. In a recent 

review of the performance of its Bid 

Adequacy Procedures, BOEM identified 

some potential weaknesses in one part 

of its procedures for determining 

whether to accept the high bid on 

certain tracts as being representative of 

FMV. Under its existing procedures, 

BOEM accepts the high bids on some 

Confirmed and Wildcat Tracts following 

application of the Number of Bids Rule. 

Consequently, the accepted tracts are 

not subject to further consideration of 

bid adequacy based on evaluation of 

their underlying tract values in 

comparison to the high bids. In such 

cases, BOEM does not have the 

opportunity to evaluate in Phase 1 

whether the accepted tracts have the 

potential to be economically profitable, 

or to determine based on its own 

individual tract evaluation in Phase 2 

whether the high bids adequately reflect 

the economic value of these tracts. As a 

result, the early bid acceptance of 

certain tracts in Phase 1, based solely on 

bidding information, precludes BOEM 

from conducting specific, in-depth 

evaluations of tracts that might have 

substantial economic value, potentially 

in excess of the accepted high bid. 

This situation is exacerbated when 

BOEM has in its possession substantial 

geologic, engineering and economic 

information that could facilitate 

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Federal Register / Vol. 79, No. 201 / Friday, October 17, 2014 / Notices 62463 

estimation of the underlying economic 

value of these tracts. In such cases, the 

resulting economic value determined by 

BOEM could be sufficient to lead to a 

decision to reject the high bid. In a 

subset of these cases, the resulting 

rejection and subsequent reoffering of 

the tract in the next sale might produce 

a considerable increase in lease 

revenues. 

Once a tract is accepted under the 

Number of Bids Rule, BOEM does not 

commonly conduct an economic 

evaluation of that tract, so it cannot 

know with certainty whether such an 

evaluation would have led to the 

rejection of the high bid. Additionally, 

since the tract is not rejected, BOEM 

does not have empirical data revealing 

what a subsequent high bid would have 

been if the tract’s original high bid had 

been rejected and the tract reoffered in 

the next sale. 

Nevertheless, BOEM identified 

several recent instances where the 

Number of Bids Rule fell slightly short 

of accepting the high bid, and the 

affected tracts were subsequently 

rejected after BOEM conducted its 

economic evaluations and applied its 

Bid Adequacy Procedures in Phase 2. In 

a few of these cases, BOEM found that 

upon reoffering, the high bids on the 

actual previously rejected tracts rose 

substantially. But, had the nature of the 

actual bidding varied only slightly 

among competing bidders, BOEM might 

have accepted the original high bids 

under the Number of Bids Rule, and by 

doing so would have thereby 

inadvertently forgone the additional 

cash bonus bid amounts it received 

upon the actual reoffering of those tracts 

with rejected high bids. Ensuring that 

the American taxpayer receives fair and 

appropriate value is an important goal 

of the proposed procedural change. 

What concerns may exist about possibly 

removing the Number of Bids Rule? 

The removal of the Number of Bids 

Rule eliminates reliance by BOEM on 

certain competitive market forces in the 

determination of FMV in Phase 1. 

However, BOEM will continue to 

consider competitive market forces in 

making bid adequacy determinations 

through application of the RAM in 

Phase 2. Beginning in 2000, BOEM has 

accepted through application of the 

RAM criterion, approximately twothirds of both the number and high bid 

amounts of Confirmed and Wildcat 

Tracts with the following 

characteristics: Received three or more 

Qualified Bids, were passed to Phase 2, 

and, had high bids less than the 

applicable tract’s MROV. This finding 

confirms that even without the Number 

of Bids Rule, BOEM will continue to 

capture the effects of competitive 

market forces in its Bid Adequacy 

Procedures because the RAM is retained 

as part of those revised procedures. The 

RAM is an effective means for 

incorporating market forces in BOEM’s 

Bid Adequacy Procedures and is 

unaffected by the proposed change in 

those procedures. 

How would this proposed procedural 

change affect the content of phase 1 & 

phase 2 of the Bid Adequacy 

Procedures? 

Under current procedures, certain 

tracts may have their high bids accepted 

in Phase 1 if they are (1) subjected to 

and pass the Number of Bids Rule, or (2) 

determined to be non-viable by BOEM. 

All other tracts are sent to Phase 2 for 

further evaluation. Removing the 

Number of Bids Rule will eliminate 

category (1) above. Henceforth, only the 

high bids on Confirmed and Wildcat 

Tracts determined by BOEM to be nonviable may be accepted in Phase 1. 

Moreover, elimination of the Number of 

Bids Rule will not affect any existing 

evaluation procedures and criteria 

employed in Phase 2. 

BOEM does not intend to make any 

other substantive changes to the Bid 

Adequacy Procedures at this time. If the 

proposed change in procedures or some 

variation thereof is adopted, BOEM 

intends to publish the complete and 

revised Bid Adequacy Procedures prior 

to, or in conjunction with, the Central 

Gulf of Mexico Planning Area Lease 

Sale 235 Final Notice of Sale in early 

2015. 

Questions for Respondents 

1. Will removing the Number of Bids 

Rule alter your typical bidding 

behavior? 

2. What adverse effects do you 

envision from removing the Number of 

Bids Rule? 

3. Can you offer any alternatives or 

refinements for ensuring receipt of FMV 

that you deem superior to removing the 

Number of Bids Rule? 

Dated: October 14, 2014. 

Walter D. Cruickshank, 

Acting Director, Bureau of Ocean Energy 

Management. 

[FR Doc. 2014–24727 Filed 10–16–14; 8:45 am] 

BILLING CODE 4310–MR–P 

DEPARTMENT OF THE INTERIOR 

Bureau of Ocean Energy Management 

[MMAA 104000] 

Notice of Availability of the Proposed 

Notice of Sale (NOS) for Central Gulf of 

Mexico Planning Area (CPA) Outer 

Continental Shelf (OCS) Oil and Gas 

Lease Sale 235 (CPA Sale 235) 

AGENCY: Bureau of Ocean Energy 

Management (BOEM), Interior. 

ACTION: Notice of availability of the 

proposed notice of CPA Sale 235. 

SUMMARY: BOEM announces the 

availability of the Proposed NOS for 

proposed CPA Sale 235. This Notice is 

published pursuant to 30 CFR 556.29(c) 

as a matter of information to the public. 

With regard to oil and gas leasing on the 

OCS, the Secretary of the Interior, 

pursuant to section 19 of the OCS Lands 

Act, provides affected States the 

opportunity to review the Proposed 

NOS. The Proposed NOS sets forth the 

proposed terms and conditions of the 

sale, including minimum bids, royalty 

rates, and rental rates. 

DATES: Affected States may comment on 

the size, timing, and location of 

proposed CPA Sale 235 within 60 days 

following their receipt of the Proposed 

NOS. The Final NOS will be published 

in the Federal Register at least 30 days 

prior to the date of bid opening. Bid 

opening currently is scheduled for 

March 18, 2015. 

SUPPLEMENTARY INFORMATION: The 

Proposed NOS for CPA Sale 235 and a 

Proposed NOS Package containing 

information essential to potential 

bidders may be obtained from the Public 

Information Unit, Gulf of Mexico 

Region, Bureau of Ocean Energy 

Management, 1201 Elmwood Park 

Boulevard, New Orleans, Louisiana 

70123–2394. Telephone: (504) 736– 

2519. The Proposed NOS and Proposed 

NOS Package also are available on 

BOEM’s Web site at http://

www.boem.gov/Sale-235/. 

Agency Contact: Robert Samuels, 

Chief, Leasing Division, 

Robert.Samuels@boem.gov. 

Dated: October 14, 2014. 

Walter D. Cruickshank, 

Acting Director, Bureau of Ocean Energy 

Management. 

[FR Doc. 2014–24729 Filed 10–16–14; 8:45 am] 

BILLING CODE 4310–MR–P 

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