Overview
	Methodology
	Federal Register Notices

Overview

Assuring receipt of Fair Market Value on OCS lands was mandated by the OCS Land Act and its amendments and remains a critical responsibility of the Resource Evaluation Program. Regional RE offices, in conjunction with headquarters oversight, perform the functions necessary to thoroughly assess the oil and gas potential and fair market value of OCS tracts offered for lease. These tracts are offered through sales that are conducted in accordance with the OCS 5-Year Oil and Gas Leasing Program. As a result of this program, the MMS has become the second (after IRS) highest revenue provider for the US Federal Government.

Once a lease sale is completed and the high bidders for each tract are publicly announced, the MMS follows specific bid adequacy procedures to ensure that the government receives fair market value for the tracts receiving bids, This process is carried out in several phases and incorporates Geological and Geophysical data along with Reserve, Resource, Engineering and Economic information into a sophisticated discounted cash flow computer model. The goal of that model is to achieve estimates of fair market value on tracts receiving bids. For more details on the modeling software please refer to the MONTCAR  Methodology section.

More information on bidding procedures is provided in the Federal Register Notices section.

In general, the tract evaluation process consists of Phase 1 and Phase 2 described below.

Phase 1 of the process is conducted on a tract-by-tract basis and is normally completed fairly early following the bid opening. It is designed to accept those high bids where the competitive market can be relied upon to assure receipt of FMV or where Government data indicate the tract does not contain viable prospect.

Those high bids not accepted in Phase 1 receive further evaluation in Phase 2. For those high bids, MMS geologists, geophysicists, petroleum engineers, economists and computer scientists prepare detailed estimates of the economic value of oil and gas resources on each tract in Phase 2. The high bids are then compared to Government estimates of economic value of the corresponding tract. That value is determined by calculating the amount of economically recoverable resources, estimating recovery factors, production profiles, exploration and development costs, operating costs, revenue streams, and performing a discounted cash-flow analysis. The computer simulation model performing that task also  incorporates  geologic and economic risking. The prospect-specific analyses are incorporated into the regional maps. Most analyses are undertaken based upon data available at the time of the sale; however, additional geophysical and geological data may be obtained after the sale at the discretion of the Regional Director. Generally, the Regional Director must accept or reject all bids within 90 days after the date on which they are opened. Any bid not accepted within 90 days is rejected. Companies have 15 days to appeal any rejection. See MONTCAR Methodology for a complete discussion of Phase 2.