Fair Market Value
Determination
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
BOEMRE 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 BOEMRE
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, BOEMRE 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.
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