Fair Market Value Determination
Assuring receipt of Fair Market Value on OCS lands was mandated by the OCS Lands Act and its amendments and remains a critical responsibility of the Resource Evaluation Program. Regional 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.
Once a lease sale is completed and the high bidders for each tract are publicly announced, BOEM 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.
In general, the tract evaluation process consists of a 2 phase evaluation process as described below:
Phase 1 of the Fair Market Value Determination 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 Fair Market Value 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, BOEM geologists, geophysicists, petroleum engineers, economists and computer scientists prepare detailed estimates of the economic value of oil and gas resources on each tract. 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. For additional information on Fair Market Value Determination see the BOEM Energy Economics page.