(S. 993), BLM Organic Act (National Resource Land Management Act) (S. 2401), and the Mining Law Reform Act (S. 2727).

Question 3. To the extent that receipt of "fair market value" is an objective of management policy for any resource, how is each such resource evaluated before lease or sale, when reviewing bids, when reviewing a lease for renewal or other purposes, and when determining royalty obligations? For each resource, and in each instance :

(a) Who makes the evaluation?

(b) What is net public resource value, and how is it measured and how is it used in evaluation?

(c) What is fair market value, and how is it measured and how does it relate to the evaluation?

(d) Distinguish, if possible, between fair market value and maximization of government revenue.

(e) Is a discounted cash flow analysis used in leasing evaluations? If so, how?

(f) How is fair market value determined in isolated, non-industrialized areas?

Answer 3.

OCS

(a) The Geological Survey makes pre-sale estimates of OCS tracts offered for lease in cooperation with the BLM, which performs an audit and review function. Discussion of our evaluation procedures is found in the answer to question 50 (a).

Rentals and royalties are fixed at the time tracts are offered under the OCS cash bonus bidding system. The estimated bonus serves as an indication of fair market value.

The judgment whether a high bid represents fair market value, includes a post-sale review of the following factors: (1) the relationship of the high bid to the pre-sale tract evaluations provided by the GS. (2) sale competition, and (3) the competitive bidding performance of high bids for adjoining and nearby tracts. Discussion of the post-sale analysis is given to the answer to question 40 (a).

(b) Net public resource value is calculated as the value that operation of the lease is expected to yield given certain assumptions as to value and character of the resource after allowance for development and operating costs, taxes, fees and royalties, assumed profit, and risks. It is measured prior to the sale in the manner discussed in first paragraph of item (a) above. It represents a pre-sale evaluation and provides the Department with one indicator of whether the high bid received on a tract represents fair market value.

(c) Fair market value is the price that would be paid by a willing buyer and a willing seller each knowing all the facts at a given time in a perfectly competitive market. Fair market value is assessed as described in (a) above.

(d) Fair market value and maximization of government revenues are not necessarily related. Discussion is in the answer to question 40(c).

(e) A discounted cash flow analysis normally is used in the calculation of net public resource value.

(f) Not applicable to the OCS.

Onshore-Coal, Onshore oil and gas, Oil shale (and other hydrocarbons, tar sands, etc.), Coal, Geothermal energy, and Uranium An evaluation is made before each onshore lease sale, when reviewing bids, reviewing leases for renewal, and when determining royalty obligations, however, the Department's onshore evaluation systems for all mineral leases are continually being revised to adopt the best concepts of mineral evaluation applicable to the particular evaluations being made in order to achieve the goal of the receipt of fair market value.

(a) The Geological Survey makes the evaluation, and the resultant recommendations and summary report are submited to the BLM for review and a decision.

(b) The net public resource value definition for onshore minerals is the same as described for the OCS. The net resource value is used in the evaluation of the leases as an indicator of whether the high bid received represents fair market value.

(c) Fair market value definition for onshore minerals is also covered in the answer to 40 (c).

(d) The distinction between fair market value and maximization of government revenue for onshore minerals is the same as described for the OCS.

(e) In the onshore leasing evaluation system, a discounted cash flow analysis will be used when the degree of sensitivity of the DCF figure is within acceptable limits relative to input parameter (e.g. estimates of reserves) and the level of uncertainty.

Where the DCF method cannot be used a multiple regression-correlation model may be used to estimate acceptable minimum bonus bids from past comparable sales.

(f) The net public resource value will be estimated as outlined in 3(b) above, and will be used as an indicator of fair market value. In isolated, nonindustrialized areas, the discounted cash flow analysis or other method used will consider additional transportation costs and other additional costs. In those instances where a market is absent, judgment factors based on previous sales of like resources will be employed to determine if the bonus bid is adequate to insure that fair market value is obtained. Minimum production requirements in the lease will also help insure the receipt of fair market value.

Question 4. Describe briefly the system (location, competitive lease, lease to first applicant, prospecting permit with preference right, negotiated sale, etc.) used to make each resource available for private development.

Answer 4. (a) Outer Continental Shelf mineral leases may be issued only on a competitive bidding basis as follows:

Oil and Gas.-Sealed bids on the basis of highest cash bonus with fixed royalty; or sealed bids on the basis of highest royalty with a fixed cash bonus.

Other OC'S Minerals.-Sealed or oral bids on a high cash bonus basis.

(b) Coal.-Federal coal deposits are available for private development in the discretion of the Secretary either through competitive leasing or by prospecting permits with a preferential right to lease. Lands containing known workable deposits of coal can be leased only by competitive leasing. Other lands may be leased for private development through the prospecting permit-preference right lease system.

(c) Oil Shale.-Federal oil shale deposits may be leased in the discretion of the Secretary through competitive leasing with bonus bidding and fixed royalty.

(d) Geothermal Energy.-Federal geothermal resources may be leased in the discretion of the Secretary. For tracts within Known Geothermal Resource Areas (KGRA), leases may be issued by competitive leasing with bonus bidding and fixed royalty. For tracts not within KGRA, leases may be issued without competitive bidding. Geothermal tracts subject to valid "grandfather claims" if they are outside of KGRA may be issued to the claimant as a conversion of his mineral lease or permit or mining claims to a lease. If the "grandfather claim" is within a KGRA, a competitive lease sale must be held. The lease may be issued to the claimant if he matches the high bid.

(e) Onshore Oil and Gas.-Federal onshore oil and gas leases may be issued in the discretion of the Secretary. Leases are issued either competitively or noncompetitively. Leases for lands within a Known Geological Structure (KGS) must be issued competitively with bonus bidding and fixed royalty. Leases for other lands are issued noncompetitively. Noncompetitive leases for lands outside KGS's may be issued under specified circumstances through the simultaneous filing system. All applications for the lands meeting these last requirements for each particular month are considered to be filed simultaneously and a drawing is held to determine the successful applicant.

(f) Uranium.-For Federal lands subject to uranium leases (i.e., the acquired lands and the lands embraced within AEC withdrawals), known valuable uranium mineral deposits may be leased through competitive leasing with bonus bidding and fixed royalty. Those Federal lands subject to uranium leasing that do not contain a known valuable uranium mineral deposit may be leased through a prospecting permit system with a preference right to lease upon discovery of a valuable deposit. All the unreserved public domain is open to the location. of uranium mining claims under the provisions of the 1872 Mining Law. A valid location entitles the mining claimant to extract the ore. The claimant may patent his mining claim after satisfying certain requirements of the law. He then receives fee title to the surface, including any mineral deposits thereunder (excluding leaseable minerals known to be valuable at the time of patent).

Question 5. What initiative or action is required by a private party to obtain rights to each resource?

Answer 5.

OCS

A private party may obtain rights to OCS mineral resources only by participating in competitive lease sales or by acquiring interests in leases that were earlier issued by competitive bidding. He may, from tme to time, express his interest in having particular OCS tracts offered for competitive lease sale by submitting nominations to the Department, either on his own motion or pursuant to a formal Departmental call for nominations.

Onshore

Generally, a private party may obtain leasing or prospecting rights to a leasable onshore mineral resource by submitting a prospecting permit application or lease offer with the BLM land office having

jurisdiction over the lands. The subject is treated in further detail in the answers to question 4.

In the case of oil shale and geothermal energy, a private party may nominate tracts for lease when the Department invites nominations. Question 6. What discretionary authority, if any, has the Interior Department to lease or not to lease, or otherwise to open or close lands to development of each resource?

(a) Specify the source of the authority (statute or regulations) and identify the criteria which determine the conditions and purposes for which the authority may be exercised.

(b) Is the existing authority for each energy resource adequate to protect other resources and values found on and associated with the public lands?

Answer 6.

OCS

(a) The Secretary of the Interior has complete discretionary authority under the Outer Continential Shelf Lands Act to lease or not to lease mineral resources on the OCS. Under Section 12(a) of the Act, the President may formally withdraw from disposition any of the unleased lands of the OCS.

(b) As the authority to lease is discretionary and as there is great flexibility in fixing the terms and conditions of the leases that are issued, there exists substantial legal authority to protect resources and values associated with OCS lands.

Onshore

The Secretary has a wide area of discretionary authority to lease or not to lease, or otherwise to open or close lands to development of each onshore leasable resource. This authority is given in the Geothermal Steam Act of 1970 (30 U.S.C. §§ 1001-1025) for geothermal resources and in the Mineral Leasing Act of February 25, 1920 as amended and supplemented (30 U.S.C. §§ 181-287) and the Acquired Lands Leasing Act of August 7, 1947 (30 U.S.C. §§ 351-359) for other leasable minerals. Leasing generally has been on the basis of industry expressions of interest.

(a) The criteria which determine the conditions and purposes for which the authority may be exercised are discussed generally

under answer 4.

(b) The existing authority for each onshore energy resource except uranium deposits subject to location under the 1872 Mining Law, is adequate to protect other resources and values found on and associated with the public lands.

With respect to uranium subject to location under the 1872 Mining Law, major revisions of the existing mining law are necessary to adequately protect other resources and values found on and associated with the public lands.

Question 7. What discretionary authority, if any, has the agency arith jurisdiction over the surface (if other than Interior) to open or close lands to development of each resource?

Answer 7.

OCS

No agency other than the Department of the Interior has general administrative jurisdiction of the submerged lands of the OCS, or of

the waters, which allows for discretionary authority to close the area to mineral resource development.

There is, however, authority under the Act of February 28, 1958 (43 U.S.C. Secs. 155-158), for the restriction for the Department of Defense of OCS lands if the restriction does not exceed 5,000 acres. Restrictions of over 5,000 acres may be made only with the consent of Congress. The Defense Department has, however, designated large areas of the OCS, particularly offshore the East coast and the Gulf Coast of Florida, for Air Force and Navy Training and testing purposes. The Interior Department coordinates closely with Defense before initiating mineral leasing actions in those areas.

Onshore minerals

Section 3 of the Mineral Leasing Act for Acquired Lands (30) U.S.C. 352) provides that "No mineral deposit covered by this section. shall be leased except with the consent of the head of the Executive Department, independent establishment, or instrumentality having jurisdiction over the lands containing such deposit..." Therefore, the agency with jurisdiction over the surface of acquired lands has absolute discretion to prevent the issuance of a prospecting permit or of a lease other than one based upon preferential rights obtained under a prospecting permit, but only the Secretary has authority to issue a prospecting permit or lease. Where a permit confers on the permittee an unqualified right to a lease upon the fulfillment of certain conditions, the Secretary has no discretion to refuse to issue the lease if those conditions are fulfilled.

For public domain lands, the discretionary authority rests with the Secretary of the Interior, but the surface administering agency may file its objections to the issuance of a lease.

Question 8. How is the price determined that is paid to the government for each resource or the right to develop it? To what exent is the system of pricing and/or the specific price prescribed by law, and arhat, if any, discretionary authority has the Interior Department over them?

Answer 8.

OCS

The price paid to the Government for OCS mineral leases is determined through cash bonuses submitted on tracts in a competitive sealed bidding system. A bid submitted on a tract reflects the individual bidder's resource evaluation of that tract along with associated market factors including the national and the bidder's supply and demand situations, the bidder's financial and reserve position. and the anticipated level of competition for tracts.

The OCS Lands Act prescribes that leases for oil and gas tracts on the OCS are to be offered competitively either by cash bonus bidding with a fixed royalty or by royalty bidding with a fixed cash bonus. The Secretary has authority to choose the method of bidding and to fix the royalty rate with a cash bonus bidding system or to fix the cash bonus to be naid with a rovalty bidding system.

When the sealed bids on all tracts have been publicly opened and read, it is the responsibility of the BLM Manager of the New Orleans OCS Office to decide whether or not leases shall issue to the high bidders on tracts. To aid the Manager in this decision-making process.