with the provisions of paragraph (a)(6)(i) of this section; or

(4) The primary term of the lease, or any extension thereof, has expired or the lease has been relinquished.

(B) Expenditures incurred in performing qualifying exploration activities for any additional prospect(s) may be allowable in satisfaction of the work commitment despite the termination of the period for qualifying exploration activities for a previous prospect on the same tract. However, such expenditures are only allowable in satisfaction of the work commitment if, in the judgment of the USGS designated official, any such additional prospect(s) is sufficiently separate and distinct as to require a discrete exploration effort.

(vii) Allowable and unallowable expenditures. (A) Expenditures for qualifying exploration activities specified in paragraph (a)(6)(v) of this action shall be allowable to the extent that they are identified, measured, and allocated in accordance with the provisions of §§ 390.011(a) through (n) and (p), 390.014, and 390.015 of this chapter.

(B) Fifty percent of the allowable expenditures for qualifying exploration activities specified in paragraph (a)(6)(v) of this section that are incurred prior to the termination of the period for qualifying exploration activities specified in paragraph (a)(6)(vi) of this section, shall be included in determining the satisfaction of the work commitment.

(C) A lessee's general overhead costs and those costs identified in § 390.013 of this chapter shall not be allowed as expenditures to be applied in satisfaction of the work commitment.

(D) For purposes of determining allowable and unallowable expenditures, any reference in §§ 390.011, 390.013, 390.014, or 390.015 of this chapter that would restrict the application of any provision to a lease issued under a net profit share bidding system or to an operation, project area, property, or tract related to such a lease shall be deemed a reference to a lease issued under the work commitment bidding system described in paragraph (a)(6) of this section or to an operation, project area, property, or tract related to such a lease.

(E) To the extent that any provision of §§ 390.011, 390.013, 390.014, or 390.015 of this chapter specifies a particular accounting procedure which relates solely to the calculation of net profits due to the government, rather than a mechanism for identifying, measuring, or allocating costs, such provision shall not apply.

(viii) Adjustment to allowable expenditures. (A) Expenditures allowable under paragraph (a)(6)(vii) of this section shall be adjusted before being applied in satisfaction of the work commitment.

(B) The Secretary of the Interior, concurrently with the review of reports submitted in compliance with paragraphs (a)(6)(ix) (A) and (B) of this section, shall adjust such allowable expenditures by applying a factor that is obtained from the Producer Prices and Price Indexes, Oil Field Machinery and Tools, Commodity Code No. 1191, published by the Department of Labor, Bureau of Labor Statistics, for the calendar period corresponding to the reporting period.

(C) The procedures for calculating the adjustment shall be included in the notice of OCS lease sale and published in the FEDERAL REGISTER.

(ix) Reporting and record keeping requirements. (A) Each person holding a lease issued under paragraph (a)(6) of this section shall file an annual report during the period beginning with issuance of the work commitment lease and ending with the termination of the period for qualifying exploration activities as specified in paragraph (a)(6)(vi) of this section. This report shall be submitted not later than 90 days after the anniversary date of the issuance of the lease. Such report shall list the allowable exploration expenditures to be applied in satisfaction of the work commitment.

(B) A final report relating to the allowable expenditures shall be filed not later than 120 days after the termination of the period for qualifying exploration activities as specified in paragraph (a)(6)(vi) of this section.

(C) For each report filed under paragraphs (a)(6)(ix) (A) and (B) of this section, the following information is required:

(1) The dollar amount of the work commitment;

(2) The dollar amount previously permitted by the Secretary of the Interior to be applied in satisfaction of the work commitment; and

(3) The dollar amount and description of all expenditures and credits for qualifying exploration activities incurred during the reporting period.

(D) Reports required by paragraphs (a)(6)(ix) (A) and (B) of this section shall be filed with the Director, USGS, either separately, or included with any other reports currently required.

(E) Each person holding a lease issued under paragraph (a)(6) of this section shall maintain such records as are necessary to establish the allowability of expenditures for qualifying exploration activities specified in paragraph (a)(6)(v) of this section and claimed in satisfaction of the work commitment. Such records shall be maintained for twelve months after the termination of the period for qualifying exploration expenditures as specified in paragraph (a)(6)(vi) of this section, except that nothing in these regulations shall limit the time of investigation or the need to produce records when prima facie evidence of fraud or willful misconduct is obtained with respect to the government's interest in a lease issued under paragraph (a)(6) of this section.

(x) Reduction of cash deposit or bond. The Secretary of the Interior shall review the reports submitted in compliance with paragraphs (a)(6)(ix) (A) and (B) of this section and shall determine the total dollar amount of allowable expenditures incurred during the reporting period. Upon making the determination that the lessee has satisfied any portion or all of the work commitment, and after having adjusted the allowable expenditures in accordance with the provisions contained in paragraph (a)(6)(viii) of this section and having determined the dollar amount that may be applied in satisfaction of the work commitment, the Secretary of the Interior shall, if the lessee delivered a cash deposit, remit to the lessee 50 percent of such amount or, if the lessee posted a performance bond, authorize the lessee to reduce the princi

pal amount of the performance bond by 50 percent of such amount. The dollar amount of the work commitment remaining after subtracting the amount that may be applied in satisfaction of the work commitment shall be the adjusted balance.

(xi) Payment of unsatisfied work commitment. (A) At the termination of the period for qualifying exploration activities for all prospects on a tract as specified in paragraph (a)(6)(vi) of this section, the lessee shall file a final report relating to allowable expenditures in accordance with the provisions of paragraph (a)(6)(ix)(B) of this section. The Secretary of the Interior shall review such reports, adjust the allowable expenditures in accordance with the provisions of paragraph (a)(6)(viii) of this section, determine the amount that may be applied in satisfaction of the work commitment, determine the final adjusted balance, and notify the lessee of the final adjusted balance.

(B) If, after making the determinations specified in paragraph (a)(6)(xi)(A) of this section, the full dollar amount of the work commitment has not been satisfied, the final adjusted balance shall be paid in cash to the Secretary of the Interior. If the lessee delivered a cash deposit, the final adjusted balance shall be forfeited at the time of notification. If the lessee posted a performance bond, the final adjusted balance of the bond required by the Secretary of the Interior to be maintained at that time shall be paid to the Secretary of the Interior within 30 days of such notification.

(b) The value basis for determining the actual value of production and for purposes of computing royalty in accordance with the bidding systems established by paragraph (a) of this section shall be as described in 30 CFR 250.64; Provided, however, That with respect to oil, the first sale of which is controlled under 10 CFR Part 212, the value shall not exceed the lawful first sale price of such oil; and Provided further, That with respect to gas, the value shall not exceed the sale price established by the Federal Energy Regulatory Commission.

(c) DOE may, by rule, add to or modify the bidding systems listed in

paragraph (a) of this section, in accordance with the procedural requirements of section 501 of the DOE Act.

[45 FR 9539, Feb. 12, 1980, as amended at 45 FR 36800, May 30, 1980; 46 FR 29689, June 2, 1981; 46 FR 35625, July 9, 1981]

§ 376.111

Criteria for selection of bidding systems and bidding system components.

(a) In analyzing and making recommendations to DOI regarding the application of one of the bidding systems listed in § 376.110(a) to tracts selected for any OCS lease sale, and in reviewing lease terms and conditions prior to determining whether to exercise its section 303(c)(1) DOE Act disapproval authority, DOE may, in its discretion, consider the following purposes and policies, recognizing that each of the purposes and policies may not be specifically applicable to the selection process for a particular bidding system and tract or may present a conflict that will have to be resolved in the process of bidding system selection, and that the order of listing does not denote a ranking:

(1) Providing fair return to the Federal Government;

(2) Increasing competition;

(3) Assuring competent and safe operations;

(4) Avoiding undue speculation;

(5) Avoiding unnecessary delays in exploration, development, and production;

(6) Discovering and recovering oil and gas;

(7) Developing new oil and gas resources in an efficient and timely manner;

(8) Limiting administrative burdens on Government and industry; and

(9) Providing an opportunity to experiment with various bidding systems to enable the identification of those that are the most appropriate for the satisfaction of the objectives of the United States in OCS lease sales.

(b)(1) In considering the potential disapproval of the application of the bidding system or systems for an OCS lease sale and the components of such system or systems, and in performing the analysis and review referred to in paragraph (a), DOE may, in its discretion, take into account the following

in relation to their impact upon the purposes and policies enumerated in paragraph (a) of this section:

(i) A projection of the number and characteristics of persons who would be interested in and capable of participating in the sale;

(ii) The relationship between economic rent and government revenue;

(iii) The incentives and disincentives for exploration, development and production;

(iv) The projected level of total production and expected production profile;

(v) The estimated size and location of potential reservoirs, including the type of resources (oil and/or gas), depth of water, climatic region, proximity to pipelines, proximity to leased and/or developed tracts and leasing history;

(vi) Location of potential reservoirs that overlap boundaries and unitization considerations;

(vii) Risk sharing between lessor and lessee; and

(viii) Administrative burden on the lessor and lessee.

(2) Some of the above factors are tract-specific, whereas others have a regional orientation. In making the evaluation associated with application of the above factors to the process of applying bidding systems to the tracts included in an OCS lease sale, objective and subjective analytical techniques will be employed, which may include the application of computer simulation models.

(c) The bidding systems listed in § 376.110(a)(2) and (3) shall be applied to not less than 20 per centum and not more than 60 per centum of the total area offered for leasing each year during the five-year period commencing on September 18, 1978, unless DOI determines, after consultation with DOE, that the maximum and minimum per centum limitations set forth in this section are inconsistent with the purposes and policies of the OCSLA.

§ 376.303 Joint bidding requirements.

(a) Any person who submits a joint bid for any OCS oil and gas lease during a six-month bidding period and who was chargeable for the prior production period with an average daily production in excess of 1.6 million barrels of crude oil, natural gas equivalents, and liquefied petroleum products, shall have filed a Statement of Production with the Director, Bureau of Land Management, in accordance with the requirements of 43 CFR 3316.3. The Statement of Production shall state that the person filing the Statement is chargeable for the prior production period with an average daily production in excess of 1.6 million barrels of crude oil, natural gas equivalents, and liquefied petroleum products.

(b) No person chargeable for the prior production period with an average daily production in excess of 1.6 million barrels of crude oil, natural gas equivalents, and liquefied petroleum products may submit a joint bid for any OCS oil and gas lease during the applicable six-month bidding period with any other person similarly chargeable. Such bids shall be disqualified and rejected.

(c) No person may submit any bid during the applicable six-month bidding period pursuant to any agreement, the terms of which would result in two or more persons, each chargeable for the prior production period

378.110 Bidding systems and procedures. 378.111 Review of lease terms and conditions.

AUTHORITY: Act of February 25, 1920, ch. 85, secs. 2, 7, and 32, 41 Stat. 43, 439, 450 (30 U.S.C. 201, 207, and 189), as amended by sec. 1, 62 Stat. 289, sec. 2., Pub. L. 86-252, 73 Stat. 490, sec. 2, Pub. L. 88-526, 78 Stat. 710, secs. 2, 3, 4, and 7, Pub. L. 94-377, 90 Stat. 1083, 1084, 1085, 1087, sec. 2, Pub. L. 95-554, 92 Stat. 2073; Act of August 7, 1947, ch. 513, sec. 3 and 10, 61 Stat. 914, 915 (30 U.S.C. 352 and 359); secs. 302 and 303, Pub. L. 95–91, 91 Stat. 578, 579 (42 U.S.C. 7152 and 7153).

SOURCE: 45 FR 84932, Dec. 23, 1980, unless otherwise noted.

Subpart A-General Provisions

§ 378.001 Purpose and scope.

Part 378 implements DOE's authority under sections 302(b) and 303 of the DOE Act with respect to the leasing of Federal lands for coal exploration and development under the MLLA and the MLAAL.

§ 378.002 Definitions.

For the purposes of this Part 378"Coal" means coal of all ranks, from lignite to anthracite, and all grades.

"Coal lease" means a Federal lease for coal issued under the MLLA or the MLAAL.

"MLLA" means the Mineral Lands Leasing Act of 1920, as amended (Act of February 25, 1920, ch. 85, 41 Stat. 437 (30 U.S.C. 181 et seq.)).

"MLAAL" means the Mineral Leasing Act for Acquired Lands, as amend

For purposes of this Subpart B"Coal lease sale" means the DOI process by which leases on certain coal tracts are offered for sale.

"Logical Mining Unit" or LMU means an area of coal land that can be developed and mined in an efficient, economical, and orderly manner with due regard for the conservation of coal reserves and other resources. An LMU may consist of one or more leases and may include intervening or adjacent non-Federal lands; but all lands in an LMU must be contiguous, under the effective control of a single operator, and capable of being developed and operated as a unified operation with complete extraction of the LMU reserves within 40 years from the date of final approval of the mining plan for the LMU. No LMU approved after August 4, 1976, shall exceed 25,000 acres, including both Federal and nonFederal coal deposits.

"Notice of Sale" means the notice to the public and interested parties of a Federal coal lease sale published in the FEDERAL REGISTER by DOI. This Notice is published a minimum of 30 days prior to the sale and contains all information relevant to the sale and the manner in which it is to be conducted.

"Tract" means Federal land that is offered for lease through a coal lease sale and is described and identified in a Notice of Sale.

"Value of coal" means the worth of the coal removed and sold during a production period from a tract or, if the tract is part of an LMU, the worth

of all coal removed, sold and credited to the tract under the agreement creating the unit, as determined in accordance with 30 CFR 211.63.

§ 378.110 Bidding systems and procedures.

(a) The bidding system described in this paragraph shall be applied to each tract included in a competitive coal lease sale, including those tracts reserved and offered for lease to public bodies and small businesses. The bidding system shall be published by DOI in the Notice of Sale that appears in the FEDERAL REGISTER.

(1) Cash bonus bid with a fixed royalty and a fixed annual acreage rental.

(i) The cash bonus is the bid variable and is determined by the bidder. If a sale is to be held on a deferred bonus basis, this fact shall be stated in the Notice of Sale published in the FEDERAL REGISTER.

(ii) The royalty to be paid by the successful bidder shall be an amount equal to the royalty rate times the value of coal from that lease. The royalty rate shall not be less than 121⁄21⁄2 per centum, except that a lesser royalty rate may be allowed in the case of coal recovered by underground mining operations. The royalty rate shall be specified in the Notice of Sale published in the FEDERAL REGISTER.

(iii) The annual acreage rental to be paid by the successful bidder shall be the amount specified in the Notice of Sale published in the FEDERAL REGISTER. However, the minimum annual rental per acre or fraction thereof shall be $3 for each and every year during the continuance of the lease.

§ 378.111 Review of lease terms and conditions.

(a) In reviewing lease terms and conditions prior to determining whether to exercise its disapproval authority under section 303(c)(1) of the DOE Act, DOE may, in its discretion, consider the following purposes and policies, recognizing that each of the purposes and policies may not be specifically applicable to a given lease and that the order of listing does not denote a ranking:

(1) Providing fair return to the Federal Government;