Offshore Lease Sale 59 Affected by Differing Views on Oil and Gas Potential

GAO reviewed the factors that may have caused the high bid-rejection rate and the low bonus revenues in the Outer Continental Shelf (OCS) Lease Sale 59.

GAO found that nearly half of the high bids submitted on tracts in the mid-Atlantic OCS Lease Sale 59 were rejected by the Department of the Interior as being less than the fair market value for the oil and gas resources believed contained on the tracts. This rejection rate is unprecedented when compared with past leasing experience in which Interior rejected about 10 percent of industry's high bids. Although available evidence is not sufficient to determine what accounted for the differing tract value estimates in the sale and the high bid-rejection rate, GAO believes the major cause was that Interior's estimate of the quantity of oil and gas potential in the sale area exceeded that of industry's. Interior rejected no bids because of insufficient competition. Thus, the lack of competition was not a factor in the bid-rejection rate in the sale. Alternative bidding systems were mandated under the OCS Lands Act Amendment of 1978 as a means of reducing the up-front dollar amounts required to obtain a lease and increasing competition in OCS sales. About one-third of the tracts offered in sale 59 were offered under an alternative to the traditional bidding system. In presenting its accelerated leasing approach to Congress, Interior proposed a new approach for evaluating and accepting bids for offshore tracts in which only selected tracts will be evaluated using traditional techniques.