Some Issues Affecting Southern California Outer Continental Shelf Oil and Gas Lease Sale 48

EMD-80-47: Published: May 5, 1980. Publicly Released: May 5, 1980.

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GAO was requested to review three specific aspects of the Southern California Outer Continental Shelf (OCS) oil and gas lease Sale 48: (1) the use and impact of the Department of the Interior's (Interior) Environmental Studies Program on sale decisions, (2) the impact of resource reports in selecting tracts to lease, and (3) the rationale for using the sliding scale royalty bidding system in the sale rather than some other bidding alternative. About 13.2 million acres consisting of over 2,400 individual tracts comprise the Southern California OCS. Initially, all of them were considered for lease in Sale 48. Of the 55 tracts eventually receiving bids, 47 tracts, or 85 percent, were located in the Santa Barbara Channel.

Of the 17 studies funded through Interior's OCS Enviromnmental Studies Program for environmental analyses of the Southern California OCS, only three had a clearly identifiable impact on Sale 48 decisions. Reports describing resources in proposed OCS lease areas and the associated multiple-use conflicts that could occur as a result of OCS oil and gas development were requested from 13 federal agencies for the sale. Reports were received from 12 agencies. The reports contained little additional information than that already available to planners from prior sales in Southern California, so that they had little impact on sale decisions. Interior and industry did not agree on the oil and gas potential in the Sale 48 area. Interior estimates showed that half of the 148 tracts had definite oil and gas prospects and that only 10 were economically developable. However, industry bids for the tracts leased were 20 times higher than Interior's valuations. After the sale, Interior found that a series of internal management problems had precluded its field office from adequately evaluating the tracts. Half of the sale tracts were offered for lease under an alternative bidding system in which a bonus bid with a sliding royalty was used. The other half were offered under the traditional bonus bid fixed royalty bidding system. Results of Sale 48 indicated that the two key objectives intended by Congress in adopting alternative bidding systems, increased competition and greater participation from small companies, were not achieved through the sliding scale approach.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of the Interior should issue directives on the preparation of resource reports. Such directives should, as a minimum, address (1) the importance and value of the reports in the leasing process, (2) the information needs for initial sales in frontier areas and procedures for updating the information for follow-on sales, and (3) the need for providing feedback to agencies on the utility of their reports. The Secretary also should closely monitor the efforts to alleviate the problems identified in Sale 48, and determine if these same management problems exist in other Geological Survey offices. The Secretary of Energy should, in conjunction with the Secretary of the Interior, evaluate the impact of the sliding scale royalty bidding system on OCS leasing, including the impact this alternative bidding system has had on the congressional goals of increasing leasing competition and small company participation in lease sales, to determine the appropriateness of continuing with this bidding system in future sales.

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