§ 260.110 - What bidding systems may MMS use?

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We will apply a single bidding system selected from those listed in this section to each tract included in an OCS lease sale. The following table lists bidding systems, the bid variables, and characteristics.
For the bidding system—The bid variable is the—And the characteristics are—(a) Cash bonus bid with a fixed royalty rate of not less than 12.5 percentCash bonusThe highest responsible qualified bidder will pay a royalty rate of not less than 12.5 percent at the beginning of the lease period. We will specify the royalty rate for each tract offered in the Notice of OCS Lease Sale published in the Federal Register.(b) Royalty rate bid with fixed cash bonusRoyalty rateWe will specify the fixed amount of cash bonus the highest responsible qualified bidder must pay in the Notice of OCS Lease Sale published in the Federal Register.(c) Cash bonus bid with a sliding royalty rate of not less than 12.5 percent at the beginning of the lease periodCash bonus(1) We will calculate the royalty rate the highest responsible qualified bidder must pay using either:
(i) A sliding-scale formula, which relates the royalty rate to the adjusted value or volume of production, or
(ii) A schedule that establishes the royalty rate that we will apply to specified ranges of the adjusted value or volume of production.
(2) We will determine the adjusted value of production by applying an inflation factor to the actual value of production.
(3) If you are the successful high bidder, your lease will include the sliding-scale formula or schedule and will specify the lowest and highest royalty rates that will apply.
(4) You will pay a royalty rate of not less than 12.5 percent at the beginning of the lease period.
(5) We will include the sliding-scale royalty formula or schedule, inflation factor and procedures for making the inflation adjustment and determining the value or amount of production in the Notice of OCS Lease Sale published in the Federal Register.

(d) Cash bonus bid with fixed share of the net profits of no less than 30 percentCash bonus(1) If we award you a lease as the highest responsible qualified bidder, you will determine the amount of the net profit share payment to the United States for each month by multiplying the net profit share base times the net profit share rate, according to § 220.022. You will calculate the net profit share base according to § 220.021.

(2) You will pay a net profit share of not less than 30 percent.

(3) We will specify the capital recovery factor, as described in § 220.020, and the net profit share rate, both of which may vary from tract to tract, in the Notice of OCS Lease Sale published in the Federal Register.

(e) Cash bonus with variable royalty rate(s) during one or more periods of productionCash bonus(1) We may suspend or defer royalty for a period, volume, or value of production. Notwithstanding suspensions or deferrals, we may impose a minimum royalty. The suspensions or deferrals may vary based on prices or price changes of oil and/or gas.

(2) You may pay a royalty rate less than 12.5 percent on production but not less than zero percent.

(3) We will specify the applicable royalty rates(s) and suspension or deferral magnitudes, formulas, or relationships in the Notice of OCS Lease Sale published in the Federal Register.

(f) Cash bonus with royalty rate(s) based on formula(s) or schedule(s) during one or more periods of productionCash bonusWe will base the royalty rate on formula(s) or schedule(s) specified in the Notice of OCS Lease Sale published in the Federal Register.

(g) Cash bonus with a fixed royalty rate of not less than 12.5 percent, at the beginning of the lease period, suspension of royalties for a period, volume, or value of production, or depending upon selected characteristics of extraction, and with suspensions that may vary based on the price of productionCash bonusExcept for periods of royalty suspension, you will pay a fixed royalty rate of not less than 12.5 percent. If we award to you a lease under this system, you must calculate the royalty due during the designated period using the rate, formula, or schedule specified in the lease. We will specify the royalty rate, formula, or schedule in the Notice of OCS Lease Sale published in the Federal Register.

                    
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