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Show Notice of intent to offer leases describing in general terms the area subject to nomination should be published in newspapers in the state or states adjacent to the proposed sales area and elsewhere as may be appropriate. This notice should be published coincidentally with the call for nominations or upon the receipt of nominations if made independently of a call, and should set forth the conditions which will require a public hearing. Because of the public's concern over possible adverse effects of Outer Continental Shelf operations, Outer Continental Shelf operational orders should be given even more publicity than the regulations themselves. Such orders, as well as the granting of any waivers of order requirements, should be published in newspapers of general circulation in the states adjacent to the offshore area which they affect, and if objections arise, public hearings, at the state's request, should be held, and findings issued concerning the objections. We recognize that newspapers in the area may, at any particular time, have other items that they consider to be of greater news so that the information may not be published in the news columns even though offered to the press. Likewise, we recognize that publication in the "legal notices" section of a newspaper would not provide the dissemination of information we believe necessary. We, therefore, recommend that when information concerning (7) a call for nomination of tracts, (2) invitation for bids, and (3) details of operational orders or waivers of order requirements are not published as news in the news columns, the operating agency should place a display advertisement in at least one newspaper of general circulation in the area. Modification of Leasing Practices Recommendation 75: The Outer Continental Shelf Lands Act should be amended to give the Secretary of the Interior authority for utilizing flexible methods of competitive sale. Flexible methods of pricing should be encouraged, rather than the present exclusive reliance on bonus bidding plus a fixed royalty. In addition, the timing and size of lease sales, both of which are presently irregular, should be regularized. Furthermore, while discretion to reject bids should remain with the Secretary, this authority should be qualified to require that he state his reasons for rejection. To date, all Outer Continental Shelf leases have been issued with a fixed royalty of 16% percent and have been awarded on cash bonus bids. In the in- 192 terest of conservation, the Secretary may permit a reduction of royalties if the lease cannot be operated successfully at the statutory minimum of \2Vi percent.15 No applicant for this discretionary relief has been filed since leasing activity began in 1954. Our contractor study report and other studies show that a fixed royalty causes the operator to shut down when the margin of revenues over costs fails to cover the fixed royalty, thus resulting in a loss of revenue to the lessor and failure to make maximum recovery of the resource.16 There is some indication, also, that the fixed royalty-cash bonus bid system prevents smaller operating companies from competing for leases. The Commission sees a need for the granting of authority to the Secretary for more flexible methods of pricing. In addition, sales held on pre-announced schedules would enable the industry to adjust its own planning to the sale schedule. Offering a relatively small number of leases at frequent fixed intervals would also afford smaller companies an opportunity to marshal their resources well in advance of sales and, thereby, compete more effectively. It would, furthermore, give both industry and the Government an opportunity to evaluate more effectively the potential of the area to be leased. Of equal importance is the fact that it would give other interested Federal agencies and user groups more lead time to consider the effects on nonmineral resource values. In the exercise of the discretion conferred upon him by statute, the Secretary has by regulation reserved the right to "reject any and all bids" for mineral leases on the Shelf.17 The exercise of that right has been a cause of concern. Approximately 5 percent of high bids htave been rejected, although the ratio of rejections to acceptances of bids has been increasing in recent sales. The Secretary has rejected demands that he state the specific grounds for bid rejection. While the practice of not giving a reason for rejection does not conflict with contract law, the magnitude of the undertaking in exploratory work and the expense incurred by bidders in preparing for a lease sale reinforces the traditional admonition against arbitrariness in government. We recommend that the decision to reject bids should be subject to judicial review only if it can be shown to be arbitrary and an abuse of discretion. Finally, the Commission does not believe that a case has been made for extending the primary term of oil and gas leases on the Shelf, and recommends that it remain 5 years, as now provided. 15 43 U.S.C. § 1334(a)(l) (1964). 16 Nossaman, Waters, Scott, Krueger & Riordan, Outer Continental Shelf Lands of the United States, Ch. 11. PLLRC Study Report, 1969. 17 43 C.F.R. § 3382.5. |