1). In 2012 about 126 million tons of coal was  exported––about 12 percent of the total coal produced in the United  States. In total,  revenues from federal coal leases have generated about $1 billion  annually in recent years. Of the 107 Tracts Leased Since 1990, About 90 Percent Had a Single Bidder, and Most Were Leased the First Time Offered

In 1990, BLM began using the lease-by-application process as the  primary method to lease out coal, and since then BLM has leased 107  coal tracts, 31 of which were in Wyoming. Royalties. Bonus bids. BLM’s Implementation of the Fair Market Value Process Lacks Sufficient Rigor and Oversight

BLM’s guidance offers flexibility in how to estimate fair market value, and  BLM state offices vary in the approaches they use to develop an estimate  of fair market value. Some state offices use both the comparable sales  and income approaches in their appraisals while others rely solely on the  comparable sales approach and may not be fully considering future  market conditions as a result. In addition, we found that BLM did not  consistently document the rationale for accepting bids that were initially  below the fair market value presale estimate, and some state offices were  not following guidance for review of appraisal reports. Furthermore, no  independent review of appraisals is taking place, as is recommended by  commonly used appraisal standards, despite Interior having expertise that  could be leveraged to do so. Under the comparable sales approach, bonus bids received for  past sales are used to value the tract being appraised. BLM State Offices Differ in Their Appraisal Approaches, and Some Offices May Not Be Fully Considering Future Market Conditions as a Result

During our interviews with BLM officials, we found that BLM state offices  use different approaches to develop an estimate of fair market value of  coal leases, and we confirmed this during our case file review. In addition, BLM is not currently taking advantage of a potential  independent third-party reviewer with appraisal expertise within Interior,  specifically, the Office of Valuation Services. BLM Considers Coal Exports to Limited Extent When Estimating Fair Market Value and Does Not Consider Domestic Reserve Estimates Because of Their Variable Nature

BLM considers coal exports to a limited extent when developing an  estimate of fair market value and generally does not explicitly consider  estimates of the total amount of coal in the United States that can be  mined economically, known as domestic reserve estimates. As a result, BLM may  not be factoring specific export information into appraisals or keeping up- to-date with emerging trends. Domestic reserve estimates are not  considered due to the variable nature of these estimates according to  BLM officials. BLM Provides Limited Information on Federal Coal Lease Sales to the Public

BLM generally provides limited information on federal coal lease sales to  the public. In contrast, the New Mexico state office had no coal leasing  information on its website. The Wyoming BLM officials’ point of view  stands in conflict with BLM’s guidance that additional information in the  form of public versions of the appraisal report should be prepared and the  Office of the Solicitor’s determination that FOIA does not allow BLM to  withhold entire documents relating to the estimate of fair market value in  response to FOIA requests when portions of these documents contain  information that is not protected from disclosure and should be released. Adequate oversight of the fair market value process is critical to ensuring  that its results are sound and properly reviewed. Finally, BLM provides  little summary information on its websites on past lease sales or links to  sale-related documents. Appendix I: Objectives, Scope and Methodology

Our objectives were to examine (1) federal coal leasing, including the  number of tracts leased, along with the trends in associated coal  production and revenues generated since 1990; (2) Bureau of Land  Management’s (BLM) implementation of the process to develop an  estimate of fair market value for coal leases; (3) the extent to which BLM  considers coal exports and domestic coal reserve estimates when  developing an estimate of fair market value; and (4) the extent to which  BLM communicates information on federal coal lease sales to the public. We also analyzed data on coal  production and revenues generated from federal coal leases from fiscal  years 1990 to 2012 from the Department of the Interior’s Office of Natural  Resources and Revenue (ONRR), which is responsible for collecting and  distributing revenues associated with federal mineral leases including  federal coal leases. Reports that are relevant to the determination of fair market value include  the following: geologic reports, which contain an estimate of the amount of coal that  can be recovered on the lease tract along with the characteristics of  the coal, including its heating content; engineering reports, which generally contain estimates of the costs to  extract the coal based on the number of employees and capital  equipment necessary to carry out mining activities; economic reports, which establish price and demand levels for the  lease tract’s coal; and appraisal reports, which document the fair market value for the lease  tract, along with an explanation of the methods used to develop this  number.
Why GAO Did This Study

In fiscal year 2012, about 42 percent of the 1.05 billion tons of coal produced in the United States came from coal tracts leased under the federal coal leasing program. Interior's BLM is responsible for managing this program, including estimating the fair market value of the coal to be leased. GAO was asked to examine this program. (Representative Markey originally made this request as Ranking Member of the House Committee on Natural Resources. He is now a member of the United States Senate.) This report examines (1) the number of tracts leased, along with the trends in associated coal production and revenues generated since 1990; (2) BLM's implementation of the process to estimate fair market value for coal leases; (3) the extent to which BLM considers coal exports and domestic coal reserve estimates when estimating fair market value; and (4) the extent to which BLM communicates information on federal coal lease sales to the public. GAO analyzed data on coal leasing activity, examined regulations and case files for coal lease sales, and interviewed BLM and other officials.

What GAO Found

Since January 1990, the Bureau of Land Management (BLM) has leased 107 coal tracts, and associated coal production and revenues have grown. Most lease sales have had a single bidder and were leased the first time offered. The amount of coal produced from federal leases and associated revenues have increased since 1990, although production has leveled off since 2002. Revenues from federal coal leases have generated about $1 billion annually in recent years. Royalties paid when coal is sold and bonus bids paid for the right to mine a federal coal tract account for nearly all of these revenues.
BLM's guidance offers flexibility in how to estimate fair market value, and BLM state offices vary in the approaches they used to develop an estimate of fair market value. In estimating fair market value, some BLM state offices used both the comparable sales approach--where bonus bids received for past sales are used to value the tract being appraised--and the income approach--which uses estimates of the future net revenue streams from the sale of coal from the appraised tract. However, some offices relied solely on the comparable sales approach and may not be fully considering future market conditions as a result. In addition, GAO found that BLM did not consistently document the rationale for accepting bids that were initially below the fair market value presale estimate. Furthermore, some state offices were not following guidance for review of appraisal reports, and no independent review of these reports was taking place. Adequate review of the fair market value process is critical to ensure that its results are sound and key decisions are fully documented. In addition, BLM is not currently taking advantage of a potential independent third-party reviewer with appraisal expertise within the Department of the Interior (Interior), specifically, the Office of Valuation Services.
BLM considers exports to a limited extent when estimating fair market value and generally does not explicitly consider estimates of the amount of coal that can be mined economically, known as domestic reserve estimates. As a result, BLM may not be factoring specific export information into appraisals or may not be fully considering the export potential of a lease tract's coal as called for in agency guidance. The Wyoming and Montana BLM state offices considered exports, but they generally included only generic statements about exports in the reports they prepared. In the other seven states with leasing activity, exports were generally not considered during the appraisal process. According to BLM officials, domestic reserve estimates, which vary based on market conditions and the costs to extract the coal, are not considered due to their variable nature.
BLM generally provides limited information on federal coal lease sales to the public because of the sensitive and proprietary nature of some of this information. The Wyoming BLM state office posts information on its website, including information on past lease sales, but most state office websites provide only general information. BLM's guidance states that redacted public versions of its appraisal reports should be prepared, but no BLM state office has prepared such reports. BLM supplied redacted versions of fair market value documents in response to a recent public information request only after being advised to do so by Interior's Solicitor's office.

What GAO Recommends

GAO recommends, among other things, that BLM require state offices to use more than one approach to estimate fair market value where practicable, develop a mechanism to ensure that reviews of appraisal reports take place, and take steps to release additional summary information on its websites, including past lease sales. Interior concurred with these recommendations.