Recently, the U.S. government decided the Naval Petroleum and Oil Shale Reserves (NPOSR) were no longer strategically significant to the federal government. This prompted the U.S. Congress to order an evaluation of various options that included retention, transfer, or sale of the NPOSR by the Department of Energy (DOE).

The DOE retained Gustavson Associates, Inc. in 1996 to conduct a portion of the studies ordered by the U.S. Congress. For this paper, we profile the evaluation of NOSR 1 and 3, since it presented unique challenges. These include the evaluation of both surface and mineral rights, complex economic and regulatory issues specific to each option, the determination of applicable discount rates to government versus industry, and the effects of costs associated with environmental liabilities and compliance.

The following strategies were used to meet the challenges: 1) a multidisciplinary effort for evaluation of both the surface and mineral rights, 2) calculation of different discount rates that would apply to both government and industry, 3) use of a specialized model for projection of economic benefits to the federal government under each scenario, 4) research on comparable sales of similar surface and mineral properties, 5) adherence to appraisal standards for estimation of Fair Market Value, and 6) application of the unit rule when appraising both surface and mineral rights.

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