Texas Offshore Bidding Patterns

Publisher Website
Google Scholar
Abstract
If bids on offshore leases are determined by competent people, each acting independently and all evaluating each tract on the basis of the same criteria, what would be the general characteristic of the bids? An analysis of the bids on several tracts reveals that a pattern can be anticipated if the many factors involved are individually scrutinized beforehand. Introduction: Half a billion dollars in bonuses was paid at only one offshore oil and gas lease sale last year. For each tract the cost of the bids ranged up to $43 million, and the number of bidders ranged from one or two to more than a dozen. The quality of the prospects varied widely and was reflected in both the bids and the number of bidders. In an effort to account for this variation, the bids on several tracts from a recent Texas sale have been analyzed. Many factors enter into the deliberations and formulation of a large sealed bid. All factors believed to affect the value of the property must be considered; these factors can be estimated with varying degrees of certainty. Among intelligent bidders the estimate of any single factor will vary and will always be uncertain; and the uncertainty will depend upon the individual. The "eternal optimist" in an organization may be inclined to estimate too highly, which could result in the acquisition of the property even though it might be of little financial merit. It will also result in the bids being too high from the bidding standpoint; that is, the next highest bid would be considerably lower. With this in mind, we intend to postulate how sealed bids on the offshore properties should be distributed. Basic Premise: In arriving at the proposed distribution of bids it was postulated that competent earth scientists were to postulated that competent earth scientists were to make completely independent appraisals of an offshore prospect. Commencing with this premise, it is not difficult to arrive at the expected distribution of bids on a single tract. We are led to expect a straight-line correlation of bids when they are plotted in a certain manner. The present worth of a prospect may be arrived at by an independent decision based on the many factors affecting the bid on a property. This could be formulated in simple algebra as follows: Sealed Bid (number of pays) × (average pay thickness) × (average length of reservoir) × (average width of reservoir) × (fraction of pore space occupied byby hydrocarbons) × (fraction recovery) × (average profit per Mcf of gas orbbl of oil produced) × (discount factor) × (expected occurrence of finding oilor gas,)..................... (1) In simple language we shall say that the bid comes from the product of the many factors above, or (1a) The terms A, B, C, etc., represent a single bidder's estimate of the number of pays, pay thickness, etc., required to satisfy all terms in Eq. 1. JPT P. 283

This publication has 0 references indexed in Scilit: