Bidding, information, and timing in offshore oil lease sales

Thesis/Dissertation · Wed Jan 01 04:00:00 EST 1986

OSTI ID:7053335

Summerfield, E G

In the climate of uncertainty surrounding lease sales, each firm uses seismic tests, logs on nearby wells, and other sources of information to construct an estimate of the value of a lease. The firm then determines an optimal bid using the model for a first-price auction in which the highest bid wins and is paid. Some of the information used in forming the estimate (especially the logs on nearby wells) can be expected to increase over time as leases are sold sequentially. When new data become available, firms update their prior distributions. The degree of change is influenced by the time elapsing between each sale, cumulative time since the beginning of sales, and the number of leases sold to date. These effects are summarized in alterations in the variance and the mean of the estimates. It follows that the firm, in most cases, alters the bid that would be optimal if all leases were sold at once. Terminal dates and diligence requirements may force a firm to alter the optimal rate of extraction and thus reduce the expected payoff from the lease. The government uses the information on the firm's bidding decision to determine the optimal spacing of lease sales. The assumption that the government wants to maximize the discounted expected value of the sum of winning bids results in an expression for the optimal time between sales.

• Research Organization: Colorado Univ., Boulder (USA)
• OSTI ID: 7053335
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
020200* -- Petroleum-- Reserves
Geology
& Exploration
020700 -- Petroleum-- Economics
Industrial
& Business Aspects
29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
294002 -- Energy Planning & Policy-- Petroleum
BIDS
EXPLORATION
GOVERNMENT POLICIES
INDUSTRY
LEASING
MODIFICATIONS
OFFSHORE SITES
OPTIMIZATION
PETROLEUM INDUSTRY
SALES