A Study of Strategies for Oil and Gas Auctions

Oil and gas auctions help transact billions of dollars in property sales in the USeach year. Value is lost by participants with ineffective strategies. Federal leaseauctions have been investigated from public data, but research in this narrow areapeaked in the 1980s. Private property auctions did not emerge as a transaction forceuntil nearly a decade later; however, today they dwarf federal lease sales in volume andvalue. This is the first study to publish research on private auctions and the first toconsolidate historical lease research findings with private auction strategies.This dissertation reviews past research, interviews industry professionals,analyzes case histories, conducts game experiments, and synthesizes these views forstrategic application. Findings from these efforts include the following: Reducinguncertainty increases bid values; Federal lease bid values tend to be log normal;Aggressive bidding results in a poor portfolio performance; Increasing competitionincreases bid values; Inexperience increases aggressive bidding; A significant group ofcompanies do not follow consistent auction strategies; Top winning bid drivers are aggressive 3P reserves and commodity prices; Top value risks are commodity prices,capital, and operating expenses; Properties with upside value receive higher bids usingsealed-bid auctions; Auction players can bid significantly less and sustain a high winprobability; More money is left on the table in federal lease sales than private auctions;Poor data is primary reason auctions fail to complete the transaction; Profit taking isprimary reason for selling properties though an auction; Market metrics are useful invaluation analysis; Producing properties receiver higher bids than undevelopedproperties with same common knowledge including total proved reserves; Oral auctionsreceive higher bids than sealed-bid auctions with same common knowledge;Competition increases bid values in sealed-bid auctions; Reserve size does not increaserelative value in sealed-bids with same common knowledge other than a magnitude ofvolume.