A Study of Strategies for Oil and Gas Auctions

Oil and gas auctions help transact billions of dollars in property sales in the US each year. Value is lost by participants with ineffective strategies. Federal lease auctions have been investigated from public data, but research in this narrow area peaked in the 1980s. Private property auctions did not emerge as a transaction force until nearly a decade later; however, today they dwarf federal lease sales in volume and value. This is the first study to publish research on private auctions and the first to consolidate 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 for strategic application. Findings from these efforts include the following: Reducing uncertainty increases bid values; Federal lease bid values tend to be log normal; Aggressive bidding results in a poor portfolio performance; Increasing competition increases bid values; Inexperience increases aggressive bidding; A significant group of companies 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 using sealed-bid auctions; Auction players can bid significantly less and sustain a high win probability; 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 is primary reason for selling properties though an auction; Market metrics are useful in valuation analysis; Producing properties receiver higher bids than undeveloped properties with same common knowledge including total proved reserves; Oral auctions receive higher bids than sealed-bid auctions with same common knowledge; Competition increases bid values in sealed-bid auctions; Reserve size does not increase relative value in sealed-bids with same common knowledge other than a magnitude of volume.