Statistical Analyses of Solo and Joint Bids for Federal Offshore Oil and Gas Leases
- Elmer L. Dougherty (U. of Southern California) | John Lohrenz (USGS Conservation Div.)
- Document ID
- Society of Petroleum Engineers
- Society of Petroleum Engineers Journal
- Publication Date
- April 1978
- Document Type
- Journal Paper
- 87 - 95
- 1978. Not subject to copyright. This document was prepared by government employees or with government funding that places it in the public domain.
- 7.4 Energy Economics
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This study of Outer Continental Shelf (OCS) bid data, plus a critical analysis of other such studies, was made to determine the impact of joint bidding on competitiveness of OCS lease sales, It concludes that no class of joint bids has been shown to reduce the level of competition. Banning joint bidding by two or more major oil companies did result in an abrupt increase in the number of pint bids that included one major.
Sealed, competitive bids for U.S. offshore oil and gas leases are classed as either solo or joint bids. Solo bids are submitted by one bidder with 100-percent ownership. Joint bids are submitted by several bidders who divide ownership among themselves.
The pragmatic question that triggered this study was, "Is there a kind of solo or joint bid whose occurrence tends to decrease the number of sealed, competitive bids?" Such a bid would lower the level of competition.
This study reports the results of a statistical analysis to measure the impact of joint bidding on the level of competition in sales of U.S. oil and gas leases. The study first presumed that the level of competition increases as the number of competing bids increases. This presumption while not unassailable, also was not unreasonable.
Three previous studies of solo and joint bidding were reviewed first, revealing that conclusions drawn by two of the studies are statistically unsupported. Our study of the pragmatic question found no consistent correlation supporting a positive answer to the question. The U.S. policy regulation proscribing joint bids involving two or more majors tended to broaden the proportion and number of bids involving majors.
REVIEW OF PREVIOUS STUDIES OF FEDERAL OFFSHORE SOLO AND JOINT BIDS
Joint bidding for U.S. offshore oil and gas leases has been seated in previous studies of which three will be reviewed in detail.
GASKINS AND VANN
Gaskins and Vann computed values of the ratio of the sum of the highest bids to the sum of the U.S. presale estimates, Fmax/est, for leases that presale estimates, Fmax/est, for leases that received the same number(s) of bids. Precise definition of Fmax/est is given in the Nomenclature. Gaskins and Vann observed that values of F increased with n, from which they concluded the "government gets a larger percentage of its estimated value when there are more bidders."
For the March 28, 1974, sale, Gaskins and Vann calculated Fmax/est for four different categories of highest bids: (1) all bids, (2) bids in which only nonmajors were involved, (3) bids in which one or more majors were involved, and (4) bids in which Mobil Oil Corp. was a participant. (No list was given of which bidders are classed as major.) Values of Fmax/est when majors and/or Mobil were involved in the highest bid were more often lower than for the other categories of highest bids. From this, Gaskins and Vann concluded that the "data support the hypothesis that major oil companies, and Mobil in particular, were able to attain lower winning bids..."
We recalculated values of F,../est for the March 28, 1974, sale. These are shown in Table 12 along with comparable values of Fm../mean and Fmean/est. The agreement between values of Fmax/est presented by Gaskins and Vann and in Table 1 is excellent in most cases. Some of the differences, however, may be explained by differing definitions of majors. We considered these eight companies as major: Amoco International Oil Co., British Petroleum Ltd., Chevron U.S.A. Inc., Exxon Corp., Gulf Oil Corp., Mobil Oil Corp., Shell Oil Co., Texaco Inc. Other differences may be caused by disagreements in source data and/or computations.
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