A Model for the Distribution of the Number of Bids on Federal Offshore Oil Leases

Richard Engelbrecht-Wiggans, Elmer L. Dougherty and John Lohrenz
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Richard Engelbrecht-Wiggans: Department of Business Administration, University of Illinois, Champaign, Illinois 61820
Elmer L. Dougherty: Department of Petroleum Engineering, University of Southern California, Los Angeles, California 90089
John Lohrenz: Gulf Oil Exploration and Production Company, Houston, Texas 77252

Management Science, 1986, vol. 32, issue 9, 1087-1094

Abstract: Not all Outer Continental Shelf (OCS) federal oil leases receive the same number of bids. Indeed, while some leases receive over a dozen bids, many others receive no bids at all. This leads to uncertainty in the number of bids a lease will receive---uncertainty of potential concern to both bidders and bid takers. We develop a model that suggest there are three fundamentally different types of leases---those with "no," "low," and "high" competition. This provides a basis for bidders and bid takers to explicitly account for some of the differences among leases when preparing bids and when evaluating the bidding. Although we specifically study only OCS federal oil leases, our overall approach and insights should apply equally well to many other situations with uncertain numbers of bids, including mineral leasing in general, as well as military procurement and construction contracting.

Keywords: competitive; bidding/offshore; oil; leasing (search for similar items in EconPapers)
Date: 1986
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