Learning to bid for oil and gas development rights in the Gulf of Mexico

Abstract

This research focuses on analyzing various aspects of firm learning in the context of submitting bids for federally-owned, offshore wildcat tracts located in the Gulf of Mexico that were sold in Bureau of Ocean Energy Management auctions administered between 1984 and 2015. The first chapter presents an introduction that describes the background and institutional information relevant to the analyses contained in this dissertation. The second chapter analyzes the relationship between bidding performance and different types of bidding experience. The third analysis addresses the question of whether print serves as a transmission mechanism of auction theory knowledge. The final chapter investigates the relationship between within-area bidding experience and the uncertainty surrounding the quantity of extractable oil and gas associated with a specific, within-area wildcat tract. The results suggest weak evidence that firms, on average, improve their ability to bid as they acquire an additional unit of within-area experience. No discernible evidence that experience overall affects a firms' ability to bid. It would be comforting to find evidence that the uncertainty faced by firms regarding the G&G characteristics of a tract is decreasing in within-area experience. This finding would offer an explanation for the seeming improvement in bidding performance in within-area experience. However, the findings generated from the final analysis suggest that the uncertainty regarding the G&G characteristics associated with a tract does not decrease in collective, within-area experience, but rather increase, if G&G uncertainty is measured by bid dispersion. A reasonable explanation for why this is observed in the data is that firms are acquiring applicable knowledge of auction theory by consuming print on the subject. In addition, the acquisition of within-area experience is likely to result in less uncertainty regarding aspects of the auction environment that are relevant to constructing bidding strategy. An example of this is the idea that firms gain familiarity with aspects of the competition in terms of numbers and identities. Both of which could be relevant to bidding strategy.