ABSTRACT

Exploration in the Gulf of Mexico spans more than four decades and industry has spent in excess of 12.5 billion dollars in bonus and rental payments to acquire the nine million acres leased since the first OCS Sale in 1954.

Well-planned exploration programs with corporate goals in focus necessitate a well-planned pre-sale bid analysis. Estimates of hydrocarbon reserves, capital costs, unit price of oil and gas, timing to production and geologic risk are necessary input parameters for bid models. The end product resulting from these variables is an array of bid values based on discounted cash flow and risk of finding potential reserves.

Bid philosophy is upper management's prerogative. The amount of money available for a particular sale, the need for new leases, partnership involvement, rig availability and technology all play their roles. Bid strategy can be developed from several avenues, including "probability to win" curves, Linear Program models, and Monte Carlo programs.

The Gulf of Mexico is one of the rare hydrocarbon provinces where a well-planned and executed exploration program and bid analysis can provide the creditability factor for management to expose and expend capital with an expectation of receiving an acceptable rate of return on a risked investment.