When the results of Licensing Opportunities are analysed, one of the main features observed is the amount of "money left on the table". This is the difference between the highest (winning) and the second highest proposal presented in one specific tender. The objective of all investing companies should be to minimise this excess of money paid to win the tender, as it does not bring any benefit to the winner. An analysis of the Gulf of Mexico deep-water Lease Sales from Mar/97 to Mar/2000 revealed that companies left an excessive high amount of money on the table: an average of 42 to 63%. The 3rd Licensing Round in Venezuela and the 1st Licensing Round in Brazil were also assessed, revealing, respectively, 25% and 51% as the average money left on the table. Another important feature revealed in all these Licensing was that the money left on the table reduced as the number of competitors increased. By analysing all these issues, this paper proposes a strategy to increase the trade-off between thecapital invested to acquire areas and the overall expected value of the areas acquired. By following this approach, companies should avoid the excessive amount of money paid to win the tenders and still be able to acquire more area in the Licensing Round, if applicable. Introduction Oil Companies (IOCs) seek to acquire rights to invest in exploration and production (E&P) areas throughout the world. These rights are acquired by successfully participating in licensing rounds or buying a percentage of another oil company's rights. The result of licensing rounds (Lohrenz, 1988) indicates that IOCs have not been economically efficient in terms of spending their capital to acquire such rights. The companies seemed to be more focused on obtaining these rights than in making profits. The analysis conduced in this study will concentrate on the trade-off between the risk investment budget available for a licensing round and the estimated value of the areas acquired. The focus of the analysis will be the new frontier areas; i.e., deep-water areas and countries that are recently opening their oil sector for foreign investment. Their main characteristic is the scarce of technical data available. Data analysis from licensing rounds in three countries is presented: Brazil 1999, Venezuela 1997 and United States - Gulf of Mexico from March 1997 to March 2000. This paper is organised as follows: for each theoretical issues discussed, real data is presented and analysed. After that, a general discussion is conduced. Finally, it is proposed a bidding strategy to pursue, when participating in a competitive Licensing Round. THEORY DISCUSSION AND DATA ANALYSIS THEORY BASIS Auction Theory The analysis in this paper will be based on Auction Theory. Auction Theory has been mainly used in the oil industry after the work published by Wilson (1977), which focus in competitive licensing rounds. This Theory tries to identify the behaviour of bidders in competitive auctions, assessing the different issues that influence such behaviour. Wilson stated that bidding strategy should be a function of the number of the competitors and of the value attributed to the area. Tavares (1999) stated that this strategy should also consider how fierce the competitors are expected to behave. Auction Theory The analysis in this paper will be based on Auction Theory. Auction Theory has been mainly used in the oil industry after the work published by Wilson (1977), which focus in competitive licensing rounds. This Theory tries to identify the behaviour of bidders in competitive auctions, assessing the different issues that influence such behaviour. Wilson stated that bidding strategy should be a function of the number of the competitors and of the value attributed to the area. Tavares (1999) stated that this strategy should also consider how fierce the competitors are expected to behave.
The availability of some processing spare capacity in offshore facilities, during its operational life, is an expected event. At some point in time, it is also expected that some fields may share their assets, in order to enhance its economic value. Asset Sharing Agreements are efficient tools for those purposes. However, taxation and fiscal regime in Brazil does not promote a friendly framework for this initiative. This article aims to discuss some key issues that regulatory agents shall address for adequating Brazilian legal framework to international oil industry standards.
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