Development and use of a modeling system to aid a major oil company in allocating bidding capital

Bidding at U.S. offshore oil and gas lease sales is characterized by high stakes, enormous uncertainties, and many interrelated decisions. The Lease Bidding Strategy System combined techniques from decision analysis, statistics, and nonlinear optimization to provide information and insights to management responsible for bidding at Gulf Oil Corporation. It was used prior to every major federal lease sale from September 1980 until Gulf was acquired in 1984, during which time Gulf’s bids exceeded $1.5 billion. This paper describes the evolution and use of this system, emphasizing its impact on the organization. Itdescribes efforts that gained acceptance for this system under difficult circumstances, and illustrates the importance of adapting methodology to problem changes over time. As far as is known, this is the first public documentation of the long-term use by a major oil company of a system for constrained multiblock optimization of its bids and partnership shares at U.S. offshore lease sales.