Monte Carlo simulation model of an offshore petroleum lease sale



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This thesis presents a demonstration of the application of a Monte Carlo simulation model to the problem of bidding strategy in an offshore petroleum lease sale. The model is designed to provide an estimate of the probability that a proposed bidding strategy will meet the goals of a company's management. Goals are formulated in terms of various measures of success defined as performance criteria for the sale. A comprehensive review of the significant previous work on this problem is included. Probability distributions were developed from the publicly available data for a particular lease sale, and possible explanations for the observed distributions are presented. The interpretation of the results of the model in terms of probability statements about goals is explained, and the model is verified by comparison of its predictions to the actual results of a sale. An example is presented of the use of the model for trial and error improvement of a bidding strategy until desired goals are met. It is recognized that more meaningful classifications of tracts and probability distributions for competitors' bids on a tract could be developed in industry by making use of confidential geological and geophysical information.