Worldwide Exploration Bid Round Practices: Incentives for Exploration

Wayne B. Gardiner and George E. Kronman

International bid rounds are the most commonly used method for acreage transfer between governments and oil companies. However, standards and practices between different countries are not uniform. Exclusive of prospectivity, exploration costs, and fiscal terms, are there other key bid round parameters which make exploration in a particular country more attractive? We examined the bid round practices of twenty seven countries to identify those factors that encourage oil companies to explore in a given country.

Most oil companies wish to invest in those exploration ventures which offer the most attractive mix of risk and reward and have anticipated financial returns greater than their cost of capital. Governments generally wish to add new hydrocarbon resources in their Country. Bid round terms which are viewed as reasonable and fair by both parties generally tend to increase investment by oil companies in mutually beneficial exploration ventures.

Bid round factors which tend to encourage exploration include 1) the availability of all regional geotechnical data at a reasonable cost in a specific basin, 2) sufficient evaluation time, 3) the ability to nominate blocks for a bid round, 4) a clearly defined, timely, and transparent bid selection process, and 5) reasonable and fair contract criteria that allow a company to operate and make a fair profit. When any of the factors mentioned above are missing, countries tend to disadvantage themselves relative to other nations.

AAPG Search and Discover Article #91019©1996 AAPG Convention and Exhibition 19-22 May 1996, San Diego, California