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Procurement Costs for Private Transactions

Financiers can put up an oil well for private auction at any time. When a private well is put up for auction, it is put into the auction queue with the public auctions. If several private auctions are ordered in the same OF day, they will be processed in order, one OF Day at a time.

When a well is put up for private auction, the public auction is postponed. In other words, each OF Day will have only one auction, whether it be public or private. Private auctions have preference over public ones.

All bids made on private auctions will have the usual $1,000 procurement costs.

When a private well is put up for private auction, the procurement cost for the seller is also $1,000.

However, the OilFinancier seminar should not turn into a series of auctions where sellers test out the market for their older wells, thus supplanting the auctions for the newer wells. Therefore, OilFinancier has a set of rules for the sellers.

If the well sells in a private auction, there is no penalty. If the well doesn't sell, all procurement costs for that selling financier increase by $1,000 for the rest of the seminar. Having one or two unsold wells may be manageable, but procurement costs five or more times that of the competitors put the financier at a disadvantage.

So when a seller puts a well up for private auction, he has to consider the salability of that well. Are there several financiers who would be interested in this well? Are these financiers active in the seminar? Is the reserve bid low enough for at least one of them to make a bid?

© 2014 Dave Volek. All Rights Reserved.