capSpire Blog

It’s important that 1st purchasers respond to lease bids with competitive offers to beat out many other buyers. However, it’s even more critical to pinpoint the right price—one that makes sense economically for the purchaser and ensures a wide enough margin considering factors such as the distance from lease to station, transport fees, station fees, pipeline tariffs, and even volume and quality limits at each station.

How do you determine the right price?

Right now, upon receiving a lease bid package you’re probably going to Google Earth to look up leases and identify which stations in your network are located in the closest proximity. Then you select the two or three nearest stations and analyze the economics using Excel. The problem with this manual approach is that you’re not investigating all the possibilities available to you within your network because you’re simply limited by time and human constraints. It is especially difficult to manually run the analysis for more complex factors such as the impact on weighted quality or volume from a full network network perspective.

You may win the lease, but did you win it at the best price for your bottom line?

There’s been no way to know for sure—until now. Part of the capSpire Optimization Platform, the Lease Crude Optimization (LCO) module can dramatically improve the lease-bid process with several features:

• Automation. The LCO module automates the process of looking up the distance between leases and all purchaser-owned stations, and performing comprehensive economics analysis for each station. Here’s how it works: purchasers enter into a spreadsheet all the metadata for the leases for which they want to bid, upload this data to the LCO tool, and begin the optimization process at the click of a button. The system performs all the analysis for you and quickly produces information such as the optimal dollar per barrel per lease.
• Standardization. The LCO module requires all users to follow the same process and apply the same standards to each lease bid. This ensures all possibilities are investigated and a consistent amount of thorough analysis is applied to each lease.
• Rigorous analysis. The LCO module does so much more than manual calculations. It goes several steps further by helping you understand your network sensitivity. The tool investigates how new volume impacts your existing network—specifically, whether leases shift your network balance negatively or max out volume limits—and offers feasible solutions for how to work around these issues. These solutions usually aren’t obvious without a simulation and optimization engine, and it simply wouldn’t be possible to perform this depth and quality of analysis manually.
• Auditing. The LCO module saves all bid packages so that management can audit what was done or easily refer back to this information when needed.
• Customization. The workflow functionality of the LCO module can be tailored to suit your organization.

As a result, you can save time when putting together lease bids, gain the confidence that you are thorough in reviewing the economics of each lease, and avoid mispricing issues to protect and improve your bottom line.

For more information, visit capspire.com/capspire-optimization-platform/lease-crude-optimization/ or email Bernard Wehbe, capSpire Co-Founder and Managing Partner, at bernard.wehbe@capspire.com.