Dynamic Resource Allocation with Self-Interested Agents in the Upstream Oil & Gas Industry

This paper analyzes resource allocation between principal-agent (and between agent-agent) in the upstream oil & gas industry. In the model, we incorporate the parties’ preferences as we outline a principal-agent model. Further, we optimize the resource allocation between the parties as they are self-interested with the use of incentive-based contracts with risk and rewards. Our optimization determines that to realize the highest profit, the principal and the involved agents should avoid any agents’ becoming dominant. Hence, the volume of sourced items from the agents should not vary too much. We further outline the on-boarding process of new agents in the network and how the network needs to compensate for the potential loss for some of the agents if the network should fulfill the incentive-compatibility condition