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Understanding rig rates

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We examine the largest cost component in offshore development projects, drilling rates, which have been high in recent years. To our knowledge, rig rates have not been analysed empirically before in the economic literature. Using econometric analysis, we examine the effects of gas and oil prices, rig capacity utilisation, contract length and lead time, and rig-specific characteristics on Gulf of Mexico rig rates. Having access to a unique data set containing contract information, we are able to estimate how contract parameters crucial to the relative bargaining power between rig owners and oil and gas companies affects rig rates. Our econometric framework is a single equation random effects model, in which the systematic part of the equation is non-linear in the parameters. Such a model belongs to the class of non-linear mixed models, which has been heavily utilised in the biological sciences.

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  • Petter Osmundsen & Knut Einar Rosendahl & Terje Skjerpen, 2012. "Understanding rig rates," Discussion Papers 696, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:696
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    1. Ringlund, Guro Bornes & Rosendahl, Knut Einar & Skjerpen, Terje, 2008. "Does oilrig activity react to oil price changes An empirical investigation," Energy Economics, Elsevier, vol. 30(2), pages 371-396, March.
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    10. Osmundsen, Petter & Roll, Kristin Helen & Tveterås , Ragnar, 2009. "Exploration drilling productivity at the Norwegian Shelf," UiS Working Papers in Economics and Finance 2009/34, University of Stavanger.
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    1. Osmundsen, Petter, 2014. "Rig services and taxation," UiS Working Papers in Economics and Finance 2014/7, University of Stavanger.
    2. Petter Osmundsen, 2014. "Innovation in the Supply and Procurement of Rig Services," CESifo Working Paper Series 4961, CESifo.
    3. Lindholt, Lars, 2015. "The tug-of-war between resource depletion and technological change in the global oil industry 1981–2009," Energy, Elsevier, vol. 93(P2), pages 1607-1616.
    4. Khalifa, Ahmed & Caporin, Massimiliano & Hammoudeh, Shawkat, 2017. "The relationship between oil prices and rig counts: The importance of lags," Energy Economics, Elsevier, vol. 63(C), pages 213-226.
    5. Lars Lindholt, 2013. "The tug-of-war between resource depletion and technological change in the global oil industry 1981 - 2009," Discussion Papers 732, Statistics Norway, Research Department.

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    More about this item

    Keywords

    Rig contracts; GoM rig rates; Panel data;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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