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Understanding Rig Rates

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  • Petter Osmundsen
  • Knut Einar Rosendahl
  • Terje Skjerpen

Abstract

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 affect 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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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4532.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4532

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Keywords: rig rates; oil and gas drilling; oil and gas prices;

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References

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  1. Nguyen, Hang T. & Nabney, Ian T., 2010. "Short-term electricity demand and gas price forecasts using wavelet transforms and adaptive models," Energy, Elsevier, Elsevier, vol. 35(9), pages 3674-3685.
  2. Osmundsen, Petter & Roll, Kristin Helen & Tveteras, Ragnar, 2012. "Drilling speed—the relevance of experience," Energy Economics, Elsevier, Elsevier, vol. 34(3), pages 786-794.
  3. 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.
  4. Aune, Finn Roar & Mohn, Klaus & Osmundsen, Petter & Rosendahl, Knut Einar, 2009. "Financial market pressures, tacit collusion and oil price formation," UiS Working Papers in Economics and Finance 2009/14, University of Stavanger.
  5. Kenneth S. Corts, 2004. "The Effect of Repeated Interaction on Contract Choice: Evidence from Offshore Drilling," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 20(1), pages 230-260, April.
  6. Iledare, Omowumi O., 1995. "Simulating the effect of economic and policy incentives on natural gas drilling and gross reserve additions," Resource and Energy Economics, Elsevier, Elsevier, vol. 17(3), pages 261-279, November.
  7. Modjtahedi, Bagher & Movassagh, Nahid, 2005. "Natural-gas futures: Bias, predictive performance, and the theory of storage," Energy Economics, Elsevier, Elsevier, vol. 27(4), pages 617-637, July.
  8. Klaus Mohn, 2008. "Efforts and Efficiency in Oil Exploration: A Vector Error-Correction Approach," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 53-78.
  9. Farzin, Y. H., 2001. "The impact of oil price on additions to US proven reserves," Resource and Energy Economics, Elsevier, Elsevier, vol. 23(3), pages 271-292, July.
  10. Ryan Kellogg, 2011. "Learning by Drilling: Interfirm Learning and Relationship Persistence in the Texas Oilpatch," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1961-2004.
  11. Guro Børnes Ringlund & Knut Einar Rosendahl & Terje Skjerpen, 2004. "Does oilrig activity react to oil price changes? An empirical investigation," Discussion Papers, Research Department of Statistics Norway 372, Research Department of Statistics Norway.
  12. Boyce, John R. & Nøstbakken, Linda, 2011. "Exploration and development of U.S. oil and gas fields, 1955-2002," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(6), pages 891-908, June.
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Cited by:
  1. Osmundsen, Petter, 2014. "Rig services and taxation," UiS Working Papers in Economics and Finance 2014/7, University of Stavanger.
  2. Osmundsen, Petter, 2014. "Innovation in the supply and procurement of rig services," UiS Working Papers in Economics and Finance 2014/9, University of Stavanger.
  3. Lars Lindholt, 2013. "The tug-of-war between resource depletion and technological change in the global oil industry 1981 - 2009," Discussion Papers, Research Department of Statistics Norway 732, Research Department of Statistics Norway.

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