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Stacking the Deck: Idling and Reactivation of Capacity in Offshore Drilling

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  • Kenneth S. Corts

Abstract

Independent drilling contractors own all offshore drilling rigs, which they lease to oil and gas companies for use in their pursuit of their exploration and development plans. Oil and gas companies' demand for these rigs can vary quickly and dramatically in response to changes in the world market for oil and natural gas. As a result, drilling contractors often try to manage excess capacity by idling rigs (known in the industry as “stacking” a rig), reactivating them when demand recovers. This paper examines these decisions over the course of a price cycle in 1998–2000 to investigate the role of firm and rig heterogeneity in determining drillers' decisions about idling and reactivating capacity.

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  • Kenneth S. Corts, 2008. "Stacking the Deck: Idling and Reactivation of Capacity in Offshore Drilling," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 271-294, June.
    • Handle: RePEc:bla:jemstr:v:17:y:2008:i:2:p:271-294
    DOI: 10.1111/j.1530-9134.2008.00178.x
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    1. Alberto Moel, 2002. "When Are Real Options Exercised? An Empirical Study of Mine Closings," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 35-64, March.
    2. Michael D. Whinston, 1988. "Exit with Multiplant Firms," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 568-588, Winter.
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    1. Petter Osmundsen & Knut Einar Rosendahl & Terje Skjerpen, 2012. "Understanding rig rates," Discussion Papers 696, Statistics Norway, Research Department.
    2. Kalyn T. Coatney & Dale J. Menkhaus & Sherrill Shaffer, 2014. "Impacts of a Capacity Advantaged Bidder in Sequential Common Value Auctions: Evidence from the Laboratory," CAMA Working Papers 2014-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. 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, vol. 35(6), pages 891-908, June.
    4. Francisco Ruiz‐Aliseda & Jianjun Wu, 2012. "Irreversible Investment in Stochastically Cyclical Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(3), pages 801-847, September.
    5. Skjerpen, Terje & Storrøsten, Halvor Briseid & Rosendahl, Knut Einar & Osmundsen, Petter, 2018. "Modelling and forecasting rig rates on the Norwegian Continental Shelf," Resource and Energy Economics, Elsevier, vol. 53(C), pages 220-239.
    6. Osmundsen, Petter & Rosendahl, Knut Einar & Skjerpen, Terje, 2015. "Understanding rig rate formation in the Gulf of Mexico," Energy Economics, Elsevier, vol. 49(C), pages 430-439.
    7. Song-Zan Chiou-Wei & Sheng-Hung Chen & Wei-Hung Chen, 2023. "Asymmetric Effects of Prices and Storage on Rig Counts: Evidence from the US Natural Gas and Crude Oil Markets," Energies, MDPI, vol. 16(15), pages 1-25, August.

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