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Understanding Rig Rates

Author

Listed:
  • 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.

Suggested Citation

  • Petter Osmundsen & Knut Einar Rosendahl & Terje Skjerpen, 2013. "Understanding Rig Rates," CESifo Working Paper Series 4532, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_4532
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    References listed on IDEAS

    as
    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.
    2. Farzin, Y. H., 2001. "The impact of oil price on additions to US proven reserves," Resource and Energy Economics, Elsevier, vol. 23(3), pages 271-292, July.
    3. 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, vol. 17(3), pages 261-279, November.
    4. 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.
    5. Aune, Finn Roar & Mohn, Klaus & Osmundsen, Petter & Rosendahl, Knut Einar, 2010. "Financial market pressure, tacit collusion and oil price formation," Energy Economics, Elsevier, vol. 32(2), pages 389-398, March.
    6. 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.
    7. Klaus Mohn, 2008. "Efforts and Efficiency in Oil Exploration: A Vector Error-Correction Approach," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 53-78.
    8. Nguyen, Hang T. & Nabney, Ian T., 2010. "Short-term electricity demand and gas price forecasts using wavelet transforms and adaptive models," Energy, Elsevier, vol. 35(9), pages 3674-3685.
    9. Modjtahedi, Bagher & Movassagh, Nahid, 2005. "Natural-gas futures: Bias, predictive performance, and the theory of storage," Energy Economics, Elsevier, vol. 27(4), pages 617-637, July.
    10. Osmundsen, Petter & Roll, Kristin Helen & Tveteras, Ragnar, 2012. "Drilling speed—the relevance of experience," Energy Economics, Elsevier, vol. 34(3), pages 786-794.
    11. 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.
    12. 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, vol. 20(1), pages 230-260, April.
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    Citations

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    Cited by:

    1. Osmundsen, Petter, 2014. "Innovation in the supply and procurement of rig services," UiS Working Papers in Economics and Finance 2014/9, University of Stavanger.
    2. repec:eee:eneeco:v:63:y:2017:i:c:p:213-226 is not listed on IDEAS
    3. Petter Osmundsen, 2014. "Rig Services and Taxation," CESifo Working Paper Series 4973, CESifo Group Munich.
    4. 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.

    More about this item

    Keywords

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

    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
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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