Understanding Rig Rates

45 Pages Posted: 14 Jan 2014

See all articles by Petter Osmundsen

Petter Osmundsen

University of Stavanger; CESifo (Center for Economic Studies and Ifo Institute)

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Terje Skjerpen

Statistics Norway

Date Written: December 30, 2013

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.

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

JEL Classification: C180, C230, L140, L710, Q400

Suggested Citation

Osmundsen, Petter and Rosendahl, Knut Einar and Skjerpen, Terje, Understanding Rig Rates (December 30, 2013). CESifo Working Paper Series No. 4532. Available at SSRN: https://ssrn.com/abstract=2378268

Petter Osmundsen

University of Stavanger ( email )

4036 Stavanger
Norway

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Knut Einar Rosendahl (Contact Author)

Norwegian University of Life Sciences ( email )

PO Box 5033
NO-1432 Aas
Norway
+47 64966117 (Phone)

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway
+47 21094954 (Phone)
+47 21094963 (Fax)

Terje Skjerpen

Statistics Norway ( email )

N-0033 Oslo
Norway

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