Modelling and Forecasting Rig Rates on the Norwegian Continental Shelf
43 Pages Posted: 16 Feb 2017
Date Written: February 15, 2017
In this paper we analyse rig rate formation of floaters operating on the Norwegian Continental Shelf. We first develop a simple bargaining model for rig markets. Then we examine empirically the most important drivers for rig rate formation in the period 1991q4 to 2013q4. We use reduced form time series models and report conditional point and interval forecasts for rig rates in a reference case based on futures oil prices and with constant capacity utilization. According to our results, rig rates are fairly stable in this reference case. We also consider alternative simulations, e.g., featuring a higher crude oil price gradually increasing to 100 USD per barrel in 2019q4. In this case, the rig rates become about 27 percent higher in 2019q4 than in the reference case. If in addition the capacity utilization increases towards a more conventional level along with the higher oil prices, the rig rate is 57 percent higher. In another alternative simulation we explore the effects of opening new Arctic areas for petroleum activity. This will have a small, but positive effect on rig rates.
Keywords: Rig rates; Capacity utilization; Oil price; Forecasting
JEL Classification: C32; C51; C53; L71; Q47
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