Abstract

This paper represents a general assessment of the primary factors driving the market for mobile offshore drilling rigs and the utility of those factors as choice variables for the offshore drilling program planner.

Introduction

The market for offshore rigs follows the dictates of classical economic analysis with buyer and seller each seeking to maximize profit subject to the constraints of the profit subject to the constraints of the marketplace. The operator will attempt to maximize profit from drilling operations by minimizing profit from drilling operations by minimizing rig costs while the contractor attempts to simultaneously manage fleet size, dayrates, and operating costs.

Assuming contractor pricing behavior can be represented statistically and that operators can adjudge rig quality within limits, it should be possible to ascertain the relative importance of factors such as rig age, market utilization rates and increasing new rig costs on the profit maximization problem faced by the operator.

The analysis which follows represents a general framework which may be useful to the operator seeking additional control of rig costs or a means of realistically planning for the cost of future programs.

EVOLUTION OF THE OFFSHORE CONTRACT DRILLING INDUSTRY

The origin of the offshore contract drilling industry actually postdates offshore drilling per se by several years. Initial attempts to per se by several years. Initial attempts to drill offshore were almost exclusively the domain of oil companies and it was not until the mid - 1950's that the drilling contractor began to assume the role of providing the equipment and manpower necessary to operate offshore.

The reason the contract drilling industry was able to extend its traditional onshore role to the marine environment was simple. As with any industry which makes extensive use of contract services, the upstream petroleum industry recognized that through the use of contract rigs companies would minimize the possibility of maintaining (and paying for) either too much or too little offshore drilling capacity. Contractors, as an industry, were also able to offer economies of scale through rig fleets which were larger than those which would be employed by a given operator. Additionally, the drilling contractor could offer specialized labor and the ability to adapt immediately to a rapidly changing technology which has resulted in rigs able to drill in thousands of feet of water; a far cry from the shallow water prototypes of the early 1950's.

Throughout its history the offshore contract drilling industry has enjoyed a close partnership with the operating companies with a partnership with the operating companies with a free flow of ideas and personnel across industry lines.

By 1955 only 8 firms had come forward as participants in offshore contract drilling. participants in offshore contract drilling. In contrast, there were approximately 85 non-government entities with rig ownership as of September, 1980.

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