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Empirical analysis of dayrate factors in offshore contract drilling, 2000–2010

The offshore contract drilling industry has been providing drilling services to exploration and production companies for over half a century, and during this time, a body of “common knowledge” has developed surrounding rig dayrates. The purpose of this paper is to critically review single factor impacts on dayrates and the empirical evidence to support/refute selected claims. Some of the claims can be tested, but many cannot be or are impacted to a significant degree by unobservable variables, and the assessment is limited by the availability of data and factor analysis. The effects of oil prices on rig demand are examined and the relationship between dayrates and oil prices, utilisation rates, rig specifications, contract length, ownership, contractor size, and well type are evaluated over the period 2000–2010 for selected time horizons, rig classes, and geographic regions. Oil prices explain a large proportion of the variation in the number of active rigs and average dayrates, while utilisation is a weaker predictor of dayrates with effects varying by region and time period. There is no evidence that large contractors are able to use their market power to capture higher dayrates than would be expected by their fleet specification. State-owned oil companies, however, tend to pay higher dayrates than private oil companies, and appraisal drilling appears more expensive than developmental or exploratory drilling.