Economics of Rig Industry
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- Date Submitted: 11/12/2010 10:00 AM
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Economics of Rig Industry
Sakthivel Balakrishnan
Executive Summary
The demand for crude oil is increasing by the day as the developing economies are growing in spite of the present recessionary scenario. This has made the companies in oil and gas sector to gear up for more production and pass on the pressure to their service industry, particularly the rig industry by demanding more resources. This has led to the increase in demand for rigs. Although the estimated value rig industry is over $35 billion, the market structure has lot of entry barriers which prevents the increase in number of companies in this industry. The supply of rigs around the world is generally quantified based on the count of rigs around the world which drives the production. Hence the rig count can be one of the factors in determining the production and thereby the price of crude oil. Because of this the day rates for rigs are high which may be good for rig companies but, bad for refining and distribution companies unless the energy prices are rising at the same rate. Because of the high day rate, the companies need to maintain almost hundred percent rig utilization rate in order to avoid losses. Overall around the globe the rig utilization capacity has been 100 percent across all rig types. The role of government of India in the rig industry is triggered by its interest in the high utilization of the blocks it has awarded under NELP for energy security purpose and also to get more profit petroleum under the Production Sharing Contract. So the Government of India in order to motivate the rig deployment in India has made duty free import of goods apart. In this way the government also promotes the rig industry by reducing the cost incurred by the rig contractors in bringing a rig and also moving it across different locations within the country.
Table of Contents
PREFACE 2
Executive Summary 3
Introduction: 5
Industry structure: 5
Market Structure: 6
Entry barriers:...
Sakthivel Balakrishnan
Executive Summary
The demand for crude oil is increasing by the day as the developing economies are growing in spite of the present recessionary scenario. This has made the companies in oil and gas sector to gear up for more production and pass on the pressure to their service industry, particularly the rig industry by demanding more resources. This has led to the increase in demand for rigs. Although the estimated value rig industry is over $35 billion, the market structure has lot of entry barriers which prevents the increase in number of companies in this industry. The supply of rigs around the world is generally quantified based on the count of rigs around the world which drives the production. Hence the rig count can be one of the factors in determining the production and thereby the price of crude oil. Because of this the day rates for rigs are high which may be good for rig companies but, bad for refining and distribution companies unless the energy prices are rising at the same rate. Because of the high day rate, the companies need to maintain almost hundred percent rig utilization rate in order to avoid losses. Overall around the globe the rig utilization capacity has been 100 percent across all rig types. The role of government of India in the rig industry is triggered by its interest in the high utilization of the blocks it has awarded under NELP for energy security purpose and also to get more profit petroleum under the Production Sharing Contract. So the Government of India in order to motivate the rig deployment in India has made duty free import of goods apart. In this way the government also promotes the rig industry by reducing the cost incurred by the rig contractors in bringing a rig and also moving it across different locations within the country.
Table of Contents
PREFACE 2
Executive Summary 3
Introduction: 5
Industry structure: 5
Market Structure: 6
Entry barriers:...