Capital investment and operational decision making in the offshore drilling industry

Document Type

Article

Publication Date

4-22-2013

Abstract

Drilling contractors new build or idle rigs based on market conditions and business strategies. In theory, contractors invest in new building when the expected net present value of adding a rig to the fleet is positive, and idle capacity when the costs of operation are expected to exceed the costs of idling. We developed models of capacity decision making in the offshore contract drilling industry and found that high combinations of day rates and utilization are required to justify new build investment and that idling capacity may be preferred even if daily operating costs exceed daily revenue. Copyright © 2013 Institute of Industrial Engineers.

Publication Source (Journal or Book title)

Engineering Economist

First Page

35

Last Page

58

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