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Stacking the Deck: Idling and Reactivation of Capacity in Offshore Drilling
Author(s) -
Corts Kenneth S.
Publication year - 2008
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2008.00178.x
Subject(s) - lease , drilling , deck , submarine pipeline , drilling rig , offshore drilling , petroleum engineering , fossil fuel , natural gas , business , engineering , waste management , finance , mechanical engineering , structural engineering , geotechnical engineering
Independent drilling contractors own all offshore drilling rigs, which they lease to oil and gas companies for use in their pursuit of their exploration and development plans. Oil and gas companies' demand for these rigs can vary quickly and dramatically in response to changes in the world market for oil and natural gas. As a result, drilling contractors often try to manage excess capacity by idling rigs (known in the industry as “stacking” a rig), reactivating them when demand recovers. This paper examines these decisions over the course of a price cycle in 1998–2000 to investigate the role of firm and rig heterogeneity in determining drillers' decisions about idling and reactivating capacity.