Abstract
Rigs are the primary assets of drilling contractors and their newbuild and replacement costs are frequently required in corporate planning and financial valuation. In this chapter, newbuild and replacement cost functions are derived based on rig class, age and upgrade status, water depth, and other factors using 2010 market data. A U.S. jackup newbuild cost function explained 77 % of the variance in construction cost using water depth, drilling depth and an environmental indicator variable. Water depth was the single best predictor across all models and rig classes. Replacement cost models explained larger proportions of variance than newbuild models but this is likely due to the manner in which replacement cost estimates are performed rather than superior methodologies. A brief discussion of the limitations of analysis concludes the chapter.
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Notes
- 1.
In a regression with an intercept, the R2 is the proportion of variance explained by the regression: R2 = 1−SSE/SST, where SSE is the variance not explained by the regression and SST is the total variance. SST is determined by summing the squared differences between the observed values and the mean value: SST = \( \mathop{\sum}\nolimits{{({Y_i}-\overline{Y})}^2} \), where Y i is the ith observation and \( \overline{Y} \) is the mean. However, when the regression is forced through the origin, the SST becomes the sum of the squared differences between the observed values and zero (SST = \( \mathop{\sum}\nolimits{{\left( {{Y_i}-0} \right)}^2} \)) while SSE does not change. This will increase SST and therefore R2 [5].
- 2.
For example, the Sevan Brasil, was delivered in 2012 at a cost of $685 million, but two identical rigs built at the same shipyard for delivery in 2014 each cost $526 million.
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Kaiser, M.J., Snyder, B.F. (2013). Newbuild and Replacement Cost Functions. In: The Offshore Drilling Industry and Rig Construction in the Gulf of Mexico. Lecture Notes in Energy, vol 8. Springer, London. https://doi.org/10.1007/978-1-4471-5152-4_13
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DOI: https://doi.org/10.1007/978-1-4471-5152-4_13
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