Investigating the Nexus Between Nigerian Rig Rates and Crude Oil Prices

International Journal of Economics and Management Studies

© 2020 by SSRG - IJEMS Journal

Volume 7 Issue 2

Year of Publication : 2020

Authors : Kelechi Ojukwu , Joseph Ajienka , Adewale Dosunmu,Adewumi Iledare , Chidi Ibe

10.14445/23939125/IJEMS-V7I2P111

How to Cite?

Kelechi Ojukwu , Joseph Ajienka , Adewale Dosunmu,Adewumi Iledare , Chidi Ibe, "Investigating the Nexus Between Nigerian Rig Rates and Crude Oil Prices," SSRG International Journal of Economics and Management Studies, vol. 7,  no. 2, pp. 72-76, 2020. Crossref, https://doi.org/10.14445/23939125/IJEMS-V7I2P111

Abstract:

This study set out to investigate how Nigerian oil rig rates respond to oil price fluctuations and the lag between them aimed at developing models for forecasting land, swamp, and offshore rigs rates in Nigeria. The research methodology involves the application of Ordinary Least Squares regression to develop models that can predict land, swamp, and offshore rig rates, which can be used in the Nigerian market. Firstly, Brent crude oil prices are exogenous to Nigeria, whilst land, swamp, or offshore rig rates are endogenous. Furthermore, these exogenous variables are regressed with and without lag to test the response time between the cause and its effect. A striking relationship is observed between these independent variables, similar to global trends. Like other countries, the Nigeria oilrigs count trends along with Brent crude oil price. However, a 3-4 months lag exists between Nigerian rig rates and oil prices. Furthermore, the model estimation using one-year lag seems to show more accuracy in matching the historical rig rates, and the more expensive the rig, the wider the margin caused by oil price changes. This confirms the possibility to predict Nigeria rig rates and perhaps, well costs from oil price forecast.

Keywords:

Oil price, rig rates, rig count, Nigeria, regression analysis.

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