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
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,


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.


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


[1] Abraham, S. (2000). A revised global drilling outlook for 2000 and update on Iraq. J. Energy Dev. 25(2000) 203-215.
[2] Dollens, K. B., & Williams, J. L.,  Regional Models of Drilling Activity: Forecasting Rig Count in the Permian Basin. SPE 12602., (1984).
[3] Eyitayo, M., Eyitayo, S., & Lawanson, S.,Using a Land Rig in an Offshore Location: Some Lessons from a Niger-Delta Experience. SPE-193493-MS., (2018).
[4] Goodridge, S., Offshore Drilling Unveiled: Your Quintessential Investor's Primer. Market Realist., (2016).
[5] Inikori, S. O., Kunju, M. K., & Iledare, O. O.,  The Responsiveness of Global E&P Industry to Changes in Petroleum Prices: Evidence from 1960 - 2000. SPE 68587., (2001).
[6] Iyua, D., Okongwu, O., Vaughan, B., & Orimoloye, S.,  Cost Reduction Initiatives in a Low Oil Price Regime and Beyond: SEPLAT's Experience. SPE-184265-MS., (2016)
[7] Kellogg, R., The effect of uncertainty on investment: evidence from Texas oil drilling. Am. Econ. Rev. 104(6) (2014) 1698 - 1734.
[8] Khalifa, A., Caporin, M., & Hammoudeh, S.,  The relationship between oil prices and rig counts The importance of lags. Energy Economics, 63 (2017) 213 - 220.
[9] Lawrence, S. D., & Gabrielsen, G. (1989). Forecast and Review: Offshore Rig Activity. SPE/IADC 18644., (1989).
[10] Okwa, H., Azoom, I., & Omini, E., Application of a Light Rig in Deep Exploration Drilling Operations in Nigeria. SPE/IADC 97449., (2005).
[11] Ringlund, B., Rosendahl, E., & Skjerpen, T., Does oil rig activity react to oil price changes? An empirical investigation. Energy Econ., 30(2) (2008) 371 - 396.