Newbuild and Replacement Cost Functions
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.
KeywordsWater Depth Harsh Environment Environmental Indicator Design Class Replacement Cost
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