Rent for oil rigs $580,000 a day

CHICAGO - The cost of renting a deep-water oil rig reached US$400,000 ($580,000) a day for the first time as producers such as Exxon Mobil Corp intensified their search for reserves amid record energy prices.

Exxon Mobil will pay rates of US$395,000 to US$445,000 a day under a rig agreement with Norway's Ocean Rig ASA, said people familiar with the contract who asked not to be identified because terms are confidential.

Ocean Rig disclosed the two-year deal on August 24.

Alan Jeffers, an Exxon Mobil spokesman in Nova Scotia, and Ocean Rig chairman Geir Aune declined to comment on the agreement, which starts next year.

Transocean, the world's largest offshore driller, this month said it was negotiating day rates as high as US$395,000, double what the company charged a year ago.

The record reflects a shortage of the most prized rigs, those that can drill in waters as deep as 10,000 feet (3048 metres), along with soaring oil and natural-gas prices.

"These rates vividly illustrate the tightness of the offshore rig market," said Tom Kellock, head of consulting for ODS- Petrodata, a market research firm in Houston.

"There are virtually no rigs immediately available today."

Only about 20 rigs around the world can drill in the deepest waters. Transocean, based in Houston, has nine of them. Seven are under contract through at least next year, and the other two are spoken for through April 2006.

Another Transocean rig, the Deepwater Nautilus, broke free from its moorings in the Gulf of Mexico in the wake of Hurricane Katrina.

Rates for rigs designed for waters 5000 feet (1524 metres) or deeper averaged US$210,000 a day during the second quarter, up 57 per cent from a year earlier, according to ODS-Petrodata.

Rents are climbing as record oil and gas prices prompt companies to increase spending on exploration and production.

Crude-oil futures this week touched a record US$70.80 a barrel in New York, and gas futures traded at an all-time high of US$12.07 per million British thermal units.

Companies worldwide are expected to boost spending on exploration and production by 13 per cent this year to US$191.8 billion, said Geoff Kieburtz, an analyst at Citigroup in New York. Profits for Transocean, GlobalSantaFe Corp. and other drillers are surging as rates rise.

- BLOOMBERG