Falling Rates May Usher in Consolidation of Oil Rigs Sector

Industry experts say that, along with the lackluster oil prices, rates for hiring out drilling rigs are in a downward spiral, the result of which could usher in consolidation for the oil rigs sector, Reuters reports.

A shift toward consolidation amid a strained economic environment could strengthen major industry players by pooling together investments and opening up riskier and costlier frontiers, such as deepwater exploration.

"We're going to see tremendous consolidation -- there's going to be three to four strong players that will dominate," said Pareto Securities Asia's CEO, Per Didrik Leivdal, at an industry conference in Singapore. "I think jackup rig rates will face a significant decline in the next 6-12 months," continued the head of the Norwegian financial services firm.

"There's a lot of idle capacity," Leivdal also noted. According to Leivdal, some firms have purchased rigs for inflated prices of more than $250 million on a "highly leveraged basis."

Specifically, Leivdal predicts that Rowan and Transocean, heavyweight offshore oil drilling contractors, might potentially snap up minor companies feeling the pinch from dwindling rates and cutbacks on drilling in smaller fields, reports Reuters.