Just before Christmas, StatoilHydro published a press release stating the company had terminated its procurement process for rig hire for operations on the Norwegian continental shelf because of high rig rates. The invitation to submit tenders for rigs was publicized in the summer of 2008 and covered both semisubmersibles and jackups. According to the invitation, contracts to be let would have a start date at the end of 2012. When the deadline for submitting tenders expired on August 25, StatoilHydro had received tenders for 28 rigs from 15 suppliers, but in the end, made no awards. In the meantime, global market conditions have led to higher insecurity in the world economy, and the price of oil has dropped by more than 60%. Based on changed framework conditions, StatoilHydro decided to ask for updated tenders. Those tenders, which were submitted by December 1, 2008, reflected reduced rig rates. Despite the lower rates offered, however, StatoilHydro has signed no contracts. Instead, the company has called a halt to the tender process. “Despite the reduction in the prices offered, there is still a considerable gap between the tenders and the expectations we have concerning the rates,” said Anders Opedal, head of procurement for StatoilHydro. “We have therefore decided to terminate the procurement process.” Rig rates have risen considerably in the last few years as oil prices have soared. In fact, the run-up on rates has been huge. Rates posted on Rigzone at the end of December 2008 showed semisubmersibles averaging around $300,000/day and jackups at around $100,000/day. A fleet status report issued by Transocean Inc. at the end of 2008 listed several semisubmersibles being let for $400,000/day. Day rates for most of the jackups listed on the report were around $200,000. As anyone who has priced rigs lately can tell you, these numbers are not unusual. They are in keeping with rates being earned by other drilling contractors and are fairly representative of the industry. The fact is, however, that in 2002-2003, these same jackups were earning only about $40,000 a day. The rise in day rates has been huge, but it is only one part of the big picture. Fleet expansion projects have taken off over the past couple of years, and most contractors have invested in newbuilds that have yet to joint their fleets. There are many more rigs on the way, with shipyards recording deliveries on their orderbooks through 2012. Drilling contractors need to bring in big profits to pay for the newbuilds on order. It is difficult to know how much instability in the world market will continue to affect the oil and gas business. At present, utilization rates do not seem to be suffering, with utilization rates for jackups and semis today on par with those of a year ago. If StatoilHydro’s position is indicative of how operating companies are planning to do business in the coming months, though, drilling contractors could find themselves dealing with a very dicey situation. Developments over the next few months will give a more clear indication of what 2009 will be like for the drilling contractors and for the industry over all.