Redeployment of Rigs Across Fields in the Oil-drilling Industry

Abstract

Resource redeployment is the withdrawal of resources from their original use and allocation to another use. Such redeployment has been elaborated conceptually and studied empirically. While resource redeployment has been studied exclusively in multi-business firms, single-business firms can also redeploy resources. Moreover, empirical studies have measured resource redeployment only indirectly, thus casting doubt on the extent to which managers use it and on its antecedents. Therefore, this study theoretically examines resource redeployment in single-business firms, and then empirically demonstrates resource redeployment and its determinants. To elaborate resource redeployment theoretically, this study builds a formal model of resource redeployment in a single-business firm. The model derives that redeployment is positively affected by the inducement, which is the current performance advantage of the new use over the original use, and by uncertainty in that performance. Resource redeployment is also negatively affected by the redeployment cost. In addition, uncertainty negatively moderates the effect of the inducement. To test these predictions, this study uses a unique dataset covering oil wells drilled in Texas. The to-be-redeployed resource in this context is the rig that is possessed by a driller, which can withdraw the rig from one field and reallocate it to another field. Performance is captured by the revenue on drilling contracts in each field. The redeployment cost is operationalized based on the geographical distance over which the rig needs to be transported. The empirical tests robustly confirm the four theoretical predictions.