The oil rig sector is likely to see consolidation as rates for renting out drilling rigs are falling along with weaker oil prices, industry experts have said.

'We're going to see tremendous consolidation -- there's going to be three to four strong players that will dominate,' said Per Didrik Leivdal, chief executive officer of Pareto Securities Asia, a Norwegian financial services firm.

'I think jack up rig rates will face a significant decline in the next 6-12 months,' he told an industry conference in Singapore.

'There's a lot of idle capacity,' he said, adding some firms had bought rigs at high prices of over $250 million on a highly leveraged basis.

He picked Rowan and Transocean, the world's largest offshore oil drilling contractor, as firms that could swallow up minor players that were coming under pressure from the weaker rates and a pullback in drilling of marginal oil fields.

Oil prices have slid under $50 a barrel, down nearly $100 from a record high hit last year, as the global economic slowdown cuts fuel demand.

'The oil price today affects small players and marginal fields,' said Choo Chiau Beng, CEO of the world's largest offshore oil rig builder Keppel Corp, which has seen oil rig order cancellations and said it faces a challenging year.

Norwegian offshore driller Prosafe Production said a shake-out in the industry would lead to stronger players better able to deal with bigger and more complex projects, as oil exploration moves to tougher environments such as deepwater.

'For us to take on a $1 billion project alone requires us to take on too much risk,' said Sven Borre Larsen, CFO of Prosafe Production.

'We need to build larger entities to fill the demand from the industry,' he added. – Reuters