The Hindu Business Line : Shipping cos set course for rigs

With the demand for rigs and other offshore assets set to soar following the surge in exploration and production activities, shipping companies are looking to invest in drill-ships and jack-up rigs, which can command high day-rate charges.

Shipping companies have found an alternative course to beat the bearish sentiment sweeping the global freight market.

With the global and Indian offshore rig market facing a surge in demand in the wake of increased offshore oil exploration activities, shipping companies are diverting their investments from ships to rigs. The companies are also putting their monies on acquiring other offshore assets, such as drill ships and supply vessels.

What has attracted the companies to go in for jack-up rigs is the soaring day-rate charges that these are earning today, with projections of a further increase in demand in the coming months.

Industry analysts say the offshore rig fleet in India at present consists of 27 jack-up rigs, five drill ships and one semi-sub, all of which are working to their full capacities.

Reports indicate that the demand for jack-up rigs in the Indian offshore market is likely to increase to 36 by mid-2006 and that the exploration companies could face a deficit of at least four rigs towards the end of the year.

Shipping cos' plans

"These projections are attracting shipping companies to go in for rigs, especially with the shipping freight market being relatively dull," an analyst said. Existing players like Aban Lloyd, Great Eastern Shipping, Jagson and Jindal Drilling, apart from other shipping companies like Mercator and Varun, are firming up plans to cash in on the boom in offshore oil exploration market.

GE Shipping, through one of its wholly-owned subsidiaries, has just placed a new-building order for a 350 ft jack-up rig with Keppel of Singapore, scheduled for delivery towards end-2009.

It already has an order-book of four platform supply vessels (PSVs). Mercator Lines also recently placed an order for construction of a new offshore jack-up rig at a cost of Rs 810 crore with Keppel — this is scheduled for delivery by March 2009.

Varun Shipping, which is primarily in the LPG transportation space, also has plans to invest $80-100 million for acquiring offshore assets, including PSVs.

According to analysts, a jack-up rig, which would cost around $180 million, can earn high day-rate charges of up to $1,30,000, with the market expected to further firm up.

"The reason is clear. All major E&P operators have together made an investment about $2 billion in the Indian exploration market, while each of these has a committed capex of about $300 million annually. All this is bound to increase the demand for rigs and other offshore assets," an analyst pointed out.

Globally, the rates are ruling firm. For example, a drill ship of less than 4,000 feet WD (water depth) commands an average day-rate of $52,500, a drill-ship of above 400-feet WD $1,90,073 and a jack-up of above 300-feet WD $1,15,400.

The demand-supply imbalance in the rig market is primarily due to under-investment in this space for years globally. Then there are factors like the rig market of Gulf of Mexico, considered to be the biggest in the world.

Between the Hurricanes Katrina and Rita, more than 30 mobile rigs were either destroyed or damaged, while about 14 semi-submersibles broke loose from moorings. This delivered a serious setback to rig supplies and aggravated the demand-supply imbalance.

E&P in India

In India, the demand for rigs and other offshore assets is set to soar following the surge in exploration activities. With offshore fields accounting for almost 55 per cent of the Indian sedimentary basin, exploration and production activity offshore is promising.

In the last four years, ONGC and OIL made 25 significant hydrocarbon discoveries, including 10 offshore, while the private sector made 32 discoveries, both in NELP and pre-NELP blocks.

These discoveries were made in five major areas — Mahanadi-NEC offshore, Krishna-Godavari offshore, Gulf of Cambay, on-land Rajasthan and Cambay basin.

Under the first five rounds of NELP, a total of 109 blocks were awarded — 36 onshore, 40 deep water and 33 shallow water blocks. Under the recently announced NELP VI, as many as 55 blocks are on offer for bidding — 25 onshore, 24 deep water and six in the shallow water.

The closing date for the bids under this round is September 15, 2006 and the award announcement is scheduled to be made four months after that.