The Hindu Business Line : Companies ready to shell out premium for second-hand rigs

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Mumbai Feb. 5 Can a second-hand asset be more costly than a new one? Incredible as it may sound, it is true in the case of deepwater rigs used in offshore oil and gas exploration.

If one were to place an order for a rig now, it would cost about $180 million and that too it would be delivered in the first or second quarter of 2010, as shipyards that build such rigs are already having their hands full with orders. On the other hand, for a second-hand rig with prompt delivery would cost between $240 million and $260 million - that is if one is successful in locating a used rig for sale, industry sources said. Companies are willing to shell out the premium for a second-hand rig as it can start earning high hire charges from the first day.

"Such is the scarcity worldwide that companies are even looking for stacked up rigs, which could be repaired and pressed into service immediately. And even if one were to find a stacked up rig, it would be difficult to find a shipyard that can repair it, as most yards prefer new orders than repair orders," a source said.

Shortages in supply of deepwater rigs have led to rig hire charges almost tripling in the last two years, which is prompting many companies to ease the pace their offshore oil exploration activities at least till the heat for rigs cooled a bit, apart from delaying development of some offshore blocks.

Manpower shortage

To make matters more difficult, along with rig shortages, there is a shortage of skilled manpower to operate the rigs in India, even though many of the foreign rig operators, including Transocean, the world's biggest offshore drilling companies, planning to bring in more manpower.

There are some 35 offshore rigs in operation in India, the largest (about 25) deployed by ONGC. Even though Indian companies have ordered for some rigs, the demand far out paces the supply at the moment.

Great Eastern Shipping, Great Offshore and Mercator Lines have orders for one rig each, while Jindal Offshore is acquiring two. But these rigs will only begin to be delivered from 2009, which means the shortage will continue.

Industry sources said Indian explorers have drilled less than half of the 218 wells given to them under exploration licences by the Government since 2000 due to shortages of rigs.

Hiring rates

The sources said offshore jack-up rig hiring rates have ballooned from $40,000 per day in 2002-03 to as much as $200000 per day last year. "Reliance has booked a deepwater rig for $320000 a day until August 2008, which can rise to almost $450000 if the contract is extended by another three years," a source said.

In fact, the rig rates are higher in India as compared to the world average, due to the spurt in demand in the wake of increased offshore oil and gas exploration activities. For example, an offshore rig could be hired for $137500 per day in December last, as against a world average of about $100000 in January 2006.

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