The Hindu Business Line : Offshore drilling, support services stocks buoyant

Kolkata April 9 Growing offshore oil and gas exploration and production spending by players active in the country and tight demand and supply situation, both for rigs and support vessels, have made a handful of stocks in this space buoyant, even in the short-term.

Aban Offshore, owning highest number of drilling assets, moved up 4.5 per cent on Monday. It has gained over 25 per cent in the last one month and 15 per cent in the past one week.

Great Offshore's Monday gain was 2.7 per cent with 3.54 lakh shares changing hands on the BSE alone. It improved value 22 per cent in a month's time. Garware Offshore rose 5 per cent (BSE traded volume 1.91 lakh shares) and its weekly gain is over 10 per cent. Selan Exploration, a relatively smaller player, has seen its market valuation grow by over 14 per cent in the last one month.

According to industry analysts, of the 87 support vessels chartered by operators for Indian offshore, only 47 are local and of the 31 drilling units chartered for the local offshore, only eight are Indian.

Aban has nine drilling units, while Great Offshore has two. Jindal has two, but it does not own them. In term of support vessels, Great Offshore has the highest numbers of 33.

More potential

Players in the market have either placed orders for new assets - drilling rigs or vessels — or gone in for upgrading their fleet. New players such as Mercator and Greatship India (a subsidiary of Great Eastern Shipping ) are also entering the offshore waters sensing the potential.

Analysts said the supply shortage has seen charter rates for jack-up rigs go up roughly over three times since 2002. The hiring rates for different classes of support vessels have approximately doubled during this period. Globally rig building yard order books are reported to be booked till 2009.

ASK Raymond James estimated that during FY07, rates for rigs in the Indian offshore varied between $40,000 and $80,000 per day. The rates may go up to $165,000 per day in FY09.

According to Mr Bhavin Gandhi of Batlivala & Karnani, Great Offshorewould be the key beneficiary of increasing offshore E&P activity in the country.

High utilisation and buoyant day rates for the supply vessels and the favourable cabotage laws for operating in Indian waters (it gives preference to local players for technical bids) have given fillip for sustainable margin and turnover growth.

"Acquisition of new assets will bring down their average age and in turn lower maintenance cost of these companies," said a sector analyst with an institutional brokerage.

Majority of the players have locked in their assets with E&P companies for next two to five years ensuring high revenue visibility and providing cushion against any downturn.