The Hindu Business Line : Short-term earnings upside for Aban Offshore

Aban Offshore has signed a contract with Exxon Neftegas, an affiliate of Exxon Mobil Corporation, for deployment of its jack-up rig Murmanskaya Russia for a two-well programme.

The estimated revenues from the contract are about $34 million for a period of 160 days. The higher day rates (rentals) secured for the rig under this contract may provide Aban a short-term boost to its earnings.

Short-term positive

The day rate sealed for its jack-up rig Murmanskaya under this contract is a good 9 per cent higher than the rate currently enjoyed by the rig. From over $1,95,000 per day (current contract), day rates under the new contract have been pegged at about $2,12,500.

Aban had deployed this rig with ROC Oil China under a 100-160 day contract in October 2007 for about $31.2 million. The inking of the new contract also removes the possibility of opportunity loss from the rig being left idle.

Good demand

The higher day rates are also a signal on the continuing strong demand scenario for oil rigs globally. While the earnings visibility that Aban enjoys are attributable mainly to the medium-term horizon of its contracts, short-term lease rentals cannot be deemed less significant. They help Aban take advantage of short-term gaps in the market, even as major capacity additions in the global rig market are expected only over the next two years.

A slowdown in long-term earnings growth however remains a concern, given the possibility of global rig capacities outstripping demand over the long-term.

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