The Hindu Business Line : Jack-up rigs charter rates may moderate

Kolkata, Oct. 17 It may be too early to pick up the trend, but expectations are ruling strong that the turmoil in the financial market, and fall in crude prices, has finally paved the way for a correction in the charter rates of offshore drilling rigs, especially jack-up rigs operating in the shallow water.

Spike in oil prices and resulting growth of the Exploration and Production (E&P) sector created severe demand-supply mismatch for rigs, leading to spiralling hiring charges during the last couple of years.

According to sources in the Indian rig industry, the spot market for jack-up rigs have already started witnessing softening of rates in several parts of the world including South East Asia.

Globally, there are about 500 active jack-up rigs, including 33 operating in the Indian shores. The rig population was expected to be increased by 30 in 2008. Indian rig operators including Essar, Jindal Drilling, Great Offshore and others are also scheduled to take delivery of seven new rigs.

Sources in Essar group confirmed that meltdown was expected in the jack-up segment within the next six months. The outlook for the floaters or deepwater rigs, however, continues to be strong.

“Many of the jack-up rigs which are due for delivery were ordered without any operation contract in place,” a source said adding that the long term outlook continued to be good as a large number of old rigs may be phased-out over the next one year,” an Essar source told Business Line.

“In the last few years, we have witnessed the tightening of rig space with demand overshooting supply. With a few jack-up rigs and other offshore rigs slated to be delivered in 2008 and 2009, we may see some moderation in rig rates,” said Mr Harishanker Subramaniam, Executive Director & Head (Infrastructure & Government) of KPMG.

Indian E&P operators depending on long-term contracts may be late in enjoying the benefit of any such meltdown in rig rates. “Most of our rigs are on a long-term contract and it is too early for us to note any such declining trend in charter rates,” an ONGC official said. ONGC also owns the largest number (eight) of jack-up rigs operating in India.

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