Chinese presence in oil exploration service sector spooks Govt

P Manoj Mumbai | Updated on July 17, 2020 Published on July 17, 2020

The presence of China in the strategic and sensitive offshore oil drilling sector has become a matter of concern for the government   -  Getty Images/iStockphoto

Alerted by Chinese shareholding in key rig contractor

Dubai-based Shelf Drilling Ltd, which has a nearly 30 per cent market share in India’s shallow water oil drilling market, in terms of drilling rigs on charter, has caught the government’s eye on revelations that its largest shareholder is an entity controlled by the Chinese government.

The disclosures have raised eyebrows at a time when the government and its agencies have restricted, or even banned, the use of Chinese products and services in the country, following the recent flare-up along the border.

Oslo stock exchange-listed Shelf Drilling, the world’s largest pure-play jack-up oil drilling rig contractor, works in India mostly for state-owned ONGC Ltd, India’s biggest explorer of oil and gas.

China Merchants and Great Wall Ocean Strategy & Technology Fund (China Merchants), a $1-billion marine industry focussed fund sponsored by China Merchants Group Co Ltd (CMG), is the largest shareholder of Shelf Drilling with a 19.7 per cent stake, according to a May 13, first quarter results presentation of Shelf Drilling.

China Merchants Group Co Ltd is a diversified Chinese state-owned enterprise with interests ranging from logistics to finance to property with assets of over $1 trillion.

The stake was acquired in exchange for sale of two new jack-up drilling rigs by an affiliate of China Merchants following a February 2019 deal. It gave China Merchants the right to nominate two directors on the board of Shelf Drilling.

The jack-up rigs were constructed at China Merchants Heavy Industries (CMHI), the world’s largest CJ jack-up drilling rig manufacturer. The deal also includes an option for sale of two more rigs which will increase the stake of China Merchants in Shelf Drilling to about 40 per cent.

By the drilling contractor’s disclosure in an investor presentation in September 2019, the investment by China Merchants Group in Shelf Drilling has been described as “strategic partner and long-term shareholder” evidencing the strategic control exercised by the Chinese entity.

“Given that the China Merchants Group is state-owned, Shelf Drilling is in effect owned and controlled by the Chinese government,” a government official looking into the matter, said.

Shelf Drilling operates eight rigs in India of which seven are currently on contract with ONGC out of the 25 jack-up rigs chartered by ONGC. All seven are deployed in the hyper-sensitive Arabian Sea region. Several of these are located near Mumbai, the financial capital of India.

‘A matter of concern’

The presence of Chinese Government in the “strategic and sensitive offshore oil drilling sector” has become a matter of concern for the government, another government official said.

For many years, Chinese firms or groups with Chinese links are barred from bidding for Indian port construction and operation contracts mainly due to the sour political relations between the two sides.

Similarly, there are plans to consider classifying exploration and drilling of oil and gas as strategically sensitive sector (both economically and for national security), and accordingly provide protection and oversight by restricting participation in the sector to entities controlled by Indian citizens / citizens of countries which do not seek to harm the interests of India, he said.

This will ensure that ONGC does not hire external contractors for key strategic contracts such as for engaging oil drilling rigs, and be mindful that such contracts are not awarded to entities owned and controlled by powerful interests that seek to hurt India at will, he added.

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Published on July 17, 2020
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