Rig-hiring rules of the State-owned Oil and Natural Gas Corporation Ltd (ONGC) has been called into question after ‘Olinda Star’, a 35-year-old semi-submersible drilling platform, operating in the KG Block basin off the coast of Kakinada tilted during the latest cyclone, and its 120-odd crew were evacuated to the shore on Tuesday by two platform supply vessels operating in the area.

The incident has not yet been reported by the country’s biggest oil and gas explorer, the directorate general of hydrocarbons, the Coast Guard or the rig owner.

3-year contract

‘Olinda Star’, built in 1983, is owned by Brazilian driller QGOG and is capable of drilling in depths of up to 600 metres. It started on a three-year contract with ONGC in January this year, on a day rate of $127,714.

Of the six drilling rigs working in Kakinada, only ‘Olinda Star’ was hit by Cyclone Phethai.

‘Olinda Star’ tilted possibly due to dislocation of one or more of its anchors, its anchor moorings broke, and suffered hull damage due to which water seeped into the hull.

Hiring rules altered

Industry sources blame ONGC’s decision to alter the rig hiring rules in 2014 for the mishap, stating that the new rules focussed more on the commercial aspects than on safety to reap the benefits of a global oversupply of rigs to secure much lower rates.

“As a result, India in general and ONGC in particular became a dumping ground for old rigs such as ‘Olinda Star’ by foreign owners,” said an industry executive.

ONGC runs eight rigs of its own and the rest are chartered from fleet owners. Currently, the jack-up rigs hired by ONGC have an average age of 39 years.

Fleet modernisation

In 2006, ONGC realised the need to modernise its fleet to meet the surge in workload and decided to issue annual tenders to hire jack-up rigs and asked bidders to come forward and build rigs to suit the specifications of ONGC.

Rig contractors were given incentives such as longer mobilisation period of 18-24 months and a five-year contract instead of the earlier three years at international competitive market rate to build new rigs and this process continued till 2014.

Between 2006 and 2014, nine jack-up rigs were built by Indian contractors under this strategy.

In 2014, ONGC changed the rig modernisation strategy after seeing a big crash in the rig market coupled with huge availability of jack-up rigs worldwide. Thus, global rig contractors started dumping their junk rigs in India aided by lack of cabotage protection for local fleet owners for drilling rigs in Indian waters, the industry executive said.

The Quality, Cost, Based Selection (QCBS) of ONGC, a complex formula that took a year to write, gave 25 per cent weightage to technical and 75 per cent to commercial aspects. But, in effect, the technical weightage given is only 7.5 per cent. This translates into a cost difference of as much as $1,500 a day between a modern rig and one built 40 years ago.

“The outcome of the tender process is that it has failed to attract new rigs. It is becoming a market for junk rigs. The new rigs are forced to remain idle or compete with old ones of 40 years at day rate of $25,000 that covers only the operating expenses,” the executive said.

Junk rigs

In the latest tender issued for hiring six jack-up rigs in Category 1 and three in Category 2, ONGC received offers for 14 rigs in Category 1 of which 9 were built between 1974 and 1983 and in Category 2, it received three old rigs, all built in the 1980s. The tender is under process.

ONGC could not be reached for comment.

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