Aban set to deploy 3 rigs by early November

Aban Offshore is expected to deploy the last three of its fleet of 20 rigs by November, improving substantially the company’s cash flows and ability to service mountainous debt.
The rigs, Aban VII, Deep Driller 1 and Deep Driller 6, were part of seven that were lying idle in the past few months. But Aban could deploy four of these on long-term contracts three months ago.

“We are aggressively marketing the three rigs and working on the contracts, but the deals are yet to be signed. The moment we do so, we will notify the stock exchanges first,” a company spokesperson told DNA Money on Tuesday.

Amit Shah, analyst with BNP Paribas Securities said, checks with Middle Eastern exploration and production companies and Aban’s management indicate that these rigs could get contracted by early next month.

“For Deep Driller 1 and 6, we assume contract rates of $150,000/day, in line with the recent contract wins; for Aban VII, we assume $100,000/day,” Shah said in a note on Tuesday.

Over the last six months crude prices have doubled from $40 per barrel to nearly $80, making it lucrative for oil exploration companies to rent rigs.

Kunal Lakhan, analyst with broking house K R Choksey Shares and Securities, said once crude prices touch $70-75 per barrel, it is affordable for oil companies to get into exploration and production activities.

“If crude remains in this range, demand for rigs and offshore vessels will pick up,” Lakhan said.

With these deployments, Aban’s entire fleet will be chartered, which will enable it to focus on improving its balance-sheet strength, BNP Paribas’ Shah wrote.

Four months back, when the seven rigs were lying idle, Aban’s interest expenditure as a percentage of operating profit stood around 50%.

For Aban, the debt to equity ratio was not a problem a year back as the day rates (for hiring rigs) were high and the fleet was fully contracted.

“Problems started when the rigs went idle and the company was not able to generate enough cash flow hampering its ability to service debt. When 4 rigs were contracted three months back, it provided some cushion to cash flows and debt servicing improved,” KR Choksey’s Lakhan said.

The company earlier said that Hardy Exploration & Production (India) has extended its contract by one year at $49,000 per day.

The company also said its drillship, Aban Abraham, owned by its unit, has started drilling operations, but did not give any details.

Aban’s consolidated debt stood at $3.4 billion for the current fiscal.

The company has completed most of its debt re-scheduling and hence there will be an increase in interest expense.

Aban is also expected to make a qualified institutional placement of shares at around Rs 1,620 per share.

“In addition to its cash flows, Aban needs to raise more than $200 million (from QIP) to meet it’s the current fiscal’s debt obligation of $410 million (or Rs 1800 crore),” Shah wrote.