Rigs shortage = more onshore blocks likely to be on the block

It can force Centre to relook at NELP VII offerings

MUMBAI: Acute shortage of drilling rigs may see more onshore blocks coming up for grabs than deepwater offshore blocks under the seventh round of National Exploration Licensing Policy (NELP).

Rigs are the equipment used to drill out oil from both — under land and water. Though, there has been no confirmation from Director General of Hydrocarbons (DGH) on this, but analyst with one of the biggest investment banks in the world told DNA Money: “The shortage of rigs has not only delayed NELP VII from March to August and then to November, it might also force the government to take a second look at the blocks to be opened for bids.”

This may mean more onshore blocks will be put on the block, he said.

U N Bose, director, technical services, ONGC, said all exploration and production companies globally have been reeling under shortage of rigs for the last thee years.

“But in India, the crunch was severely felt last year when deepwater exploration activities picked up.” He said with more deepwater blocks opened for bids under NELP VI, companies have started to feel the need for more deepwater rigs.

That was when the problems of paucity of rigs percolated to India. And rig-charter rates shot up to almost three to four times on a per day basis.

“India follows global trends very closely. With exploration and production activities picking up in India, more and more players chipped in to do brisk business out of it,” said N Ramesh, CEO, Essar Oilfield Services Ltd, a division of Essar Group which deals with contract drilling.

He said there were two main reasons for an acute shortage of deepwater rigs in the world currently — rising oil prices and shortage of skilled manpower. 

“When oil was somewhere at $25 to $30 per barrel, no company was interested in getting into exploration activities. As a result there were no major investments in businesses such as manufacture of rigs and drilling equipment,” he said.

Now with oil prices now hovering close to $80 per barrel, everybody wants to be a part of it and make money — so they try to drill more.

The second reason is that even if some companies want to enter the rig manufacturing market now backed with huge capital, they can’t because of lack of skilled labour.
 
“There is an entire missing generation in the exploration business because at one time engineers and technicians did not find the sector very lucrative to work in,” Ramesh said.

An analyst, who did not wish to be named, said another major reason for an immediate shoot in demand of rigs was that several rigs were destroyed in 2005 when hurricanes Katrina and Rita hit the gulf coast.

Bose said there has been a cost escalation of daily charter rates from $50,000 per day in 2004 to $200,000 per day, which translates into a rise of up to four times in three years, for both deepwater and shallow water rigs.

But, he said, the situation for ONGC, which has almost 50% of the country’s total acreage under exploration currently, was not as grim as for smaller players.

“ONGC has 30 offshore rigs for drilling in shallow waters out of which ten are owned by the company and the remaining are charter vessels,” he said. So, in shallow waters, it somehow manages through the resources.

However, in deep water drilling, the situation is same across the board for all the companies. “We had a rig for deepwater drilling whose contract has ended and we are not talking up any exploration work there. We have applied for two more rigs and expects them to be in place by mid 2008,” said Bose.

Another analyst said, “By the second half of next year, as many as 60 more rigs are expected to touch the coasts of India.”