New Delhi: Power equipment maker Bharat Heavy Electricals Ltd (Bhel) may have to give up its plans to enter the offshore rig construction business as it has not been able to team up with technology firms.
The state-owned company wanted to enter the offshore rig manufacturing business to grow its energy equipment business and tap a growing demand for rigs in both international and domestic markets.
But that very demand has nearly undone Bhel’s plans.
Soaring demand: An Oil and Natural Gas Corp. Ltd drilling rig at Bombay High. Equipment shortage has hiked daily rentals for a deep-water rig to around $500,000, while an ultra deep-water rig could command a daily rental of $550,000 (excluding service cost).
“We have been trying for tie-ups for offshore rig manufacturing technology. Despite our best efforts, we have not been able to do so as there is a huge demand for rigs. In such a situation, there is nothing much that we can do,” said a company executive, who does not wish to be named. “Though it is a very lucrative business, we have not been able to make any headway.”
Heightened exploration activity has meant that rigs are in short supply the world over. This, in turn, has pushed daily rentals for a deep-water rig to around $500,000 (around Rs2 crore), while an ultra deep-water rig could command a daily rental of $550,000 (excluding service cost).
The same executive added that Bhel was not able to concentrate on this offshore business due to its huge order book position for the power sector and manpower constraints.
Bhel had been in onshore oil rig manufacturing until it exited the business 25 years ago. In April 2007, the company announced its re-entry into the onshore business, and later, attracted by potential opportunities in the domestic and global markets for offshore rigs, it decided to enter this segment as well.
The company had believed that with crude oil prices surging well past $100 a barrel, manufacturing equipment such as rigs for the exploration and production (E&P) sector would emerge as a key profit centre.
Worldwide, contractors are investing in drill ships to meet rising demand from oil and gas companies that are pumping money into E&P activities following a surge in oil prices. Yards in China, Singapore and the US are operating at near peak capacities, but are still unable to cope with growing demand.
Bhel has also been conducting talks with overseas shipyards to identify suitable infrastructure for building offshore rigs and technology partnerships, as reported by Mint on 15 October.
The paucity of rigs has delayed the E&P plans of several companies and had forced the government to delay the seventh round of New Exploration Licensing Policy, where exploration blocks are auctioned.
Attracted by the opportunity, other companies too planned to enter the business of manufacturing offshore oil rigs. India’s largest engineering company, Larsen and Toubro Ltd, plans to build the country’s first facility to manufacture deep-water rigs, as reported by Mint on 20 August.