Mumbai/Bangalore: Essar Shipping Ports and Logistics Ltd has placed an order for two jack-up rigs with ABG Shipyard Ltd for $440 million (Rs1,896.4 crore), even as its $220 million semi- submersible rig, the Essar Wildcat, is returning to a repair yard in Singapore.
Essar Shipping owns a fleet of 13 rigs, including 12 onshore rigs (of which four are under refurbishment) and the company has contracted revenue based on long-term contracts with domestic and international clientele.
“With increasing oil exploration expenditure from oil majors and increasing requirement and utilization of rigs, we have placed orders for two jack-up rigs with ABG Shipyard,” said a senior Essar Shipping executive who didn’t want to be identified. He added that the company will take the delivery of the first offshore rig by October 2010 and the next by January 2011.
Fuelling growth: An ABG Shipyard facility near Surat in Gujarat. The firm is installing a unit at Dahej in the state that will also have the capability to build jack-up rigs used in oil exploration activities. (Photo: Ashesh Shah/Mint)
An ABG spokesman declined to comment. ABG is installing a facility at Dahej in Gujarat that also will have the capability to build jack-up rigs used in oil exploration activities. The rig building facility will start production from December this year.
ABG is the second Indian shipbuilder to venture into rig building, a business that is dominated only by a few firms globally. Rival Bharati Shipyard Ltd has recently started the construction of a self-elevating jack-up drill rig at its Dabhol Shipyard. Bharati Shipyard is building this rig for Great Offshore Ltd, a Mumbai-based offshore services firm.
There are only nine rig manufacturers in the world with Singapore firms such as Keppel FELS Ltd, Labroy and Semb Corp. Marine dominating the segment. ABG is entering the business at a time when global rig builders are fully booked till 2010 on the back of strong demand for such equipment from oil and gas explorers.
Besides state-owned firms, BP Plc., BG Group Plc., Reliance Industries Ltd and GVK Group are increasingly participating in the exploration and production initiatives as the high crude oil prices over the year have resulted in a favourable demand environment.
“The day rates for rigs have soared to unprecedented levels due to the tight demand-supply position for offshore rigs,” said SBICAP Securities Ltd in a recent research report on India’s shipbuilding sector.
The placing of order comes when Essar’s only semi-submersible rig (Essar Wildcat) has developed some mechanical problems with its blow-out preventer (a critical part of a rig) and is returning to Singapore for repairs after drilling approximately 897m in an oil block.
A jack-up rig is deployed in a shallow water where the water depth is 300ft. A semi-submersible is a floating drill ship and deployed for water depth of more than 600ft.
Essar Wildcat had secured a contract of drilling Gujarat State Petroleum Corp. Ltd’s (GSPC) offshore oil block at Krishna-Godavari (KG) basin for driling up to depth of 5,600m for $250 million for a two-year period.
“Yes, there was problem developed with blow-out preventer. Essar Wildcat will be back in three months after repairs. The problem developed after carrying out some drilling. The rig has a drilling depth capacity of 25,000ft,” the same Essar Shipping executive said.
According to an industry analyst who did not want to be identified, Essar will have to spend at least $400,000 a day for repair works and this will also delay the exploration and production programme of GSPC. However, the Essar executive said there is no financial loss, but there could be a “deferrement” of income due to this.
A senior executive with Gujarat State Petroleum Corp. confirmed that the non-availability of Essar’s rig will delay its oil and gas exploration activities. “We may not cancel the contract with Essar considering the business relations, but we will have to float a tender to find an immediate replacement,” he said, on the condition of anonymity. He did not elaborate further on the financial implications due to the delay or the details of new tender.