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Varun Shipping to spend $300 million on oil search vessels

Varun Shipping to spend $300 million on oil search vessels
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First Published: Sat, Aug 09 2008. 12 30 AM IST
Updated: Sat, Aug 09 2008. 12 30 AM IST
Mumbai: An Indian carrier of oil and gas, Varun Shipping Co. Ltd, that counts BP Plc. among its clients, plans to spend $300 million (more than Rs1,200 crore) this year to buy ships that aid in deep-water oil exploration.
Varun may add three so-called deep-water anchor handlers this year to its current fleet of 20 vessels, Yudhishthir Khatau, the company’s managing director, said on Thursday in Mumbai, where the company is based.
Demand for vessels is increasing as a 66% surge in crude oil prices in the past year encourages more deep-sea exploration by Reliance Industries Ltd (RIL) and other clients. Varun expects revenue from chartering such vessels to rise to a quarter of its income this year from 3% two years ago.
“There is a lot of exploration happening around the world and you need vessels to service that,” said Rachana Kothari, an analyst at Mumbai-based LKP Shares and Securities Ltd. Expanding offshore services is “a diversification strategy for Varun. This space will see a boom in the next two-three years”. Kothari has a “buy” rating onthe stock.
Expansion in India’s economy, the second fastest growing in the world, is fuelling the need to find more oil in a country that depends on imports for most of its needs. Mumbai-based RIL, the operator of the world’s third largest refinery, said last month that it plans to double the number of rigs operating in its exploration areas. Anchor handling vessels are used to move and anchor oil rigs. Oil companies use such ships to service producing platforms and exploration rigs worldwide.
“Vessels dedicated to deep-water operations will see better market rates,” Khatau said. “The ultra-deep water segment has relatively very few players.” The company’s current fleet includes 11 gas carriers and three crude oil tankers. Varun Shipping’s time charters will fetch an average of $60,000 a day this year, he added.
Varun Shipping rose 1.23% to Rs69.70 on the Bombay Stock Exchange on Friday, on a day when the Sensex gained 0.3%. The firm will raise funds for the expansion through debt and its own cash, Khatau said. Varun’s net income in the year to 31 March surged 56% to Rs226 crore. “The outlook on rates remains strong,” Khatau said. There is “a strong incentive towards ?exploration”.
Dinakar Sethuraman from Singapore contributed to this story.
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First Published: Sat, Aug 09 2008. 12 30 AM IST
More Topics: Varun Shipping | Oil Vessels | Mumbai | Stock | RIL |