Bhel plans to enter offshore rig business

Bhel plans to enter offshore rig business
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First Published: Sun, Oct 14 2007. 11 57 PM IST

An L&T offshore oil drilling facility in Hajira. Surging oil prices have resulted in a huge demand for oil exploration equipment
An L&T offshore oil drilling facility in Hajira. Surging oil prices have resulted in a huge demand for oil exploration equipment
Updated: Sun, Oct 14 2007. 11 57 PM IST
Bharat Heavy Electricals Ltd (Bhel), the state-owned power equipment maker, plans to enter the offshore rig manufacturing business in an effort to grow its energy equipment business and tap growing demand for such rigs in both the international and domestic markets.
“We are presently evaluating opportunities and are looking for technical tie-ups for the same. We will also consult Oil and Natural Gas Corp. (ONGC) for the project,” said A.K. Puri, chairman and managing director, Bhel.
The business isn’t entirely new to Bhel, which was present in the onshore oil rig manufacturing business; it exited this 25 years ago, but announced its re-entry in April. Now, attracted by the opportunity presented in the domestic and global market where there are no offshore rigs to be had, it is looking at the offshore business as well.
An L&T offshore oil drilling facility in Hajira. Surging oil prices have resulted in a huge demand for oil exploration equipment
An expert said Bhel’s success in the business would be a function of time. “Offshore rig manufacturing is a very lucrative segment today because of the global shortage (of rigs). However, for Bhel, the timing of bringing the rigs to the market will be critical because there are a substantial number of rigs being constructed worldwide, particularly in China,” said Ravi Mahajan, a partner at audit and consulting firm Ernst & Young.
Rigs are in short supply all over the world and a deep-water rig commands a daily rental of around $300,000 (Rs1.17 crore) while an ultra deep-water rig may command a daily rental of $400,000 (excluding service cost).
The paucity of rigs has delayed the exploration and production plans of several companies and has also forced the government to defer the seventh round of New Exploration Licensing Policy (Nelp), where exploration blocks are auctioned.
Worldwide, contractors are investing in drill ships to meet rising demand from oil and gas firms that are pumping money into exploration and production 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.
“We have been asking them (Bhel) to get into offshore rig manufacturing for a long time. They have the ability to execute it,” said N.K. Mitra, director, offshore, at ONGC, India’s largest exploration and production firm.
Attracted by the business opportunity, several companies plan to enter the business of manufacturing offshore oil rigs. India’s largest engineering company, Larsen & Toubro Ltd (L&T), plans to build the country’s first facility to manufacture deep-water rigs, as reported by Mint on 20 August.
Bhel posted a net profit of Rs2,385 crore on revenues of Rs18,702 crore in 2006-07 and ended the year with an order book position of Rs35,633 crore. The company plans to cross $10 billion in revenues by 2011-12.
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First Published: Sun, Oct 14 2007. 11 57 PM IST