New Delhi / Mumbai: India’s largest engineering company, Larsen & Toubro Ltd (L&T), is lining up a big push into the hydrocarbon sector. This will include setting up of the country’s first unit to manufacture deep-water rigs and a facility in West Asia—its second—for fabrication of offshore oil rigs.
“There is a huge opportunity in the Indian hydrocarbon sector. This facility of ours will build deep-water rigs and platforms,” said K. Venkatramanan, president, engineering and construction projects, and a member of the L&T board of directors. He declined to elaborate.
L&T’s proposed expansion will help it tap into the growing demand from the hydrocarbon sector for exploration and production. L&T’s facility will be set up at its proposed Rs2,000 crore shipyard at Kattupalli port in Thiruvallur district, near Chennai, by the end of next year or in early 2009. The firm plans to build offshore jack-up rigs—mobile rigs that can be moved around on a barge—at the same facility.
A jack-up rig currently costs about $180 million (Rs743 crore) to build and rents for anywhere between $170,000 and $220,000 a day. The exploration and production plans of firms such as Reliance Industries Ltd, ONGC Ltd and Gujarat State Petroleum Corp. Ltd have been affected by the short supply and high prices of rig rentals.
Says Deepak Mahurkar, associate director, oil and gas industry practice, PricewaterhouseCoopers: “According to market surveys, the existing global deep-water fleet of 7,500ft water depth and above has been fully contracted through 2007, and for most of 2008. A significant number of the rigs currently under construction have also been committed upon delivery.”
Due to this, worldwide, contractors are investing in drill ships to meet the rising demand from oil and gas firms that are pumping money into exploration and production activities following a surge in oil prices. “The growth of deep and high pressure drilling is expected to be sustained as the search for hydrocarbons ventures into deeper waters,” Mahurkar said.
Industry experts say L&T may not be able to get into the elite league of deep-water construction business immediately, but it would be able to significantly leverage low labour, material and construction costs in India.
The company is also scouting for a location in West Asia to develop another fabrication facility at an investment cost of $70 million. This will be over and above the modular fabrication facility that it is developing at Sohar port in Oman at an investment of $40 million. “We are evaluating locations for setting up this facility, which will also help us to bid for other projects in the region,” said Venkatramanan.
This is consistent with the company’s focus on the West Asian market, given that it generates a large number of contracts in the hydrocarbon business. L&T posted a net profit of Rs2,261 crore in 2006-07 on a consolidated net sales of Rs20,348 crore.
With yards in China, Singapore and the US nearing full capacity, new rig building ya-rds have come up in the Gulf region to cash in on the huge demand for new rigs. These include the rig construction yard of QMG Group in Dubai and the fabrication and shipyard of Maritime Industrial Services Co. Ltd in Sharjah.
L&T’s Sohar facility will fabricate integrated decks from 10,000-20,000 tonne, jack-up rigs and FPSOs (floating production storage and offloading vessels). The facility is being set up by the company’s joint venture, L&T Modular Fabrication Yard Llc., with Zubair Corp. as its local partner.
This facility will build offshore jack-up drilling rigs with the help of designs provided by Friede & Goldman Ltd, which is a part of Russia’s MNP Group that is engaged in shipbuilding, offshore unit design and construction. Jack-up rigs built according to the Friede & Goldman Super M2 design are capable of drilling at water depths of 300ft with a drilling capacity of 30,000ft.
“We have an association with Friede & Goldman and are offering their Super M2 rig design to prospective rig owners. We will take the basic design from Friede & Goldman and do the engineering ourselves,” said an official with L&T Modular who did not want to be named. This strategy will also be followed for the yards planned at Kattupalli.
The fabrication unit, the official said, will cater to the regional and international offshore supply markets. “Fabrication contracts from the Gulf region are expected to account for roughly half of the yard’s business with international contracts making up for the rest,” he said.
There are about 60 jack-up rigs under construction at various global yards and are slated to come to the market over the next three years.