Bangalore: The first oil drilling rig to be built at an Indian yard has jumped the delivery deadline, casting doubts on the ability of local shipbuilders to build such vessels on time and establish themselves in an area considered the exclusive domain of a few globally.
Bharati Shipyard Ltd, India’s second biggest private shipbuilder, is constructing a jack-up drilling rig at its facility in Dabhol, Maharashtra, for its owner Great Offshore Ltd.
The rig, costing $168 million (around Rs840 crore), was hired by state-owned Oil and Natural Gas Corp. Ltd, or ONGC, India’s largest oil explorer, in a public auction in 2007, at a day rate of $146,000 for five years. It was to start operations from 14 May.
Small group: An oil rig at Keppel FELS’ shipyard in Rio de Janeiro, Brazil. There are about 10 shipyards globally that manufacture oil rigs. Renzo Gostoli / Bloomberg
“There has been a delay in the delivery of the jack-up rig,” Great Offshore said in a statement announcing its results. “Efforts are under way with the help of all the stakeholders to minimize the consequences of this delay.”
The company did not give a reason for the delay.
A spokesman for Great Offshore also declined to give a reason or share details of the contract relating to penalties and other consequences for non-delivery of the rig on time. He also refused to say for how long the construction has been delayed, or if the company has sought an extension from ONGC to deliver the rig.
ONGC declined to comment. P.C. Kapoor, managing director, Bharati Shipyard, did not take calls made to his mobile phone.
Shipping industry executives familiar with contracts involving ONGC say the oil firm typically includes clauses that allow it to cancel a deal if the other party does not stick to deadlines.
Failure to comply with delivery dates also attracts a two-year exclusion from participating in the oil explorer’s future tenders.
On its part, Great Offshore can seek an extension to the delivery date, or pay a penalty and get the date extended. But it may not be that easy.
“It was an open tendering process. If Great Offshore fails to give the rig on time to ONGC, others who participated in the auction are not going to keep quiet,” said an industry executive who didn’t want to be named.
Another rig hired by ONGC for five years on the same tender has started operations. Jindal Drilling and Industries Ltd, a unit of DP Jindal Group, delivered the rig to ONGC on 17 January, 116 days ahead of the scheduled date of 14 May.
This rig was built at Singapore’s Keppel FELS Ltd, the world’s biggest builder of offshore oil drilling rigs by capacity.
Local shipbuilders are venturing into the lucrative business of manufacturing oil drilling rigs, which, if successful, could put them in an elite league.
Currently, only about 10 yards globally manufacture offshore rigs, considered a niche segment. Bharati’s bigger rival, ABG Shipyard Ltd, has also entered the segment, winning an order from Essar Oilfields Services Ltd for two jack-up rigs worth $480 million. Essar Oilfields is a unit of Mumbai-listed Essar Shipping and Logistics Ltd.
The delay in building the rig may hurt the local shipbuilding industry, which is trying to move up the value chain by building sophisticated off-shore vessels and compete with established players.
“A timely delivery would have sent a positive signal to global rig owners, giving them the confidence to place more such rig-building orders at Indian yards,” said Shailesh Garg, general manager and director at the Indian unit of London-based Drewry Shipping Consultants Ltd.