Narendra Modi’s Rs1.8 trillion oil quest offers lifeline to service firms

The measures are expected to boost gas output by 35 million standard cubic meters a day oil minister Dharmendra Pradhan had said when the policy changes were announced


ONGC will contract deep water drill ships and dozens of jack-up rigs for a $5 billion development program in the Krishna-Godavari Basin and intends to spend Rs11 trillion by 2030 to raise output. Photo: Bloomberg
ONGC will contract deep water drill ships and dozens of jack-up rigs for a $5 billion development program in the Krishna-Godavari Basin and intends to spend Rs11 trillion by 2030 to raise output. Photo: Bloomberg

Mumbai, New Delhi: India is offering global oilfield service providers starved of new contracts a Rs.1.8 trillion lifeline as the government’s ambition to cut fuel imports drives fresh investment.

Spending plans are ratcheting up and stalled projects restarting after the government in March announced pricing freedom for natural gas from deep sea fields that begin production this year. Coming at a time when the cost of rigs and services has halved, that’s prompted India’s largest explorer Oil and Natural Gas Corp. (ONGC) to launch its biggest development campaign yet. Reliance Industries Ltd is preparing to restart work at four offshore oil and gas blocks.

The flurry of activity is providing some respite to services companies including Schlumberger Ltd, Technip SA and Halliburton Co. that were stung last year by more than $100 billion in slashed spending by explorers as oil collapsed. Investments in India are growing to meet Prime Minister Narendra Modi’s target of cutting import dependence by 10% over six years as increased consumption puts the nation on track to become the world’s third-largest oil consumer.

“In India, there are two to three major identified projects and they are probably bigger than anything else going on in rest of the world,” Technip India’s managing director Bhaskar Patel said in an interview. “India is a place where there is work available.”

India’s hydrocarbon resources still remain highly undeveloped and the government’s new liberal approach is nudging companies to invest in tapping them. The measures are expected to boost gas output by 35 million standard cubic meters a day and unshackle projects worth Rs.1.8 trillion, oil minister Dharmendra Pradhan had said when the policy changes were announced.

About 90% of the new spending would go to companies that provide services from drilling to testing and the laying of infrastructure.

Halliburton is positioned to participate in “the country’s ambitious plans to increase its domestic production,” the company said in an emailed response to questions. “India plays a crucial role for sustained development in the region for Halliburton.”

The Indian government’s initiatives will increase the pace of exploration, ONGC chairman Dinesh Kumar Sarraf said.

ONGC will contract deep water drill ships and dozens of jack-up rigs for a $5 billion development program in the Krishna-Godavari Basin, he said. The company intends to spend Rs.11 trillion by 2030 to raise output.

Reliance has held meetings with oilfield-services companies to restart work at four offshore oil and gas blocks, including one of India’s biggest natural gas discoveries, people with knowledge of the plan said in May. It plans to drill 21 wells in four offshore areas, including the deep water KG-D6 block in the Bay of Bengal, the people said.

ONGC shares rose up 0.8% to Rs.210.15 in Mumbai on Monday, while Reliance gained 0.4% to end at Rs.955.65.

India’s exploration binge still won’t be enough to compensate for cancelled projects around the world as oil prices settle around $50-a-barrel of crude from more than $100 two years ago. Worldwide, the oil and gas industry will cut $1 trillion from planned spending on exploration and development because of the price slump, consultant Wood Mackenzie Ltd said this month.

Investing during the current down-cycle ensures lower costs for explorers as well as future returns over four or five years once oil recovers, Technip India’s Patel said.

ONGC has reduced the cost of its Krishna-Godavari basin block by almost a third from earlier estimates of about $7 billion as prices slide for the contract rate for rigs and oilfield equipment and services.

Offshore jack-up rigs, which used to cost $80,000 to $90,000 a day, are now available for less than $50,000, ONGC’s Sarraf said. “We could say there is 20% to 50% reduction in the cost of goods and services.”

Despite the price competition, service providers are finding that an India strategy is critical given the scarcity of spending elsewhere. Finnish company Wartsila OYJ’s Indian unit sees opportunity here given the tough global environment.

“In the exploration segments, if projects are coming up of course it’s an opportunity for us,” Kimmo Kohtamaki, president and managing director of Wartsila India, said. “We have matching products and no one else is investing. Everyone is laying off, it’s a tough market.” Bloomberg

Sponsored Links by Revcontent