Cochin Shipyard to build oil exploration vessels for SCI

Cochin Shipyard to build oil exploration vessels for SCI

Bangalore: India’s biggest shipowner, Shipping Corp. of India Ltd (SCI), and Cochin Shipyard Ltd (CSL) will form a joint venture to build, own and operate ships used in offshore oil exploration.

SCI signed a memorandum of understanding with CSL, the country’s biggest state-owned shipbuilder, on 21 October in Mumbai to set up the joint venture firm.

“It’s a win-win situation for both the companies," U.C. Grover, Mumbai-based SCI’s director for technical and offshore services, said over the phone on Monday from Goa, where he was on a visit.

The pact was signed by Grover and M.Jitendran, chairman and managing director of Cochin Shipyard.

“SCI and CSL are in talks for further strengthening co-operation between the two firms in building ships used for supporting offshore oil exploration activities," said V. Kala, company secretary and public information officer at Cochin Shipyard.

In June-July, Cochin Shipyard secured an order from SCI to build four such ships valued at around Rs600 crore.

Grover said he preferred to call the proposed joint venture a special purpose vehicle (SPV) in which SCI will hold 51% equity and Cochin Shipyard the remaining stake. “The ships will be built at Cochin Shipyard and operated by SCI," Grover said.

He added that both the firms were struggling from the impact of the global downturn. SCI’s ships are struggling to earn revenue as charter rates have collapsed by almost 90%. Cochin Shipyard is struggling to get new shipbuilding orders.

In the year ended March, Cochin Shipyard did not win a single order as the economic recession and the consequent slow global trade cut demand for ships to transport cargo. The four ships that SCI ordered in June-July broke several months of a lean patch for Cochin Shipyard.

With global crude oil prices hovering at around $70 (Rs3,260) a barrel, analysts say oil exploration in the Indian sub-continent is bound to see a lot of activity, bringing business to fleet owners specializing in supplying vessels to the offshore oil exploration industry.

State-owned SCI is buying such ships to renew or replace its ageing fleet. It owns a fleet of 10 offshore oil exploration support ships, each about 29 years old. These have to be de-commissioned by 2013.

Grover said the joint venture was a “special way" of dealing with the global situation. “It will help build ships at economical prices, thereby enabling us to get a much better internal rate of return and, in turn, compete much more effectively in the market," he said.

For Cochin Shipyard, planning a capacity expansion, it would guarantee business for several years.

“Tie-ups between ship owners and shipyards are the flavour of the day," said Navindar M., an analyst at Mumbai-based brokerage Natverlal and Sons Stockbrokers Pvt. Ltd.

Since June, ABG Shipyard Ltd and Bharati Shipyard Ltd, India’s top two private shipbuilders, have been locked in a battle to gain control of Great Offshore Ltd, the country’s biggest offshore oilfield service provider, mainly to get captive business.