Right time for ONGC to opt for new rigs: Experts

With the rental differential between old and new rigs disappearing, Oil and Natural Gas Corporation (ONGC) has an opportunity to improve efficiency and make the most of rising crude oil prices by modernising its rigs.

It is also a time when activity in the oil exploration and production business is subdued, due to output cuts by the Organization of The Petroleum Exporting Countries. Good quality rigs would be available at discounts. Four years earlier, when crude oil was $100 a barrel, rentals were $85,000 a day for old rigs and $119,000 a day for new ones. The latter are now $27,000 a day; old rigs are quoting at $30,000 a day.  “This is the right time for ONGC to opt for newer and efficient rigs. Making better profit only on the basis of higher oil prices is not enough. Cost efficiency and lower cost of wells is more important. 

Globally, many oil producers are banning rigs above the age of 35 years,” said an industry expert.

ONGC now deploys 40 rigs, of which eight are owned and the rest are chartered. Experts say at 36-37 years of age. Though newer rigs are available at similar rents, due to the prevailing bearish environment where investment in oil exploration and production has slowed, ONGC continues to hire older rigs. A former ONGC official says, “ONGC must use new rigs to bring down operating cost and reduce non-productive time.”

He added an NPT of 10-12 per cent was normal but ONGC’s was twice that because of using old rigs.

A shipping industry expert said when oil prices are low, it is advisable even for ONGC not to drill oil in India but to import it. Also, efficient exploration and production at oil wells and low costs make drilling viable.

Ten years ago, ONGC had laid out a plan to modernise its rigs but in 2014, sources say, it took an about-turn in its deployment policy, opting for older rigs as these were cheaper. Today, ONGC has a split of 50:50 between old and new ones.

Queries sent to ONGC on the subject were not answered.

Private oil producers in India have shifted to using newer rigs. Even some leading producers from abroad are in the market, scouting for hiring of new Indian rigs.

ONGC’s cost of production till a few quarters earlier for offshore oil was above $40 a barrel; in some cases, as high as $45. It was difficult for the company to even recover the cost, as oil prices were low. This has since come to $36, say analysts, and has become viable as oil prices have started rising in the recent past.