Higher rig prices hit oil, gas firms

There is no end in sight for the woes of the oil and gas exploration companies. The skyrocketing rates of drilling rigs, which continue to become a scarce resource globally, have put energy companies worldwide in deep trouble. In India, companies have been forced to reschedule their drilling time-table and pay exorbitant rates for the rigs.

Shortage of rigs has resulted in rig chartering rates rising significantly. Gujarat State Petroleum Corporation (GSPC), which had chartered deepwater rigs for $60,000 a day in 2004 and 2005, was compelled to pay $110,000 a day in 2006, said D J Pandian, managing director, GSPC.

"This year, despite the rates touching as high as $200,000 a day, there are no rigs available in the market," added Pandian.

According to him, the new rigs have started arriving in the market, but the pending demand for deepwater rigs was so high that the rates for the rigs were unlikely to show any correction in the next two years.

Robert L Long, chief executive officer of Trans-ocean, told Business Standard in an e-mailed response, "Demand for deepwater drilling rigs continues to be strong and we continue to benefit from the significant backlog, and the unabetted rise in rates of rigs."

Trans-ocean has customers operating rigs in various blocks.

On the jack-up rigs market, Mark L Mey, senior vice-president and CFO of Scorpion Offshore, US, said, demand visibility was typically limited to the next 18 months, and as an industry, we were confident of determining the supply-demand balance through 2008.

"Currently, there are 85 jack-ups on order through 2010, with 2008 expecting approximately 30 new rigs being delivered. Demand, especially in Mexico, Saudi Arabia and surrounding areas, India and parts of Southeast Asia should absorb all of these rigs and possibly up to 10 additional rigs. With this demand overhang from 2008, one can expect 2009 also to be rather tight," said Mey.

In 2006, within the offshore drilling sector, it is estimated that 33 per cent of expenditure was billed by the rig contractors, just over a fifth was earmarked for support, and 6 per cent went towards geo-science activities.

Rigs account for the biggest share of expenditure and their share has grown substantially as rates have climbed and wells have become increasingly challenging to drill.

In 2006, $46 billion was spent on shallow water drilling, representing nearly 80 per cent of all drilling expenditure, and approximately $12.5 billion was spent on deepwater drilling.

By 2011, it is forecast that deepwater drilling expenditure will increase to over $18 billion, while shallow water drilling spends will decline slightly.