Mercator Lines hits the oil trail

Shipping company Mercator Lines is chalking out plans to foray into the upstream oil segment, including exploration and production.

According to sources close to the development, Mercator Lines is eyeing drilling, seismic surveys, floating production storage and offloading (FPSO) and floating storage offloading (FSO).

The company is finalising project details and the investment decisions are expected shortly. Mercator Lines executives declined to comment on the company's upstream oil plans.

However, they confirmed that the company has placed a Rs 810-crore order for a premium offshore jack up oil rig with Singapore-based yard Keppel FELS for drilling. Mercator Lines has floated a wholly owned overseas subsidiary, Mercator Offshore, in Singapore which will take the assignment of construction of rig.

Sources said the company would enter into exploration and production in various phases. The company, it is learnt, has earmarked Rs 3,000 crore as the initial investment in the first phase including acquiring offshore jack up rig and other shipping assets.

Out of the total capex of Rs 3,000, Mercator Lines will invest Rs 675 crore to acquire tankers and dry bulk vessels.

According to industry analysts, the offshore space is going to be the most profitable proposition with the demand for energy is shooting up all over the world.

The company is looking for acquiring one more brand new offshore jack up oil rig, which will cost around Rs 800 crore to Rs 900 crore.

"Due to high speculation The rates for oil rig with high specification has increased to $230,000 per day against $130,000 per day six month ago. The rates were hovering around $100,000 per day last year," analysts said.

Mercator Lines will take the delivery of first rig by June 2009, which will meet operational requirements in water depth up to 350 feet and will be readily upgradable to 400 feet. The premium jack up rig will have a drilling depth of 30,000 feet and can accommodate 112 men.