ONGC's latest tender puts cost before quality, attracts old jack-up rigs

The Oil & Natural Gas Corporation (ONGC)’s latest tender, drawn out on the Quality and Cost based selection (QCBS) scheme, has attracted old jack-up rigs averaging 41 years.

The earlier tender from the country’s largest oil and gas explorer did not have the QCBS scheme and the age of jack-up rigs averaged 36 years. Indicating ONGC’s skew for lower-cost rigs over the better-quality and newer generation of jack-ups.

ONGC introduced the QCBS criterion which gives 25 per cent weightage to technical and 75 per cent to commercial aspects. But, in effect, the technical weightage given is only 7.5 per cent and this translates into a cost difference of just about $1,000-$1,500 a day between a new generation and a 39-year-old rig. “High spec jack-up rigs are two-three times more efficient in terms of performance. Moreover, the manpower needed for high-spec rigs is about 10 per cent lower compared to the junk ones, even if the cost for the former could be 50 per cent higher,” says Anand Sharma, director of Mantrana Maritime Advisory.

Messages sent to ONGC were unanswered till the time of going to print.

“One needs to consider the associated costs when deploying an old junk rig, as the risk for cost overruns due to inefficiency is far higher compared to that for high-spec jack-ups and can lead to project delays,” Sharma added.

State-owned ONGC is the largest client for most of the domestic oil drilling industry. Nearly 95 per cent of the drilling industry revenue comes from it.
 

In its QCBS tender dated December 3, it attracted 14 bidders. Six were high-spec jack-ups and the rest were old rigs. In the June 2017 tender, there were 17 bidders, of which eight were high-spec.

Greatship, Jagson, Dynamic Drilling and Aban Offshore, along with Jindal Drilling, are some of the top companies in the segment, in the domestic market. Over recent years, they had invested in new-generation and high-specification rigs, to align themselves with ONGC’s fleet modernisation plan. 

The bids are to be opened on January 15. Among the bidders is Dynamic Drilling’s 45-year-old rig, Noah’s Ark. It was used as an accommodation platform by operater Pars Oil & Gas between October 2015 and June 2016; it again came under drilling status in June 2017.

“A rig is used as an accommodation platform when the drilling company knows the asset is too old to give any decent earning. Instead of cold-stacking it, drilling companies prefer to deploy these facilities as an accommodation platform only to recover some cost,” explained Sharma of Mantrana.

In 2006, ONGC decided to modernise its fleet to meet a rising workload. And, decided on annual tenders to hire jack-up rigs, in turn asking bidders to build these to suit the new specifications. In response, Indian drilling contractors built the new-generation rigs.

“The intent of ONGC would be ‘fit-for-purpose’. If the need is met by an equipment or a rig in this case, why should we go for new and expensive rigs?” asks R S Sharma, former chairman of ONGC.

“There is a certification process before deploying a rig and there are recognised bodies to do that. Rigs have to be 

certified ‘fit for use’ before these can participate.” 

ONGC owns 10 jack-up rigs and usually charters another 20 from fleet owners. Currently, the jack-up rigs hired by ONGC have an average age of 39 years.