Offshore companies profit from rising rig rates

Indian players, such as Aban Loyd Chiles and Great Offshore Ltd, that supply oil rigs to upstream oil companies, such as ONGC, are leveraging on the current surge in daily hire rates.

Industry sources pointed out that the current spot rates for oil rigs are between $175,000-200,000 a day as compared with $140,000-150,000 a day in April.

This rise in daily rig hire charges, in contrast with the broad cooling-off in global crude oil prices over the last few weeks, is attributed to enhanced upstream activity in Russia and several Middle-Eastern countries.

ONGC currently operates 40-odd oil rigs in the country on three-year contracts, said analysts.

Given the current surge in daily hire rig charges, it does appear inevitable that when ONGC's oil rig contracts come up for renewal, its production expenses will rise too. Other players involved in the domestic upstream industry, such as Cairn Energy, are also expected to face higher oil rig costs.

Analysts pointed out that ONGC currently incurs a cost of approximately $60,000 a rig per day as part of these long-term contracts.

Meanwhile, in a bid to leverage upon this upturn in oil rig rates, Great Offshore has earmarked $240 million (approximately Rs 1,100 crore) as capex for acquiring offshore support assets, including a rig costing $165 million and offshore supply vessels.

Earlier, in June, Aban Loyd Chiles Offshore's Singapore subsidiary had decided to acquire a strategic stake of 33.76 per cent in Norway-based Sinvest for $445 million (approximately Rs 2,040 crore).

Aban Loyd's fleet capacity at the end of FY06 included six offshore jack-up rigs, one floating production system and two drill ships.