Despite crude oil prices near $80 per barrel for quite a while, the stocks of offshore service providers have continued to decline, as the hiring rates for assets such as drilling rigs are still falling. It will take about a year for new projects to take off and the demand/supply gap to recover, say the companies.
Average charter rates for the jack-up rigs most in demand, of 300 ft water depth, are $126,587 per day now from $136,000 at the end of last year. According to Rigzone, an industry data provider, 29 such rigs are idle internationally out of the total fleet of 124 rigs of 300 ft water depth.
“With the slowdown in international markets, idle assets have moved to Indian markets and that is bringing down the rates in the country,” said Satpal Singh, managing director and chief executive officer of Dolphin Offshore, which participates in turnkey exploration and production contracts for oil producers. Diving, marine and fabrication assets had also seen a hit in day rates due to over-supply, he said.
Dolphin’s stock had fallen 10 per cent to Rs 344.9 on Tuesday from Rs 383.7 at the beginning of the year on the Bombay Stock Exchange. The Sensex, the benchmark index of the exchange, has been almost flat at 17,451 for some time, as against 17,558 at the beginning of the year.
The stock of India’s largest drilling company, Aban Offshore, has fallen 10 per cent to Rs 1,194.2 in the period. The company’s three out of 20 rigs are idle, weakening its capability to repay loans. Great Offshore, the Mumbai-based drilling company, also lost 10 per cent to Rs 417 in the period. The company has two offshore rigs.
The stock of New Delhi-based Jindal Drilling, which has five offshore drilling rigs, has declined 7 per cent to Rs 507.7 in the period.
Exploration at high cost was not viable when the price of Brent, the benchmark crude oil, crumbled from a high of over $145 per barrel in July 2008 to just $34 per barrel in December 2008 due to the economic slowdown.
Many oil producers shelved exploration plans as the economic downturn coincided with a drop in oil prices. This led to global supply of assets like rigs and platform supply vessels overshoot the demand.
However, oil prices hovering around $80 per barrel for three months is expected to revive the demand for offshore service providers. But even this would take some time. Satpal Singh says, “Companies will now plan new activities and that will go through tendering and other processes; traditionally there is a time lag of a year in planning and execution.”
West Asia was expected to see an investment of $16 billion (nearly Rs 75,000 crore) for development of oil fields by countries such as Iran, Qatar and Abu Dhabi.
“It will take six to nine months to fill the demand-supply in rigs and other assets internationally,” said Ravi K Sheth, managing director, Great Ship, a subsidiary of India’s largest private shipping company, Great Eastern Shipping. Great Ship currently has two rigs and 14 offshore vessels. Spokespersons of other companies could not be reached for comment.
