Greka Drilling announced the order of 25 specialized Coal Bed Methane ("CBM") drilling rigs with an additional 125 on option. This will increase the Greka Drilling fleet from seven to thirty-two rigs.
Greka has entered into a contractual agreement with Drillmec, a wholly owned subsidiary of the Trevi Group for the construction and delivery of the rigs. The first rig will be ready for shipment in July and is expected to be commissioned on site in September, followed by an additional four rigs every month from November until the initial order of twenty-five is complete. Once the deliveries begin, one rig is to be commissioned per week until completion of the current confirmed order. The purchase price for the initial 25 rigs is US $39.25 million (excluding ancillary equipment). The contract contains an option for an additional 125 rigs and provides the flexibility to order larger capacity rigs at the discretion of Greka Drilling. The option is contracted on the same terms as the initial order, adjusted for inflation.
All of the new drilling rigs will be dedicated to production drilling at Shizhuang South (GSS) in Shanxi Province, China, through a recently awarded contract from Green Dragon Gas to drill in excess of 100 wells (vertical and horizontal) in the initial phase.
Greka Drilling will enhance the capability of its existing Schramm rigs currently configured to drill vertical wells to SIS which will take the current number of rigs drilling SIS wells by year-end to 16, accounting for some of the new deliveries. Conversion of the existing Schramm rigs is expected to be completed by July. The Company will outsource some of its contracted simpler vertical wells to third party contractors so as to complete the targeted SIS wells by year-end. It is expected that following the delivery of the new Drillmec rigs which will be dedicated to production drilling at GSS, the current Schramm rigs will move to exploration drilling in the other blocks operated by Green Dragon and other potential customers throughout China.
The focus on production drilling will also enable Greka Drilling to increase profitability via improved rig utilization rates. The production drilling process is substantially quicker than exploration drilling, where the Company's drilling fleet is dedicated to drilling in several unique locations collecting geological data and sub-surface knowledge. The improved efficiencies in production drilling come from lower average drilling and mobilization/demobilization times and economies of scale derived from all of the rigs operating in the same area with a common drilling objective. The production drilling fleet is to be controlled via digital feeds to the Company's central SCADA operation control center in Zhengzhou, where the skilled supervision team controls the execution and performance.
Greka Drilling has a significant first mover advantage in the application of specialist Surface to Inseam (SIS) horizontal drilling methodology in the exploitation of CBM in China. Greka has developed its SIS methodology through continuous SIS drilling since March 2008.
Randeep Grewal, Chairman and Chief Executive of Greka Drilling Ltd, commented, "We are delighted to have concluded this vital decision and contract. Our selection process has been rigorous and the final contract awarded is testament to the strict standards and demands by which we have modeled our exponentially growing business. Greka Drilling worked very closely with Drillmec to design the rigs to a unique specification which met our particular needs rather than acquiring a generic design which will provide the maximum efficiency in capital deployed and operational functionality in the field. We have been pleased with the flexibility demonstrated by Drillmec through the process to date and look forward to a long term mutually rewarding relationship with the Trevi Group.
Importantly the new fleet has characteristics that are totally new to China and which will pioneer the approach to drilling CBM wells. Currently Greka Drilling's existing fleet drills to measured depths of 1500 meters with crews of five. The new Drillmec fleet with the available options can take us to measured depths of 5000 meters with crews of two in a fully automated and centrally controlled fleet. This will allow us to drill for customers focused on unconventional gas including CBM and shale. The acquisition of these advanced next generation rigs will also increase utilization rates significantly for the Company, enhancing efficiency. It will also enable Greka to continue to play a core role in China's strategy to explore and exploit its large market needed unconventional gas resources in full."
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