Indian Drillers Seek Share of Oil, Gas Deepwater Bounty

NEW DELHI, Jan 30, 2008 (Dow Jones Newswires)

Indian contract drillers are scouting the globe for deepwater rigs to buy or lease as explorers in the country venture farther into the sea in search of new reserves of oil and natural gas.

For decades, India had been primarily land and shallow-water exploration territory, but a big deepwater discovery six years ago changed all that.

However, this change has come at a time when rigs are in extremely short supply due to high oil prices and prospectors having push into increasingly difficult territory as more accessible reserves get harder to find.

In 2002, Reliance Industries Ltd. (500325.BY) made the world's biggest gas find that year in a well 2,900 meters deep under 900 meters of water off India's east coast, highlighting the country's deepwater potential.

"The Reliance discovery opened a plethora of opportunities for everyone involved in the offshore exploration business," said Naresh Kumar, managing director of Jindal Drilling & Industries Ltd. (511034.BY), a shallow-water drilling company.

Since then there have been several other deepwater discoveries in Indian waters, but none on the same scale.

India, which produces less than 700,000 barrels a day of crude and has to import almost three quarters of the oil it uses, is now putting greater emphasis on deepwater oil and gas blocks blocks at its yearly auctions.

In the next five years, the country plans to have about 80% of its sedimentary basin area under exploration from the current 44%, aiming to increase domestic output and reduce its huge crude oil import and growing gas import bill.

The drilling industry in India is gearing up for a spurt in deepwater activity - the government is offering 19 such blocks in the latest round of auctions from a total of 57.

Also, a large amount of drilling work is still pending in old blocks because of shortage of deepwater rigs.

But it has become increasingly expensive to rent or buy rigs able to operate in deep water, with waiting periods lengthening due to strong demand and tight supply.

The international deepwater rig market, be it for purchase or lease, will only tighten with both Indian explorers and now drilling contractors on the hunt and willing to pay the price.

And its not just India - for example rigs are needed also in deep water in the South China Sea where Husky (HSE.T) in mid-2006 made what is China's biggest offshore gas find under 1,500 meters of water.

Now Anadarko Petroleum Corp. (APC) is planning to drill in an adjacent block in the South China Sea, and it's the same story in many other parts of the world.

Lengthy Delays

In December, Indian state-run explorer Oil and Natural Gas Corp. (500312.BY) said it is inviting offers from global contract drillers for the hire of deepwater rigs, as talks with Norway's Ocean Rig (OCR.OS) had failed over rent rates.

"Availability and cost are the main issues today (for buying deepwater rigs)," said Vijay Sheth, managing director of Great Offshore Ltd. (532786.BY).

For companies looking to buy deepwater rigs, it probably makes more sense to acquire existing ones or those already being built as construction yards will be busy for years ahead filling current orders.

The delivery time of a new rig is a big factor, said Sheth, whose company recently announced plans to acquire an overseas drilling contractor that has two deepwater rigs being built, at an estimated cost of $1.4 billion.

Keppel Corp. (BN4.SG), the world's largest builder of offshore oil rigs by output, said its offshore and marine unit is currently building 42 jackups and semisubmersible rigs in its global network of yards.

"We have capacity to deliver deepwater units in early 2011," said spokesman Andrew Gabriel Ong in an e-mail.

Great Offshore may be able to get its semisubmersible rigs much earlier if the acquisition plans go through.

Although Sheth refused to name the company Great Offshore was bidding to acquire, an industry source said the target was U.K.'s SeaDragon Offshore, which has announced receiving a takeover approach without naming Great Offshore.

SeaDragon expects delivery of its first vessel, which has already secured a long-term contract with Mexico's Pemex, in the fourth quarter of 2009 and the second vessel in September 2010.

Great Offshore plans to complete the due diligence for the acquisition within two months, Sheth said.

Jindal Drilling, another jackup operator, is adopting a similar approach although it doesn't want to initially own a deepwater rig or a rig company on its own.

A lack of deepwater experience and the huge investment needed means some companies won't risk buying a rig.

Jindal Drilling is in talks with a European company to buy a stake in at least one deepwater rig now being built and expected to be delivered in 2010, Kumar said.

Jindal may also partner a U.S.-based rig company and jointly operate one of its existing deepwater rigs in India.

"We don't want to take the entire exposure now. We would start in a partnership," Kumar said.

Aban Offshore Ltd. (523204.BY), one of the largest rig operator in India, declined to discuss its plans for deepwater drilling.

Even as efforts on deepwater drilling intensify, shallow water exploration is not going to fade away any time soon, contract drillers in the country say, as work on old blocks continues, and the government keeps offering new ones.

Consequently, land drillers like John Energy Ltd. plan to move into offshore drilling, starting with shallow water.

John's Managing Director Mahesh Vyas said the company may acquire barges to fit with one of its existing drilling rigs, for an offshore venture. It may enter the capital markets by 2009-end to raise funds for expansion, Vyas said.

With little fear of oversupply or softening rents rates in the domestic markets, Indian companies are confident about investing in jackups and even expanding overseas.

While Jindal Drilling has two jackups being built at about $200 million apiece, Great Offshore has one on order.

Jindal plans to continue adding one or two jackups every year and expand into the Middle East and Southeast Asia markets, Kumar said.

Copyright (c) 2008 Dow Jones & Company, Inc.

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