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Essar bets big on drilling

Mumbai, Dec. 25: The Essar group may invest $400-600 million over the next few years to gain a sizeable presence in both land and offshore drilling services.

Essar Oilfields Services Ltd, the unlisted subsidiary of Essar Shipping and Logistics, will oversee the group’s efforts in this direction. Sources said Essar Oilfields is planning to have a “diversified and strong fleet” of around 25 rigs for which it could invest up to $600 million.

Even as the Ruias of the Essar group have not yet decided on whether to buy Hutchison’s 67 per cent stake in telecom firm Hutchison-Essar or offload their 33 per cent, it is felt that the group may invest a large part of the proceeds (if it sells) into its existing businesses. Some of the money could flow into the drilling segment.

Apart from Essar Oilfields, the other companies that are engaged in drilling services include the recently listed Great Offshore Ltd, formed by the de-merger of Great Eastern Shipping and Aban Offshore.

The stock markets are also betting big on these companies. For instance, Great Offshore got listed at a high valuation of Rs 702 on the bourses.

The company has a fleet of around 35 offshore assets, including offshore support vessels and rigs.

Recently, Essar Oilfields took delivery of a semi-submersible rig worth $220 million (Rs 1,000 crore).

Great Offshore is also ramping up its fleet like Essar to cash in on a rising demand for rigs following an upturn in oil exploration.

It has earmarked a capital expenditure plan of more than $300 million to buy four platform supply vessels (PSVs) and six anchor handling tug supply (AHTS) vessels. PSVs are for offshore oil platforms, while AHTS can tow and anchor them to another location.

Essar officials said the investment plan in the rigs is justified as exploration and production activity for crude oil and gas around the world, including in India, has seen utilisation rates in excess of 98 per cent.

Moreover, the demand is also forecast to sustain over the next five years. Contract drilling rates have nearly doubled in the last three years and current hiring rates for some rigs are estimated to be up to $200,000 per day.

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