Offshore service providers expand on oil demand

Written by Nikita Upadhyay | Nikita Upadhyay | Mumbai | Updated: Apr 14 2011, 06:45am hrs
Growth in exploration and production (E&P) activity globally on the back of higher oil prices and an increasing demand for oil from emerging economies are proving to be a windfall for private shipyards in India as well as providers of offshore services. Shipyards like Bharati Shipyard and ABG Shipyard are seeing almost 50% of their current orders coming from the offshore segment, as Indian shipping companies and offshore service providers invest more to augment offshore services. Offshore service providers are, meanwhile, seeing an increased demand for offshore support vessels (OSV) and rigs, and are going in for expanding and modernising their fleet.

Bharati Shipyard, the largest private sector shipyard, has a current order book of Rs 5,000 crore, and offshore services comprised as much as Rs 3,000 crore. PC Kapoor, the companys managing director, says that increased E&P activity levels and its sustenance will prove to be the real trigger for offshore companies.

Meanwhile, Great Offshore, which was acquired by Bharati Shipyard in December 2009, and is into offshore services, has a firm expansion plan lined up in this space. Great Offshore has an expansion plan in place. We will modernise our fleet and add sophisticated assets to our portfolio to keep upbeat with the market demand. Also, acquisition of vessels in the near term will prove to be very cost effective as the vessels can be acquired at attractive prices, added Kapoor.

ABG Shipyard, also a major shipbuilding company, saw its orders from offshore zoom to R5,000 crore, out of its total order book of R14,500 crore as on December 31, 2010.

Shares of Bharati and ABG on Wednesday closed at R172.25 and R390.95, up 2.07% and 1% respectively on the BSE.

International oil prices have soared owing to the unrest in West Asia and North Africa, while the crisis in Japan resulted in new demand for power generation and reconstruction. Due to the recent crises, countries are now trying to reduce their dependence on West Asia for oil requirements. This is forcing them to explore oilfields in the other areas, resulting in increase in E&P activity, said a spokesperson from Great Eastern Shipping. International crude prices are at present hovering around the $125 per barrel mark.

With heightened E&P activities, rig utilisation is expected to improve significantly to approximately 87.1% in the year 2011-12. Rigs are an important component of a drilling activity in offshore services.

Currently jack up rig rates are anywhere between $100,000 to $200,000 per day and has gained some strength over the past six months. Rig rates differ from region to region and the depth at which they are capable of operating. A modern rig would attract a rate of about $130,000 per day. Also global marketed rig utilisation has risen in the past few weeks and is hovering around 85-90% on an average, said Navin Thakur, deputy GM, Drewry Maritime Research.

Indian shipping companies and offshore service providers are bracing up to the opportunity. A report by Centrum Broking said that Indian shipping companies are better positioned compared to global peers due to their large presence in the tanker and offshore segments and strong under-leveraged balance sheets which is likely to help them to take the advantage of the current downturn and increase their fleet at lower costs.