Domestic drilling companies continue to grapple with low rig rates and poor offtake of contracts after global oil prices slumped in 2014-15.
Though oil prices have recovered from their lows of $35 a barrel in 2015 to about $62 now, continued volatility in prices has kept the overall business muted. Prices had peaked to $115 per barrel in 2014 before they slipped to $35.
“No drilling company is looking to make profits at this juncture. Everyone is focused on meeting their operational expenses. Rig rates have come down to a third of what they were before the oil price downturn; utilisation has dropped to 45 per cent, from the earlier 85-90 per cent,” said an official with Jindal Drilling.
Aban Offshore, Jindal Drilling, Greatship (India), Dynamic Drilling, Duke Offshore, and Deep Industries, among others, are some of the top drilling companies in the country.
“Cost-cutting continues across the industry at multiple levels. Headcount rightsizing has happened since contract renewals are not frequent. Earlier, the industry used to roll over the crew from one contract to another. Now, there is a gap of six months to a year between two contracts from the same client,” said an official with Aban Offshore.
Industry officials are of the view that even though the business for drilling companies remains hand-to-mouth, there is no real threat to salaries. “There is no worry on that front. Business has improved since the oil price was at $35 per barrel. We see renewed confidence bounce-back once oil price stabilises,” the Aban Offshore official added.
Chennai-based Aban Offshore has 18 jack-up rigs, of which eight are deep drillers. The company’s consolidated net debt as on March 31, 2018, was at Rs 137.4 billion.
“Since the (oil price) downturn, hardly any rigs were used as no upstream (project) was happening and these rigs had to be stacked somewhere and that comes at a cost. Many of these rigs have been pulled out of service and some have been pressed into other applications, mainly in mobile offshore production units. There is more scope for scrapping in the rig segment,” said Juju Mathew, senior vice-president, subsea business development head, India, at TechnipFMC.
Recently, global crude oil prices toppled from $86 a barrel in October to around $60. “The major change that has taken place in the drilling industry is that the contract size has reduced drastically. Earlier, clients would give out four-five wells for drilling under one contract. Now, it is one well per contract and we do not know whether the next contract will come up immediately or after a gap of few months. In such a scenario, it becomes difficult to estimate the revenue stream,” said the Aban Offshore official.