Petroleum drilling companies will ask contractors to share costs rising due to the government’s rules for preventing the spread of coronavirus at workplaces.
Companies plan to raise their point through the International Association of Drilling Contractors (IADC).
“Apart from costs being incurred due to the SOP (standard operating procedures) we have to now follow due to the pandemic, drilling companies also have to pay the crew as this period is treated as ‘crew on board’. Due to this, in the last three months, cost has escalated for the industry by more than 50 percent (of the total cost usually incurred),” a senior official with Greatship (India) Limited told Business Standard.
A quarantine of 8-9 days, flight tickets, and hotel stays till the time of testing for coronavirus are new costs companies have to shell out for as part of standard operating procedures (SOP) laid down by the government.
Jindal Drilling & Industries, Aban Offshore and Dolphin Offshore Enterprises (India) are some of the drilling companies in India. The crew on drilling rigs follows a 28-day cycle, which means, companies have to arrange for a change of hands every 28 days.
Drilling companies have managed to fund escalated costs through internal accruals and they are hopeful in their negotiations with contractors, said industry officials.
“Through IADC, the domestic drilling industry will be asking contractors to bear the additional cost partially, else it is going to be difficult (for drilling industry) to sustain for a longer period,” said the Greatship official.
Greatship (India) Limited is a 100 percent owned subsidiary of GE Shipping. The wholly-owned arm owns and operates all the Indian-flagged vessels and rigs within the group. It owns four modern jack-up rigs.
Globally, the scenario with regard to crew change is worse, mainly in the West Asia region, the largest region in the world for offshore petroleum drilling.
“Companies in the Middle East (West Asia) largely hire expat crew. With flights not functioning across major routes, it is becoming increasingly difficult for companies in those regions to carry out drilling activity,” said an official with Jindal Drilling & Industries.
Seadrill, EnscoRowan, Nobel Corporation and Diamond offshore among others are some of the global drilling companies.
“These companies largely hire, Indian or Philippine crew on rigs and it has been a major challenge,” he added.
In the petroleum drilling industry, companies owning the drilling rigs themselves are engaged in the drilling activity. There are hardly any examples across globe where a drilling company hires rigs from third party for drilling activity. Due to this, drilling business is asset heavy, which makes business scenario even tougher in volatile crude oil prices.
“An asset light model for companies in this business is difficult as it does not make sense from long term perspective. Also, if the current situation companies look to go asset light, it is not easy as there is no value to the asset. So a desired price cannot be fetched,” said an official with Aban Offshore on condition of anonymity.
Aban Offshore, is the country’s largest offshore drilling services provider to oil companies, mainly for state-owned ONGC.
The drilling industry has been in a rough patch since 2014 when oil prices crashed. Companies did manage to tide over the situation and were doing considerably well last year as even scrapping of old rigs helped stabilize day rates. However, the coronavirus pandemic changed business and companies are uncertain about revenue in coming months.
