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Home / Issue Archive / 2007 / June #6 / TNK-BP Offers Longer Term Drilling Contracts

№ 6 (June 2007)

TNK-BP Offers Longer Term Drilling Contracts

TNK-BP announces a tender for servicing companies to supply and operate drilling rigs on much longer terms than are standard in Russia.

TNK-BP wants 20 Russian and foreign contractors to supply and operate 60 rigs for at least five years while existing industry practice is to conclude such contracts for one year, the company said in a statement.

"Having five-year agreements in mind, the contractor will be able to invest in its development," spokesman Alexander Shadrin told the Moscow Times. "We will demand modern equipment that meets environmental and safety requirements."

The contracts could be worth more than $2 billion over these five years, starting next year, the statement said. By shifting to better rigs, the company will expand its exploration and production drilling in mature and developing fields and in new license areas, it said.

According to the Moscow Times, TNK-BP production reached a plateau last year. The British-Russian company, the country's third-largest oil producer, expects its output to start rising again in 2009 after investing $4.5 billion next year.

Despite the tender, TNK-BP will continue to rely on its own oil-field services division for a significant proportion of its drilling needs, it told the English language daily, without naming an exact figure. This proportion currently stands at 40 percent.

Of the 20 companies pre-qualified for the tender, two-thirds are Russian and the rest are foreign, the statement said.

The bidders will know the result in October and have to deploy the rigs in January.

Longer-term contracts allow oil companies to count on not only better equipment, but also predictable drilling costs, said Konstantin Reznikov, an oil and gas analyst at Dresdner Kleinwort speaking to the Moscow Times.

Oil development drilling in the country grew by 38 percent over the past two years because it is more effective than hydrofracturing and other ways to increase output, he said. But it is also more expensive, he added.

Larger drilling companies such as Integra and Halliburton are likely to take part in the tender, Reznikov said.

Source Moscow Times

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