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№ 3 (March 2008)
In the estimation of some experts, up to 90 percent of the Russian fleet of drilling rigs is useless. Despite steady growth in drilling volume for the last three years in Russia, the situation is still critical.
If no appropriate measures are taken, in five years there may not be any useable rigs remaining in the Russian Federation, say some drilling experts. Sources familiar with Russia’s drilling market estimate that within the next eight years anywhere from 600 to 800 new drilling rigs will be required. That number of new rigs will keep projected drilling programs on schedule but will replace only about 50 percent of the worn-out Russian fleet.
Of course, no one can make even a wild guess at what is “the Russian fleet” considering that there are no reliable rig counts and experts estimate that what Russian sources report as a “rig” might be nothing but various spare parts. Certainly, it is generally accepted that the numbers reported do not reflect the numbers of actual rigs in service. If Russian rig counts were reliable, the 600 to 800 rig estimate of demand would replace only about 50 percent of existing rig stock by 2015. To renew the entire fleet would take 15 to 20 years.
But again, apples need to be compared with apples, not oranges. Russia today needs the more expensive, heavy duty rigs for deep drilling projects of more than 5,000 m depth. Thus, to fulfill drilling programs of the 21st Century, Russian producers will need fewer rigs than those used to drill box pattern style in West Siberia in the 1970s, but those rigs will need to be more technologically complex and hence more expensive than the rig stock being replaced, Russian companies plan on spending $15-17 billion to renew its rig fleet. And the demand for spare parts is yet another matter.
Currently, rig manufacturers see enormous opportunity in helping Russian production companies and drilling contractors renew their rig fleets. Germany’s Bentec is in fact opening a fabrication yard in Tyumen in the autumn of 2008 which will have a capacity as big as its main yard outside of Dusseldorf. Bentec intends to develop its Russian yard not only to supply the Russian domestic market but also eventually for export to Central Asia and the Middle East.
North American companies are active also in the Russian market but not yet as domestic manufacturers. Russia’s Integra meanwhile may be getting some competition from an ambitious new player, MK Uralmash, which was created in the autumn of 2007 by the Metalloinvest management company and and United Machinery Factories (OMZ). Some analysts suggest that MK Uralmash plans to grab a 40 percent share of Russia’s new build rig market by 2012.
According to experts from Honghua, drilling rigs in Russia are manufactured in small volumes, and their quantities are not sufficient to meet requirements of the market. Experts differ widely on the extent of Chinese penetration of the Russian rig market. One source told Oil&Gas Eurasia that currently China holds only 2 percent of the market and that could grow to 20 percent by 2010. Western sources however say that given the volume of orders placed with Chinese manufacturers already, the Chinese could hold up to a 50 percent share of the Russian market when rigs are delivered.
In June 2007 during the MIOGE oil and gas show in Moscow, the Russian drilling contractor Rinko Alliance and the Chinese company RG Petromachinery (Group) Co Ltd announced the establishment of a joint venture with fanfare that included a gala dinner cruise on the Moscow River. The new JV will deliver fixed and mobile drilling rigs from China. A spokeswoman for Rinko Alliance says that the plan calls for delivery of 10 rigs minimum per year. But given the high demand in the market that number could grow considerably with long-term lease arrangements.
Thus, competition between companies, particularly in the segment of fixed drilling rigs, is expected to increase. Such competition could bring down prices on new build rigs. One development that would facilitate this trend is for Russian based manufacturers to increase their production of hybrid rigs with key parts imported from the West – much the same as is currently being done in China. Some Russian sources say that not only National Oilwell Varco but also Canrig are companies with which Russian companies would like to develop direct relationships.
If such a trend were to develop, Chinese penetration of the Russian rig market would never reach the predicted 50 percent market share and might settle out at around 25 percent.
To do so would require flexibility on the part of Russian manufacturers that so far has been in short supply. Too often, those that would rather buy Russian manufactured goods are left with no choice but to take their orders to China because of the rigid, Soviet-style approach taken by many manufacturers. To actively change this behavior though would not only serve the interests of manufacturers themselves but also the future growth and strength of the Russian economy.