ONGC Seeks Bids for Four Drilling Rigs

February 9, 2009

By Dinakar Sethuraman and Archana Chaudhary, Bloomberg

Oil & Natural Gas Corp., India’s biggest oil producer, has invited bids to hire deepwater drilling equipment in contracts that may cost about $700 million a year as it speeds up exploration plans. The shares rose.

Bids were called on Jan. 20 for a rig that can drill at ocean depths of as much as 12,000 feet (3,658 meters), the explorer said in an e-mailed response to questions from Bloomberg News. Initial expressions of interest were invited for an additional three rigs with similar drilling-depth capacity, ONGC said.

“This is a right move by ONGC because oil prices have been falling,” said Ballabh Modani, Mumbai-based analyst at Enam Securities Pvt., who upgraded the explorer to “neutral” from “sell” on Jan. 28. “ONGC has done limited exploration work in deep waters and this is the time for them to be aggressive about their drilling program.”

The global recession has forced explorers to cut spending, improving the availability of deepwater rigs. Transocean Ltd. terminated a $550,000-a-day rig-lease last month after a client ran out of cash. Worldwide spending on oil and gas exploration may drop 12 percent in 2009 to $400 billion, Barclays Capital Research said.

Offshore oil service providers are making presentations to ONGC for the deepwater rigs, the e-mailed note said. The deadline for responses to the first rig tender is Feb. 26. The explorer plans to select the winning bid in six months.

ONGC gained as much as 6.7 percent in Mumbai today, the most since Nov. 10, 2008. The share rose 41.15 rupees, or 6 percent, to 724.4 rupees at the close of trade. The benchmark Sensitive Index climbed 3 percent.

Rentals, Demand

ONGC plans to spend 71.33 billion rupees ($1.5 billion) to increase output in the Mumbai High area off the west coast. It also plans to drill six appraisal wells in the Krishna Godavari area in the east.

Crude oil has slumped more than 70 percent in New York from a record in July as the global recession erodes demand. Goldman Sachs Group Inc. expects crude to average $70 next year. Still, rentals and demand for deepwater rigs may surge as a global shortage of drilling equipment outweighs the biggest drop in crude prices in a quarter-century.

“Exploration activity is holding up in Asia in spite of the global financial crisis,” said Tony Regan, an independent oil consultant who earlier worked for Royal Dutch Shell Plc. “Spending by majors like Chevron, Exxon and Shell is fairly bullish.”

Big User

India was the biggest user of rigs in the Asia-Pacific region in January, with 80 vessels, Baker Hughes said on its Web site. ONGC has 33 offshore rigs, of which nine are the company’s own and 24 are rented, according to the note. Three are deepwater rigs.

ONGC, which won 20 bids in the country’s seventh exploration round, is drilling in areas located near Reliance Industries Ltd.’s fields in the Krishna Godavari Basin off the east coast, according to the