Oil & Natural Gas Issues Bids to Hire 4 Drilling Rigs

By Dinakar Sethuraman and Archana Chaudhary

Feb. 9 (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 have been 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 2.6 percent to 700.90 rupees in Mumbai trading. The stock stood at 698.30 rupees at 12.38 p.m. local time.

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 December, with 82 vessels, Baker Hughes said in a report last month. ONGC has 33 offshore rigs, of which nine are owned and 24 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 Web site of India’s Directorate General of Hydrocarbons. Reliance will take delivery of three deepwater drilling rigs this year as it begins producing gas that may more than double the nation’s output.

Reliance is paying Geneva-based Transocean more than $500,000 a day for a rig under a five-year contract that can drill at 12,000 feet, according to Transocean’s Web site. Based on the charges, ONGC’s contracts for the four rigs may cost more than $700 million a year.

Explorers are investing $1.5 billion in India’s seventh oil auction in which 44 fields were awarded out of 57 offered, including 28 offshore areas. The winning bidders included BHP Billiton Ltd., the world’s largest mining company, and ONGC.

India plans to offer 100 areas for oil exploration in the next round of auctions, Oil Secretary R.S. Pandey said on Feb. 3, without indicating a likely date. India opened a total 222 areas for exploration in the previous six rounds of bidding that started in 1999.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net; Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.