Jindal Drilling sees increase in rig demand due to oil rate

DP Jindal, Chairman of Jindal Drilling, in an interview with CNBC-TV18’s Latha Venkatesh and Gautam Broker, said that reason for them buying a rig is because the rig demand has been going up for exploration and production along with the oil prices.

Jindal further said, “Out of our five rigs, four rigs are for long-term contract of three-five years and one rig is de-hiring in October which is tendered for the new contract. We are expecting around 20-25% reduction in the price. We would go for a new jack-up which would take two and two-and-a-half years for delivery.

Below is the verbatim transcript of the interview. Also watch the accompanying video.

Q: How is the business shaping up? There was news that you might be looking to buy one more rig. What are the long-term and short-term contracts for the five rigs that you already have?

A: Global oil market is going up. As the oil prices are getting high, the rig demand is also going up for exploration as well as production.

Q: You have renewal coming up with ONGC . Are day rates likely to be better than what you had earlier contracted? What is the situation looking like right now?

A: There is a price pressure on rigs because new rigs are being built up. During the renewal, there will be a pressure on the price. There will also be a lot of competition.

Q: What percentage fall are you expecting in the rates?

A: Out of our five rigs, four rigs are for long-term contract of three-five years and one rig is de-hiring in October which we are tendering for the new contract. We are expecting around 20-25% reduction in the price.

Q: On buying further additional rig, what kind of rigs are you looking at like jack-up rigs or deep drillers? What is on your radar right now?

A: We would go for a new jack-up rig. If we place the order now, it might take two to two-and-a-half years for the delivery.

Q: What capital expansion and cost is involved?

A: The new 300 feet jack-up rig is worth UDS 200 million.

Q: Would you have to incur some debt or will you be issuing shares? How are you planning to meet that expense?

A: The model of expenditure is that we have to buy the rig in Singapore Company to get foreign loans. Some of the foreign investors are also involved.

Q: The chairman of Shipping Corporation of India pointed out how operational costs have gone up. We are seeing pressure on your EBITDA margins in Q4 as well. Would you anticipate pressure to continue given that operating costs have shown no signs of easing?

A: When the rig price goes down, the charter hire price and EBITDA will also go down. In Jindal Drilling, we have a different model. We have three charter hire rates. The charter hire profitability goes on to the rig owner. Jindal Drilling will maintain its EBITDA.

Q: How do you expect revenues to shape up, both in your consolidated and standalone entity for the current year? Last year, your sales were down in the standalone from about Rs 1200-1100 crore. How will it be in FY12?

A: It’s more or less standard. There are some periods when the rig goes for repair or there is a shift of contract. Some days are lost then and so the turnover goes uneven accordingly.

Q: Should we assume that you will be able to post a rise in sales in the current year?

A: We will maintain more or less the same.