Rig market to remain low if oil languishes: Mercator Lines

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Even as the market for drillships and jack-up rigs has seen an improvement, it is still not up to the mark, Harish Mittal, CMD of Mercator Lines, said. In an exclusive interview to CNBC-TV18, Mittal said jack-up rigs however continued to remain under greater pressure. "If oil remains between USD 60-70 per barrel, then I think the drilling activity again starts on. Because the market went down so low and especially the finance market was so bad that people were scared to take any long-term call," he said.

On the oil market and whether it was linked to demand for the company, Mittal said, "The fact is that, at the moment, oil consumption is low worldwide and is as low as 12-13% and till this US market recovers, there won't be lot of positives for rig market and the oil segment."

Here is a verbatim transcript of Harish Mittal's exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: Could you start by breaking up for us on what the current outlook is for drill ships and jack-up rigs?

A: The market is a bit under pressure as the sentiment has gone down. After oil prices went down from USD 144 per barrel to USD 30 per barrel and are now between USD 60-70 per barrel, it is picking up now but not as per the industry requirement. As far as deep sea drilling rigs are concerned, they are not under so much pressure. The pressure is coming on jack-up rigs.

Q: We hear that recently Petronas paid 70% more than Reliance Industries to rent a drillship from Transocean. Do you think such transactions could be indicating a recovery in the rig price market?

A: It is very early to comment on anything because the markets have seen the worst times; not only the oil market or drill market but overall the market was so low. People are taking a lot of precautions; they charter on long-term basis on any rig or anything else for that matter. They are taking lot of precautions. But I feel it is slightly on the recovery path.

Q: Has demand improved for jack-up rigs because that was the weakest segment of the market? Have you seen first signs of recovery?

A: Jack-up rigs are still under some pressure because the market has not picked up the way it has to. But if oil remains between USD 60-70 per barrel, then I think the drilling activity again starts on. Because the market went down so low and especially the finance market was so bad that people were scared to take any long-term call. Of course, the on-spot market is not so bad; people are taking jack-ups even at USD 125-150 per day.

Q: Where are current rental rates at, an average for jack-up rigs?

A: It depends uppm longevity because it is long-term charter the rates may go down as low as USD 100,000, maybe USD 90,000.

If it is for short term, say, one year or six months, still rates are around USD 150-160 per day.

Q: How sensitive are these rates to what happens in the crude market because the takeaway for analysts seems to be that once there is a revival in crude price market there will be increased demand for you and hence better rates as well?

A: These are speculations that all people are indulging in into the oil market. The fact is that, at the moment, oil consumption is low worldwide and is as low as 12-13% and till this US market recovers, there won't be lot of positives for rig market and the oil segment.