China Oilfield to carry out US$10m overhaul of rig
China Oilfield Services Ltd aims to begin in the third quarter an estimated US$10 million programme to overhaul one of its drilling rigs and extend its operating water depth as part of efforts to capture growth opportunities in deepwater oil drilling.
The dominant supplier of such services in offshore China, a unit of China National Offshore Oil Corp, is in talks with listed oil and gas producer CNOOC to find a window from the latter's drilling schedule to carry out the upgrade.
'Due to strong drilling demand, our rigs' drilling schedule is very tight,' said COSL chief executive Yuan Guangyu in an interview, adding the overhaul would see the operating water depth of one of its three semi-submersible rigs increase from under 500 metres to 1,500 metres.
Tests on the upgrade will be carried out by a 50-50 joint venture between COSL and Norway's Atlantic Deepwater Technology. The venture covers the Asia-Pacific market and owns the intellectual property right to the technology.
While the technology has not been commercially proven elsewhere, Mr Yuan estimated the equipment cost and related expenses to upgrade a rig at US$10 million.
COSL's semi-submersible rigs, which operate in sea depths of 300 to 500 metres, had an average daily rental rate of US$118,483 last year, up 107.5 per cent from 2005.
The day-rate of semi-submersible rigs capable of operating in up to 1,500 metres deep of water can be as high as US$500,000, COSL management said in August last year.
Semi-submersible rigs are those that can float and can be moved from one drilling site to another. Of its fleet of 15 rigs, 12 are jack-up rigs anchored to the seabed and are stationary. Their average day-rate rose 37.5 per cent to US$55,559 last year.
Drilling services accounted for 61 per cent of COSL's operating profit last year. The firm is expanding its deep-water capabilities to cater to the needs of sister firm CNOOC and foreign companies that are increasing spending to find oil and gas in the almost-virgin territory of deep water offshore China.
While so far only Canada's Husky Energy has announced a major gas discovery in the South China Sea, the first in the mainland's deep water and potentially the biggest in offshore China according to the Ministry of Land and Resources, interest in offshore China has risen as oil companies abroad emboldened by high oil prices are more willing to bet on under-explored regions.
China National has signed at least 10 exploration and production-sharing contracts with foreign oil and gas firms and has been mapping its own deep-water drilling programme.
China National Offshore Oil began building in July last year a US$600 million drilling rig that can operate in depths of up to 3,000 metres when completed in 2010.
Including auxiliary equipment and expenses, the parent's entire spending on the project would reach 10 billion yuan, said China National president Fu Chengyu.
Originally, COSL aimed for minority ownership of the rig but later decided to let its parent fully fund the project to avoid overstretching its own balance sheet. COSL will instead rent it from the parent, although Mr Yuan said it planned to eventually buy it from its parent.
COSL plans to raise its capital investment on equipment and facilities by 17.8 per cent to 3.2 billion yuan this year, after a 31 per cent increase last year to 2.71 billion yuan.
The company also plans to issue A shares and long-term bonds.
Mr Yuan said COSL's profit growth this year would be driven by a new drilling vessel that came on stream in the second half last year, as well as the start-up of four mainland-made rigs costing one billion yuan, to be deployed in the Gulf of Mexico in the second quarter.
Growth could also be derived from the impending acquisition of Russian-British oil firm TNK-BP's oil services unit STU. COSL is waiting for Russia's approval of the deal.