ONGC forces 25% discounts from rig contractors

Vol 23, PW 19 (30 Jul 20) Exploration & Production

ONGC is forcing rig contractors to reduce day rates by 25% or risk losing their contracts.

Most contractors have refused. ONGC started sending letters out from the last week of June.

"ONGC is saying that because of the pandemic they have to limit their OPEX," says an onshore contractor. "And that they can get oilfield services from global players at rates lower than what we are offering."

He adds: "ONGC says it has made a calculation and found that it is easy for us contractors to give a 25% discount. Ridiculous! Instead of helping us, a government company is pushing us down."

ONGC argues that many E&P companies around the world have postponed CAPEX and OPEX plans, putting oilfield services providers out of work. As a result, claims ONGC, the services of these oilfield operators are available at much lower rates.

One typical letter sent out says: "It is becoming increasing uneconomical for us to continue with the oilfield services on the rates under current contracts. In the circumstances, we have no option but to review the expenditure under existing contracts to curtail our losses and to remain in business."

Day-rates for onshore rigs in India can range from around $2600/day for workover rigs to up to $25,000 for a 2000-hp conventional drilling rig. Offshore rates are above $25,000.

In June 2019, ONGC hired Aban-III at an Effective Day Rate of $29,700.