Why everyone is watching ONGC closely

Vol 7, PW 6 (04 Jun 03) Exploration & Production

YOUD BE forgiven for wondering why there's so much interest in ONGC's deepwater tender.

Not just in India, but abroad too. The reason is simple: this is the first time in the nascent history of deepwater drilling that an oil company is asking contractors to submit bids that combine the day rate for the rig with associated services over three years in an 'Integrated Package'.

"It's a first in the industry on this scale," reveals an expert. "Some of the bidders are asking themselves why they complied with ONGC's demand." If so, Transocean and Dolphin are right to be worried.

In a contract where the combined rig and services day rate could go as high as $500,000, the onus is on the contractor if something goes wrong. For instance, if drilling is suspended because of late mud supplies or poor equipment.

Here, the contractor, not the oil company, will lose $500,000 a day if the rig stands idle. In a 'Rig Only' contract, it's the oil company that would have to pay.

"With an integrated contract all the accountability shifts to the contractor," adds a source. "The stakes are too high for a rig to break down or remain idle during a deepwater drilling programme.

In one incident ONGC lost hundreds of thousands of dollars in rig time because of some internal procedures that delayed the supply of mud. ONGC doesn't want that to happen with acontract of this value." With so much money at stake, Dolphin is clearly taking the biggest risk.

Its Belford Dolphin rig is widely recognised as one of the best around and ready to begin drilling immediately. Yet it's the only rig Dolphin is offering.

Transocean by contrast is offering three rigs. Logistics permitting, Transocean could easily call on its other rigs if trouble besets the one it hires to ONGC.

That's something Dolphin won't be able to do.