Reliance signs 10-year contract for new Transocean rig

Vol 11, PW 23 (15 May 08) Exploration & Production

Reliance has outsmarted its global rivals – and broken yet another record.

The Mumbai-based conglomerate has signed a 10-year hire contract with Transocean for a â€کnew-build’ deepwater drillship. Signed on April 14, the deal is the first of its kind in India and only the second such contract ever signed internationally.

And it’s likely to give Reliance an enviable financial and logistical edge. “The Reliance contract begins with a five-year term extendable by two years plus another three years,â€‌ says a source.

“Daily hire charges will fall towards the end of the tenure. For the first five-year term Reliance will pay a total $1.1bn and an additional $750m for the remaining five years.

â€‌ Averaged out over the 10-year period, daily charges work out at $510,000/day (or $553,000/day for five years). Drilling contractors say the 10-year contract is a â€کwin-win’ for both Reliance and Transocean.

“Petrobras, Pemex and operators in Nigeria are waiting to hire all available deepwater rigs,â€‌ we hear. “Reliance has beaten them to it.

â€‌ Until now only Shell has had this level of financial clout and foresight, signing a five-year contract, extendable for a further five years with Frontier Drilling for a deepwater drillship being built by the Cosco shipyard in China for delivery in late 2009. Little is known about the new Reliance rig except that it is being built by the Daewoo shipyard in South Korea and is yet to be named.

“This drillship will be an â€کEnterprise’ class, dynamically positioned rig that can drill in water depths of 12,000 feet.â€‌ Transocean expects delivery in Q4 of 2010.

How much extra will Reliance have to pay in mobilisation and demobilisation charges It’s unclear, but it’s unlikely to be less than $500,000/day. “Given that it will take about 20 days for the drillship to travel from South Korea to India,â€‌ says a source, “we expect Transocean to charge about $15m for â€کmob’ and an equal amount for â€کdemob’.

You can’t expect Transocean to charge only â€کcost-to-cost’.â€‌

LNG Summit