'Within the RSC model, as the contractor keeps earning, the Government gets progressively higher revenue'

Raghav Jindal,
Managing Director, Jindal Drilling & Industries Limited (JDIL).
The depression in International crude oil prices has deeply affected the global Offshore Drilling market on the whole. "While the present conditions are unfavourable for drilling contractors, the market conditions will not remain the same forever. This definitely brings an opportunity to prepare for the future when the market conditions turn in favour of E & P activities ," says Raghav Jindal, Managing Director, Jindal Drilling & Industries Limited (JDIL). He elucidates the current state and growth drivers for Indian drilling market in the backdrop of falling global oil price and the government's decision of switching policy regime from PSC to RSC, announcement of bidding marginal fields and realign LNG strategy in importing huge LNG, etc. He further details on JDILís future plan and international expansion plans, in an email interaction with Rakesh Roy.

How do you evaluate the current India's Offshore Drilling market for deep sea and sub-sea E & P activities?
The current global Offshore Drilling market is challenging to say the least. The depression in International crude oil prices has deeply affected the Offshore Drilling market. While the present conditions are unfavourable for Drilling contractors, the market conditions will not remain the same forever . This definitely brings an opportunity to prepare when the market conditions turn in the favour of E & P activities. Only those companies which keep a bullish outlook towards the present market are going to prosper once the market conditions are up again. So, while it may seem like a bad phase, the current market definitely brings along opportunities for the long run. We are expecting stability in crude price from 2017 onwards.

The main impact of declining prices has been on oil exporting countries since they cannot plan their drilling activities unless price of crude oil gets stable. The way the crude oil price is falling, no one wants to take chances. At the same time countries like India who are always behind the production can raise up their production. West Coast of India has already declined the production because of old growing oil fields and there is not much development happening on the East Coast. If Indian operators really want to develop their new fields, this is an excellent time for them to do the same as services are available at rock bottom prices. This way India can fulfil its growing demand of oil & gas and reduce the dependency on oil import.

Your thoughts on the recent policy of switching from PSC to RSC formula and impact on oil field services providers. According to you what are the main drivers for the growth of drilling market in India ?
The recent policy of switching to Revenue sharing is going to be difficult for E & P companies to adapt to initially. However, the switch is most likely going to impact positively towards the E & P activities in India. This switch will benefit drilling market in India because it will ensure higher efficiency in the E & P activities. Within the RSC model, as the contractor keeps earning, the Government gets progressively higher revenue .

This model will also ensure that companies become more likely to show interest in exploration. This especially holds significance as India has nearly two third of reserves being unexplored. It will also keep a check on the E & P companies from tampering with production of oil and gas. Moreover, controversies like that surrounding the KG-D6 block can be avoided with the RSC model.

The main drivers for the growth of drilling market in India are investing in New Age Technology and Efficiency in E & P activities. Both these points are mutually dependent. To flourish the drilling market, it is important that the E & P companies regularly remain updated with latest technology and the same be employed for such activities to make it as cost efficient as possible.

For instance, ONGC mostly hires old rigs which in turn lead to increase in the risk of crew safety, increase in associated marine costs, slow production and less meterage. It is pertinent to mention that the drilling job involves high risk and thus safety becomes an important factor which must not be compromised. Safety and performance with new technology is much higher than that of old rigs.

In your previous interview in the year 2012 with OSW, you had shared JDIL's intent to expand the rig fleet and global footprint. What steps has JDIL taken towards the same over the last 3 years. And how has the drop in oil prices impacted the company's plans? Talk about the presence of JDIL in other international markets. How do you compare providing services across various international markets vis-ŗ-vis Indian market?
In 2012, JDIL owned only two rigs. But over a span of the last 3 years we have expanded our rig fleet to five premium-class jack-up rigs and a drillship. The dropping oil price did not deter JDIL from its plans. This is evident from the fact that we recently purchased the rig 'Rowan Louisiana' to bid in one of the ONGC tenders and we won the contract for the same.

JDIL is aggressively trying to expand into international markets like Egypt, Middle East, Indonesia, Malaysia, etc. Providing services in the International markets requires activities ranging from pre-qualification to opening a local office. It is a heavy task and it is important to go about it one step at a time. We are trying our best to enter into these markets, as we do have the technical capability to cater to the needs of the International market in addition to sticking to the highest level of service quality.

What are your thoughts on the proposed marginal field policy and how are you aligning the business strategies to leverage on this opportunity in the near foreseeable future?
The proposed marginal field policy is a big plus and we are definitely preparing to make full use of this opportunity. This policy will not only help India to augment domestic production of oil and gas but also give drilling contractors an incentive to step up to this opportunity. Our investment in premium class rigs and new technology will hopefully give us more leverage to make good use of this opportunity.

India is realigning the LNG strategies and gearing up for huge gas imports in the backdrop of decline in gas prices and the E & P activity is stagnated due to various challenges. How is this going to impact the oil field services providers industry on the whole and how are you gearing up for the future challenges?
It's a good strategy to secure the gas from international market but in today's scenario price needs to be carefully check and negotiate but on the other hand, India has nearly two thirds of reserves being unexplored. The East Coast of India is having little E & P activities. It is already known that the East Coast has a huge reserve of oil and gas. In such a case, imports are going to turn out costly for the contractors and government alike. It is imperative that ONGC starts exploring new fields within the East Coast and deploy rigs to boost domestic production and cut down such huge import bills. In the end it depends on the willingness of operators to explore and develop new blocks and in turn raise production or otherwise keep spending on oil & gas imports which affects national interests

How, you think, the decline in global crude price and natural gas pricing formula in India has affected the Indian drilling business? What are the strategies JDIL adopted in protecting its bottom line in such scenario?
The Indian drilling business has definitely taken a hit from the decline in global crude price. It is evident from the fact that demand in general is far lower than it was 12 to 18 months ago. However it is very important to note that since India isnít an oil exporting country, India isn't hit as badly as any of the oil exporting nations and hence it can use this opportunity to develop new fields and raise up exploration activities to lessen dependency from the import of oil & gas.

Operators in India should take full advantage of this scenario and deploy more rigs to develop new fields and revive old growing fields. In terms of the Indian drilling business, the impact of decline in global crude price isn't severe, but it depends on the willingness of operators to take advantage of this situation. JDIL is taking this opportunity to market our rigs in the International market. We already have three rigs deployed on long term contracts with ONGC and we were recently awarded another contract for our rig 'Rowan Louisiana' which we happened to purchase a few months back. So, in terms of protecting the bottom line, we are optimistic that JDIL will come out well in these times of depression in the market.

As the inception of JDIL was for offshore drilling in Indiaís Oil & Gas sector, how have you realigned your strategies in changing global business environment? And what are your plans for the future (Do you intend to add FLNG and advanced technologies to fleet)?

Yes, we have realigned our strategies to also consider international drilling market in addition to the local market. While for the most part we have been participating in the local market, it is time for JDIL to step into the International market and become a global brand. We are pursuing this with a lot of dedication and hopefully the results will show in the end .