Achieving revenues in excess of $20billion per annum, the Essar Group is the fourth largest private industrial conglomerate in India, and an internationally recognised force.
Since its beginnings in 1969, the Group has grown beyond its home market to carve out a global footprint in the areas of steel, energy, infrastructure, and services.
Sitting within the Essar Shipping division, Essar Oilfield Services India Limited (EOSIL) provides onshore and offshore contract drilling to international oil and gas companies, both in India and overseas. To this end the company operates a variety of assets including the semi-submersible rig ‘Essar Wildcat’, and a fleet of 12 land rigs.
Elaborating on how EOSIL interacts with the rest of the Essar Group, CEO Ankur Gupta says: “As a company Essar likes to integrate an entire value chain together. This can be seen in many of the other businesses, so we not only have steel production but also power generation to feed these plants, a shipping line to bring in the raw materials, and a portfolio of mines for procuring these. Likewise, the Group is home to Essar Energy, which includes exploration and production (E&P) company, and refiner, Essar Oil. Drilling is a natural compliment to this value chain enabling us to locate oil and gas reserves, drill and produce from them, and then refine the products.”
Although a part of this much wider body, in its own right EOSIL has been a company of firsts. It was the first Indian company to enter into private onshore and offshore contract drilling. Other companies have since followed this example, but EOSIL remains the pioneer in its field. It also has the distinction of being the first Indian drilling contractor to secure international projects, as well as drilling the deepest core hole, and the first shale gas well in India.
Sharing his thoughts on why EOSIL has seen such success in its marketplace, Ankur notes: “I believe that safety, efficiency, quality of service, and a good quality of asset are fairly key to operating a good business. These things come from rigorous training of personnel, having well developed HSE practices and procedures, and having the right equipment, which is maintained properly. In order to be able to deliver this we also have to have a very good marketing infrastructure which allows us to go out and bid for the best available contracts.”
At present EOSIL is investing in a massive asset expansion with two new jack-up rigs on order, as well as six land rigs. The jack-up rigs will join the Essar Wildcat in the offshore side of the business, and are state-of-the-art, high specification rigs with high pressure and temperature capabilities. These types of rigs are in high demand on the market, and are viewed by EOSIL as being a valuable addition to the fleet once they are delivered later in the year.
In the case of the new land rigs, EOSIL’s in-house client Essar Energy drives some of this investment. “Essar Energy is the largest coal bed methane acreage owner in India, and is aggressively pursuing a certain production target, which it hopes to achieve by next year. This requires a lot of wells to be drilled very quickly. As such, we decided to augment our fleet, not only in terms of numbers, but also technology. We have ordered six new land rigs from Schramm in the US, which are highly mobile, quick-acting assets that hopefully can deliver this targeted number of wells very fast and efficiently. The first two of the new rigs have just been delivered, so we are going through a programme of recruitment and training in order to put these out to work as soon as possible,” describes Ankur.
The timing of this new capacity delivery appears to be well placed as the market for certain types of ultra-deep water and high-end jack-up rigs, and specific classes of land rigs, looks to remain strong for some time. Taking advantage of this period of sustained activity, EOSIL is looking to expand into new geographies and other types of business. One example of this is its new offering of integrated project management or the drilling of wells on a turnkey basis to Essar Energy. This means that rather than putting rigs out on day rate, the company sets a price for the delivery of each complete well.
“This is kind of a risk-reward basis where if we drill the wells efficiently we will become a little more profitable, and if we don’t hit the targets it will cost us money,” explains Ankur. “Drilling on a turnkey basis means that we manage all other services on the well such as wireline logging, pumping, mud logging, and cementing. It also enables the E&P company to focus more on what they are good at, whilst we take responsibility for the entire drilling work. These kinds of services are particularly popular with smaller E&P companies that have pockets of exploration acreage, but not really the experience or expertise to be able to go out and manage the whole process.”
Longer-term EOSIL is also feeling positive about the opportunities that shale gas might bring with it. This type of exploration is relatively new in India, but it is anticipated that the country may have very prolific reserves of shale gas that can be exploited. Having seen how the production of shale gas has impacted on the price of gas in the US, where large volumes are being discovered, EOSIL believes that this would be of benefit to India – a country on a high economic growth rate, as well as providing the company itself with an additional business stream.
“We expect the market to remain robust with high demand for certain rig types going forward,” concludes Ankur. “Therefore at this time we are focusing on consolidating our business through the coal bed methane drilling, delivery of our new rig assets, and generally making sure we continue to provide the best quality of services to our customers. This is where we expect to be for the next year or so, perhaps looking at the next set of investments from 2014 onwards.”
Essar Oilfield Services India Limited (EOSIL)
Services: Onshore and offshore contract drilling