India's offshore rig operators are poised for a 30% surge in operating profit in FY25, driven by robust global demand and higher day rates, which have doubled to USD 85,000.
Operating profit of offshore rig operators in India is likely to jump 30 per cent next fiscal on the back of strong global demand for rigs amid healthy crude prices and elevated day rate which has doubled to USD 85,000 from the last year's level, says a report by Crisil Ratings.
The day rate is the amount of money paid by the operator to the drilling contractor for each day that the rig is used to drill a well.
In the absence of significant investment towards rig addition, growth will bolster the returns and debt metrics of rig operators and strengthen their credit risk profiles, it added.
Crude price, which averaged at USD 55 a barrel between fiscals 2016 and 2021, increased to USD 86 a barrel on average since fiscal 2022. Higher crude prices have, in turn, incentivised increased capex in offshore exploration and production activities, driving up demand for offshore rigs.
Though global demand for offshore rigs has surged 11 per cent since April 2022, supply has shrunk as operators have not been investing in new rigs for some years now, given the prevailing non-remunerative day rates and poor revenue visibility.
As a result, utilisation is above 90 per cent compared to 75-80 per cent in the past five years. This has spurred competition among oil producers to secure rigs, leading to a spike in global day rates.
The domestic day rates follow global trends since rigs are movable and can be deployed globally. As such, the day rate in the domestic market recovered to USD 85,000 this fiscal from the average of USD 25,000-40,000 over the past six years.
A record low global order book and lead time of three to four years for rig manufacturing indicate rig supply can increase only around 1 per cent in the next one to two years. With global demand expected to remain strong and supply tight, day rates will stay firm, said the report.
According to Naveen Vaidyanathan, a director with Crisil, higher day rates will benefit domestic rig operators as existing contracts with lower rates get reset with higher-priced contracts.
With around 20 per cent of rigs redeployed in the second half of this fiscal and another 20 per cent set to be deployed next fiscal, the operating profit will rise 30 per cent in fiscal 2025 amid largely stable operating expenses.
According to Ankit Kedia, an associate director, despite improved profitability, domestic rig operators are unlikely to invest significantly in fleet expansion after witnessing prolonged subdued returns.