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Operating profit for offshore rig operators in India is projected to increase by 30% in the next fiscal year, driven by robust global demand for rigs, favorable crude oil prices, and elevated day rates, according to a report by Crisil Ratings. The day rate, which represents the amount paid by operators to drilling contractors for each day of rig usage, has doubled to $85,000 from the previous year’s level. This surge in day rates, coupled with limited investment in rig additions, is expected to enhance the returns and debt metrics of rig operators, ultimately strengthening their credit risk profiles.
The report highlights that crude oil prices have risen significantly, averaging $86 per barrel since fiscal year 2022, compared to $55 per barrel between fiscal years 2016 and 2021. This increase in crude oil prices has incentivized greater capital expenditure in offshore exploration and production activities, consequently driving up the demand for offshore rigs.
Despite a surge in global demand for offshore rigs since April 2022, the supply has contracted due to operators refraining from investing in new rigs. This reluctance is attributed to non-remunerative day rates and poor revenue visibility. Consequently, rig utilization has exceeded 90%, a substantial increase from the 75-80% range observed over the past five years. This heightened competition for rig availability has led to a spike in global day rates.
The domestic day rates in India follow global trends since rigs can be deployed globally. As a result, the domestic day rate has rebounded to $85,000 this fiscal year, compared to an average of $25,000-40,000 over the past six years.
Considering the record-low global order book and a lead time of three to four years for rig manufacturing, the report suggests that rig supply is expected to increase by only around 1% in the next one to two years. With robust global demand and limited supply, day rates are expected to remain firm.
Naveen Vaidyanathan, a director at Crisil, believes that higher day rates will benefit domestic rig operators, as existing contracts with lower rates will be reset with higher-priced contracts. Redeployment of approximately 20% of rigs in the second half of this fiscal year, along with an additional 20% deployment expected next fiscal year, is projected to drive a 30% increase in operating profit in fiscal year 2025, while operating expenses remain largely stable.
Despite improved profitability, domestic rig operators are unlikely to significantly invest in fleet expansion, as they have experienced prolonged subdued returns, according to Ankit Kedia, an associate director at Crisil.
The report concludes that the positive outlook for offshore rig operators in India stems from the strong global demand for rigs, favorable crude oil prices, and elevated day rates, all of which are expected to bolster their financial performance and creditworthiness.
Source: [Newsearay](https://bsmedia.business-standard.com/_media/bs/img/article/2018-10/13/full/1539445085-7027.jpg?im=FitAndFill=(826,465)) (Image)
According to a recent report, offshore rig operators are projected to experience a significant boost in their operating profit by around 30% in FY25. This surge is anticipated to be driven by various factors such as increasing global energy demand, rising oil prices, and a rebound in offshore drilling activities. The positive outlook indicates a promising future for offshore rig operators, highlighting potential growth opportunities within the industry.
Disclaimer: Only the headline and content of this report may have been reworked by Newsearay, staff; the rest of the content is auto-generated from a syndicated feed. The Article was originally published on Source link
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