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Amar Gupta, CEO, Quippo Oil and Gas Infrastructure Limited (QOGIL)

22 Apr 2014

Quippo Oil and Gas Infrastructure Limited (QOGIL) is an onshore contract drilling company. Its CEO Amar Gupta speaks to Neeraj Dhankher about the issues being faced in India and future plans. Excerpts.

What are your areas of operation in the oil and gas sector?

Onshore drilling is our core area of operation. We also have one exploration block in the Cambay basin. We are partners with four entities and along with our parent Srei group, we have the majority stake. We will start operations in Libya also very soon. Basically we are looking at inorganic expansion opportunities and adding more rigs to our existing fleet of five. Some of these we are planning to deploy overseas. In fact, overseas is going to be our next focus area because although there are opportunities, the Indian oil and gas industry has several problems such as low price and onerous contractual terms. Traditionally, Indian oil and gas business has been driven by the operator and contractors are almost always at the receiving end. For example, many times deductions are made by operators for no reason. As it is, ours is a price sensitive market and if the contractor were to build such unexpected deductions in pricing, one is anyway priced out. It has become very challenging to operate the rigs here under these conditions. This is the reason why some of the drilling contractors have been forced to ship out and close shop. A contractor like Dewan Chand has already closed down. Shiv-Vani and John Energy are also facing great difficulties.

Why are the drilling contractors facing difficulties in India? Is it pricing or other issues?

Price is one aspect, the other is the contractual terms. In the private sector, except for few major players, most players are unscrupulous. They do all sorts of deductions, whether valid or invalid. The contractors loose heavily and many a times have to fold up. This is the reason why not many contractors want to work with smaller operators. There were many companies and operators from unrelated businesses who got into this sector thinking there is big money to be made in E&P, but soon realized that this was not their ball game. The government is now forcing them to complete their promised work. But they don’t pay adequately to contractors. So the private drilling industry has also decided to harden its stance with such operators. On the other hand, the public sector, is answerable to a lot of people. So if you are right and have logic to your claims, they pay, but the same can not be said of the private sector.

But aren’t there enough safeguards for contractors in the contract?

Yes, there are provisions in the contract which outline the obligations of both operators and contractors. But for the applicability of the provisions, the client has to agree to it, which is never the case. For example, in case you claim standby in your rates for a delay caused by the operator for not getting a road ready, he will bring up several issues blaming us for not being prepared, even if they are not correct. So there is no objectivity to any of these clauses. The contractor does have recourse to legal provisions, but that further puts our payments into jeopardy and that includes even the admitted payments.

Is there a need for the contractual framework to be more stringent?

Absolutely. It has to be more objective and there has to be an ombudsman which mediates in such kind of issues and quickly. If all such issues go to arbitration, then it leads to delays which impact the cash flow. As it is, payments are executed after two to three months. So the contractor is essentially funding the operator’s three months of operations. Private sector has a problem of cash flow. So they keep holding back payments and we have to sustain in the interim without any interest on delayed payments.

What is the role of the government in this?

That’s the challenge. The government does not get into the picture because it is strictly between an operator and a contractor. There is some reference in the PSC that the operator is responsible for making all these payments but then it is a long process. If we stop work, we don’t get paid, if we continue to work, we don’t know if we will get paid. It is a very difficult situation. We are able to sustain today only because of the support from our parent group, else even we would have folded up and gone overseas. If all the contractors go overseas, what will happen to the Indian operators? There will not be a single contractor who will be willing to work with any of the small private sector operators. The public sector and big players in private sector will always be in big demand and that’s where the contractors will focus.

But isn’t the Indian oil and gas sector dominated by PSUs anyway?

There are three sets of players in the Indian oil and gas business. One is the public sector viz. ONGC, OIL, GAIL etc. Second category are big players like RIL and Cairn Energy and then there are the rest, which includes other operators like us and other late entrants. These are not big groups and it is they who have spoilt the Indian oil and gas industry.

How much time is normally required for providing rigs once a contract is awarded?

The Chinese rigs can be made available in under six months, plus one to two month of mobilization period. Contract finalization takes around three months.

What are your investment plans for future?

We are looking at investing about Rs 15-20 million in the next year or so. Procurement of one rig could be around Rs 15-16 million and then acquisition part also involves other investments. We are looking at the offshore drilling arena and will first evaluate opportunities in India. Interestingly, we are also looking at oil shale opportunity which is not the same as shale oil. We were evaluating an opportunity in Jordan and have made some initial investments there. That will be a major project once it gets off the ground. Our oil and gas block in the Cambay basin should see some activity once the issues with the ministry of petroleum and natural gas are resolved.

Gas price hike is expected to trigger additional investments in deep-water and marginal fields. Has it added to your business prospects?

One of the reasons why we have decided to look offshore is precisely because of the increased potential on account of the proposed gas price hike. The fields which were left out earlier have become economically viable. That’s where we are anticipating a spurt in the requirement of rigs. It will certainly give a fillip to the oil and gas industry in general. However, unless the challenges faced by drilling contractors are looked at closely by the stakeholders, it will be a difficult time for everyone. Given the current environment we are facing, except for the public sector and big private companies, we will keep our distance when it comes to other private companies.

Any plans for venturing into oil and gas business in Mozambique?

In Mozambique the exciting areas are mostly offshore. From a drilling perspective, we haven’t explored that market yet. But now we have decided to increase our market base and African continent is definitely of interest to us. Our sister company, Quippo Energy, is already in Nigeria and we are looking for opportunities in Kenya, Ghana and Tanzania, amongst others.

Shale gas policy has been announced in India. How is it expected to spur demand for rigs?

We are looking at shale gas opportunity not only form a drilling perspective but also from an E&P perspective. Our Cambay Basin block has attractive shale gas potential. In close proximity, ONGC is already carrying out some exploration work there. Unfortunately, the current shale gas policy does not have scope for private participation. Once the policy is announced for private players, we shall look at it closely.

What are your NELP-X bidding plans?

We will be looking at all opportunities. We will first look at the kinds of block available and then make a strategy. A lot of work also needs to be done by the government to ensure that there is consistency in policies and work across ministries becomes more operator-friendly. The industry needs to be looked at in a holistic manner. The challenges facing the industry have to be looked at and the government has to play a larger role.

What kind of challenges are involved in deep-water drilling?

The challenge is the time required to build a new rig and then look at cost and recovery. If you have one or two well contract, it doesn’t help a new build which can cost up to half a billion dollar depending on the complexity. You cannot recover that kind of investment with just two wells. So everyone is vying for the same rigs and there is a demand-supply mismatch. New builds take three to five years to make depending on the complexity by which time the market dynamics are likely to change.