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Oriental Drillers: A New Chinese Rig Makes a Splash in the Caspian Sea

This is an abridged version. The full text is avaiable to subscribers to The Russian Energy weekly.

In November, UAE-backed Dragon Oil is to receive a Chinese jack-up rig under a five-year lease contract to operate on the Cheleken block off Turkmenistan. The arrival of competitors will depress drilling fees in the area and make it harder for Russian suppliers of drilling hardware.

The Newcomer

The most popular drilling rig in the Caspian Sea is the Astra jack-up. Its owner is BKE-Shelf, a unit of Eurasia Drilling Company Ltd. (EDC), which controls about a quarter of Russia’s drilling market. RigZone reports that the rig has been contracted for a few years ahead.

EDC plans to expand operations in the Caspian area. It announced in January that negotiations were underway with Transocean to buy the 11-years-old Trident XX jack-up rig for $260 mln. It is a Keppel FELS CS Mod V cantilever jack-up capable of operating in water depths to 350 feet and drilling to 26,000 feet.

The expansion plan is somewhat marred by Dragon Oil, which is bringing in a rig from another supplier. ‘We have signed a contract for a new Super M2 jack-up rig, which will drill faster and deeper than the rigs we are using now,’ CEO of Dragon Oil Abdul Jaleel Al Khalifa says. ‘It will be delivered to Cheleken in the fourth quarter.’

The rig, designed by Friede & Goldman, is being built at the Yantai Raffles wharves in China. The price of $270 mln includes a five-year lease contract with a two-year extension option, plus the costs of delivering it to the Caspian Sea. It is a good bargain. The operator will pay $147,000 per day, which is comparable with the rates of other rigs in the area, but the technical characteristics of the new rig are much better.

Initially, the rig will work for Dragon Oil, drilling at the average rate of 70 days per well. The company intends to drill 11 to 12 wells a year, and it is going to need more rigs. It has signed a two-year contract for the Iran Khazar jack-up and is already employing a rig borrowed from Serbia’s NIS, which operates from a stationary platform.

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