Dubai: Maritime Industrial Services Company (MIS), which has a rig building and marine fabrication facility in Sharjah, said it is planning to have a new yard in the UAE to cash in on a spurt in demand for offshore drilling rigs.
Demand for rigs is resulting from high global energy prices that are driving increased oil and gas exploration activity and also from the need to phase out old rigs.
"We are seriously looking for land for a new yard. We have a crowded situation at our existing Sharjah yard," MIS managing director Jerry Smith said.
The Sharjah facility is spread over 200,000 square metres and MIS plans to build another yard of similar size. Abu Dhabi is being considered as a potential location. "We want to have more access to the Abu Dhabi market," Smith said.
He estimates that there are about 100 offshore jack-up rigs drilling for hydrocarbons in the Middle East, and globally their number could be 350.
Most rigs were built in the early 1980s, and thereafter the activity has slowed down considerably, which is causing the current backlog of orders with manufacturers.
"If new rigs become available today many old ones can be phased out," Smith said.
Singapore is the world leader in the rig business, with the US and China being the other big players. Despite sitting on 60 per cent of the world's proven oil reserves, the Middle East does not have a rig industry to speak of.
Smith said MIS has positioned Sharjah as a centre for construction, refurbishment and maintenance of offshore drilling rigs. The company facility at Port Khalid employs around 4,000 people and there are plans to hire around 1,500 more in the next three years.
It is currently working on three rigs scheduled for delivery in 2008 and 2009. The first MIS jack-up rig will be delivered to Nigeria's Seawolf Oilfield Services company in August.
MIS, which is listed on the Oslo stock exchange, is looking for an estimated $300 million in 2007 sales.
With drilling contractors and oilfield services companies facing long lead times in sourcing rigs, MIS sees an opportunity to increase its capacity to deliver three to four rigs per year.
A standard offshore jack-up rig can take about two and a half years to be completed and costs about $150 million. The average lifespan is 20 to 25 years.
A new yard would require an investment of about $35 million, but the bigger challenge is to recruit engineers.
"There is a shortage of engineers and other technical people. Not only are they in short supply, they have plenty of other places to go to," Smith said, adding that salaries of engineers have gone up by 30 to 50 per cent and the cost of specialised equipment has jumped even more.
A rig now costs about 50 per cent more compared with the cost about three years ago. There are only a few rigs built after the early 80s and the industry could not develop enough skilled people.
The rig business is cyclical. The orders are often placed by speculator firms, which then sell them for profit to actual users such as drilling contractors and oilfield services firms.