The acquisition may turn out to be an expensive proposition given the current market dynamics where demand far outstrips supply. So, the company is kicking off its backward integration by first buying a rig. Estimated to cost close to $1 billion, the company is working aggressively to corner rigs across the world, either by leasing them or by simply buying.

RIL, which has barely six months to begin producing natural gas from the KG basins, is exploring several options, including leasing and hiring of rigs to meet its work programme. Sources close to the development confirmed that RIL has drawn up a strategy to expand its business to rig operations as well as enhance its vertical integration. Although there is no official confirmation, sources said some European firms were being looked at.

RIL is currently in talks with rig manufacturers to buy a deepwater rig which can take up operations at a depth of around 12,000 feet. Acquiring a rig company at the top of the cycle when valuations are impacted by the supply crunch may not be that easy. Also, operating a rig company requires special managerial expertise, which may not be RIL’s forte just as yet, a source said.

RIL, which has a total of 34 domestic exploration blocks covering an area of about 331,000 sq km, is in a hurry. The Indian properties are in addition to its interest in one exploration block each in Yemen and Oman. RIL also has five coal bed methane (CBM) blocks covering an area of about 4,000 sq km.

Rigs, which are used by oil firms both for exploration and production purposes, normally account for almost 30% of the total cost. Given the huge escalation of lease rentals of rigs in the past few years, oil companies are now changing their strategy from leasing to owning. ONGC, the leading oil company in the country, owns 10 rigs. RIL, on the other hand, which is the largest private oil acreage company, does not own any.

PIN/Indiatimes.Com