Ministry of Industry and Trade proposes state program to upgrade drilling rigs

RU EN UZ

The authorities want to extend the mechanism, which is designed to protect Russian manufacturers of drilling rigs from Chinese expansion in this market and stimulate the production of rigs in Russia. The Ministry of Industry and Trade offered to subsidize 20-25% of the cost of purchasing new drilling rigs through the trade-in mechanism. The Ministry believes that it will encourage companies to update the fleet instead of buying Chinese components to upgrade old rigs. Proceeding from the need to replace 20% of the outdated fleet, the amount of necessary state support is estimated at 27 billion rubles over five years. 

 

 
 The Ministry of Industry and Trade wants to reduce the oil and gas industry's dependence on Chinese drilling services. The Ministry proposes to subsidize up to 20% of the cost of new equipment made in Russia (up to 25% if innovative solutions are used) through the trade-in mechanism to equalize prices between domestic and foreign rigs. The corresponding draft resolution is published on <a href="http://www.regulation.gov.ru/">regulation.gov.ru</a>. For one rig, the subsidy will amount to 50-150 million rubles depending on the type of equipment purchased; the total amount is not specified. 

 

 
 The Ministry of Industry and Trade told Kommersant that the concept is not provided with funding, but the ministry is looking for it from its own funds and asks the government for new ones. 

 

 According to the Ministry of Industry and Trade, domestic manufacturers account for 45% and Chinese manufacturers for 25-30% of the drilling rig market. 

 

 
 The Honghua, Sinopec, Haihua, and Kerui companies offer prices that are generally 15-20% lower than those of Russian producers, as well as payment deferrals ranging from one to three years, according to the explanatory note. According to the Ministry of Industry and Trade, these prices are explained by "lower cost of attracting financing, government support measures for exports and lower requirements for quality and safety standards. The main Russian manufacturer of drilling equipment is Uralmash NGO Holding. The company has told Kommersant that it is familiar with the initiative. They made stationary and well-drilling rigs with carrying capacity of 320 and 400 tons (BU 5000/320 BMCh, BU 5000/320 EK-BMCh, BU 6000/400 EK-BMCh), and "in the future, the list will be extended", the company noted. They did not name the cost of their rigs, noting that given the rise in prices for metal and electrical equipment, the cost of the equipment would rise proportionally. 

 

 The subsidies are supposed to encourage drilling companies to buy new rigs instead of upgrading old ones, in the course of which foreign components are purchased. 

 

 
 Now, according to the Ministry of Industry and Trade, upgrading is 20-25% cheaper than a new drilling rig, i.e., by the expected amount of the subsidy. The department estimates the current drilling rig fleet at 1,360 rigs, 270 of which (about 20%) have been in operation for more than 20 years. The Ministry of Industry and Trade expects to replace the obsolete units within five years. Rosneft's subsidiaries RN-Burenie, Surgutneftegaz, Gazprom Burenie, Eurasia Drilling Company, and others have confirmed their interest in the subsidies. Eriell's financial director Artem Chernikov told Kommersant that the company also participated in the discussion but that its rigs "have not exhausted their service life." "The subsidy will allow drilling companies to give priority to Russian drilling rigs over foreign ones. The environmental responsibility will increase because the subsidy for new rigs will be given on condition that the old ones are given for utilization," he said. 

 

 
 Based on the figures announced by the Ministry of Industry and Trade, the total subsidy for the upgrade of the drilling rig fleet over the next five years should amount to about 27 billion rubles. A similar support measure has already been in effect since November 2020, when only six rigs were renovated, and the subsidy amounted to 600 million rubles. Along with that, in May, the Ministry of Industry and Trade asked to allocate a rather modest sum from the budget for renovation of drilling rigs - 0.8 bln rubles in 2021-2024. In addition, the Ministry of Industry and Trade suggested subsidizing up to 20% of the cost of new domestic mining excavators. The volume of subsidies in 2022-2024 was estimated at 1 billion rubles. 

 

 
 Dmitry Babansky, SBS Consulting, notes that the cost of a mobile drill with 225-tonne lifting capacity is about 90 million rubles, while the cost of a stationary one with 320-tonne lifting capacity is 700-800 million rubles. According to the analyst's estimates, the main Russian players in the segment are Uralmash NGO (about 70% of the Russian market of heavy drills) and the Ural-Siberian Industrial Company. 

 

 
 Original article available at Kommersant (<a href="https://www.kommersant.ru/doc/4928318">https://www.kommersant.ru/doc/4928318</a>)