Drill pipes producer looks to the world

PUBLISHED : Monday, 14 May, 2012, 12:00am
UPDATED : Monday, 14 May, 2012, 12:00am


Hilong Holding, the world's second-largest supplier of drill pipes used in oil and gas fields, expects overseas sales to exceed domestic numbers in three to five years as it continues expansion abroad and faces a tougher task growing domestic market share.

The Shanghai-based firm, which is 61 per cent-owned by entrepreneur Zhang Jun, may see export revenues account for half of total sales this year, up from 45.4 per cent last year and 42.6 per cent in 2010, investor relations director Wang Chen said.

'In the drill-pipes business we aim to maintain our number one position in China where we have a 34 per cent share of the market, and expand exports more aggressively,' she said. 'Our growth in overseas markets is faster than in the domestic market.'

Drill pipes are a key component, linking surface drilling gear to drill bits underground. Hilong has a 13 per cent share of the global drill pipes market, well behind the 47 per cent share held by United States-based National Oilwell Varco, according to industry research house Spears and Associates.

In the coating materials production and pipelines coating services business, Hilong has a 72 per cent share of the mainland market and 14 per cent of the global market.

It derived 49 per cent of its sales last year from drill pipes sales, 28 per cent from coating materials and services, and 23 per cent from oilfield drilling services.

Chief strategy officer Amy Zhang Shuman said it was becoming harder for Hilong to improve its domestic market share, given it was the market leader, but the international market offered room for it to grow.

Hilong is building a drill pipe coating plant in Russia and another in Canada, each with an annual capacity of between 600,000 and 800,000 metres, compared with its existing capacity of 2.6 million metres in Shanghai.

The Russian plant was expected to enter trial production in the second half of this year, while the Canadian plant would be tested by the end of the year, Wang said.

The company did not plan to boost its pipes production capacity of 40,000 tonnes in the mainland and 10,000 tonnes in the Middle East, which were running at average utilisation of 67 per cent, she said.

Hilong also planned to maintain its number of drilling rigs at 12 for the rest of the year, after raising it from 9 last year and 7 in 2010.

'The purpose of us getting into the drilling services business is to demonstrate our drill pipes' capability and enhance our recognition abroad,' Zhang said.

Its rigs all operate overseas, in locations such as Nigeria on a Royal Dutch/Shell project, and in Ecuador with Schlumberger, the world's largest oilfield services firm.

Zhang declined to provide outstanding order figures, but said each of the company's business segments had seen good growth so far this year as it has gained new overseas drill pipes and oilfield services customers.

It has budgeted capital expenditure of US$200 million to US$250 million, half of which would buy three drilling rigs for its Ecuador business, and the other half to upgrade its overseas facilities.

Hilong's share price has fallen 31 per cent in the past year, compared with a 13.5 per cent decline in the Hang Seng Index. It saw a 69.1 per cent net profit rise last year to 301.7 million yuan (HK$367.5 million).


The drill pipe production capacity at Hilong's Shanghai plant