China Oilfield in deepwater push

PUBLISHED : Tuesday, 01 April, 2008, 12:00am
UPDATED : Tuesday, 01 April, 2008, 12:00am

China Oilfield Services Ltd (COSL) plans to spend 3 billion yuan (HK$3.33 billion) in the next three years to beef up its capacity to serve the nascent but high-potential deepwater drilling market.

Going deepwater is one of three business drivers of the nation's dominant offshore oil services provider this year, according to chief executive Yuan Guangyu.

'We plan to expand our foothold in overseas markets, penetrate into onshore markets and tap the deepwater segment,' Mr Yuan said a day after the company posted a 98.3 per cent jump in net profit to 2.23 billion yuan for last year.

He said the 3 billion yuan in spending included the construction of two working vessels and one seismic vessel. This is in addition to two special ships - called deepwater anchoring handling tug supply vessels - ordered from Rolls-Royce. They are to be delivered in 2010 and 2011 at a cost of US$100 million.

China's offshore deepwater is considered virgin territory. The only major discovery so far has been made by Canada's Husky Energy in the South China Sea.

Overseas exploration firms have signed about 10 contracts with COSL's parent, China National Offshore Oil Corp, to conduct exploration and, if discoveries are made, share revenues.

China National is building a 6 billion yuan drilling rig capable of operating in water depths of 3,000 metres to be operated by COSL by 2011. COSL's 15 rigs can operate only at depths of up to 457 metres.

In its results announcement, COSL quoted Lehman Brothers as forecasting that global deep-water oil exploration and production investment will grow by 20 per cent this year, outpacing an 11 per cent rise projected for overall exploration and production spending.

Mr Yuan expected COSL's drilling rates to rise further this year amid spiralling crude oil prices.

Last year's average rate surged 35 per cent to US$91,351 per day. Excluding the effect of the yuan's appreciation, the effective increase was 26 per cent. Rising rig rates were the biggest contributor to last year's net profit jump, besides an 11.3 per cent climb in rig operating days, thanks to a new rig. Another rig will come on stream later this year.

The firm is projected to see a 24.21 per cent net profit rise this year to 2.78 billion yuan, according to the average estimate of 22 brokerage analysts polled by Thomson Financial.

Meanwhile, Mr Yuan said COSL would continue to seek acquisition opportunities overseas, despite setbacks in Indonesia and Russia in the past two years.

He declined to specify a time frame for any deal.

Gordon Kwan, CLSA's head of China energy research, said in a note last month that it was unlikely deals would arise soon.

'Shareholders of other oilfield service companies are reluctant to sell, given their healthy cash flows amid a global credit crunch, where any business with ample liquidity can fetch a big premium,' Mr Kwan said.