Honghua Group secures US$200m rigs order from Russia

PUBLISHED : Monday, 11 August, 2008, 12:00am
UPDATED : Friday, 28 October, 2016, 9:17am

Honghua Group, the world's second-largest producer of onshore oil and gas drilling rigs, has won a US$200 million contract to sell land drilling rigs in a move to boost its exposure in Russia.

The Sichuan-based firm agreed to sell low-temperature tolerant land drilling rigs, with the contract sum representing 40 per cent of its asset value and 50 per cent of its revenue as of the end of last year, it said in a statement yesterday.

Through the sale to Well Drilling, which exploits oil and gas in Russia, Honghua said it expected the deal to strengthen its foothold in Russia's emerging fuel market.

'In Russia's far eastern market, demand for land rigs is increasing and should continue in the future,' chairman Zhang Mi said.

He said the deal marked the first time a mainland firm had penetrated Russia's land drilling rig market. Expanding into emerging markets such as Russia was the group's top priority when it launched its HK$2.97 billion listing in March. It counts oilfield services units of China National Petroleum Corp and China Petroleum & Chemical Corp as its largest domestic customers.

Nabors Industries of the United States is Honghua's largest overseas client and a strategic shareholder.

Mr Zhang said the firm would benefit from rising exploration and production expenditure of the mainland's three state oil and gas majors.

However, some analysts feared its margins would be squeezed by rising costs and its inability to pass these on to profit-squeezed customers.

Raw materials, largely steel, represented 92.5 per cent of the group's total production costs last year.

The stock resumes trading today after its suspension on Friday pending the announcement of the deal.

Cost concern

Raw materials, mainly steel, made up the group's biggest production costs last year at: 92.5%