China Oilfield Services shrugs off Libya setback

PUBLISHED : Thursday, 24 March, 2011, 12:00am
UPDATED : Thursday, 24 March, 2011, 12:00am

China Oilfield Services Ltd (COSL) will not put the brakes on its overseas growth despite having to suspend its Libyan operations and bring home workers from the war-torn nation.

And despite political upheavals in the Middle East and North Africa, Africa would remain a focus of expansion for the country's dominant supplier of offshore oil and gas drilling and support services, president Li Yong (above) said yesterday.

'Although the Libyan unrest has presented us with the biggest challenge in the history of our international expansion, we have proved that we can deal with such an emergency,' Li said. 'This will not affect our internationalisation strategy and we are negotiating some services contracts in Africa and the Middle East including Iraq.'

The company aims to see overseas operations contributing up to 40 per cent of sales in 2015, up from 25 per cent last year.

Those ambitions suffered a setback late last month, when the company brought home 77 workers after violent clashes between protesters and troops loyal to Libyan leader Colonel Muammar Gaddafi. Li said local employees were now taking care of the company's equipment.

Libya accounts for less than 5 per cent of the company's sales.

According to a research note by Mirae Asset Securities' head of energy research Gordon Kwan, the Middle East and North Africa account for less than 10 per cent of COSL's total sales, and less than 5 per cent of earnings before interest and tax.

The group derives US$100,000 a day in revenues from Libya itself, or US$36 million annually, Kwan said. This is about 1 per cent of this year's sales as estimated by analysts.

Li was speaking after the company announced a 31.7 per cent rise in net profit to 4.13 billion yuan (HK$4.9 billion) for last year, 2 per cent ahead of the 4.05 billion yuan average forecast of 19 analysts polled by Thomson Reuters.

Revenues fell slightly but chief financial officer Li Feilong said they would have risen 5 per cent from 2009 if the impact of a one-time accounting treatment of a contract in 2009 was excluded. The profit rise was also due to lower costs for maintenance, materials and administration, as well as lower fixed-asset impairments.

Li said COSL had begun providing drilling services for a mainland producer of coal-bed methane - a natural gas trapped between coal seams - and was eyeing major expansion of this service, although its contribution to overall sales would be small. 'The significance of this business is the opportunity to develop onshore drilling expertise, which we could bring to our vast offshore operations.'