More demanding tasks set to bring more income at COSL

The nation's dominant offshore oil-drilling services provider, China Oilfield Services Ltd (COSL), expects the basic drilling rate it charges its customers to be flat this year, even as its largest customer, CNOOC, is raising spending.

But the overall average fee of its services is expected to increase as the company handles more complex and technically challenging operation, such as deep-sea drilling and production of natural gas from coal seams or underground rock formations using unconventional methods.

Chief executive Li Yong said: "Our basic service rates are similar to those of last year. But since we can charge higher rates for our new service capacity, the overall average rate will go up somewhat."

Neil Beveridge, a senior analyst at Sanford Bernstein, said COSL's profit growth might decelerate in the next two years because of a slowdown in the rate of service capacity increases and a compression of profit margin because of a possible decline in the drilling rates of jack-up rigs.

COSL made a net profit of 3.83 billion yuan (HK$4.76 billion) in the first nine months of last year, 13.5 per cent higher year on year. The average profit estimate of analysts polled was 4.6 billion yuan for the whole of last year, and 5.33 billion yuan this year.

COSL's oil and gas producer customers, such as its sister firm CNOOC, which accounts for 60 per cent of its sales, are increasingly venturing into the exploitation of hard-to-extract oil and gas using unconventional methods. Growing output using conventional methods is increasingly difficult and costly, forcing producers to upgrade their technical capacity to ensure profit growth.