China’s Sinopec Oilfield seeks growth in overseas and gas drilling to offset oil work plunge

Sinopec Oilfield Service, whose biggest customer is China’s second largest oil and gas producer Sinopec - has turned its focus to the overseas market and domestic natural gas projects for growth, as low oil prices cut domestic oil drilling work volumes and saw it post a loss last year.

The drilling and construction services arm of state-owned China Petrochemical - parent of listed Sinopec - is aiming for overseas business to contribute up to 35 per cent of its revenues by 2020, up from 23 per cent last year.

“The overseas market has the best market potential for us, and its development is one of our key strategies going forward,” chairman Jiao Fangzheng told reporters on Thursday, adding the Middle East, Africa, South America and Central Asia and Russia are its key targets.

It has obtained big orders from Saudi Arabia and Kuwait, and is eyeing work in Iraq and Iran.

The firm reported late on Wednesday a net loss of 11.54 million yuan (HK$13.8 million) for last year, compared to a profit of 1.26 billion yuan in 2014.

Revenue tumbled 23.6 per cent to 60.35 billion yuan on the back of lower service rates, while work volumes fell 25 to 40 per cent across its drilling, geological data collection, well preparations and facilities construction operations.

This year’s projected work volumes are expected to continue to shrink 19 to 35 per cent on all operations, except facilities construction that is targeting a 2.7 per cent growth.

This was foreshadowed by sister firm Sinopec’s announcement on Wednesday to cut this year’s budget for oil and gas exploration and production by 12.4 per cent, after plunging 32 per cent last year.

Sinopec also unveiled a target to nearly double gas output in the five years to 2020, giving room for Sinopec Oilfield to offset lower oil drilling work via gas fields development.

Jiao said the rates for many new overseas contracts signed so far have fallen 2 to 10 per cent from last year on the same kind of work.

The company plans to slash 13,000 jobs this year, mainly by cutting temporary contract workers and reducing outsourced work volumes. Some permanent positions have also been cut via natural attrition, early retirements and transfers to new business divisions.

It has also introduced a senior staff share options programme to motivate efficiency gains achievement.

It has cut 10,000 jobs last year and 2,000 jobs in 2014 by streamlining corporate structure and restructuring businesses. It had 100,000 permanent staff at the end of last year.

It aimed to save 1.3 billion yuan of costs - mainly labour, procurement, maintenance and financial expenses - this year, after achieving 1.18 billion yuan of savings last year.

Planned capital expenditure for maintaining or growing service capacity has been cut to 3.45 billion yuan for this year, from 4.26 billion yuan last year.

Its share price closed 1.7 per cent lower at HK$1.71 on Thursday.