China Oilfield Services Ltd (COSL), the country's dominant provider of drilling and related services, has cut by 19.3 per cent its budgeted spending this year on projects to bolster future capacity. As a result of depressed demand, the listed unit of China National Offshore Oil Corp, the mainland's biggest producer of offshore oil and gas, has lowered planned expenditure to 10.4 billion yuan (HK$11.79 billion) from the 12.88 billion yuan announced in mid-January. Chief financial officer Zhong Shu said the original budget was made last September and submitted to the board for approval in November, but a 'relatively large reduction' in service prices amid weak demand led to the budget cut. Some of the cuts were made to the construction of transportation and support vessels, as the company plans to lease them in the market instead, to reduce risk. The move might result in a slight reduction in profit this year, Mr Zhong said. COSL announced a 38.64 per cent jump in net profit to 3.1 billion yuan last year from 2.24 billion yuan in 2007. Turnover grew 34.8 per cent to 12.14 billion yuan last year, mainly because of higher service rates and volume, as well as the acquisition of Norway's Awilco Offshore in September last year. COSL's average daily drilling rate grew 32.9 per cent to US$129,000 last year, excluding the impact of exchange rate fluctuations. If Awilco's operations are taken out, the increase was 23.7 per cent to US$120,000. However, Mr Zhong said COSL's drilling rates had been falling in the past three months, primarily because of a reduction in work volume and rates offered by foreign firms drilling off the mainland. Many overseas oil companies have been cutting back on exploration programmes and production in high-cost areas after oil prices plunged from a record US$147.27 per barrel in July last year to about US$50 currently, as cash flows dwindled and profit margins were squeezed. Work volume from sister company CNOOC, which contributes about two-thirds of COSL's drilling revenue, has not been cut. CNOOC plans to raise spending on exploration and resource development by 19 per cent to US$6.76 billion this year. 'When international service rates soared [in the past few years], the increase in China was not as big,' said Fu Chengyu, chairman of COSL and CNOOC. 'Now that global rates are coming down, China's rates are falling by less.' Meanwhile, Mr Zhong said COSL was exploring options to cut debt, including the issuance of new shares and share sales to strategic partners. The company's total debt-to-equity ratio surged to 142.2 per cent at the end of last year from 15.35 per cent a year earlier, after it borrowed heavily to pay for the US$3.8 billion acquisition of Awilco. The board proposed a final dividend of 14 fen, up from 12 fen in 2007.