Honghua Group steps up push on making tools for drilling

Honghua Group, the mainland's largest maker of rigs for land-based oil and gas drillers, is eyeing opportunities to buy or co-operate with more firms with expertise in making drilling equipment used in unconventional energy exploitation.

The Sichuan province-based firm is keen to acquire know-how in making tools used in the fracturing of underground rock formations to enhance oil and gas recovery, as well as those used to strengthen well holes to enhance efficiency of the flow of petroleum or gas to the surface.

Unconventional oil and gas sources, such as those adhering tightly to coal seams and shale rocks, are hard-to-reach energy resources whose exploitation has only been made economical on large-scale production in the United States in the past few years. This is because the resources are trapped in rock formations with particular characteristics that make them hard to extract using traditional production methods and equipment.

But the growth prospect is good given the resource's huge reserves.

"We don't have specific acquisition targets, but we want to beef up areas where we are lacking, such as tools used in hydraulic drilling," Honghua chairman Zhang Mi said.

In December last year, Honghua formed a joint venture in Gansu province with Gansu Huateng Petroleum Machinery Manufacturing, a maker of trucks and pressure pumps. It took a 70 per cent stake by injecting 42 million yuan (HK$51.3 million) in cash and 39 million yuan in assets. Huateng contributed 36 million yuan in assets.

The joint venture, Honghua's first in the unconventional energy segment, will focus on making equipment used in the fracturing of rock formations to facilitate oil and gas recovery.