New | Chinese oil and gas drilling supplies and services firm Hilong sees better prospects overseas
Anti-corruption drive forces oil and gas industry players to consolidate in home market
Hilong Holding, the world's second-largest producer of drill pipes and a major oil and gas drilling services provider, will continue to seek business overseas and reduce its reliance on the domestic market amid an anti-corruption probe that has seen the state oil and gas majors reduce outsourcing of drilling.
Chief strategy officer Amy Zhang Shuman said on Friday the Shanghai-based company would maintain its focus on overseas oilfield services.
"Amid the anti-corruption drive, the oil and gas industry players still need some time to consolidate their operations," Zhang said. "Given we can earn better profit margins overseas, there is no need to engage in vicious competition with [the drilling units of the parent firms of PetroChina and Sinopec Corp]."
China accounted for 35 per cent of Hilong's revenue last year, down from 50 per cent in 2013.
Rivals Petro-king Oilfield Services and Anton Oilfield Services Group have been getting more orders from the Middle East to offset the drop in demand in the home market after the oil giants reduced outsourcing.
Zhang said a few of Hilong's 12 drilling rigs deployed in South America, Central Asia and Africa were serving Royal Dutch/Shell and Schlumberger, the world's largest oilfield services provider.
"This gives good training for our team on safety, environmental and efficiency performance, which will bode well for us when the time is ripe for us to return to our domestic market after industry consolidation," she said.
Beijing aims to launch policies later this year to eliminate some entry barriers to the oil and gas sector, which is dominated by state firms, to facilitate participation by non-state entities and enhance competition, financial portal Caixin reported last month.
"After consolidation, the market should be more transparent and the state oil giants will still need the services of the private sector providers since they will have difficulty cutting costs if they solely rely on their internal suppliers," Zhang said.
Hilong will deploy three new rigs in Albania and Ethiopia in the second half of this year, which will drive revenue growth next year when they make full-year contributions.
Contracts on two rigs are due for renewal this year, and Zhang said the renewal rates would be stable or cut by up to 10 per cent.
About half of Hilong's rigs will see their contracts expire next year, according to a Barclays research report. Although many are idled by the oil price rout, Zhang said the risk of Hilong's rigs going idle was low, since they were higher-end ones that were in short supply in the regions where they were deployed.
Oilfield drilling services contributed 38 per cent of Hilong's revenue last year, compared to 49 per cent from sales of drill pipes and related equipment and services, and 10 per cent from pipeline coating and inspections.
Zhang said revenue from pipeline inspections was expected to double this year from 13 million yuan last year, as demand had risen following a pipeline explosion in Qingdao in 2013 that killed dozens of people.
