Sinopec Oilfield losses more than triple in first half

Shares fall 2pc, as CFO says cost-cutting will continue apace, after slashing 14,000 jobs already this year

PUBLISHED : Wednesday, 31 August, 2016, 10:42am
UPDATED : Wednesday, 31 August, 2016, 3:36pm

Sinopec Oilfield Service, the drilling and services unit of oil and gas giant China Petrochemical, will continue cutting its capital expenditure after posting a sharp increase in interim losses for the first six month as work dwindled amid falling global oil prices.

Chief financial officer Wang Hongchen told reporters and analysts on Wednesday that the company is sticking to its target of slashing 1.3 billion yuan of operational costs in the full year, despite having only achieved a third of that goal in the first half.

Wang said it had cut just 29 per cent of the full-year 700 million yuan cost reduction target on labour and administration, despite slashing 14,000 jobs in the first half, or 15 per cent of its total headcount, well ahead of its original plan of 10,000 losses.

“We are completely confident in attaining the full-year cost reduction target, as we have plans to further shrink our management staff and cut down on labour usage,” said Wang

We are completely confident in attaining the full-year cost reduction target, as we have plans to further shrink our management staff and cut down on labour usage
Wang Hongchen, chief financial officer, Sinopec Oilfield Service

The company’s net loss for the period more than tripled to 4.44 billion yuan, from a loss of 1.25 billion yuan last time. First-half revenue slid 9.2 per cent year-on-year to 18.7 billion yuan.

The net loss was in line with a warning the company issued late last month, when it expected to post a 4.5 billion yuan figure.

Sinopec Oilfield shares had lost 2 per cent to HK$1.47 by 3pm, compared with a 0.23 per cent fall in the Hang Seng Index. They have now fallen 28 per cent in the year so far, while the index is ahead 4.8 per cent.

“Domestic and international oil companies apparently lack desire for investment and no obvious improvement will appear for workload and service prices,” the firm said of the industry’s outlook for the second-half, in a filing to Hong Kong’s bourse late on Tuesday.

“The company will accelerate deepening the internal reforms... [and] will make further efforts to cut costs and enhance technology innovation.”

With its biggest customer listed sister firm China Petroleum & Chemical (Sinopec) having slashed its first-half oil and gas exploration and production capital expenditure by 61 per cent year-on-year, chairman Jiao Fangzheng said overseas work is now expected to drive business growth for at least the next five years.

The company aims to raise the revenue contribution of its overseas business to over 50 per cent in three to five years, he said, from 36 per cent in this year’s first half, and 26 per cent in last year’s first half.

“We have made great progress in the first half, growing overseas revenues by 8.8 per cent and overseas new orders by 2.4 per cent, with contract wins in Saudi Arabia, Kuwait, Algeria and Ecuador,” Jiao said. “Iraq and Iran are key areas for our future market development efforts.”

The firm recorded net cash outflow of 3.11 billion yuan from operating activities in the first-half, widened from 1.37 billion yuan. Its net debt-to-shareholder equity ratio surged to 70 per cent from 44 per cent.

But Wang said he was not worried by the firm’s current cash flow situation, adding it has low-cost funding sources and has 30 billion yuan worth of bank credit facilities.

All its business divisions were loss-making, with drilling engineering posting a first-half pre-tax loss of 2.46 billion yuan, geophysical data collection booking a loss of 536.9 million yuan, compared to a loss of 390 million on well data logging and analysis, a loss of 416 million on downhole operations and a loss of 303.8 million yuan on engineering and construction.

First-half revenues from overseas projects grew 8.8 per cent year-on-year to 6.8 billion yuan.

It signed overseas contracts worth US$1.71 billion in the half, of which just under half was in the Middle East. It plans to complete US$1 billion worth of overseas work in the second half of this year.