Hilong expects drilling gear, services to sustain full-year revenue growth

Focus on high-end services helped oil and gas drilling services firm to stay profitable, says company official

PUBLISHED : Monday, 24 October, 2016, 8:30pm
UPDATED : Monday, 24 October, 2016, 10:37pm

Hilong, the world’s second-largest producer of drill pipes, that saw its share price nearly double in September this year, is anticipating sharp growth in revenue from pipe sales and services during the second half of this year and next year.

The Shanghai-based company, which is also a major oil and gas drilling services provider, said recovering crude oil prices, a focus on high-end services and growing orders from Russia, contributed to the healthy outlook even though the wider oil and gas services sector still remains in the doldrums.

“Hilong’s recovery from the downturn has been quicker than that of the wider industry since we have focused on high-end services and established a good track record overseas,” Amy Zhang Shuman, Hilong’s company secretary told the Post in an interview.

Chinese oil and gas drilling supplies and services firm Hilong sees better prospects overseas

Zhang expects Hilong’s full-year drill pipe sales to exceed 28,000 tonnes, up 40 per cent from last year. Pipe sales in 2017 are expected to exceed 31,000 tonnes, she said. During the first six months of this year the company’s pipe sales got an unexpected 150 per cent year-on-year boost to 13,559 tonnes, thanks to increased demand from Russian customers.

To encourage domestic production of oil and gas drilling equipment amid sanctions from western nations since Russia’s annexation of Crimea from Ukraine in 2014, Moscow has raised tariffs on imports and ordered state-owned oil and gas firms to pay a 10 per cent premium for domestically made or provided equipment and services, Zhang said.

Hilong was also subjected to a tariff of about 10 per cent, much less than the over 25 per cent for its rivals. The company has also built a production line in Russia with an annual capacity of 15,000 tonnes, which came on line in July this year. Zhang expects output at the facility to reach 12,000 tonnes by next year.

Hilong seeks to expand oil and gas service sales in Asia

“We may use it as a base to develop business in nations that belonged to the former Soviet Union, but it will take time,” she said.

Equipment accounted for around 44 per cent of Hilong’s total revenues of 974.5 million yuan in the year’s first half. Drilling services took up 35 per cent, long distance oil and gas pipeline protection services 15 per cent and offshore engineering services the rest.

The company’s net profit dropped 38 per cent to 67 million yuan during the first six months, but at a much slower pace than its rivals, many of whom were bleeding heavily.

In drilling services, Zhang expects two contracts – a project in Albania operated by Royal Dutch Shell and a Middle East project from BP – to contribute additional revenue of about 150 million yuan next year. Hilong started providing services to the Albania project in June this year and expects to start providing well “workover” maintenance intervention for BP’s oil project next year.

“The BP contract will be key to our further expansion in the Middle East market, since it gives us the chance to establish a track record with a key market player,” Zhang said.

Hilong will be paid at a rate of US$30,000 a day on the BP project under three “workover” contracts.

In offshore engineering, Zhang expects Hilong to book 200 million to 300 million yuan of revenues next year from its undersea pipe-laying barge, which will be deployed in Southeast Asia and the East China Sea.

It booked engineering revenue of 33 million yuan during the first six months, down from the 411 million yuan during the same period in 2015.

She said Hilong is expected to ink a large contract late December with a major international offshore oilfield services firm to deploy the barge in 2018, which will be “a milestone” for the firm.

Hilong shares closed 1.5 per cent higher on Monday at HK$2.06, the highest in 14 months, after it doubled in the past month.

The Brent crude oil price benchmark has risen around 9 per cent in the past month, helped by a surprise preliminary agreement among the members of the Organisation of Petroleum Exporting